1
"The Impact of Globalization in Latin America"
IES - Buenos Aires, 2006
DESCRIPTION: An in-depth analysis of the globalization process and its effects on
regional markets, regional economic integration and free trade pacts. US and
European business strategies for the Latin American markets.
INSTRUCTOR: Marcelo Simon (MBA, Pace University NY, USA; MS, BS in
Industrial Engineering, Instituto Tecnológico de Buenos Aires, Buenos Aires,
Argentina)
METHOD OF PRESENTATION: Lectures, discussions, writing assignments and
visits to business and economic institutions.
LANGUAGE OF INSTRUCTION: English
REQUIRED WORK AND FORM OF ASSESSMENT: Class participation (20%);
weekly reports (10%); mid-term exam (25%); final report (15%); and final exam (30%).
REQUIRED READINGS:
- "The Impact of Globalization in Latin America" (M. Simon, January 2006)
RECOMMENDED READINGS:
- The Competitive Advantage of Nations by Michael Porter (Free Press, June 1998).
- Globalization and Its Discontents, 1st edition, by Joseph E. Stiglitz (W.W. Norton &
Company, June 2002).
- The clash of civilizations by Samuel Huntington (Touchstone Books; January 1998)
1
2
COURSE CONTENTS
(Divided in 25 class sessions of 1.5 hours each one)
Classes 1 and 2:
1 - Introduction
- Argentina today
Classes 3 to 5:
2. Historical processes towards the current Latin American political division
-
Spanish and Portuguese on the advanced guard in the conquest of America
Initial conquering methodology
The Viceroyalties
Audiencias
Maps
Some comments on colonial Administration
Brief history of the emancipation of Spanish and Portuguese colonies in America
A more detailed explanation on the countries’ national histories
The Independence process in Peru, Bolivia, Chile, Paraguay, Argentina and Uruguay
The Congress of Panama of 1826
Brief additional historical information of some Southern Cone countries
Latin America - U.S. RELATIONS (By Warren Dean)
Class 6:
3. Economic, demographic, and Social Highlights of the region
-
Selected Latin American Countries Economic Briefs
Race diversity
Human Development
Educational deficits and gaps in the region
Globalization and employment
Social protection
The social agenda
Class 7
4. Integration processes in the region
-
Sub-regional integration schemes and intra-regional free trade agreements
Macroeconomic Indicators Mercosur
Class 8:
5. Globalization: A historical and multidimensional perspective
-
The globalization process
Non economic dimensions of globalization
Opportunities and risks arising from globalization
Class 9
6. The economic dimension of Globalization
-
International trade and investment
International finance and the macroeconomic regime
International migration
International mobility of several chosen factors
2
3
Class 10:
7. Inequalities and asymmetries in the global order
-
Inequalities in global income distribution
Basic Asymmetries in the global order
Class 11
8. An agenda for the global order
-
Fundamental principles for the construction of a better global order
National strategies for dealing with globalization
The key role of action at the regional level
The global agenda
Class 12:
9. External vulnerability and macroeconomic policy
-
Composition of external financing and vulnerability
Globalization and real macroeconomic instability
The domestic domain: offsetting volatility through countercyclical Macro- economic
policies
The international domain: strengthening the governance of financial globalization.
Class 13: Mid-term
Class 14
10. Globalization and environmental sustainability
-
The impact of productive restructuring on sustainable development
Changes in the production structure and their effects on environmental sustainability
Economic globalization and the environment
Classes 15 and 16:
11. The Latin America agenda for trade and investment
-
The national agenda
The regional agenda
The international agenda
Classes 17 and 18:
12. Michael Porter's Competitive Advantage
-
Competitive Strategy
Competitive Advantage
The Competitive Advantage of Nations
Class 19 and 20:
13. The integration of Latam in global trade and production systems
-
Trade specialization in Latam
Investment flows and different corporate strategies being used in the region
Class 21:
14. FDI Today
-
Regional Panorama
Panorama for the different strategies, agents and modalities of FDI’s in latam
3
4
Classes 22 and 23
15. Argentina: FDI and Corporate strategies
-
Foreign Capital in the Argentine Economy
Strategies of MNCs in Argentina
Class 24
Course’s wrap up, debate, delivery and presentation of Final Reports
Class 25
Final test
CHRONOGRAM
Classes 1 - 2
Class 3-5
Class 6
Class 7
Class 8
Class 9
Class10
Class 11
Class 12
Class 13
Class 14
Classes 15 - 16
Classes 17 - 18
Classes 19 - 20
Class 21
Classes 22 - 23
Class 24
Class 25
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Mid- Term
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Chapter 14
Chapter 15
Wrap up, debate and delivery of Final Rep.
Final Test
STUDENTS´ WEEKLY REPORTS
The students will deliver a 1 page weekly report about the subjects mentioned below or
about any other subject required by the professor (including translations of some
economic news)
Chapter 2
1. Bolivar and San Martin Summit in Guayaquil
Chapter 3
2. Human Development Index for different sectors of Latam
4
5
Chapter 4
3. A brief description of the S. Huntington´s book “The clash of civilizations”. Identify the
groups of countries of the different cultures and the leader of each one, as described in
the book.
4. The US - CAFTA and the US-Chile Free Trade Agreement
5: The FTAA advancements. The Summit of the Americas, Mar del Plata, Nov. 2005.
Chapter 5
6. The WTO meetings (Doha, Uruguay Rounds and subsequent negotiations)
Chapter 6
7. Definition of balances: trade, current account and payment.
Chapter 7
8. Brief synthesis of Stiglitz concepts in his book: “Globalization and Its Discontents”
Chapter 9
9. The Argentine default.
Chapter 10
10. An update of what is going on with the Kyoto Protocols negotiations.
Chapter 12
11. A comparison between Chilean and Argentine economic evolutions since 1982.
Chapter 15
12. A brief report of a Multinational Company’s performance in Argentina (any one you
choose)
STUDENTS´ FINAL REPORT
All the topics mentioned below, have to be included in this 5-10 page report:
1. What reasons do you identify, after you Argentine experience, which may justify the
comparative economic and politic development lag of the country in comparison with the
USA? (Remember that 100 years both countries had a similar level of economic
development)
2. Your perception of the current Argentine business environment
3. WTO and negotiations taking place: Which are you opinions?
4. Your opinion in relation to the impacts of globalization in Latin America
5. Your opinion on the advantage (disadvantage) of the FTAA (Free Trade Agreement of
the Americas)
6. Your conclusions of this course
5
6
"The Impact of Globalization in Latin America"
IES - Buenos Aires, 2006
Introduction
(Session 1)
In IB 310 "The Impact of Globalization on Argentina and the Southern Cone" we will go
through an in-depth analysis of the globalization process and its effects on regional markets,
regional economic integration and free trade pacts. We will also analyze the business
strategies of US and European companies in the Latin American markets.
We will start with a brief economic background of Argentina and a historical background of the
Latin American region, in order to give the students a basic understanding of the country and
of origin of its current political division. We will then see some economic, political and human
variables of the different countries.
The following stage will be a brief explanation of the Free Trade Agreements that have been
conformed during the last decades, their members and features and the processes towards
new integration agreements within the region and with countries outside the region, such the
case of the FTAA agreement (Free Trade Agreement of The Americas) that is being shaped
among the Nafta and the Latin American countries.
We will analyze the globalization process from a historical point of view, the different periods of
globalization and the main traits of each one of these periods. We will make an economic
analysis of the globalization process, analyze some recommendable strategies at local,
regional and global order, for a better insertion in the globalization process, strategies that may
give the region’s countries the opportunity of increasing their human development, their
standard of living, education, health standards and so forth.
We will briefly analyze the macroeconomic policies and the external vulnerability of the
region’s countries and the environmental consequences of globalization
In the final stage of the course, we will give the students a brief scope of Foreign Direct
Investments (FDIs) in the region, the strategies that have been applied by Transnational
Companies (TNCs)and a brief update of nowadays’ foreign investments.
During the course, the students will prepare research papers on different subjects that will give
them a better understanding of globalization and the region.
The present report is the basic bibliography for the course, even though there several
recommended books listed in the course’s syllabus that may help the students to strengthen
their understanding of the effects of the globalization process in the region.
6
7
1. Argentina Today
(Classes 1 and 2)
We are going to make a brief synthesis of the background and the current economic and political
situation of the country.
1. I. Background
Argentina has not been institutionally stable for the last 70 years, since the military coup d’etat of
J.E. Uriburu of 1930 that ousted radical president Hipólito Yrigoyen. Since then, a succession of
conservative governments (at the beginning), radicals, peronists, and basically military, took
place until 1983, when democracy was finally reinstalled.
Once among the world's most prosperous economies, Argentina experienced slow
economic growth from the 1940s. From the 7th per capita GNP worldwide and the 50 % of
total South American GNP enjoyed in 1920, those values have descended to the 40th and
less than 10 % at the present time.
Foreign debt growth path: The evolution of the country’s foreign debt is the following:
By the end of Isabel Perón’s government
The military
Radicals
Menem
De La Rua
Default in December 2001
KIrchner after default negotiations
u$s 5.8 billion (1976)
u$s 50 B (1983);
u$s 72 B; (1989)
u$s 130 B (1999)
u$s 144 B (2001)
u$s 120/130 B (2006)
1. II. The Alfonsin Presidency (1983/1989)
After 7 years of a military government, Raul Alfonsin (of the UCR, Union Civica Radical) is
named President. During this period, Argentina suffered a long recession. Savings and
investment rates fell from the mid-1970s until 1991. Argentines, responding to the unstable
macroeconomic environment, increasingly saved and invested abroad. Labor productivity fell
and poverty worsened.
This economic performance was traceable to chronic public sector deficits and endemic inflation.
After the return to constitutional democracy in 1983, public demands to control inflation were
translated into four successive stabilization programs. All failed to eradicate inflation, and each
ended in a more virulent inflation than the one preceding it. The main reason for these failures
was the inability of the stabilization programs made in order to diminish the structural
deficit of the public sector
In 1989, after a process of hyperinflation Alfonsin finally resigned (inflation from March
1989 to May 1990: over 5,000 %)
7
8
1. III. The Menem Presidency (1989/1999)
When Argentina's newly elected President, Carlos Menem, in June 1989, the situation was
unstable. The country had passed through a previous hyper-inflationary process (beginnings of
1989)
The convertibility: To achieve stability, a cure for Argentina's endemic inflation and unstable
money was required. Then in 1991, an orthodox currency board was settled. The road began on
April 1, 1991, when Carlos Menem's government installed what was known locally as a
"convertibility system" to rid Argentina of hyperinflation and give the country a confidence shock.
Under the Convertibility Law, the peso and the U.S. dollar both circulated legally at a 1-to-1
exchange rate. The owner of a peso had a property right in a dollar and could freely exercise
that right by converting a peso into a dollar. That redemption pledge was credible because the
central bank was required by law to hold foreign reserves to fully cover its peso liabilities (some
kind of a “gold standard but supported with dollar reserves instead of gold).
Argentina's monetary system from April 1, 1991 to January 6, 2002 was known locally as
convertibility. It was an unusual name for an unusual system. The convertibility system was
not an orthodox currency board. Rather, it was a currency board-like system: a mixture of
currency board and central banking features.
The three defining features of an orthodox currency board are:
-
a fixed exchange rate with its anchor currency,
-
unrestricted convertibility into and out of the anchor currency at the fixed rate, and
-
Net reserves of 100 percent or slightly more of the board's monetary liabilities, held in
foreign assets only.
Under the convertibility system the Banco Central (the Nation’s Federal Reserve) also retained
the power to regulate banks, such as by setting reserve ratios. It was also unofficially a lender of
last resort,
FDIs flows during the 1990s: During Menem’s Presidency and since 1991, the country had 19
consecutive quarters of economic expansion until the Mexican devaluation in December 1994,
known as the “Tequila Effect”, which led to a considerable change in GDP trend. Nevertheless,
the financial roots of the crisis allowed a relatively fast recovery. This new period of growth
lasted 11 quarters, until the Russian devaluation and the Asiatic crisis, accompanied by the
Brazilian devaluation provoked a significant recession, showing once again the vulnerability of
the Argentine economy to external shocks.
FDI (See Graph 1) inflows into Argentina began to increase during the late ‘80s after
decades of economic isolation and gathered a momentum during the ‘90s, reaching a
total amount of about us$ 80 billion during the period 1992-2000, peaking almost us$ 24
billion in 1999 (then 10.4 B in 2000, 2.1 B in 2001. By 2002 FDI decreased to less than 1 billion,
90 % less than the average of the period 1995-2000. By 2005, this amount is growing again)
8
9
During the ‘90s, the argentine government implemented several economic reforms, which
favored FDI inflows:
- The introduction of the convertibility regime with a fixed exchange rate (which
lasted over ten years).
- Privatization of most state owned companies.
- Legislation permitting free capital movements.
Initially, the new owners after privatizations were:
- The state itself (in a small percentage),
- Some local groups
- And multinationals.
In a following stage, companies gradually restructured their capital base, when the foreign
companies bought stakes form local companies.
Privatizations were the main magnet for foreign investment. From 1993 on, when national
YPF Oil Company was finally sold, a shift from privatization to Mergers and Acquisitions
(M&As) of privately-owned companies occurred. During the period 1992 - 2001, over 55% of
FDIs in Argentina corresponded to asset transfers involving “change of hands” rather than new
investment. A great deal of these purchases was done with external borrowing, benefiting from
the international liquidity of that time (non financial sector borrowed over us$ 35 billion during
that period)
9
10
Reasons for the recession and posterior crisis
On the other hand, in the late 90’s, Argentina was hit by a combination of external and domestic
factors:
- Internationally: They include the 1998 Asian crisis, a weakening currency in neighboring
Brazil (making Argentina's exports more uncompetitive in comparison), a global
economic slowdown (reducing demand for exports from Argentina) and a continued weak
capital market (reducing portfolio investments and increasing interest rates on loans).
- Domestically: The Menem administration (1989/1999) had huge fiscal deficits and
continued to borrow in excess. At the same time, the Convertibility Plan had failed to
work properly.
Although de la Rúa (1999/2001) won the 1999 elections as an opponent to Menem's
economic policies, he largely continued the same policies.
1. IV. De La Rua´s Presidency (1999/2001)
De La Rua became President in 1999 as the leader of an alliance between the traditional Party
UCR (Union Cívica Radical) and the Frepaso (Frente Pais Solidario)
When de la Rua’s Presidency started, the country already had two years of economic
recession. Expectations turned strongly negative and the impossibility to restart growth
increased doubts about debt sustainability.
The resignation of the vice-president in October 2000 made things even worse and
weakened in a remarkable way the government. Sovereign risk (as measured by the spread
of Argentine dollar external bonds over those of the US Treasure) showed the first significant
increase from the beginning of De la Rúa government.
In March 2001, in the face of declining market confidence and the failure to meet IMF targets for
the first quarter, the Minister of Economy resigned and another Minister took place for only 20
days and left due to an unsuccessful attempt to lower the fiscal expenditure. Cavallo, who had
been Minister of Economy during President Menem’s first term and was widely known as the
“Father of the Convertibility”, replaced him. All these events had strong implications –in terms of
uncertainty– on the evolution of economic policy and the financial system. These implications
were reflected in a mini bank run in the first quarter of 2001.
Another negative signal for the markets, viewed as a decline in Central Bank
independence, was Cavallo’s replacement of the Central Bank President in April. In June,
the original convertibility had disappeared. In addition, a preferential exchange rate for
commercial transactions was announced, so that Argentina had a dual exchange rate. To all
these events, one must add the fact that for the first time Argentina could not rollover its debt at
a reasonable spread. The deterioration in expectations became generalized, both inside and
outside the country.
Country risk rose sharply and rumors about possible resignations – of the President and
ministers– spread rapidly. In July the second bank run of the year started what turned out to be a
process of no return. The measures taken from that moment on: zero deficits, cuts in salaries
10
11
and pensions, and a Mega-canje (debt exchange), failed to restore confidence and bank
deposits continued to flee, becoming even more severe in November. The response was a set of
restrictions on deposits withdrawal (Corralito) implemented on December 2001
The “Corralito”: Economy Minister Domingo Cavallo introduced restrictions to the
withdrawal of cash from bank deposits (corralito), intending to stop the draining of deposits
that had been taking place throughout 2001 and had reached the point were 25% of all the
money in the banks had been withdrawn. These measures were aimed at controlling the
banking crisis for a period of 90 days, until the exchange of Argentina's public debt could be
completed.
Although people could still use their money via credit cards, checks and other forms of non-cash
payments, the enforcement of these measures caused delays and problems for the general
population and especially for businesses. Massive queues at every bank and growing reports of
political crisis contributed to inflame Argentina's political scenario.
In this context, certain factions of the opposition, as well as interest groups who wanted a
devaluation of the Argentine peso, seized the opportunity to fuel public anger and replace the
government.
The Political aspects of De la Rua´s resignation: In late 2000, a political scandal broke out
when it was reported that the SIDE, Argentina's intelligence service had paid massive bribes to a
number of senators to approve a controversial Labor Reform Act. The head of SIDE, Fernando
de Santibañes, was a personal friend of De la Rúa. The crisis came to a head on October
2000, when Vice President Carlos Álvarez resigned, citing De la Rúa's unwillingness to
tackle corruption.
During March 2001 another crisis finally caused the resignation of all the FrePaSo
Cabinet ministers, leaving President de la Rúa without political support. The
congressional elections of October 2001 were a disaster for the government, which lost
many of its seats in the Senate and the House of Deputies to the Peronists. The election
results marked also a growing unrest within Argentina's voters, who took to cast millions of null
or blank votes. After losing during mid-term elections for congress in October 2001, de la Rúa
pledged to continue his economic policies of austerity, but appeared weaker. When riots broke
out in December, and he failed to obtain the necessary support from the opposition
Peronists, he had no choice but to resign. By December 20 and after a series of riots, De
La Rua finally resigned. Ten days later pay-back installments of the huge Argentine
foreign debt payment (over US$ 140 billion) were defaulted (suspended).
1. V. Presidency of Adolfo Rodriguez Sa (the 8 last days of 2001)
From the first moment, Rodríguez Saá embarked on ambitious projects aimed at giving him
popularity. In his inaugural speech, he announced that Argentina would default on its
foreign debt, an announcement received by rousing applause from the members of
Congress. He then proceeded to announce the issuing of a "third currency" (alongside with the
peso and the dollar) to boost consumption..
After a new social unrest on December, Rodríguez Saá called for a summit of Peronist
governors at the Presidential holiday retreat of Chapadmalal. Of the fourteen Peronist
governors, only five attended. Realizing that he lacked support from his own party, Rodríguez
11
12
Saá returned to his home province to announce his own resignation to the Presidency after
barely a week in office.
1. VI. What caused Argentina's crisis?
As we said, in March 2001, de la Rua appointed Domingo Cavallo to economy minister, his third
since he became president. Cavallo had gained worldwide fame as economy minister in the
Menem government when he slashed hyper-inflation by introducing the Convertibility Plan.
In one of his first major acts this time round, Cavallo convinced Congress in July to pass a "Zero
Deficit" law, which prohibited the government from spending a cent more than it collects in taxes
each month. The new law was one factor in the decision by the International Monetary Fund in
August to provide $8 billion in fresh loans and loan guarantees following the December rescue
package of $40 billion. However, neither the appointment of Cavallo nor the IMF loan
helped the country's international standing as much as the government had hoped.
After Cavallo’s and de la Rua’s resignation in December 2001, Argentine President
Rodriguez Sa declared the default of the public and external debt, and ten days later,
President Duhalde declared the abandonment of the system of convertibility
Many observers have explained the crisis in terms of the deficiencies of Argentina's peg
to the U.S. dollar under a type of currency board arrangement. While the currency board
did play a role, it also can be argued that the main cause of the crisis was Argentina's
persistent inability to reduce its high public and external debts and fiscal deficit. These
made the economy vulnerable to adverse
economic shocks and shifts in market
Figure 1
sentiment.
Figure 1 illustrates the trend in the public
debt/GDP ratio in Argentina since 1995, as
reported by the International Monetary Fund
(IMF). This ratio measures the total amount of
public debt relative to the ability of the
economy to produce (taxable) income to
service it. In the figures, the thick solid line
shows the actual path while the thinner solid
lines and dashed lines represent alternative
scenarios anticipated by the IMF first under a
1998 Extended Fund Facility (EFF) program
then under a 2000 Stand-by Arrangement
(SBA). (For descriptions of these financing
arrangements, see IMF 2002b.) The figure
reveals that Argentina's public debt/GDP ratio
rose rapidly, from 35% in 1995 to nearly 65%
2001.
and
in
It is also apparent that under IMF
consultations,
it
was
consistently
anticipated
that
Argentina's
public
12
13
debt/GDP ratio would stabilize or fall, but this did not happen. The actual path of the
public debt/GDP ratio far exceeded the IMF projections in five different reviews between
1998 and 2000.
There is no unambiguous threshold at which public debt becomes unsustainable, and
Argentina's public debt/GDP ratio of 65% in 2001 was still lower than that observed in
some European countries. However, given the history of defaults and macroeconomic
instability in emerging markets like Argentina, their threshold sustainable public debt
may be much lower than in advanced economies. Furthermore, limitations on tax collection
capability imply that a higher public debt/GDP ratio makes emerging markets more vulnerable to
adverse shifts in market sentiment that raise the cost of funds. In line with this, large spikes in
the yield on public debt occur in emerging markets that are rarely seen in advanced economies.
For example, between January and November 2001, investor uncertainty raised the yield on an
Argentine 10-year government bond (denominated in U.S. dollars) about 20 percentage points,
to around 35%, signaling the growing unwillingness of investors to hold Argentine debt. Such a
sharp rise in the interest rate, as well as a default and (self-fulfilling) crisis, is more likely if the
public debt/GDP ratio is 65% (as in Argentina) than if it is around for example South Korea that
has 30 %.
Argentina also was vulnerable because its capital account was open and there was a
large amount of borrowing in foreign currency from abroad. A large external debt made
Argentina vulnerable to default not only in the event that interest rates rose, but also in
the event that the currency depreciated sharply, as this increased the repayment burden
in domestic currency.
Argentina's exports of goods and services are quite low, about 10% of GDP, implying
very high external debt/export ratios that accentuate its vulnerability to external debt
crises.
Why did Argentina's debt ratios rise? : Argentina's debt ratios rose for at least two reasons.
First, primary fiscal surpluses (government revenues minus expenditures exclusive of interest
payments on the debt) were not large enough to cover interest payments and also retire some of
the outstanding public debt. Between 1991 and 2000, Argentina's primary surpluses averaged
0.14% of GDP. These surpluses were remarkable achievements, given Argentina's past history,
but they were still well below interest payments, which averaged 2.4% of GDP over this period.
There were significant obstacles to reducing expenditures and raising revenues.
On the expenditure side, the government was a large employer and, for political reasons,
found it hard to cut its wage bill. The central government also found it hard to control
spending by provincial governments, whose liabilities it was eventually forced to assume. At the
same time, revenues were adversely affected by difficulties in tax collection and, after the
recession of 1999, by falling output and rising unemployment.
Second, export growth (and therefore economic growth) was not sufficiently robust to
improve the country's ability to meet its debt obligations and lower debt/GDP ratios. In the
1990s, the dollar value of Argentina's exports of goods and services grew at 7.7% a year, less
than the nearly 9% growth in its external debt and well below the rate of growth of exports in
Asian economies such as South Korea or Malaysia (10%-11%). Exports also suffered
following the 1999 collapse of the Brazilian real because Argentina's rigid currency board
arrangement produced an overvalued currency. Indeed, the focus on maintaining a rigid
peg at all costs appears to have diverted attention away from the risks of not paying
attention to real sector fundamentals.
13
14
1. VII. Lessons from the failure of the Argentine convertibility experience
After the Argentine default and the abandonment of the convertibility, there we may rescue
several lessons for the international financial community and for the LDCs central banks:
- One obvious and important lesson for the Asian countries from Argentina's failed
currency board is that an improper exchange rate peg is doomed to failure, no matter
how rigorously one imposes conditions to engender credibility.
- Another lesson is that exchange rate arrangements are no cure for problems in the area
of macroeconomic policy. Despite the relatively strong set of rules governing the conduct
of Argentina's currency board, the regime collapsed in relatively short order when
domestic and foreign investors determined that the Argentine government's fiscal
policies were unsustainable.
- Finally, many would argue that the ultimate lesson from Argentina's currency crisis is
that no fixed exchange rate regime, even one as institutionally strong as was the
Argentina's convertibility, is completely sound. As a result, it will sooner or later lose its
credibility. Moreover, since financial contracts will have been written in the domestic currency,
this loss of credibility will have real effects and likely will precipitate a financial crisis, or at least a
severe disruption to the real side of the economy. As such, floating may be a superior policy
over the long run.
1. VIII. The designation of Eduardo Duhalde (2002/2003)
In December 2001 President Duhalde started a less than two year provisional mandate, until
May 2003, when President Kirchner started his four year period of government. Duhalde was
one of the top leaders of the Peronist Party. However, many had thought that Duhalde’s political
career was ruined after his defeat in the 1999 presidential elections. In an extremely ironic twist
of events, Duhalde was called to complete the term of the man who beat him in the elections,
Fernando De la Rúa. This was not to be a provisional Presidency, and Duhalde was designated
to serve until the 2003 presidential elections.
With the passage of the Law of Public Emergency and Reform of the Exchange Rate
Regime on January 6, 2002, with Eduardo Duhalde in the Presidency, the convertibility
system was abandoned. The peso started to float against the dollar
Duhalde and his Economy Minister Jorge Remes Lenicov decided on an even more
extreme freezing of the bank deposits, which was then coupled with the so-called
pesificación (forced transformation of all dollar-denominated accounts into pesos at an
arbitrary fixed exchange rate) and a huge devaluation.
The GDP (the size of the economy is dollar terms), after the Peso devaluation, lowered
from almost us$ 300 billions to us$ 145 billions.
Asymmetric “pesificación” (an Argentine invention) : The convertibility coexisted with (some
of these issues have already been described):
- A high residual inflation - during its first two years- No differential increase of productivity
- A chronic fiscal deficit of between us$ 5 and 10 billons annually (2 to 3 % of GNP),
- The constant increase of foreign debt
14
15
-
The revaluation of the dollar against the other strong currencies (euro, yen) during 2000
and 2001 (remember convertibility ended in December 2001)
The Brazilian devaluation of 1999, the Russian and South East Asia crises.
After the recession that harassed the country from 1998 to the 2001 and the lack of
competitiveness of the exchange rate, the Duhalde Administration decided to abandon
the fixed rate which tied 1:1 the peso to the dollar for more than a decade.
The national economic crisis itself, along with the IMF’s ignorance of the national situation,
conditioned the government to this devaluation with no control over the resulting exchange rate
and with no alternative plan to convertibility. As a result of this erratic and unplanned
exchange rate liberation and the abandonment of the convertibility, the Argentine peso was
devaluated from a 1:1 parity to almost 4:1 in few months (at the moment is close to 3:1)
The problems associated to the repayment of companies and individuals’ banking debts,
motivated the government to the invention of the “pesificación", which allowed debtors
to pay their dollar’s debts at an exchange rate of 1:1, while the creditors receive 1.4:1
(with the real value for the dollar of over 3:1). So that, banks were forced to convert
dollar-denominated loans into pesos at the pre-devaluation 1 to 1 exchange rate. At the
same time, dollar-denominated time deposits were converted into pesos as the rate of 1.4
pesos per dollar. This action alone wiped out the entire capital of the banking system.
1. IX. President Kirchner (2003 until today)
President Kirchner began his term by taking bold steps to establish his authority. He has sacked
top officers in the military and police force, called for the chief justice of the Supreme Court to
resign, and tightened the government’s grip on state-owned banks and pension funds. Kirchner
has also pushed through initiatives to crack down on the widespread tax evasion that contributes
to Argentina's continuing fiscal problems. On the other hand President Kirchner showed a
tendency to concentrate too much power, probably as he used to do as a governor of
Santa Cruz, a small province or Argentina.
The Justice and the Legislative Power to some extent are not independent. Therefore the
quality of the democracy of Argentina has become impoverished
President Kirchner and his allies have won the mid-term congressional election of 2005
what gave him additional power
Additional information:
-
-
-
The GDP lowered 11.1% during the 2002, an all times record. But since 2003 -when
the country emerged from its multi-year recession - Argentina’s economy shows
positive growth. Its GDP has grown over 8 % during 2003, 2004 and 2005.
However, the economy is still accumulating several potential problems (low level
of investments, inflation, still high levels of poverty, etc.). By midst 2005 GDP has
reached its previous highest point of 1998, which means that the country has not
grown in 7 years.
By 2005 almost 37 % of Argentine population was below the level of poverty
(compared with a historical level below 20 %).
Exports, are growing since the 2002 peso devaluation
15
16
-
The financial system: From total deposits of u$s 80 B in the beginning of 2001,
they lowered to u$s some 50 B nowadays.
Even though officially it is around 10 %, real unemployment rate nears 15%
The inflation since December 2001 has been superior to 70 %
It has been a merit for Duhalde and Kirchner’s administrations to have avoided
hyperinflation
There is a relative social pacification
The debt negotiation of the majority of the national foreign debt has been
accomplished and the country has recently cancelled its debt of almost 10 billions
with the IMF (International Monetary Fund)
1. X. The Argentine Banking Crisis
1. XI. The Banking system before the crisis:
During the ´90s several Multinational banks acquired Argentine banks.. Figure 5.3 gives a
brief comparison with Mexico of the domestic banking system’s foreign ownership
At the beginnings of year 2001 total deposits in the Argentine financial system totalized us$ 80
billions. By the end of 2005, after the economic crisis of the country (1998/2002) the total
amount was somewhere around the us$ 50 billions
16
17
1. XII. The December 2001 banking crisis
The Argentine banking crisis of 2001–02 materialized because of a combination of underlying
fragilities in the banking system in the late 1990s, coupled with policies in 2001–02 that
destroyed the franchise value of banks by rendering the payments system ineffective. Two types
of fragilities emerged during the late 1990s.
-
First, the soundness of the banking system depended on maintaining a tied
exchange rate because of the large amounts of bank dollar lending to borrowers
with peso-denominated sources of income.
-
Second, there was increased bank exposure to government risk. The chart (bellow)
shows the evolution of the share of government paper in banks’ balance sheets since
1990.
This share declined significantly until 1994; increased temporarily as a result of the banking
crisis resolution in 1995–96; after a partial correction in 1997–98, resumed an upward path; and
by the end of 2001 reached a level close to that in 1990. Among all types of banks, public banks
had the largest share of government paper in their assets. Although there was a compulsory
sale of government bonds to banks, this only happened in late 2001. Banks held increasing
amounts of government paper and underestimated the risks of holding government
liabilities. This risk increased during the late 1990s and into 2001 as the fiscal balance
deteriorated and public sector indebtedness increased.
The combination of a growing stock of public debt, increasing overall fiscal deficits, and
no sign of economic recovery during 2001 fueled perceptions of government default and
abandonment of convertibility. As these perceptions threatened to expose the risks in banks’
balance sheets, a significant withdrawal of deposits took place that year. By the end of 2001, the
banking system had lost about 20 percent of de-posits. As a response to the deposit loss, in
December 2001, the government imposed limits on withdrawals of deposits. Moreover,
depositors’ fears were validated in January 2002 when the government declared default and
devaluated the peso.
17
18
Thus, in early 2002, Argentina found itself with a currency crisis, a debt crisis, and
a banking crisis. On top of the economic and financial difficulties, the country was in
the middle of a severe political crisis that had manifested itself in, among other events,
the resignation of the president in December 2001. This complex situation meant that any
process of banking crisis resolution would face unusually severe constraints. The funding
constraint was particularly severe because the default on external obligations implied a total
exclusion of Argentina from international capital markets. The recession deepened in 2002 and
reached a decline in the rate of growth of economic activity of more than 10 percent. In addition,
the funding constraint meant the government was unable to collect sufficient revenues to
allocate to the resolution of the crisis.
The initial steps taken by the authorities after the default further tightened the constraints for
banking crisis resolution, especially with regard to the treatment of foreign banks, which in the
past (in 1995) had played an important role in bringing the system back to solvency. Moreover,
regulatory independence—a necessity for credible restructuring programs—had been
significantly weakened during 2001 with the limitations imposed on the autonomy of the central
bank and the dismissal of its president.
Government policy actions and the crisis : On top of the overexposure of the banking
system’s to government risk, several government measures (most of them already
explained) affected seriously both the liquidity as well as the capital position of the
financial system.
These measures that stand out for their negative impact on the banking system are the
following:
1. In November 2001, the government exchanged government bonds held by banks for
illiquid government bonds ("préstamos garantizados") generating a reduction of about 30
percent in their net present value. This measure affected both the capital position as well
as the liquidity of banks prompting a bank run.
2. Shortly after, the government imposed a control on the interest rate paid on deposits
accelerating the run on the banking system.
3. Following the imposition of controls on the deposit interest rate, the government opted
to freeze deposits in the banking system, and impose tight controls on cash withdrawals,
a system known as the "corralito".
4. In the first quarter of 2002, the government declared default on its debts, and
devaluated the currency.
5. Following the devaluation, the government imposed the “asymmetric pesification” of
bank assets and liabilities.
6. Then, Congress passed legislation that undermined the value of private assets by
suspending for 6 months all legal actions by creditors to collect on their debts.
7. Reflecting the lack of confidence in the solvency of the banking system, a flight to
quality translated into "capital flight to quality abroad".
18
19
Foreign Banks leaving the country: Several banks that have decided to leave the country
since December of 2001:
-
Scotia Bank of Canada
-
Credit Agricole (France)
-
Societé Generale (France)
-
ING Barings (Holland)
-
Deustch Bank (Germany)
-
Bank of Boston (USA)
-
Banamex (the Mexican Subsidiary of the Citibank)
-
Grupo Intesa (Italy owner of Banco Sudameris)
Only 1 foreign bank has settled a new subsidiary in Argentina since then. In December 2005, the
Standard Bank of South Africa purchased a part of the assets of the Bank of Boston
1. XIII. Lesson from the crisis:
1. Constraints (Developed Countries versus LDC)
SOURCE www.iadb.org
2. Banking Crisis triggers
We may say that as long as the banks remain liquid, banking distress can persist for a
prolonged period, until some trigger leads depositors and creditors to lose confidence in
the banking system. These can be market, policy, or political shocks that become the "wakeup
call" for dealing with problems so far ignored, causing dramatic shifts in expectations and
systemic bank runs:

A loss of confidence in the government and its ability to implement its
macroeconomic framework can trigger a systemic crisis. Such concerns erode
confidence in the banking sector as well as, often, the currency.
19
20

In addition, if the medium-term sustainability of a country's macroeconomic
policies, including its external debt, comes under question, are in doubt, private
confidence in the economic outlook can erode, resulting in the emergence of banking
pressures and, in unaddressed, banking distress.

The emergence of illiquidity in one bank can quickly spread to others through
contagion, as bank or payment system weaknesses destroy credibility of all banks, and
lead to creditor and depositor runs regardless of the soundness of individual banks.
Contagion is in this case local, but can also be international, when it is caused by the
emergence of a systemic crisis in a country related through financial and trade channels.
But maybe the most important issue is not the specific reasons of a banking crisis, but the ability
of the political authorities to come together to develop a strategy and then implement it. Political
decision makers must recognize that there is a problem and make quick and resolute actions.
Developing a political consensus on the path forward is a critical step. Most importantly, the
process must be seen as fair and transparent.
The importance of the integrity of the payment system cannot be overstressed. When this
banking system fails it causes an enormous contraction in economic activity that, beyond
its large social costs, also complicates fiscal solvency and limits the ability of the
government to solve the crisis. Therefore, the Argentine crisis suggests that countries should
be even more willing to pay the costs of ensuring a well functioning payment system in times of
crisis.
3. Avoiding Bad Banking: Weak supervisory frameworks may include: allowing for
concentrated lending, portfolio mismatches, inadequate loan valuation that overstate
bank profits and capital, incompetent management, etc. Supervision may also lack authority,
and have an insufficient number of skilled staff who may be poorly motivated and compensated.
Poor transparency, limited financial disclosure, and poor accounting and auditing
practices mean that the market—that is, bank creditors—will not have sufficient
information to exert discipline on bank owners.
4. Macroeconomic weaknesses and intervention: By the time the crisis started, the system
was well capitalized and could have withstood significant losses in the value of its assets.
However, it could not survive a set of interventions that destroyed the confidence on
banks (such as the corralito) and expropriated its capital (such as asymmetric
pesification). Therefore, good financial regulation and supervision while necessary are
not sufficient to protect banks from crises.
5. Markets in local Currency: Countries that plan to maintain flexible exchange rates
should develop policies designed to increase the market for domestic currency
denominated assets both at home and in the international market.
6. Banks should match maturity Assets – Liabilities: The Argentine crisis shows that
when the longer term bonds are purchased by banks, they can generate maturity
mismatches, as bank deposits are of much shorter maturity than government bonds.
20
21
When a systemic crisis occurs, the decline in deposits takes place at the same time that bond
prices are very low and that the central bank is struggling to protect its level of international
reserves by controlling domestic credit. The increased maturity of the debt complicates
banking crisis management.
7. Autonomy of the Central Bank: The autonomy of the central bank has increasingly
become an accepted international standard. This allows them to act in the best interest of the
country, aiming monetary policy at controlling inflation and ensuring financial stability.
1. XIV. Resolving the Banking Crisis
Resolving a banking crisis entails three principal tasks:
-
First, the proper functioning of the payment system should be restored.
-
Second, rebuilding confidence in the banking system requires restoring an
adequate liquidity and capital base. Restoring confidence in the financial system
requires addressing the problems affecting both solvency and liquidity in the shortest
possible time frame.
-
Third, the reestablishment of confidence in the value of the national currency
requires the central bank to regain control over monetary policy, which can only be
achieved if the central bank is not required to finance fiscal deficits or to offer recurrent
net financing to support weak banks. In particular, to attain a healthier financial system
over the medium term, the role of public banks should be redefined through restructuring
and/or privatization.
The capital position of Argentine banks has been drastically reduced because of:
-
The value of (defaulted) government bonds
-
The effects of asymmetric pesification. (The government compensated banks for
the effects of asymmetric pesification by issuing dollar-denominated bonds)
-
The significant uncertainty that has developed as regards to the value of banks´
claims on the private sector.
1. XV. Banking crisis resolution and system’s restructuring: Uruguay - Argentina,
a brief comparison
The banking crisis resolution processes in Argentina and Uruguay in the early 2000s were
contrasting events in terms of adherence to the basic principles. The effects of the crisis in
Argentina had adverse consequences on Uruguay’s banking system, mainly because
about 40 percent of bank deposits in Uruguayan banks were held by Argentines. Following
the imposition of the deposit freeze in Argentina, Argentine depositors began to withdraw their
funds in Uruguay.
The initial withdrawal of deposits resulting from contagion in Argentina was followed by
additional withdrawals by Uruguayan residents who feared that the banking system was
21
22
experiencing solvency problems. By the end of July 2002, total withdrawal of deposits
had reached 42 percent.
Even though the Uruguayan banking system did not have significant exposure to government
risk (only 3 percent in 2001), it suffered from the same problem of currency mismatches as in the
Argentine case (about 80 percent of total loans were dollar denominated and half of the
dollar loans were extended to borrowers with Uruguayan peso-denominated income).
The crucial difference between Argentina and Uruguay case was the willingness of the
multilateral organizations to provide financial support to Uruguay:
- First, because the crisis in Uruguay was perceived as contagion from Argentina.
- Second, Uruguay did not default on its external debt obligations and maintained a
market-friendly approach to creditors that eventually culminated in a successful debt exchange
in May 2003.
- Third, the Uruguayan authorities were able to persuade the headquarters of foreign
banks to recapitalize their branches and subsidiaries, while policy decisions by the Argentine
authorities penalized foreign banks.
Uruguay in contrast to developments in Argentina:
- The Uruguayan authorities made it a priority to preserve the payments system and
contain depositors’ loss of confidence.
- Uruguay had a crawling peg exchange rate policy instead of a Convertibility.
- The Uruguayan authorities made significant efforts in differentiating their policies
from those in Argentina: As international reserves experienced a sharp fall, market
fears of a potential outcome similar to that in Argentina intensified. However, throughout
this period, Uruguay did not impose conversion of dollar deposits into pesos, freeze
deposits, or default on external debt.
Lessons from comparing both the banking crisis: The experiences indicate that an
adequate resolution process improves public confidence in the capacity of the authorities
to tackle future problems and the banking system becomes more resilient to future
adverse shocks and contagion.
Some major lessons emerge:
- First, that those parties responsible for the crisis, should pay most of the costs of
restructuring.
- Second, demonstrating sufficient political will is a big help for an effective resolution of
the crisis
- Third, constraints for developed and developing countries differ significantly and are
much more severe in developing than in developed countries.
- Fourth, a crisis should be used as an opportunity to strengthen supervision and improve
the quality of bank management. This was the strategy followed by Argentina in the crisis
1995 after the Mexican Tequila Effect, but not in 2002.
Fifth, foreign banks can play an important role during a systemic banking crisis in two
ways. First, foreign banks are perceived as relatively stronger than local banks. And
second - without changing the rules of the game- headquarters of foreign banks could
provide lender of last resort facilities and capitalize their subsidiaries, limiting the cost
of the crisis. This was the case in Uruguay but not in Argentina.
22
23
1. XVI. Argentina Today’s Banking System
In January 2006N Argentine banking system has approximately us$ 50 billions of total deposits,
compared with us$ 80 billions in January 2001.
Insolvent banks have been closed over the last three years coupled with many
international banks writing off their Argentine banking investments. At present, the banking
system is slowly regaining confidence but remains vulnerable. In addition, the banking freeze
has been removed as capital controls have been dismantled with economic stability returning.
The access to financing is very limited, compared not only internationally but also with
the domestic’s historical ratios, the credit stock is very low. .As a consequence of the
several adverse economic shocks the country suffered between 1998 and 2001, private sector
credit is a pitiful 10% of economic output ($12 billion ) compared to 25% of GDP in 1999 (see
tables below)
23
24
2. Historical processes towards the current Latin American political
division
(Classes 3 to 5)
2. I. Spanish and Portuguese on the advanced guard in the conquest of America
(extracted from a historical novel)
“The sailors estimated the latitude by the Polar star (the latitude was the only way to know the
position of the ship). However, the farther they went south, this star disappeared, making way to
a diabolical night full of new stars, which confused the sailors, and drowned them mercilessly
into the dark sea towards the intangible” (from a historic novel) .
Three elements were distinctive on Portuguese and Spanish advanced guard in the conquest of
America.
1. With the arrival of the math tables, calculated by Cresques in the “Almanac Perpetuum”,
the sailors started to use the altitude of the sun as a landmark of latitude. As the day
occurs in all seas, the latitude was determined even on cloudy days. Nobody got lost,
even on the Sea (Jafuda Cresques, who discovered the math tables of astrolabic
declination by the position of the sun. His information was stolen by the Portuguese
crown)
2. Secondly, the design of the caravels: Inspired in the combination of the big ships
designed by the Arabs for moving big loads and the small ships that went down the river
Douro, the caravel was created- the most improbable ship ever created by man-. Being
such a light ship, one fifth of the size of the traditional ones, the caravel didn’t cut water; it
flew over it, which made it safe and fast. By using crooked and unstable sails, they took
advantage of the winds.
3. Finally, an invention that came from Northern Europe: The compass.
Initial conquering methodology: The crown of Castile acknowledged the authority of the
pope to give territorial grants, who, at the same time, determined which king should instill and
strengthen government and the Christian faith to the indigenous people.
Pope Alexander VI divided the world in two parts and assigned them for the conquest to
Spaniards and Portuguese. France, England and Holland did not accept this agreement,
but they were still lagging far behind in terms of technology and logistics for this type of
expeditions.
The kings of Spain Fernando and Isabel authorized the “adelantados” (advanced ones) to
explore and conquer the new territories in America. From the beginning (1492) to the middle
of the XVI century, the expeditions were financed on the same system used in the
Crusades, through some kind of “Risk Investments”. These “adelantados” were granted
some rights- they were actually private investors- so that Spain would receive the
acknowledgement of its sovereignty in these lands, and a fifth of the benefits.
Based upon this colonization methodology, the South American Region (From Panama down
south) was divided in different sectors (strips) and assigned to “adelantados” or families who
24
25
would occupy and colonize and “evangelize” the region (among them, the Welser and Fugger,
families of German bankers linked to the crown of Charles V). The following concessions were
made:
-
New Andalusia: Welser
New Castile: Francisco Pizarro
New Toledo: Diego de Almagro
Río de la Plata: Pedro de Mendoza
South: Fugger. They abandoned the initiative due to their economic links to the
Portuguese crown (they could not favor the Spanish competitors). This region was then
assigned to Acazaba (that fails searching for gold in the inside of Patagonia. Then he is
murdered by his followers who abandoned the region). It remains unsettled, and “as an
Indian Space” where the Indians were displaced from the other regions where the
Spanish colonization became strong.
The treaty of Tordesillas: The Tordesillas Treaty (1494) between the crowns of Spain and
Portugal -with the participation of the Pope- is signed and defines the boundaries of the
Portuguese properties in Eastern of South America. From this subdivision of the American
territories -and the subsequent Spanish viceroyalties and captaincies in South America-,
the current 10 South American countries and Panama were conceived.
Fraile Bartolomé de Las Casas: Fray Dominic, previously a conqueror himself, made the
first and most famous defense of the indigenous people against the excess of the first
settlers. He blamed them of the high mortality of Indians that ended in the lack of population in
the island “la Espanola” and the posterior pursuit of indigenous people in Cuba and the
continent. He also pursued the forbiddance of the “mita” and “encomienda”, institutions that were
granted to Spanish colonists by royal decree (the indigenous people bound to forced labor and
personal service) etc.
A reason for the atomization of Latin America: The sizes of the regions to colonize,
together with the existence of a variety of autonomous and distinctive cultures, were
some of the factors that influenced the later atomization of the Spanish America (in
opposition to the integration of USA. We can research together the existence of other factors)
that led to the formation of the current Hispanic nations of the continent.
2. II. The Viceroyalties
By mid XVI century, the crown of Castile displaces “adelantados”, constituting the
different viceroyalties in America. Among the reasons for this change of the colonization
policy, were the excess committed by these “adelantados" against the Indian
communities, the increasing population of the Spanish colonies in America and the
increasing expectancies of the economic return of the new colonies. Therefore by midst
XVI century, Spain as well as Portugal, instituted the viceroyalty system to govern their
possessions in the New World.
25
26
During the nearly three centuries of the colonial period, legal records and documents were
subject to the jurisdiction of the appropriate viceroyalties. The following viceroyalties functioned
in Latin America during these time periods:
•Brazil
1549–1822
•Rio de la Plata
(Argentina, Paraguay, Uruguay,
parts of Bolivia)
•Nueva España
(Central America,
the Caribbean, Mexico,
the Philippines, Venezuela)
•Nueva Granada
(Colombia, Ecuador,
Panama, Venezuela)
•Peru
(Chile, Peru, parts of Bolivia)
•Santo Domingo
(the Caribbean)
1776–1810
1534 –1821
1717–1724,
1740–1819
1543 –1821
1509–1526
2. III. Audiencias
Legislative divisions called audiencias functioned under the Spanish viceroyalties. These
audiencias supervised local courts, applied Spanish law, and served to establish a legal tradition
that has persisted in Hispanic America. The jurisdictions of the audiencias formed the basic
referential territories of the Latin American republics once they gained independence from Spain.
The following list indicates the years in which audiencias were established under each
viceroyalty:
Nueva España
•Caracas
•Guatemala
•Nueva España
•Nueva Galicia
1786
1543, 1570
1527
1548
Nueva Granada
•Bogotá
•Panamá
•Quito
1549
1538, 1563
1563
Peru
•Cuzco
•Lima
•Santiago
1787
1542
1609
26
27
Peru (Alto Peru) and Rio de la Plata
•Buenos Aires
1661
•Charcas
1559
Santo Domingo
•Santo Domingo
1511
The following maps 1 and 2 briefly depicts de Spanish
colonies
Map 1. Viceroyalty of New Spain and its Audiencia Districts
Boundaries of Viceroyalty
Audiencia Boundaries
Audiencia of
Nueva Galicia
Audiencia of Havana
Mexico
Mexico City
Audiencia of
Guatemala
Audiencia of
Santo Domingo
Puerto
Santo Domingo Rico
Caracas
27
28
Map 2. Viceroyalty of Peru and its Audiencia Districts
Audiencia of
New Granada
Audiencia
of Panama
Audiencia
of Quito
Audiencia
of Lima
Santa Fé de Bogotá
Quito
Lima
La Paz
Audiencia
of Charcas
Tropic of Capricorn
Santiago
Audiencia
of Chile
Buenos
Aires
Boundaries of Viceroyalty
Audiencia Boundaries
2. IV. Some comments on colonial Administration
Both the Spanish and Portuguese brought in settlers and established towns all over their
territories.
As we have seen, the Spanish established Viceroyalties in Peru, with seat in Lima, and in
Mexico, with seat Mexico City (Aztec Tenochtitlan). The main economic interest of the Spanish
28
29
lay in gold and silver. The “conquistadores” looked for El Dorado, a mythical land with legendary
sources of gold, and continued to look even after the conquest of the Inca Empire. In 1545, rich
silver deposits were found at Potosi in modern Bolivia. Silver mining peaked in 1590. In
1610 the city had 160.000 inhabitants, which made it the world's 5th largest city. It
produced 60 % of the world's silver production. The silver was annually shipped to Spain by
the Silver Fleet (Treasure Fleet).
The Portuguese were more interested in plantations - sugar, coffee, and in a product which was
indigenous to Brazil's Amazon forest: rubber. In the 16th century, they brought over slaves from
Africa to work these plantations. 1624 the Dutch occupied the Northeast, and were expelled
1654. Both the Spanish and the Portuguese supported catholic mission by the Jesuits (since
1586, in Paraguay and elsewhere) and by the Franciscans (since the 17th century, in California
and elsewhere). In the 1750es, the Jesuit Reductions of Paraguay, profitable socialist
communities run by the native Guarani, were dissolved by force, having attracted the envy of the
plantation owners; the church was no longer strong enough to protect them.
Later on, administrative reorganizations were made. In 1718, the Viceroyalty of New Granada
(Greater Colombia) was split off the Viceroyalty of Peru; in 1776 the Viceroyalty of Del Rio de la
Plata (Greater Argentina) was split off the Viceroyalty of Peru. In Brazil, the capital was moved
from Bahia to Rio de Janeiro in 1763
Changing Royal Families in Spain
In 1588, the Spanish Armada Invencible (The Invincible Navy) was defeated and destroyed by the British,
signaling the beginning of the end of Spanish great power status. Spain was also beset during this XVI
century with a royal family (the Hapsburgs) that was backward, increasingly inbred, and, at the end,
reduced to paralysis by its own inbreeding. Colonial authority was gradually undermined.
The War of Spanish Succession installed a new (and far more vigorous) royal family – The Bourbons on
the Spanish Throne by the beginning of the 18th Century. The Bourbons made a series of reforms (urban,
military, religious, administrative, and economic reforms) the so called "Second conquest of America"
which aimed to obtain an economic recovery and a greater control over the colonies.
The effects of these changes of policies were, on one hand economic success, but on the other hand,
alienation of large segments of the local population, which led to indigenous rebellions and riots (Tupac
Amaru rebellion, 1780); Creole conspiracies and finally the first calls for Independence.
2. V. A brief explanation of the emancipation process of the Spanish and
Portuguese colonies in America.
The nature of the emancipating process differs between the Spanish and the Portuguese
colonies. As we will see later on, the displacement of the Portuguese crown to Brazil, as a result
of the Napoleonic invasion to Portugal, allows a consolidated and somehow pacific process of
the independence in Brazil.
29
30
After more than 300 years of Spanish domination in America, several factors contributed to the
acceleration of the emancipating processes in the continent. Some of them are:
1. The U.S. Independence, the French Revolution and the liberal ideas that
propagated from these events (Rousseau, Voltaire, etc)
2. The Napoleonic invasion of Spain, after that, the Spanish citizens in America
denied their subordination to Jose Bonaparte (Pepe Botella, brother of Napoleon)
who was arbitrarily declared Emperor of Spain replacing King Fernando VII.
3. The economic interest of powerful nations such us England, France and Holland,
which saw in the Spanish colonies growing markets for their products. Spain had
monopolized trade for its colonies for centuries (talk about this methodology)
4
The appearance of local bourgeoisie/ middle class (criollos/natives) in the
colonies, after three centuries of Spanish settlement in the continent.
In the beginning of XIX century, revolutionary outbreaks started in most Spanish colonies. We
can identify three main revolutionary centers:
1. The first one in Mexico
2. The second one in Buenos Aires
3. The third and most important one, in the General Captaincy of Venezuela, the
viceroyalty of New Granada and the Kingdom of Quito.
From 1810 to 1825, a process of emancipation process took place. It ended with the
independence of Bolivia, the last Spanish dominated colony in the continent. At that time,
only insular colonies (Cuba, Puerto Rico and Dominican Republic) still depended on the
Spanish crown.
The Brazilian emancipation has to be considered as an autonomous matter and was done
in a pacific way. The Portuguese crown was shifted to Brazil, escaping from the Napoleonic
invasion and members of the royal house declared the Brazilian independence of Portugal.
Brazil’s original status quo, emancipated as an empire, lasts until the midst of the XIX century,
when it turns to a Federal and Republican type of government.
To some extent, the royal presence in Brazil was helpful for the territorial consolidation of
the Portuguese America (compared to the atomization of Spanish America). Although the
southern State of Rio Grande do Sul declared itself independent, the rebellion was suppressed a
few years later.
The result of this difference between atomization-consolidation is reflected on the Brazil’s
dimensions and geopolitical weight, compared to the Hispanic American countries.
30
31
A brief synthesis of the whole Latin American independence process is as follows:
Year
1788
Location and Event
(Spain) Charles II dies, succeeded by Charles IV
1789
(France) May: French Revolution
(Brazil) Inconfidencia Mineira – failed conspiracy to establish a republic
1791
(Haiti) Slave revolt begins movement for independence
1794
(Haiti) French abolish slavery in attempt to quell revolt
1795
(Haiti) Spain cedes eastern side of island due to turmoil surrounding revolt
1798
(Brazil) Conspiracy of the Tailors – failed attempt to establish a republic
1799
(France) Napoleon Bonaparte comes to power
1801
(Haiti) Toussaint conquers eastern portion of island
1802
(Haiti) Toussaint reaches truce with French
1803
(Haiti) French break truce, arrest Toussaint, he dies in prison in April
(Haiti) November: French surrender and secure Haitian independence
1804
(Spain and Mexico) Consolidación de Vales Reales – Church wealth sequestered
1806
(Rio de la Plata) British invade Buenos Aires
1807
(Portugal) French invade, royal family flees in November to Brazil
1808
(Spain) March: French invade Spain, Charles IV and Ferdinand VII abdicate
(Spain) May: Charles IV and Ferdinand VII exiled, Joseph Bonaparte assumes power and
becomes Jose I
(Spain) First regional juntas in opposition to French invasion
(Mexico) September: Viceroy Iturrigaray overthrown
1809
(Mexico) Queretaro conspiracy led by Miguel Hidalgo
1810
(Caracas) April: Cabildo abierto
(Buenos Aires) May: Cabildo abierto
(Bogota) July: Cabildo abierto
(Santiago, Chile) September: Cabildo abierto
(Spain) Junta Central flees to Cadiz – last city beyond French control
(Mexico) September 16: Grito de Dolores – begins Hidalgo revolt
1811
(Venezuela) July: Francisco de Miranda and Simon Bolivar declare First Republic
(Mexico) Miguel Hidalgo executed
31
32
1812
(Spain) March: Junta in Cadiz passes Liberal Constitution – establishes constitutional
monarch, including colonial representation in new legislative assembly
(Venezuela) Caracas earthquake
(Venezuela) July: First Republic falls
1813
(Mexico) Revolt of José María Morelos
(Venezuela) Bolivar leads Second Republic
1814
(Spain) Napoleon defeated, Ferdinand VII restored, Constitution of 1812 voided
(Venezuela) Spanish reinforcements arrive, Bolivar forced to flee
(Jamaica) Bolivar writes “Jamaica Letter”
(Mexico) Morelos takes Acapulco
1815
(Mexico) Morelos captured and executed
(Brazil) King John VI formally declares United Kingdom of Portugal, Brazil
1816
(Venezuela) Bolivar begins third campaign with aid from Haiti
(Rio de la Plata) July: Argentina’s formal Declaration of Independence
1817
(Venezuela) Bolivar allies with José Antonio Páez
(Rio de la Plata) José de San Martín crosses Andes into Chile
1818
(Chile) Battle of Maipu secures Chilean independence
1819
(Colombia) Congress of Angostura, Republic of Colombia declared
(Colombia) August: Bolivar captures Bogota
1820
(Spain) Riego Revolt against Ferdinand VII, restoration of Constitution of 1812
(Peru) August: San Martin arrives in Peru
1821
(Mexico) August: Agustin Iturbide achieves independence with the Plan de Iguala
(Venezuela) June: Battle of Carabobo – secures Venezuelan independence
(Ecuador) Guayaquil falls to Antonio Jose de Sucre, ally of Bolivar
(Brazil) John VI returns to Portugal, leaves Dom Pedro I in charge
1822
(Ecuador) July: Bolivar and San Martin meet, San Martin retires
(Mexico) October: Iturbide crowned, Augustin I, Constitutional Emperor
(Brazil) September: Dom Pedro I declares Brazilian independence
1823
(Mexico) February: Iturbide forced to abdicate
(Peru) September: Bolivar enters Lima
1824
(Peru) Final campaigns in war of independence
1825
(Peru) January: Sucre wins battle of Ayacucho – liberates Peru and Bolivia
32
33
2. VI. A more detailed explanation on the countries’ national histories.
We will divide the countries in the following groups, as they have some common
historical patterns :
-
Mexico and Central America (Guatemala, El Salvador, Honduras, Nicaragua
y Costa Rica)
Greater Hispanic Antilles (Cuba, Puerto Rico and Dominican Republic)
Colombia, Ecuador Panama and Venezuela
Peru, Bolivia, Chile, Paraguay Argentina and Uruguay
Brazil
Mexico and Central America
Mexico
The Spanish conquest of the continent begins in the Caribbean region, and the first settlement in
the mainland was the foundation of Villa Rica de la Vera Cruz.
Hernan Cortez was sent by Diego de Velasquez the governor of Cuba, to explore the continent.
Later on Cortez denied Velasquez´ authority over him and was named Captain General by his
men in Vera Cruz, depending from then on directly on the crown. After several disputes among
Spanish, Indians, and between Indians and Spanish, Cortez, together with the opposed tribes
finally dominated the city of Tenochtitlan, center of the Mexica Empire.
The Viceroyalty of New Spain was created in 1535. During the 1800s New Spain enjoyed an
enviable position. Mining, industry and agriculture. Major centers of learning and a good urban
administration. 42% were of population were Indian descent, 18% white and 38% were mestizo.
The Viceroy's power extended south to present day Panama and as far north as California.
However, this colonial system contained the seeds of its own destruction. Native born Criollos,
people of European decent, born in New Spain, resented Spanish monopolization of political
power and the economic system which favored the Spanish-born. At the same time, Spain's
authority in Europe declined as did its position as a world leader (as mentioned in previous
paragraphs). These problems prompted the final break from Spain in 1820, a revolution lead by
two priests, Miguel Hidalgo y Costilla and Jose Maria Morelos y Pavon.
The period between 1823 and 1855 was called “the age of Santa Anna”. During this period,
Mexico faced staggering problems. By the 1850's these chaotic events led to disaster. Texas
had declared its independence on March 2, 1836 and by 1846, Mexico was embroiled in a war
with the United States. Mexico lost over half of its territory, including the areas of the current
States of California, New Mexico and Northern Arizona. Santa Anna in exchange for his freedom
signed the peace treaty of Guadalupe-Hidalgo with the United States.
Central America (Guatemala, El Salvador, Honduras, Nicaragua y Costa Rica)
In the Central American region the ancient Mayan empire had his peak of power between the X
and XII centuries. Under the control of Alvarado in 1523, captain of Hernan Cortez, Guatemala
constituted the core of the homonymous Captaincy General, until its independence in 1821.
From this last political unit, the following countries appeared: Guatemala, Honduras, and El
Salvador Nicaragua y Costa Rica.
33
34
Greater Hispanic Antilles (Cuba, Puerto Rico y Dominican Republic)
As we mentioned before, they emancipated from Spain, already advanced the XIX century.
Cuba
The island kept indifferent to the continent independent outbreaks. Only in 1870, there were
some attempts of autonomy, which were suppressed. Meanwhile, the American investments in
the island, which focused on the production of sugar, grew continuously. In 1895, Jose Marti,
headed the autonomous movement that has stricken in a bloody dispute with the Spanish
forces.
United States sends the armored “Maine” to the Havana bay and was sunk in 1898, after which
U.S. declares war with Spain. As a result, U.S. occupies Cuba, Puerto Rico and the Philippines.
Cuba declares independence, but the American influence is extended until de Castrista
revolution.
Puerto Rico
Puerto Rico was dependant on the viceroyalty of New Spain until Mexico’s independence, when
Spain generates an autonomous government for the island. The country was always bestowed
on the fact that San Juan was one of the ports authorized for trade with the mother country. By
1870, the black population with the support of Haiti, started successive rebellions. The
secessionist movement in Puerto Rico started simultaneously when Jose Marti incited a
rebellion in Cuba. During the Spanish war in USA, North American forces invaded Puerto Rico.
When the war ended, Puerto Rico remained as a North American protectorate, whose citizens
were granted the US citizenship in 1917 and the country its current associate status in 1950.
Dominican Republic
During 1821, the first cry for Dominican independence took place with the purpose of adhering to
the Project of Great Colombia. In 1822 Haiti forces invade the country, and remained in the
country until the second declaration of independence in 1844. The constant intervention of its
neighbor Haiti, influenced the authorities to request a re-incorporation to Spain that lasted 4
years, until the third outcry for independence occurred in 1865. The country later requests its
incorporation to USA, request that is denied.
Colombia, Ecuador, Panama and Venezuela
The viceroyalty of Nueva Granada (north area of South America) was created in 1717 as a sole
political and administrative entity integrating the territories that later would become: Venezuela,
New Granada (Colombia and Panama) and Quito (Ecuador). Nevertheless, the multiple
problems for a government of a State of such dimension brought about the division of the
Captaincy General of Venezuela and the Kingdom of Quito.
After the Liberating Campaign of 1819, Bolivar motivated the fusion of these divisions, to allow
the creation of the Gran (Great) Colombia: Venezuela, New Granada (Colombia and Panama)
and Quito (Ecuador). These regions in fact had a similar origins, customs, problems and
geography. Bolivar aimed at achieving a “regional integration” in a big political block, a single
powerful State, but unfortunately la Gran Colombia was later led to its division, due to economic
problems and internal differences. (In fact, Bolivar’s dream was even higher. He wanted to
replicate some kind of “The United Sates of S.A.” and summoned leaders from the different ex
Spanish colonies to a failed Congress made in Panama in 1821)
34
35
After the Ocaña Convention and the Septembrina Conspiracy in 1828, political tensions
intensified and the Venezuelan secessionist forces took place, stimulated by General Jose
Antonio Paez and Venezuelan military and nationalists. Suddenly an anarchist time occurred,
political chaos and economic crisis that finally led to de disintegration of Gran Colombia. In 1830,
Ecuador and Venezuela separated from Gran Colombia. Venezuela approved the new
Constitution and chose Jose Antonio Paez as the first president of the Republic of Venezuela.
Meanwhile, General Juan Jose Florez was elected the first president in Ecuador. On December
17, 1830 Bolivar dies together with his “political dream”.
In 1903 after a series of events related to the change of property of the Panama Canal of his
initial propellant (Lesseps and French investors) to the government of USA, encouraged local
disagreements against the government of Bogotá, led to the separation of the province of
Panama from Colombia.
By 1905, during the Russian Japanese war, the Japanese sank the Imperial Russian fleet in 45
minutes at the Battle of Tsushima -the biggest naval battle since Trafalgar-. Theodore Roosevelt
realized the dangers of having the national fleet divided in two oceans (the Pacific and the Baltic
Sea in the case of Russia, the Atlantic and the Pacific in the case of The US). With this
argument, Roosevelt finally obtained national support for the ending of the Panama Canal.
Peru, Bolivia, Chile, Paraguay, Argentina and Uruguay
We have mentioned the initial methodology of the colonization through the “adelantados” that
would guarantee the Spanish crown the occupation of land, so it would avoid being occupied by
the rest of the colonial powers (England, Portugal, Holland and France) as well as generated a
new channel of tax collection. (Remember that the Pope also had assigned the region to Spain
to spread the catholic faith).
The first foundation of Buenos Aires in 1536 by Pedro de Mendoza (the region’s adelantado)
fails because of the lack of resources in the region (it was surrounded by a “sea of land and a
sea of water” according to the historian Felix Luna) and because of the hostility of the natives.
The population leaves the region and moves north to the border of the jurisdiction of Almagro,
where Asuncion is founded in 1537. (Garay would come down from there to found Buenos Aires
in 1580 for the second time). One of the motivations to found the city of Asuncion, was to
recover the Andean mining resources (among others, the Irala Expedition, where all the Spanish
were killed by the natives) . When the silver reserves of Potosi were dominated by the
Spaniards who had advanced from the Pacific Ocean, Asuncion loses strategic interest and a
period of relative isolation begins, then magnified when the vice-royal routes are shifted down
south. This isolation would then be reflected in subsequent years on the autonomy of the people
in the region, when Asuncion becomes dependent on the Viceroyalty of Rio de la Plata.
Meanwhile, in the pacific region some disputes arouse between colonizers. The city of Cuzco,
capital of the Inca empire (and center of its wealth), was located close to the borderline between
the regions assigned to Pizarro and Almagro. The Spanish started a war that finally results in the
death of both men.
Pedro de Valdivia is then assigned to the region of New Toledo and begins the colonization of
Chile (he was not supposed to do it as this area belonged to Pedro de Mendoza’s division). As a
result, in 1541 Santiago del Nuevo Extremo is founded.
35
36
By 1543, most territories were vacant or in an irregular state, the delimitations had been
infringed (Valdivia in Chile, Asuncion then -with modern elements- was proven to be in New
Toledo and not Rio de la Plata, the battle of Pizarro and Almagro by the Cuzco, etc.)
This, together with the Royal displeasure by the overindulgence of the “adelantados” reinforces
the need of a strong vice-royal presence and a direct control of the Spanish America by the
Royal house. This leads to the creation of the Viceroyalty of Peru in 1543, centered in Lima
where the King founds the strongest Spanish settlement in South America. The viceroyalty of
Peru did not dissolve but take on the governments of New Castile, New Toledo, Strait Province
(Patagonia), Province of the New Extreme (Chile) and Rio de la Plata. Later on, New Granada in
1717, Rio de la Plata 1776 and the different Captaincies would detach from the Viceroyalty of
Peru.
Conquering new spaces from Lima led to the expeditions to the South and to the discovery of
different mines in Potosi (that in XVII century had more population than London and Paris). In
this way, new populations are created in this vice royal area, Bolivian’s Charcas, Tarija among
others. The city of Santiago del Estero, Argentina, is founded. This city is prior to the second
founding of Buenos Aires, becoming the first city of today’s argentine territory. The government
of Tucuman is created and then is divided in: Salta of Tucumán (with administrative center in
Salta) and Cordoba of Tucumán (with administrative center in Córdoba).
The limited economic activity in Rio de la Plata, with absence of minerals and the close
presence of the Indian, worked for centuries against the creation of political and economic power
center in the mouth of Rio de la Plata. For the first centuries, the economic activity in Buenos
Aires, was focused on smuggling first and then to the “vaquerias” leather industry (in search of
leather and beef from hunting wild cattle).
Nevertheless, the constant Portuguese progress (the neighbor city of Colonia about 50 km from
Buenos Aires was created by the Portuguese in the XVII century) and the English, who wanted
to settle in the region, forced the Spanish crown to redesign the distribution of power in their
colonies and rethink the political distribution. As a result Viceroyalty of Rio de la Plata with center
in Buenos Aires is created in 1776 . It included: the governments of Cordoba and Salta of
Tucuman, Cuyo (which came detached from the General Captaincy of Chile, what was the
Province of New Extreme), Alto Peru (Bolivia) Paraguay and the Banda Oriental (Uruguay).
The process of Independence: Peru, Bolivia, Chile, Paraguay, Argentina and
Uruguay.
When the May Revolution of 1810 and the Declaration of Independence of 1816 took place, (the
viceroyalty was then known as the Unified Provinces of the South), Paraguay early separates
from them as a result of its already mentioned autonomy.
The advance of the forces from Buenos Aires could not oust the Spanish Forces of Alto Peru in
their several campaigns from 1810 to 1817. Bolivia finally became independent in 1825 due to
the outpost of the liberating forces of the North (Sucre and Bolivar) taking its name in honor to
him.
Uruguay separates after the Brazilian invasion and the consequent war between the Unified
Provinces and Brazil (after a negotiation with English intermediation). San Martin campaign to
liberate Chile and Peru, began from Mendoza and liberates Chile after the Chacabuco and
Maipú battles (1817/18). San Martin’s forces together with the Chilean support advance in Lima
36
37
declaring the Independence of Peru (1821) that would be finally accomplished with intervention
of the liberating army of the North which finally liberates Bolivia .
So, after this described sequence, the current political division of the former Spanish colonies
from the South of the continent is finally depicted: Peru, Bolivia, Chile, Paraguay, Argentina and
Uruguay.
The Congress of Panama of 1826
This Congress was called by Simon Bolivar and was held in Panama City in 1826. It was an
attempt to create a unified republican confederation of the former Spaniard colonies in Latin
America. Only several ex colonies sent their representatives (Mexico, Colombia, Central
America and Peru) and just Colombia signed the final statement. The proposed “Treaty of Union,
League and Perpetual Confederation” was a common defense agreement to oppose the
remaining Spaniards in the continent. It also pretended to assure common defense and to
guarantee that the newly created countries would choose a republican form of government.
The disagreements arose from the dictatorial style of the proposal inspired by Bolivar, as
believed by the assisting congressmen. This was a failed attempt to create some kind of a
“United States of Latin America”
2. VII. Brief additional historical information of some Southern Cone countries
Paraguay
The Paraguayan first population is made up of different nomad tribes of the guarani Indian. The
Spanish colonizers founded the city of Asuncion in 1537, followed by different expeditions
seeking precious metals to the west. The arrival of Spanish people from Peru in the Andean
mine region minimizes the importance of the search from the East, which required a dangerous
crossing of the Boreal Chaco.
With the second foundation of Buenos Aires in 1580, the trade routes were diverted to Lima
towards the south. Therefore, Asuncion is partially isolated from the rest of the Spanish
population in the area. The local government of Guaira is created en 1617 (what now is
Paraguay). The system of Jesuits missions was very popular in the eastern side of Paraguay,
northern Argentina and South of Brazil. Paraguay, due to referred historic isolation, has never
accepted to belong to the Viceroyalty of Rio de La Plata when it is created in 1776.
After the revolution of 1810 in Buenos Aires, Gral. Belgrano made his campaign to Paraguay, to
force them to submit to Buenos Aires, but he was defeated in the battle of Tacuari. Paraguay
declares its independence in 1813 and then two long periods of isolationist governments take
place. Presidents Rodriguez of France and Carlos Antonio last until 1862. As a result of these
governments, Paraguay develops as one of the most advanced countries in America with the
first railroad in the Plata basin, a standard of illiteracy relatively low and a growing agricultural
production.
British influence in need of more participation in the economy of the country prompted the
neighbors to the War of the Triple Alliance (1865-1870) (influence includes the cotton needs due
to the US Secession War). Paraguay battles against the united forces of Brazil, Argentina and
37
38
Uruguay, and as a result, the country’ loses almost 90 % of its male population and an important
percentage of its lands.
Chile
Diego de Almagro explores the north territory of Chile (before the civil war that would later erupt
between him and Pizarro). De Almagro could not establish a population. Later on, in 1541 Pedro
de Valdivia founded Santiago. The constant conflict against the brave Araucanian Indian,
together with the remoteness of the land and the absence of commercial sea routes, cause the
delay of the colonization of Chile. In the beginning of the XVII century, the General Captaincy of
Chile is created and depends on the viceroyalty of Peru. As we have already mentioned, the
campaign that San Martin started in Mendoza liberated Chile after the battles of Chacabuco and
Maipu (1818)
Uruguay
In between the beginning of the colonization of the estuary of the Rio de la Plata and the
independence, the “Banda Oriental of Uruguay” (as known by Spanish and Argentinean) or
“Cisplatina Province” (according to Portuguese and Brazilian people) the ruling power switched
several times.
Portuguese invading forces created the city of Colonia of Sacramento (now Colonia) in 1678.
Montevideo is founded by Spaniards in 1727. By the treaty of Madrid in 1750, Spain committed
to yield to Portugal a part of the Paraguayan region (where the Jesuits missions were settled),
the province of Rio Grande and a portion of Uruguay if they abandoned the area of Colonia del
Sacramento. (This was depicted in the movie “The Mission” with Robert De Niro where there is
resistance from the Indians and Jesuits to give away the region of the missions to the
Portuguese).
By the end of the XVII century, Uruguay becomes the border zone of the Viceroyalty of Rio de la
Plata. After the Revolution of in Buenos Aires in 1810, Artigas defeats the Spanish forces in the
battle of Las Piedras to enter Montevideo in 1811. Artigas seeks for the United Provinces, a
confederated political system that would grant more autonomy to the provinces, for which he
confronted the authorities in Buenos Aires. For this reason, Uruguay sends delegated to the
Assembly of the United Provinces in 1814 with the premise of avoiding the concentration of
power in Buenos Aires, but these delegates are not accepted by the central power.
In 1821 Brazil annexes Uruguay and integrates it as the “Cisplatina Province”. Artigas has to go
into exile in Asuncion, where he dies poor and alone decades several years later. In 1825, the
“33 Orientales” go in from Argentina under the command of Juan Antonio Lavalleja and Manuel
Oribe to try to achieve the emancipations of Uruguay from the Brazilian Empire. The successful
patriotic action finally leads to the War of Argentina and Brazil for said province, conflict that
causes to declare the autonomy of the province and becomes Uruguay, through the process
achieved by mediation of England.
Brazil
The Portuguese colonization begins in the mid XVI century, from the settlement in the north east
of the country, and declaring Bahia as the first capital of the colony in 1549. The advances
towards others regions in Brazil, were linked to the need of labor, which generated numerous
expeditions in search of natives to grow sugar cane, main economic activity until they discover a
38
39
torrent of gold mines a century later. In one of these advances, there were confrontations with
the Jesuits that were established in the south of Brazil, Paraguay and north of Argentina. The
Jesuits were eventually expelled from all American colonies in the middle of the XVIII century. In
1575, the city of San Pablo, the economic center of modern Brazil, is created.
The Portuguese and Spanish colonization have been different due to -among other factors-:
- There was no indigenous civilization (like the Aztecs or Incas)
- There were few natives, who tended to make poor slaves
- There were no obvious sources of great wealth (at least at first), such as gold or silver.
The Portuguese initially divided the Brazilian coastline into "captaincies"--large ranches
controlled by single landowners, developed sugar plantations and rapidly expanded its trade in
slaves to work in the sugar industry in the Brazilian Northeast
In 1620--the Dutch invaded and took over Northeast Brazil, learning the technology of sugar and
-when they were expelled 30 years later--taking it with them, leading to a huge "bust" in sugar
prices as supply greatly overtook demand.
The discovery of gold in what is now Minas Gerais in the 1690s, and diamonds in the 1720s, led
to a new level of immigration and development...and slavery.
In 1806, Napoleon intends to block England trade within the European Continent, and prohibited
trade with this country, a regulation not complied by Portugal, England’s old allied. This fact
leads to the invasion of the country by the Napoleonic army. This causes that in 1808 the
Portuguese sovereigns were forced to move to Brazil. In 1822, Brazil declares the
independence, under the government rules of an Empire, leaving Peter I, successor of the
Portugal House, in power. After him, his son Peter II, after a long-lasting government of more
than 50 years, is defeated by military forces in 1889 when the Brazilian Republic is declared.
Uruguay is continuously disputed between the Portuguese and Spanish during colonial time.
During the period 1825-1828, Brazil is in war with the United Provinces of Rio de la Plata
because of their dispute for Uruguay, resulting in the creation of The Oriental Republic of
Uruguay.
Between 1865 and 1870 Brazil, together with Argentina and Uruguay, Brazil was part of the
bloody battle in the Triple Alliance War against Paraguay.
Argentina
We have seen the distribution of land done by the Spanish crown at the beginning of the
colonization. The region that is now the center and north of Argentina was assigned to Pedro de
Mendoza who founded Buenos Aires in 1536. The argentine historian Felix Luna said that
Buenos Aires was located between two seas, “one of land and the other one of water:” This
gives us an idea of the low economic potentiality of the region where there were no minerals and
the agricultural and cattle production were not possible due not only to the continuous hostility of
the indigenous in the area, but also the limitations in transportation, conservation, etc. The
Spanish left the region to settle in Asuncion from where they start searching for an alternative
way to reach the center of the metal wealth in Potosi from the east side (the region was finally
colonized by the Spanish that came from Peru).
Decades later, northern Argentina was colonized by Spaniards coming from Lima. The cities of
Santiago del Estero, Salta, Tucuman and Cordoba were founded. Foreign merchandises arrived
to the provinces from Lima after a very expensive travel that included: Spain- Porto Bello-
39
40
Panama- Lima and from there through a regional distribution. On top of this, Spain monopolized
trade with its colonies. So, we can realize the reasons why Buenos Aires became a perfect
location for smuggling English and Portuguese merchandise.
On the XVII century the tannery and meet salting became the major activities in the region.
(Cattle originally brought by Spaniards found an excellent region to reproduce and grow in
wilderness). Meanwhile Salta, Tucuman and Cordoba became important logistical support
centers for the Alto Peru mines. By the end of XVII century, the continuous Portuguese
advances on Uruguay and the danger of possible French and English invasions prompted the
creation of a central power on the region of the estuary of the Rio de la Plata. Therefore, the
Viceroyalty of Rio de la Plata is created in 1776. From that viceroyalty the following areas are
dependant: Paraguay, Uruguay, Alto Peru and the Cuyo provinces (these provinces depended
on the General Captaincy of Chile). To this geopolitical modification, it is added the fact that the
use of oceanic routes changed from Spain to Buenos Aires instead of Lima, a much faster and
cheaper way than that used for centuries (through the isthmus of Panama to Lima).
The viceroyalty lasts from 1776 to 1810, when the rebellion started in all the Spanish colonies in
America. From the Revolution of 1810, Argentina (United Provinces of the South or of the Rio de
la Plata at the time) looks for a political consolidation. Paraguay that was never under the
authority of Buenos Aires remains autonomous. Uruguay, under Artigas leadership, is in search
of more autonomy but never reached a division. Alto Peru remained in Spanish power mainly
due to the region’s economic interest, the proximity of the Spanish power in Lima and the
inaccessibility typical of a mountainous geography.
Between 1810 and 1830, anarchist processes and civil wars of different nature took place. At
this time, Paraguay, Uruguay (after the war with Brazil) and Bolivia are separated (Bolivia finally
get independent in 1825 due to the military action of forces of Bolivar and Sucre from Great
Colombia, Bolivia get its name in honor of him).
With the accession of the Rosas, a political order is formed based on public terror (Rosas is the
most conflictive character in Argentine history), but the different provinces (which are prior to the
nation itself) coexist. Behind a federalist mask, there was a huge concentration of power in
Rosas. Broadly speaking, the period for Rosas lasts from 1830 to the Battle of Caseros in 1852,
when Urquiza defeats Rosas and establishes new bases of political coexistence. For the next
ten years, the country is divided between Buenos Aires and the rest of the country (the
Argentine Confederation). After the battles of Pavon and Cepeda, Buenos Aires joins the
confederation.
The governments of Mitre, Sarmiento and Avellaneda started a real national consolidation
(1862- 1880) After the bloody war with Paraguay (1865-1870) the General Roca’s army
conquers Patagonia, which is integrated to the national territory. Between 1880 and 1910 -period
in which Roca plays a predominant role- Argentina experiences a cycle of a high economic
growth, based on conservative policies that promote commercial exchange with the rest of the
world (especially with England) based on comparative agricultural and farming advantages of its
rich geography, which is increased by the new stretches of land that are being integrated to the
nation and are populated through active immigration policy and promotion.
Growing popular complaints emerged from the new ideas associated to immigration, the
rebellion originated by the concentration of wealth in few hands and the political fraud, together
with geopolitical changes worldwide (among other causes the First World War) generated big
changes in the economic and political outlook. In 1914, during the government of Saenz Pena –
a conservative himself-, the Law of the Universal vote was passed (the law takes his name).
Appeared in the decade of the 1890’s, radicalism (UCR, Unión Cívica Radical) starts to occupy
40
41
growing spaces in power, having been in power Irigoyen and Alvear during three consecutive
presidential terms.
In 1930 the first military coup d’ etat took place. The military constituted then a center power that
lasted the following 50 years. In the beginning of the 40’s, Juan Domingo Peron appears, to
some extent as an answer to the same popular complaints arising from the concentration of
wealth and the associated “social injustice”. Until the beginning of the decade of 50’s, Argentina
remained as one of the richest countries of the world. From there on, we no longer talk about
history but contemporary time.
Finally, we can say that from 1974 onwards, a strong economic decline begins and continues
until today.
Some Latin American conflicts and Border Changes
During the nineteenth century, international conflicts and border disputes altered many political
jurisdictions of Latin America. These changes affected the subsequent registration of the local
population. Some of the most significant changes are discussed in the following paragraphs.
Uruguay. The border between Argentina and Brazil on the eastern bank of the Uruguay River
was disputed by Spain and Portugal throughout colonial times, and the conflict continued even
after Argentine and Brazilian independence was achieved. Finally, in 1828, England mediated a
settlement that established the independent nation of Uruguay, which would serve as a buffer
state between Argentina and Brazil.
Mexico. The most significant change in national borders occurred in Mexico. In 1836 Texas
declared independence from Mexico. After ten years of difficult independence, Texas joined the
United States. A subsequent war with Mexico finalized the incorporation of Texas into the United
States. In the 1848 Treaty of Guadalupe Hidalgo, Mexico ceded the northern third of its territory
to the United States. This land eventually became the states of New Mexico, Arizona, Colorado,
Utah, and California. The Rio Grande River was established as the northern border of Mexico by
the Gadsen Purchase in 1853, which transferred additional Mexican territory to the Arizona area.
Chile. Chile acquired the mineral-rich Atacama Desert when it prevailed in the 1879–1883 War
of the Pacific against Bolivia and Peru. The acquisition extended Chile's northern border and
completely cut off Bolivia's access to the sea.
Panama. In 1903 the province of Panama revolted against the government of Colombia. The
United States sent military forces to aid Panama and quickly recognized Panama's
independence. That same year the United States began construction of the Panama Canal
across the isthmus. The United States retained control of the Canal Zone, which split
Panamanian territory.
Belize. In 1964 the colony of British Honduras attained self-government and, in 1981, full
independence. The country became known as Belize. The territory had long been claimed by
Guatemala.
41
42
2. VIII. Wrap - up: Historical Chronology
The chart below lists some key dates and events in the history of Latin America which have
affected settlement patterns and family history:
1492–1550
Christopher Columbus discovers the Americas. The era of European exploration
and settlement of Latin America begins:
1513
Vasco Núñez de Balboa explores Panama.
1519–1521
Hernán Cortés conquers Mexico.
1520
Venezuela is first colonized.
1533
Pedro de Heredia explores Colombia; Santa Marta and Cartagena are established.
1535
Francisco Pizarro establishes Lima. Explorers led by Pedro de Mendoza settle
Buenos Aires. Juan de Solís explores Paraguay, establishes Asunción.
1540
Pedro de Valdivia colonizes Chile. Sebastián de Belalcazar establishes Quito.
1493
Pope Alexander VI sets a line of demarcation (100 leagues west of the Azores and
the Cape Verde Islands) to establish Spanish rights to territory west of the line.
1494
The Treaty of Tordesillas moves the demarcation line to 370 leagues west of the
Cape Verde Islands. This allows Portugal to settle territory in the Americas east of
the line.
1500
Pedro Alvares Cabral claims Brazil for Portugal.
1511–1787
The audiencia system is established throughout Spanish-American territories.
1530–1850
Millions of Africans are brought to Latin America as slaves.
1545–1563
The Catholic church establishes methods for registering baptisms, marriages,
burials, and other sacraments and ecclesiastical activities.
1549
Tomé de Sousa establishes the Brazilian colonial capital at Bahia.
1570–1820
The Inquisition is instituted in Lima (1570), Mexico (1571), and Cartagena (1610).
Charges are brought against Protestants, Jews, and Muslims, as well as Catholic
heretics.
1580–1640
Felipe II of Spain invades Portugal; Brazil becomes subject to the Spanish
monarch. The Treaty of Tordesillas is rendered invalid, allowing Brazilians and
Portuguese to occupy the vast interior of Brazil.
Spanish Jesuits establish mission communities for approximately 100,000 Guaraní
and Tapes Indians in Paraguay. Spain expels the Jesuits in 1768, and the
communities disband.
1624–1654
The Dutch occupy northeastern Brazil. Iberian Jews find temporary refuge in Dutch
Brazil.
1807–1814
Napoleon occupies the Iberian peninsula. The Portuguese court flees to Rio de
Janeiro, and the Spanish monarchy abdicates.
42
43
1810–1822
Latin American colonies fight for and achieve independence from Spain and
Portugal.
1823–1839
The Federation of Central America is formed, headquartered in Guatemala. Each of
the new republics leaves the federation by 1839.
1828
Uruguay is established as an independent nation, serving as a buffer between
Argentina and Brazil.
1836
Texas territory gains independence from Mexico.
1846–1848
The United States goes to war against Mexico. The Treaty of Guadalupe Hidalgo
establishes the Rio Grande River and a line west from El Paso approximately along
the Gila River as the border between Mexico and the United States. More than one
third of Mexican territory becomes the great southwest of the United States.
1853
The Gadsen Purchase transfers additional Mexican territory to the southwest of the
United States.
1864–1870
Paraguay wages war against Argentina, Brazil, and Uruguay. The Paraguayan
population is decimated.
1870–1920
The great period of European and Asian immigration to Latin America. Millions of
immigrants settle in Latin America, influencing local culture and ethnic composition.
1879–1883
Chile wages the War of the Pacific against Bolivia and Peru. Chile gains the
mineral-rich Atacama Desert region and occupies Lima for a few years. Bolivia
loses access to the Pacific Ocean.
1903
The province of Panama revolts against Colombia and becomes an independent
nation. The United States begins to build a canal across the isthmus.
1946
French Guiana is elevated by France to overseas department status.
1954
Dutch Guiana, now known as Suriname, becomes a self-governing Dutch territory.
1966
British Guiana becomes the independent nation of Guyana.
1975
Suriname becomes an independent nation.
1981
Belize, formerly known as British Honduras, gains independence from Britain.
43
44
LATIN AMERICA-U.S. RELATIONS (By Warren Dean)
The histories of the United States and Latin America are intimately related. Consider that St. Augustine
(the oldest city in the United States), Pensacola, New Orleans, San Antonio, Santa Fe, and many others
were once Spanish towns and that citizens of Hispanic background now form the second largest minority
in the United States. The relationship has been accompanied by cultural and demographic exchanges that
have profoundly influenced all of its participants.
British colonization after 1607 was part of a "grand design" to wrest all the New World realms from Spain.
The British soon converted their Caribbean colonies into sugar plantations worked by African slaves. The
North American colonies were of less economic significance to this mercantilist development, participating
mainly as suppliers of foodstuffs and lumber to the Caribbean and as its competitors in the production of
cotton and tobacco. Continental militia, sharing the same goals as the British, took part in wars with Spain.
One of the benefits was the conquest of Spanish Florida in 1763, resolving years of border struggles with
Georgia.
But when the British continental colonies declared independence, it was with Spanish aid, and
independence inspired Spanish colonials to revolt later. There were several uprisings, largely fueled by
resentment over taxes levied to pay for Caribbean defense. The desire of Spanish colonial elites to
separate was attenuated, however, when the 1791 Haitian Revolution was captured by its slaves. The
loss of the strategic Haitian ports forced Napoleon Bonaparte to sell Louisiana for a trifle to the United
States. The Americans, far from acknowledging their Haitian benefactors, joined the other slave powers in
refusing to recognize Haitian independence.
Other independence movements broke out in the South American colonies soon after Napoleon invaded
Spain in 1807. The United States did not recognize these insurgencies, much less offer them aid. It was
becoming evident that these aristocratic "revolutionaries" were still less democratic than the monarchies of
Europe. But opportunism was also at work: the United States did not want to endanger negotiations with
Spain to acquire Florida (which that country had regained from Great Britain in the peace of 1783) and to
draw a western boundary that would strengthen U.S. claims to Oregon. Only in 1823, when Latin
American independence was already assured, did President James Monroe threaten sanctions should
European powers attempt to recolonize. This "Monroe Doctrine" was also designed to discourage Russian
expansion in the Pacific Northwest. In effect the declaration of a sphere of influence, it avoided
challenging the legitimacy of remaining European colonies and renounced intervention in European
affairs.
The Spanish viceroyalties soon broke up into small, weak, and often quarreling states (there were sixteen
by 1839), and Portuguese Brazil became a unified empire under a Portuguese prince. Simon Bolivar, the
most important independence leader, failed to form a regional organization at a congress he gathered at
Panama in 1826. This suited the United States: it saw an advantage in Latin American fragmentation and
pressed on these states most favored nation treaties whose intent was to forestall a common market
among them.
America's belief in its "manifest destiny" resulted in the 1840s in the annexation of Texas and the defeat of
Mexico and the absorption of half its territory in the Mexican War. In Central America, the United States
achieved by mid-century an agreement with Great Britain that amounted to a joint sphere of influence.
From Colombia it obtained the right to build a railroad across the isthmus of Panama (then part of
Colombia). Private expeditions attempted to overthrow governments in Nicaragua and Cuba, a naval
expedition was dispatched to landlocked Paraguay but was prevented from sailing upriver by Argentina,
and a scientific expedition was sent down the Amazon to scout its potential for settling Virginia planters
and their slaves.
Civil War in the United States offered European powers an opportunity to attempt recolonization. In 1863,
Napoleon III, urged on by Mexican conservatives, enthroned a European prince in that country. But
harried by the forces of the legitimate government under Benito Juárez and uneasy at the prospect of
assistance from the northern army after the defeat of the Confederacy, Napoleon allowed his puppet to fall
by 1867. Meanwhile, the Dominican Republic, fearing invasion by Haitian armies, invited the Spanish to
reestablish colonial rule, but after a few years of mismanagement, expelled them again. A group of
44
45
speculators close to President Ulysses S. Grant nearly persuaded the Senate to annex the Dominican
Republic, failing by one vote.
Economic development in the United States magnified its power relative to the rest of the hemisphere. By
1880 its population was greater than all of Latin America's. Trade increased and stimulated a flow of
capital. Latin America became a major source of foodstuffs and industrial raw materials and an important
outlet for American goods—kerosene, lumber, grain, ice, and coal—and for manufactures such as barbed
wire, sewing machines, rifles, windmills, and locomotives. American entrepreneurs went to the southern
continent to build railroads, buy plantations, and open trading houses. The first multinational companies—
United Fruit, Standard Oil, and W. R. Grace among them—invested there. In the 1880s, a modest
statistical and cultural exchange bureau, the Pan-American Union, was created.
Cubans began fighting for independence in 1868. The United States had earlier considered annexing the
island, but usually it supported Spanish control, lest its slave rebels or the island fall under the influence of
the British. In 1898, however, when Spain already wanted to abandon its colony, the United States
intervened in behalf of the revolutionaries. The pretext was the mysterious blowing up of the battleship
Maine in Havana harbor, but the impulse for war with Spain was broad and deep, fanned by newspaper
accounts of Spanish atrocities and by a desire to emulate the European imperialist powers. Spain was
easily defeated. The U.S. Congress had sworn to respect Cuban independence, but the insurgent
government was barred from the peace conference and Cuba was subjected to military occupation. Spain
turned over Puerto Rico, Guam, and the Philippines, which joined Hawaii and Samoa as U.S. colonies.
Cuban legislators meeting to draft a constitution were given to understand that the U.S. Army would not
withdraw until they ratified the Platt Amendment, which granted the United States the right to intervene
and to build naval bases there.
In 1903, Panamanian businessmen, chafing against control by the strife-ridden central government of
Colombia, and with U.S. naval support, declared independence. A treaty allowing the United States to
build and operate a canal across the isthmus was hurriedly negotiated. The treaty and subsequent
arrangements reduced Panama to the status of a protectorate, provided a windfall for investors in the
rights of the earlier canal company, and incurred the enmity of Colombia. But the canal, completed in
1914 with West Indian labor, demonstrated U.S. engineering prowess and was strategically and
commercially vital. Control of its sea approaches was a major reason for U.S. military occupations, for
varying periods over the next two decades, of Nicaragua, the Dominican Republic, Cuba, and Haiti.
Anxieties over imperialist competition also led the United States to purchase the Virgin Islands from
Denmark and grant U.S. citizenship to Puerto Ricans.
45
46
3. Economic, demographic, and Social Highlights of the region
(Class 6)
I. Selected Latin American Countries Economic Briefs: See Appendix 1
II. Race Diversity
We may define three sub-regions in Latin America:
Euro Latin America: Chile, Argentina Uruguay and Southern Brazil
Indo Latin America: Bolivia, Peru, Ecuador, parts of Venezuela and Colombia, Mexico and
Central America.
Black Latin America: Northern Brazil, parts of Venezuela and Colombia, Panama and the
Caribbean
Latin America is a melting pot of cultures There are over 400 different indigenous people
comprising over 50 million individuals Five countries account for nearly 90 % of indigenous
population: Mexico (27%), Peru (26%) Guatemala (15%) Bolivia (12 %) and Ecuador (8%)
Afro-Latinos account for over 150 million people: Brazil (51 %) Colombia (21 %) the Caribbean
sub-region (16%) and Venezuela (12 %).
III. Human Development
The Index of Human Development calculated by de United Nations Development Program
(UNDP) considers several ratios such us: GNP per capita, illiteracy, life expectancy, education,
health coverage and others. This index to some extent indicates the degree of human
development in different countries, beyond the mere GNP per habitant, which is only one
of its components.
By 2005, the first country in that ranking overall, for the fourth consecutive year, is Norway. The
last ones are African countries (Burkina Faso, Niger and Sierra Leona) . Despite the argentine
crisis of 2001, the country is the first Latin American country in the ranking and is placed
34th out of 175 countries ranked in the most recent report issued, by The United Nations
on September 8, 2005 (Note: even though the devaluation in Argentina affected the GNP in
dollars, it did not affected so much the GNP adjusted to PPP –Purchasing Power Parity- which is
the figure that UNDP considers for this index)
Other Latin American countries in the ranking are: Chile (37), Uruguay (46), Costa Rica (47),
Cuba (52) and México (53) and Panama (56), all of which are included in the category defined
by the report of “High Human Development Countries” . Among the “Middle Human
Development” countries we find: Brazil (63), Colombia (69), Venezuela (75), Peru (79), Ecuador
(82º), Paraguay (88º), República Dominicana (95º), El Salvador (104º), Nicaragua (112º), Bolivia
(113º), Honduras (116º) and Guatemala (117º) (Note: This definition of High and Medium
Human Development of UNDP, does not mean there is no poverty in our countries!!!)
The only “Low Human Development” country in the region is Haiti (153) (is it true?)
46
47
IV. Educational deficits and gaps in the region
Education is essential to enable people to share in the benefits of globalization and to enable
economies to ensure sustained development through increase of competitiveness and
productivity.
Progress in terms of coverage
Latam primary school has risen to over 90 % but remain at lows 70 and 26 % in secondary and
post-secondary levels respectively (from high standards in Argentina, Uruguay, Chile and
Venezuela to lows in Haiti, Guatemala, Bolivia and Honduras)
Near generalization of primary schooling has been the result of financial and regulatory effort
done during the last 20 years. Latam's education expenditure as % of GNP rose form 2.9 % to
4.0 % from 1990 to 1999 (Argentina’s target for year 10201 is 6 %)
However, measurements of learning outcomes on writing and mathematics compared to
students in developed countries have shown an inferior performance for the region. Some of the
reasons for this deficit: unequal access (and use of) computers and audiovisual media
At university levels, public and private schools are facing serious problems. The former are
overpopulated, while many of private schools have deficient curricula levels.
V. Globalization and employment
Employment represents 80 % of household income in Latam, therefore becomes the main link
between economic and social development.
V. 1. Dynamics of the production and employment structure
As we will see in detail in future classes, Behrman (1972) identified 4 basic types of strategies:
(i). Natural resources: Takes advantage of a country’s availability of natural resources (Oil/ gas
in Argentina, Bolivia or Venezuela, Copper in Chile, etc.).
(ii). Internal Markets: Focuses the internal markets of the FDI´s host country (banking,
retailing, telecommunications, electricity, etc.)
(iii). Economic efficiency: The FDI´s intends to take advantage of a country’s lower set of costs
(labor intensive industries –maquilas- in Mexico and Central America etc.)
(iv). Strategic capacities: Referred to competitive or strategic advantages developed within the
region where FDI is to be located (The purchase of the Brazilian Brewery Company Brahma by
Belgium Interbrew)
There are two dominant patterns of specialization in Latam: the first involves production
of raw materials and the interest for the internal markets (some South America countries).
The second is manufactured goods with high imported input contents (maquila, basically
in Mexico and some Central American countries)
In northern Latam industrial sectors expanded faster than average, in southern Latam the
service sector was the one which registered the highest economic growth (especially Mercosur
and its associates). Northern Latam rate of labor creation has been higher than that of the
south in recent years.
47
48
This has had an influence over the education-based wage gap which widened significantly in
many of the southern Latam countries (Chile, Argentina, Paraguay and Uruguay among others)
V. 2. Greater labor flexibility and precariousness
Labor flexibility is associated to globalization due to greater international competition and faster
technological change, which demand flexibility in order to maintain competitiveness.
Unfortunately, this has resulted in a high erosion of social protection in many Latam countries
VI. Social protection
Social protection covers a variety of risks (illness, loss of income, medical attention nutrition,
housing, etc.) and this is a major deficit in the region. Most of new self employed workers –which
have increased while formal employment is shrinking in many countries- have no social
protection (in this globalizing world, employment bears a major share of the burden of
adjustments) .
The deep deficits in social protection region-wide are some of the potential danger for
countries’ economic sustainability. On top oh this jobs in Latam are riskier than those of the
OECD countries (…with little -or none- social protection)
VII. The social agenda
VII. 1. Closing Educational gaps: This requires recognition of the universal right to education,
strengthening the incentives for students to stay in school and pedagogic adaptation to cultural
and technological change.
VII. 2. The main challenges in employment: In order to enhance productivity and international
competitiveness, obviously labor is not the unique business costs. Then the challenges in
employment are related to:
- New investments and new technologies
- Labor force education, training and specialization.
VII. 3. Education training and employment (employability): Education should be adjusted to
prospective employment requisites. New technologies demand new skills, so, this fact should be
taken into consideration within educational system, processes and contents
VII. 4. Social protection systems: What would demand more resources (and more efficient and
transparent use of them) to the social security services (in the specific case of Argentina, many
NGO's have covered this space after end of 2001 crisis)
VII. 5. Social agenda for regional integration and cooperation: A projection towards regional
(and then global) social development agenda (education, work and social protection). A common
language for the region is an advantage for Latam. Some subjects for this regional agenda
would be: the homogenization of educational curricula and the increase of labor mobility within
the region.
48
49
4. Integration processes in the region
(Class 7)
I. Sub-regional integration schemes and intra-regional free trade agreements
The intra-regional trade agreements in Latam are:
The Caribbean Community (CARICOM): The Caribbean Community and Common
Market (CARICOM) is basically composed by ex non-Spanish and non-Portuguese
colonies. It was established by the Treaty of Chaguaramas, which was signed by Barbados,
Jamaica, Guyana and Trinidad & Tobago and came into effect on August 1, 1973. The other
members joint CARICOM later.
Current Members of CARICOM are: Antigua and Barbuda, St. Kitts/Nevis/Anguilla, Bahamas, St.
Lucia, Barbados, St. Vincent & Grenadines, Jamaica, Belize, Dominica, Trinidad & Tobago,
Suriname, Grenada, Haiti and Guyana.
The Central American Common Market (CACM): By the beginning of the 1990s the
countries of the region negotiated a key peace agreement - the Esquipulas II Accord – a
standpoint in the integration process. Its terms were updated in 1991 to meet the conditions of
the new international system.
Members of CACM are: Guatemala, Honduras, Nicaragua, El Salvador and Costa Rica. CACM
accounts for 36 million people and a total GNP of approximately us$ 60 billion. It is interesting to
point out that since 2003, the CACM is negotiating a free trade agreement with de US known as
the US-CAFTA (The US and Central America Free Trade Agreement)
The Andean Community (CAN): The pact was at the end of 1989 in a meeting of Andean
presidents at Galapagos Islands. It is composed by: Bolivia, Colombia, Ecuador, Peru, and
Venezuela. The Community has a total population of 115 million people and a GNP almost us$
300 billion on an area of 4,700,000 square kilometers
The Mercosur (Mercado Común del Sur): The Mercosur was created in 1991 by the
Asuncion Treaty. At the end of 1994, by the Protocol of Ouro Preto, Mercosur became a free
trade area establishing – with little exception – common external tariffs. The Community has a
total population of 220 million (3.5 % of world total) people and an area of 11,900,000 square
kilometers (9 % of world total). As to 2001, total Mercosur GNP was us$ 914 billion (3 % of
world’s total) and had a total foreign trade of 175 billion (1.35 % of world total).
The Full Members of the Mercosur are: Argentina, Brazil, Uruguay and Paraguay. The countries
of: Chile, Bolivia -and recently Peru and Venezuela - have an”Associated Member” status that
gives these countries certain advantages in their relation with Mercosur (lower tariffs, etc.). Since
2005, Venezuela is negotiating to be admitted as a Full Member of Mercosur.
49
50
Mexico and the NAFTA: Obviously we should mention Mexico and its integration in the
NAFTA, which entered in force on January 1994
Chile negotiations with the NAFTA: Chile, the most politically stable, economically growing
and prosperous country in Latam, is partially linked but not integrated with any of these
communities and has signed a special free trade agreement with the NAFTA in June 2003.
The US and all the American countries (except Cuba) initiated in the 1994 Summit of the
Americas a negotiation to integrate all the economies of the Western Hemisphere into a
single free trade arrangement (FTAA, Free Trade Agreements of the Americas or in
Spanish ALCA: Asociación de Libre Comercio de las Americas).
The Summit of the Americas held in Mar del Plata (Argentina) in November 2005, intended
to be a milestone in the construction of the FTAA. But five countries (the Full Members of
the Mercosur plus Venezuela) rejected the idea of accelerating the integration of the
Americas under the FTAA
We should mention that:
- All of these agreements helped to increase intraregional trade (from 1990 to 1997 trade
increased fivefold within Mercosur). However, trading among the different groups of Latam
countries have not increased during the last years.
- The severe crisis of the Latam countries that started in 1998 has affected this integration
process. Many of the individual countries have experienced huge social, economic and
political problems (mainly Andean Community and Mercosur). These facts have delayed the
Latam integration process.
- It is interesting to mention that negotiation of a prospective integration of both CAN and
Mercosur common markets in just one has been slow and even though several attempts have
been made, they have had no advancement. In fact, the Comunidad Sudamericana de
Naciones was created in 2004 as a political institution but is not working as an economic
integration process yet. CACM and CARICOM have also had advancements in their economic
and trade relations, but with no major change yet.
- As we will study in future lectures, FDI’s have demonstrated to be particularly important
for this integration trend.
The Free Trade Area of the Americas
2005 - Bertrand M. Gutierrez, The News Virginian, Virginia.
The Free Trade Area of the Americas would stretch from Argentina to Canada with
850 million consumers and a combined gross domestic product of $14 trillion. At
least that was the goal in 1994 when 34 heads of state attending the Summit of
the Americas in Miami pledged to create the world’s largest free-trade market.
50
51
The big idea: Integrate the economies of the Western Hemisphere’s democratic nations by
slashing tariffs and removing trade barriers. But a decade and eight ministerial meetings
later, negotiations are deadlocked, and the initial launch date of January 2005 has
expired.
Although FTAA nations have moved toward consensus, calendars must be reset and
negotiators must kick-start a new round of trade talks.
“It’ll take political will, first of all, on behalf of the Mercosur countries,” says trade
expert Ana Casanova, a vice president with Arlington, Virginia-based firm Carana Corp.
In play are the disparate economies of 34 nations. Plus, several regional trade blocs,
including the Andean Group, Mercosur, Caricom, Central American Common Market and
members of the North American Free Trade Agreement, have their own synergies. But the
rival interests of the United States and Brazil, a Mercosur member boasting South
America’s biggest economy, have emerged as the biggest stumbling block.
“There’s been definitely a power struggle between the two regions,” Casanova
says. In the meantime, Mercosur nations were brokering a separate trade pact
with the European Union in 2004.
“They basically put the EU-Mercosur negotiations on the front burner as their No. 1 priority
and the FTAA on the back burner,” says Casanova.
Despite the apparent snub, the Office of the U.S. Trade Representative says that
Mercosur should return to the negotiating table.
Until that happens, the United States presses ahead with other trade pacts. Central
America and the Dominican Republic, for instance, support a Central American Free
Trade Agreement. Trade talks are under way with Andean nations Colombia, Peru
and Ecuador, and the U.S.-Chile Free Trade Agreement is a done deal.
“By the time you get those agreements done … we will have covered two-thirds of
the GDP of the Western Hemisphere, not counting the United States,” U.S. Trade
Representative Robert Zoellick says.
Trade talks aren’t always about tariffs and barriers, though. A race for the future site of the
FTAA’s Permanent Secretariat, for example, has entered its final leg, with 10 candidate cities
vying for the honor and the accompanying boost in business, visitors and prestige. FTAAFlorida, a public-private partnership, has pushed Miami as the gateway to the Americas,
though four other U.S. cities—Chicago, Houston, Atlanta, and Galveston—have thrown their
hats in the ring. The remaining candidate cities are San Juan, Puerto Rico; Cancun, Mexico;
Panama City, Panama; Port of Spain, Trinidad and Tobago; and Puebla, Mexico.
“The whole process is like a three-dimensional chess game,” says FTAA-Florida President
Jorge Arrizurieta. “But there’s no doubt that the two most organized efforts are, really, ours,
and the contender is Panama.”
Labor and environmental organizations, meanwhile, cry foul about what they
perceive as a lack of protection for workers rights and the environment.
“Overall, the Bush administration’s priorities are upside-down. What they’ve pushed for in
the FTAA negotiations are essentially the interests of multinational corporations. And
ordinary workers and farmers are likely to be left out,” says Thea Lee, AFL-CIO chief
international economist. U.S. Trade Representative spokesman Richard Mills counters by
saying that U.S. trade policy often is misrepresented.
51
52
“People need to understand: The United States is the only country in the whole world that
insists that there be environmental and labor provisions in our trade agreements,” Mills
says.
But to further negotiate labor provisions, the White House must meet another deadline. By
March, President George W. Bush must seek renewal of Trade Promotion Authority, or TPA,
a key negotiating tool granted by Congress in 2002. TPA expires in June.
With TPA negotiating power, trade pacts forged by the president are subject only to an upor-down vote by Congress—no tinkering. Without it, foreign leaders would fear that
concessions might be modified by Congress, trade experts say. Under current guidelines,
TPA may be renewed by Congress until 2007.
“This is an important priority for the United States because we want to open and
get better access to a lot of the markets in our hemisphere,” says Mills, the USTR
spokesman. “We think it’s a good way to integrate friends and neighbors
throughout the hemisphere.”
II. Macroeconomic Indicators MERCOSUR -October 2002 –
We will see the main indicators of the Mercosur and will compare them with those of other
regions
Sources: - www.mercosur.org.uy
- The World Bank-World Development Report
- FMI - Direction of Trade Statistics
- ALADI
1. Land Area
sq km ('1000)
%
Mercosur
11.863
8,89%
Mercosur, Chile and Bolivia
13.719
10,29%
NAFTA
20.289
15,21%
European Community
3.013
2,26%
Selected Asia (1)
941
0,71%
Others
95.416
71,54%
World
133.378 100,00%
(1)-Includes Korea, Hong-Kong, Malasia, Singapore and Thailand
2. GNP: 2002
Billion of US$
Mercosur
Mercosur, Chile and Bolivia
NAFTA
European Community
Selected Asia (1)
Others
World
914,2
992,2
%
2,92%
3,17%
10.748,3
34,32%
8.440,2
26,95%
897,0
2,86%
10.237,3
32,69%
31.315,0 100,00%
52
53
3. Population
In million
Mercosur
Mercosur, Chile and Bolivia
NAFTA
European Community
Selected Asia (1)
Others
World
%
213
3,56%
236
3,95%
401
6,71%
375
6,28%
142
2,38%
4.821
80,69%
5.975 100,00%
4. International Trade: 2000 (2)
Billion of US$
Mercosur
Mercosur, Chile and Bolivia
NAFTA
European Community
Selected Asia (1)
Others
World
%
174,5
1,34%
212,6
1,64%
2.865,1
22,07%
4.579,5
35,27%
1.331,4
10,25%
3.994,4
30,77%
12.983,0 100,00%
Note: (2) Exports (FOB) plus imports (CIF) of goods
Free Trade agreements in Latin America (source www.bbc.com)
Comunidad del Caribe (CARICOM)
Exportaciones: US$7.513 millones.
Importaciones: US$12.773 millones.
La Comunidad del Caribe agrupa a 15 naciones americanas, en su mayoría ex-colonias británicas. Este grupo de
integración es el más pequeño del continente americano, pero se caracteriza por su dinamismo. Al igual que toda
América Latina, el proceso de integración se frenó en la década de los 80, pero adquirió dinamismo en los 90.
Sin embargo, la región -que agrupa a varias de las economías más pequeñas del continente- ahora afronta el desafío
de lograr hacer escuchar sus intereses en las negociaciones para el ALCA.
Mercado Común Centroamericano (MCCA)
Exportaciones: US$10.604 millones.
Importaciones: US$21.886 millones.
Los países centroamericanos procuraron reimpulsar al Mercado Común Centroamericano en la década de los 90, tras
la serie de conflictos internos que golpearon a la región durante los 80. Sin embargo, el impulso del MCCA, que
nació en la década de los 60, afronta el serio reto de superar la pobreza y el subdesarrollo agudizados por los
recientes desastres naturales, como los terremotos en El Salvador y el huracán Mitch.
Los países centroamericanos, no obstante, consideran que la integración es una de las herramientas más eficaces para
superar sus problemas. Asimismo, los países que integran el MCCA han tratado de mantener una política agresiva de
53
54
atracción de inversiones, apoyados por el Banco Interamericano de Desarrollo, especialmente después de los
recientes desastres naturales. En diciembre de 2003, los países integrantes, excepto Costa Rica, firmaron un acuerdo
de libre comercio con Estados Unidos conocido como CAFTA.
Más de la mitad de las actuales exportaciones agrícolas estadounidenses a Centroamérica - que son las de mayor
importancia junto con los textiles - quedarán libres de aranceles. A cambio, EE.UU. eliminará la mayoría de sus
tarifas agrícolas en un plazo de 15 años.
Comunidad Andina de Naciones (CAN)
Exportaciones: US$52.951 millones.
Importaciones: US$46.104 millones.
La Comunidad Andina de Naciones, que nació en 1969 como el Pacto Andino, es uno de los bloques más antiguos
del continente y del mundo, pero uno de los que más obstáculos ha encontrado en su proceso de integración.
Durante la década de los 90, al igual que otros bloques regionales, la CAN vivió un fuerte impulso en el desarrollo
comercial, pero la última década también se ha caracterizado por los problemas socio-económicos de difícil solución,
como los conflictos internos, la pobreza y el narcotráfico. Los países de la CAN, sin embargo, continúan apostando
a la integración. La presencia del ALCA ha hecho que sus miembros traten de presentarse con una sola voz en las
negociaciones, para lograr una ampliación de mercados que los favorezca pero también para evitar que sus frágiles
economías sean engullidas ante un escenario de libre comercio continental.
El gobierno de Brasil ha impulsado la negociación de un tratado de libre comercio del CAN con el vecino bloque del
MERCOSUR, para crear un frente común que pueda negociar mejores condiciones para el ALCA ante Estados
Unidos.
Mercado Común del Sur (MERCOSUR)
Exportaciones: US$88.479 millones.
Importaciones: US$60.102 millones.
Nacido en 1991, el MERCOSUR es considerado el tercer bloque comercial más exitoso del mundo. Sin embargo, los
últimos años se han caracterizado por problemas que han puesto en tela de juicio la viabilidad del grupo.
Los problemas económicos de Brasil, que terminó devaluando su moneda, y Argentina, que afronta una larga
recesión, han hecho que se produzcan diferencias internas que han llevado a cuestionar la eficacia del grupo como
una Unión Aduanera. No obstante, sus miembros continúan afirmando que MERCOSUR es el camino por el que
deben transitar y tratan de mantener una sola voz.
MERCOSUR llegó a un acuerdo con la vecina Comunidad Andina de Naciones (CAN) para firmar un tratado de
libre comercio.
54
55
5. Globalization: A historical and multidimensional perspective
(Class 8)
The process known as globalization -a growing influence of worldwide economic, cultural and
social processes over regional or national ones- is a historical process which has been
accelerated during the last decades due to -among other reasons- the dramatic changes into the
communications, information and transportation technologies, the liberalization of international
financial flows, the widening spread of multinational corporations’ FDIs and trade, etc.
Globalization opens up opportunities of development, but also entails risks such as: some
related to trade flows (subsidies) others related to financial flows. There are many others:
limitation on labor market’s mobility, incoherencies of macroeconomic policies among countries,
and the lack of an efficient entity to coordinate global policies -the United Nations supposed to
perform this role - , and so forth
Although the economic and financial facets of globalization are the most commonly referred to,
the definition should be made multidimensional: environmental, political, social and cultural
processes are of major importance in the process.
To some extent, the shape of globalization is mainly determined by developed countries’
governments and transnational corporations, which are much stronger that governments of
developing countries. But even though the process is irreversible, there is not a unique shape for
globalization and multilateral institutions –which began to develop a couple of centuries agohave to some extent the responsibility to accompany the process.
The issues we will analyze in this chapter are:
I. The globalization process
II. Non economic dimensions of globalization
III. Opportunities and risks arising from globalization
I. The globalization process
We might say that process of internationalization started since the emergence of capitalism in
the late Middle Ages with the establishment of the great empires of European nations. The
colonization of America was a clear case of world integration, which brought a steep increase of
international trade, investment and migration. However, traditional bibliography identifies the
three main globalization stages during the last 140 years:
1. From 1870 to 1913 (the first stage of globalization): With great capital and labor mobility,
cut by World War I.
By the end of the 1800’s the city of London was the major financial center and New York and
Paris its closest competitors. There was a huge subscription of capital for large scale projects
(the Panama Canal) and the creation of an international market for debts bonds.
We may say that between both World Wars in the XXth Century (1914 -1945) and
especially after de depression of 1930, the process was not only stopped but also
reversed.
55
56
2. After WW II until 1973 (the second): The trend to global integration starts again after WWII.
This second stage finishes in 1973, when capital flows started to increase significantly. By the
1950’s, the international trade increased and the international banking networks started to be
built.
3. from 1973 until present (the third stage): This third stage is characterized by (on top of the
increasing capitals flows):
- Increasing international trade.
- Increasing presence of multinational companies and FDI's
- The standardization of development models.
By the 70’s with the oil crisis of 1973, the international financial markets boomed and the
financial derivatives markets emerged.
Even though transnational production started in the XIX century, after 1970 there was an
increasing number of international production activities (for labor intensive tasks, maquila or
assembly activities, etc.)
This evolution was fueled by improvements in communications, transports and information.
(Mass scale information, reduction of transport and communication costs), the development of
integrated production systems: International sourcing, outsourcing processes, the study and
analysis of the value chain, etc. This increase of international production originated an increase
of international trade.
II. Non economic dimensions of globalization
There are some other factors:
- Globalization of values: Shared ethical principles: civil and political rights and economic
social educational and cultural rights. Global civil society inspired in the French revolution’s
Declaration of Rights of Man and of the Citizen as well as USA Constitution (which, to some
extent, inspired United Nations’ Universal Declaration of Human Rights)
- The increasing global environmental problems (global warming the thinning of ozone
layered, the decrease of biodiversity, etc.)
- The spread of international crime and of terrorism.
- The political dimension: The end of Cold War produced and catalyzed dramatic changes: the
primacy of US, the European attempt to create a bloc capable of playing a leading role and
global economic and political life, the setbacks suffered by Japan, the increasing prominence of
China and India and the transition in the former eastern countries. The predominance of new
democratic systems, in spite of the problems associated to these new democracies such us:
corruption and concentration of richness (Argentina!).
56
57
III. Opportunities and risks.
We identify some opportunities for the Developing or Less Developed Countries (LDCs):
- The increase of developing countries’ integration to the world economy and the
improvement of their standard of living: As a result of the access to new technologies, the
increase of trading as well as capital flows.
- The emergence of environmental compensations (carbon credits).
- The increase of tourism.
- The breakdown of archaic structures of power and domination and the creation of new
democratic states. (this hypothesis has not been proved yet )
- In the long run: The offsetting of inter-countries inequalities (neither this one!!!).
But some of the risks are:
- The sudden opening of developing countries' economies: Developing countries tended to
open their economies faster than developed ones. Protectionist practices -particularly in raw
materials- have offset some of the globalization’s advantages for developing countries.
- Financial flows: International financial market flows are some times too strong and overcome
weak domestic institutional frameworks which are supposed to regulate them.
- The economic concentration: arising from global integration.
These risks and opportunities demand some kind of global governance in order to
coordinate national and international policies and objectives. The positive effects of
globalization on worldwide increase of quality of living are still “future potential” (at least
in many countries).
57
58
6. The economic dimension of Globalization
(Class 9)
As we tried to demonstrate globalization is a complex phenomenon, although many of its most
visible traits are economic in nature.
We will now focus on investment and trade flows among regions. Then we will analyze changes
in international finance and macroeconomic regimes. We will focus in volatility and contagion
which characterized capital flows and magnitude of capital flows in developing countries.
The topics we will, analyze in this chapter are:
I. International trade and investment
II. International finance and the macroeconomic regime
III. International migration
IV. International mobility of several chosen factors
I. International trade and investment
I. 1. International trade and economic growth: a variable historical relationship
Throughout XIX century international trade outpaced GDP increase: some reasons:
- The “Pax Britannica” after the Napoleonic Wars,
- The industrial revolution and the decrease of transport costs.
1870 – 1913 (First stage mentioned before): High international investment and trade flows (by
the way, The “Golden Age” of Argentina). There are some authors (Bairoch) who argued that the
world of those times was mainly protectionists except some European countries (England and
the Netherlands), some of their colonies and some Latin American countries. So, they argue that
international trade increase was due to economic growth and not the opposite which, based
upon Bairoch is one of the great myths of Economic History.
1914 -1945: International trade was interrupted; some countries had serious economies
problems. The breakdown and the depression of 1930 extended worldwide.
1945 and on (Second and third stages): Western Europe, Japan and the Asian Tigers
increased their share of world trade, based upon a strategy of conquering foreign markets.
Japan dominated international trade until late 70’s, then Asian Tigers in the 80´s and China in
the 90’s
Latin America's share of world’s international trades increased until early 50’s, decreased
between 50 and 73, stabilized until the early ‘90s and increased form there on (in fact much of
this last increase is due to Mexican exports to US but not the rest of the region).
I. 2. The emergence of internationally integrated production systems
There is also a close relationship between Foreign Direct Investments (FDI's) and
international trade. It is also favored by the emergence of internationally integrated production
systems, based on the concept of the value chain (international sourcing, international breakage
of the value chain, i.e. automobile industry of Mercosur nowadays)
58
59
In specialized literature on trade, there are identified four determinant factors:
- Reduction of transport costs
- Reduction of trade barriers
- Increase of differential branding of products (the same product made in one country and
branded in each one) within the different countries
- Break-up of production chains (Value Chains) (which leads to labor specializations i.e. auto
parts). This has fostered the relative growth of independent suppliers of intermediate goods and
services.
We may also consider that:
- There is also a strong corporate effort to homogenize consumer’s preferences, technologies
and products traded worldwide.
- The mobility afforded by technological progress turns subsidiaries into integrated production
and distribution networks
- FDI increase (and trade) are also facilitated by regulatory frameworks governing trade and
investments (see i.e. Chile or even Argentina while was stable).
- Lower costs of managerial information and communication and even just in time production
techniques also favor trade increase
One visible sign of globalization is the increase of cross border mergers and acquisitions. FDI
increased significantly during the 90’ although nowadays has lowered (FDI increased from 2 %
of worldwide capital formation in 1982 to 14 % in 1999) .There are currently over 60.000
transnational companies with over 800,000 foreign subsidiaries (hard to believe? Source:
UNCTAD United Nations Conference for Trade and Development).
FDI major recipients during the 90´s: China, India, Hong Kong, Mexico, and Brazil (and…
Argentina!)
I. 3. Challenges posed by the relationship between trade and economic growth
FDI have not helped to increase economic goods productions in South America (In Argentina
FDI was concentrated in services) and affected the domestic value chains.
After economic reforms, Mercosur countries decreased their manufacturing to total
employment ratio, while some Central American and Mexico countries increased this
ratio (El Salvador Honduras and Dominican Republic)
I. 4. Development of the institutional framework for international trade
As we said, after WW2, FDI’s and international trade started to grow significantly. Most of the
currently ruling international agencies were created at that time, the UN the IMF the World Bank
and the GATT among others.
59
60
Many developing countries developed a defensive strategy of protectionism followed by similar
barriers in the developed countries especially within the raw materials markets. The Uruguay
Round (1986-1994) of GATT was supposed to establish a turning point on this framework
of protectionism, but failed. Until 2005 the following WTO round – the Doha Round- took
place with no successful result yet.
II. International finance and the macroeconomic regime
II. 1. Transformations in the international financial system
During the last three decades of XIX century, the gold standard was consolidated as a
system of international payment and macroeconomic regulation, while large European
and US banks developed a network of international branches (first bankruptcy on Baring
Brother was by 1880 due tom a loan to…Argentina!)
Fiduciary money was worldwide issued by central banks (serious countries backed them with
gold or other resources to avoid a run on these reserves because of lack of confidence on this
fiduciary money)
The European countries partially abandoned the gold standard by WW1 and completely by
1930. The Breton Wood agreements started in 1944 in order to overcome this international
monetary disorder. But by 1970 gold standard was finally abandoned worldwide. By then, each
country started to define its own exchange regimes (European countries started their attempts to
tie their currencies at a somewhat fixed exchange rate and to moderate oscillations among
them. This was the initial monetary movement toward the Euro of January 1, 2002).
In the beginnings of the ‘70s, Argentina’ fast track to hyper inflation started
II. 2. Changes in recent episodes of volatility in financial markets
We may distinguish three basics recent trends:
- The worldwide concentration of banking systems (in the 90’s)
- The emergence of non-banking institutions: (pension and mutual finds insurance
companies, etc.) which after deregulation of the ‘80s started to claim a growing percentage of
the international financial markets
- The increasing influence of credit rating agencies and the demand of new tools of risk
diversification: (securitization of assets, mortgage – backed assets, etc)
Volatility is related to expectations of investors (i.e.: Italian foreign debt versus that of Argentina
by the end of 2001, in relation to their GNPs). This may be identified as a market failure as can
give rise to “self-fulfilling prophecies” (Murphy’s Law?)
Other reasons of volatility:
- Inadequate market regulations (Chile versus Argentina short term funds’ control)
- Liquidity problems related to investor which arise form their problems in other markets
60
61
- Association of one country with neighboring one (Thailand and the others; Argentina and
Uruguay)
II. 3. Capital flows to developing countries
Capital flows have overcome fundamental changes during the last three decades such us:
- The relative decrease of official financial funds against private ones (the latter are more
volatile and are in general pro-cyclical): The private flows volatility induces instability. Since the
Asian market crisis, cycles become shorter, subject of increasing contagion to neighboring
countries (and eve non- neighboring ones, see Russia – Brazil in late 1998, and so forth)
- Middle income countries (such as…Argentina) received more private financing than
poor countries in proportion to their population.
- Exceptional financing is lower than that of the 80’s: This reflects the new IMF’s policies
towards financing (the intended creation of some kind of international bankruptcy law for
countries pursued by nowadays IMF directory and the new Bush policy).
- A dangerous increase Latin American debt to GNP ratio: Debt to GNP ratio have risen in
Latin America from the 80’ to 90’s, from 20 % to 40 % approximately (Argentina is close to
100%). Debt to exports ratio remains in the order of 200 %, region average, (but much worst in
countries such as Argentina)
- The banking concentration arouse from international financial markets liberation
(referred before)
III. International migration
During the last quarter of XIX Century (in the first stage of globalization), mobility of capital and
increase of trade, were accompanied by an increase of migratory flows (one of the major
recipients worldwide was…..Argentina).Many New World countries adopted liberal immigration
policies and in some case immigration had official (and economic) support of governments.
A second wave of migration happened by 1950 (during the second stage).
Today’s migration pattern flows from South to North (different form the past that use to flow
towards unpopulated areas) Integration of immigrants to recipient societies have become a
major political issue (the integration of the immigrants is one of the major virtues of Argentina)
There is a recent trend to require foreign workers with specific skills which generate a “brain
drain” in countries of origin (Argentina!). It has been difficult to adopt global agreements and
specific courses of action in the mater (it is also becoming more complex due to terrorism, civil
rights of immigrants, drug trafficking, etc.)
61
62
IV. International mobility of several chosen factors
The following cart indicates the degree or international mobility of several selected elements:
Levels of Mobility
Factors (markets or attributes)
High Mobility
Information
Portfolio Investment Funds
Technology
Mobile
Goods
Some services
development)
(telemarketing,
Outsourcing
of
Software
Human Resources from poor countries
Somewhat mobile
Foreign Direct Investments
Managerial Resources
Regulatory schemes and corporate management styles
Low mobility
Middle income countries’ Human Resources
Some other services (mainly public utilities)
Immobile
Infrastructure
Basic principles and sovereignty considerations
Source: Andres Garcia Cairoli: Globalización - MERCOSUR: Estrategias para PyMES
62
63
7. Inequalities and asymmetries in the global order
(Class 10)
Globalization has not only created an increasing interdependence, but unfortunately also
originated the rise of international inequalities: the concentration of capital and technology
generation in developed countries and its associated influence in trade of goods and
services.
There are several recent research works on this matter, for example the one done by Joseph
Stiglitz, former official of the Clinton Government and the World Bank. Stiglitz won the Nobel
Price in Economy, with his research on the limitations of the markets in relation to the unequal
access to information. But the subject that made him famous in Latin America was his reluctance
to the globalization process as it took place since the Consensus of Washington (beginnings of
the 90´s). This Consensus defended a series of basic ideas that became the referential ones in
the globalization process since the division of The Soviet Union.
The subjects that we will go through in this chapter are:
I. Inequalities in global income distribution
II. Basic Asymmetries in the global order
I. Inequalities in global income distribution
I. 1. Long – term disparities between regions and countries
There is a widening gap between developed and developing. While GDP per capita was
around three times by the early nineteenth century, it has grown steadily to a current 20:1
(!!!) (Except the period 1950-1973 when it decreased slightly)
Latam has had a relatively good performance during first stage of globalization (18701913) compared to other developing regions and also a fairly good performance during
the second stage (1945-1973). During this second stage there was a tendency to “inwardlooking” development (imports substitutions, domestic industrial development, etc.). We may say
that until then, Latam could have been described as in an intermediate position within the world
context.
But during the third stage of globalization, during the ’80s were known as “The lost decade of
Latam” took place, a period in which most Latam countries were isolated of the global
financial markets, increased their foreign debt and diminished their GNP.
I. 2. Overall effect of international inequality
There is a constant differential increase of GDP per capita between developed and developing
countries (except India and China since 1973).
The inequality of income distribution within the developing countries –Latam particularlyis also rising. Some reasons: erosion of institutions for the protection of labor, technical
progress which only favors the most skilled workers, differential access to financial
63
64
sources among other reasons. So that, nowadays Latam has the most unequal
distribution of income worldwide (even more than that of Africa!)
This concentration of wealth (internationally as well as domestic) to some extent is an undesired
effect linked to the globalization process and has originated a new line of thinking within the
international financial and economic “think tanks” community (John Stiglitz among several
others)
II. Basic Asymmetries in the global order
II. 1. Three asymmetries in the international structure
We may identify three basic asymmetries:
- Extreme concentration of technical progress in the developed countries
- Greater macroeconomic vulnerability of developing countries.
- The high mobility of capitals compared to the low mobility of labor:: Therefore, poverty
and lack of skills remains isolated (as mentioned before, this issue is a main trait of the third
stage of globalization)
64
65
8. An agenda for the global order
(Class 11)
As we have seen in the previous chapter, even though the globalization process is irreversible in
the sense that the international integration taking place can not be detained, there are several
pending policies at the national, regional and global level, that might help the countries to take
advantage of the globalization process, in order to increase their human development and
standard of living. In this chapter we will discuss some policies that might help in this sense .
The topics that we will analyze in this chapter are :
I. Fundamental principles for the construction of a better global order
II. National strategies for dealing with globalization
III. The key role of action at the regional level
IV. The global agenda
I. Fundamental principles for the construction of a better global order
The challenges in building a new institutional order are enormous. We may set four basic
principles:
1 - Shared objectives
2 - Rules and institutions that respect diversity
3 - Complementarities of national, regional and global spheres of activity
4 - Equitable participation and appropriate international governance
1. Three key Shared objectives:
- To support the “global public goods”: Such as democracy, peace, justice, freedom and
respect for ecology and the environment.
- To correct international asymmetries: Mentioned before
- To establish a rights-based social agenda: In relation to civil, political cultural and labor
rights deserved by a world citizen
2. - Rules and institution that respect diversity:
We may state a rule: “The effectiveness of an international rule depends on the sense of
national policy ownership in every country supposed to be respectful of that rule”.
3 - Complementarities of national, regional and global spheres of activity
Globalization could be a disintegrative force in absence of suitable institutions. We talked before
on different wealth concentration among countries and even within every country. Therefore it is
necessary a suitable international framework. The same could be saying for global as well as
regional institutions (which might give some additional power to small countries)
65
66
4 - Equitable participation and appropriate international governance
Developing countries have little participation in international global institutions (i.e.: GATT). It is
required to ensure adequate participation in decision-making at international levels for all
players.
II. National strategies for dealing with globalization
“Global public goods” (democracy, peace, justice and freedom) themselves may not be
enough for a national strategy. Even though they represent the basic factors underlying
progress and standard of living, it is also necessary to take into consideration the following
components of a national strategy:
1. Macroeconomic strategy
2. Building Systemic competitiveness
3. Environmental sustainability
4. Social strategies in an era of globalization
1. Macroeconomic strategy: Macroeconomic policies should facilitate investments. All forms of
macroeconomic disequilibrium are economically and socially costly (see what happens if not:
Argentina). Discipline in this matter is essential (see Chile and its continuous improvement of
standard of living, even being a neighboring country into an impoverishing region). One of the
key objectives is to have a long term horizon which will permit corporate, familiar and individual
planning.
2. Building Systemic competitiveness; (Michael Porter’s “Competitive advantage of
nations” we’ll see this in a future lecture): Strategies for development of competitiveness
(from comparative to competitive advantages)
As Porter argues, there are several vulnerabilities for company’s performance in developing
countries:
-
Government distortions provide an unreliable basis for competitive positions
The absence of any national strategy leads to a lacks of genuine competitive
advantages
Price –based strategies and commodity exports are highly vulnerable to exchange
rate shifts
Exports to a few advanced markets together with lack of brands and direct
customer contacts, creates vulnerability to bargaining power and market shifts
3. Environmental sustainability: Following references like the Kyoto Protocols which intend to
generate incentives to minimize environmental costs and at the same time channel resources to
provide efficient environmental services
4. Social strategies in an era of globalization: Focusing in: education, employment and social
protection. Progress in these three areas will ensure equitable participation in the global
environment (this development tends to overcome the inherent threats of globalization)
66
67
III. The key role of action at the regional level
There was a strong momentum in the integration process in the region during the late 80’s,
which diminished by the late 90’s, due to fragility of countries' political and economical contexts.
Intraregional trade within South America increased enormously form 1990 to 1997. But it is still
necessary:
- To adopt common macroeconomic rules,
- The harmonization of the different regulatory schemes: technical standards, phyto-sanitary
requirements, customs requisites, etc.
- Strong financial institutions: There are growing needs for new regional financial institutions
and also to strengthen the already existing ones.
- Infrastructure: Highways, railroads, communications, etc. should be contemplated in the way
of a growing regional integration.
- Regional environmental institutions
- Rules to support labor migration
- Harmonization of educational programs
- The creation of regional and sub regional political institutions: Latin American Parliament,
etc.
The European Community experience is of major interest as a reference pattern of an
enhanced integration process to look at.
IV. The global agenda
1. Provision of macroeconomic “public goods”: Which requires building institutions capable
of ensuring the global coherence of the major macroeconomic policies and macroeconomic
control of all economies with a view to prevent disorders?
2. Sustainable development as a global “pubic good”: Including transfer and adaptation of:
education, research, development and technology
3. The correction
asymmetries
of
financial,
production,
technological
and
macroeconomic
4. Inclusion of migration on the international agenda
5. Economic, social and cultural rights. The foundations for global citizenship: On
principles such us: human and civil rights, democracy, equity, respect for cultural and ethnic
diversity and environmental protection.
67
68
9. External vulnerability and macroeconomic policy.
(Class 12)
We will analyze some of the factors of globalization that may endanger national policies and will
discuss about some of the strategies that may be applied at the national and international levels
in order to offset these risks. The topics of this chapter are:
I. Composition of external financing and vulnerability
II. Globalization and real macroeconomic instability
III. The domestic domain: offsetting volatility through countercyclical Macroeconomic policies
IV. The international domain: strengthening the governance of financial
globalization.
I. Composition of external financing and vulnerability
I. 1. Anatomy of capital flows
The volatile capital flows of the third stage of globalization have brought major instability in
Latam. Sharp variations of international liquidity have been a nightmare for Latam governments.
During the 70’s: international credit expansion permitted Latam to grow on huge credit account
dis-balances, which created unsustainable expenditure structures.
During the 80’s: This dis-balance sharply changed while international financing disappeared
during the 80’, therefore the already mentioned “lost decade of Latam” took place. There was
little or no financing for the region.
During the 90’s: While during the 70’s most external financing came in the form of syndicated
bank loans, during the 90’s the main source of financing were: FDI’s, bond emissions and
commercial bank loans. FDI’s included major privatization process region wide.
From 1998, after the Russian moratoria the financing cost increased (specifically in…Argentina).
Bonds as well as commercial bank loans were highly volatile and never regained the conditions
prevailing before this debt crisis.
I. 2. External financing and the business cycle
Country risk ratio (which reflects the perception of a country’s debt repayment capacity)
has become one of the most important macroeconomic indicators. Parallel evolution of
different countries’ risk ratio is a proof of contagion. (The case of Argentina and Uruguay in
2002)
Recent country crisis experiences indicate that countries’ vulnerabilities to sudden changes in
international financial markets are caused by three factors:
- The size of the current account of balance of payments deficit
- The soundness of domestic financial systems
68
69
- The dependence on short - term credit lines
II. Globalization and real macroeconomic instability.
We identify some of the global macroeconomic features that affected Latam:
- The pro-cyclical behavior of financial flows and public finances: A big disadvantage for
the region during the 90’s (also during the 80’s “lost decade”) was that the availability of credits
and the increase of public expenditure were pro-cyclically related.
- The weak investment process: due to the discouragement related to instability of external
financing
III. The domestic domain:
Macroeconomic policies
offsetting
volatility
through
countercyclical
The countries may apply some policies to diminish the risks which arise from the described
macroeconomic instability and from the cash flow vulnerability of the globalization. Some of
these policies are:
1. Prudential management of cyclical upswings: To have a strong strategy in relation to
fiscal and monetary aspects which require a long term view of policy design (Chile the opposite
of... Argentina!)
- Fiscal policy: targeting ratios of public debt versus GNP Federal and state
expenditures versus GBNP and so forth
- Monetary policy: To avoid unsustainable appreciation – or depreciation- of real
exchange rate (as unfortunately happened in Argentina)
2. The exchange rate regime
The recent Argentine case brings up several issues to the debate:
- The nominal anchor and a necessary fiscal stability associated.
- The effects of capital flows on revaluation of the national currency.
- The current preference of floating rates.
3. Self insurance mechanism: countercyclical nationally designed tools to offset volatility
4. Regulation and supervision of financial systems
5. Domestic financial markets developments: That lowers the dependence on foreign
capitals.
69
70
IV. The international domain: strengthening the governance of financial
globalization.
Achieving a greater international financial and macroeconomic stability should be taken as a
global “public good”. This highlights the crucial role played by international financial institutions in
correcting international disparities among developed and developing countries.
As referred in previous chapters it means:
- The creation of an institutional framework promoting financial stability: The role that was
supposed to be covered by the IMF
- The concession of Emergency financing
- The role of multilateral development banks: instead of only refinancing and demanding
adjustments policies, give new tools for growth.
- Searching for an alternative solution (tool) to problems of over borrowing. Difference
between Solvency and Liquidity:
Liquidity: Refer to the availability of cash and is a financial issue
Solvency: Refers to the good net worth position of an entity (country, company, family)
and is an economic issue
A country’s fundamentals are in good shape this would mean that this is a case of liquidity
urgency. In such a situation, the access to emergency financing would be an efficient tool. But if
there is a solvency problem, there should be differential tools to face the situation. This would
mean the development of some mechanisms to reduce debt while helping to equilibrate
macroeconomic variables.
To some extent this was the line of thinking of IMF officials and ex Secretary of State
O’Neill when they decided to stop supporting the Argentine government of Fernando De
La Rua in 2001: to design some kind of “chapter 11” bankruptcy regulation for countries.
This was related with the concept of “moral hazard”: the lenders (investors) that took a
higher risk trying to obtain a higher rate of return, lending to a riskier loan taker, should
face the consequences of their decisions. The multilateral financial agencies (IMF, WB,
IDB etc.) should not support the countries that have over borrowed (by 2003 this policy
had changed).
70
71
10. Globalization and environmental sustainability
(Class 14)
Economic globalization and environmental sustainability are deeply related. Scientific evidence
shows that the growing and cumulative human activities have produced environmental effects of
global nature (attempting against one of the previously values defined as: “global public goods” )
There has been a clear increase of environmental interdependence mainly during the third
phase of globalization since 1973. We will present some of the major changes in the region in
this matter, and will identify new challenges for international cooperation.
During the 90’s a new ethical and political framework emerged in relation to environmental
protection. The most relevant is the Principle 7 of the Rio Declaration on Environment and
Developments, regarding: “common but differentiated responsibilities” which implicitly
acknowledges environmental debt that developed countries have accrued with the rest of
international community. It reflects the different responsibilities in the generation of existing
environmental externalities and the associated different countries’ involvement matched to its
financial and technological capacities. This subject becomes an important tool for
negotiation between Latam and industrialized countries.
The topics of this chapter are:
I. The impact of productive restructuring on sustainable development
II. Changes in the production structure and their effects on environmental
sustainability
III. Economic globalization and the environment
I. The impact of productive restructuring on sustainable development
The environmental consequences of globalization are different from economic ones and
generally are longer-term, with dynamic and cumulative characteristics difficult to measure due
to its qualitative rather than quantitative parameters. (The extinction of species and the loss of
biodiversity for example they are more difficult to measure than, for example a specific country’s
central bank reserves)
This imposes some kind of a redefinition of comparative advantages of Latam:
- On one hand: New technologies have different effects in different countries: raw material
based economies are more sensitive toward new technologies such us those which diminish raw
material /output ratio, or biotechnology which transfers revenue and control of production from
framers to the majhor transnational chemical and pharmaceutical corps.
- On the other hand: Latam countries (especially those of South America) have some intrinsic
advantages, such us the access to cheap energy resources (hydraulic) and a comparative better
environmental status.
II. Changes in the production structure and their effects on environmental
sustainability
In recent years, services –which are less harmful for the environment- have increased their
relative weight in Latam’s economy. However, the relative decrease of primary and industrial
production has not alleviated pressure on the environmental damage (agricultural frontier has
been expanded, mining increased, forestry, fishing...)
71
72
In the primary sector: Issues like the conversion of forest to agricultural production are
generating enormous problems to environment (lack of CO/O2 conversion). Associated
deforestation rate is 1.2 % annually in Mexico and Central America where the problem is even
deeper than in South America (it is said that Haiti in the Caribbean, has lost even its trees’ roots,
which have been used as firewood. Then the soil does not retain water, so it is becoming a
desert).
In the industrial: FDI’s made by transnational corporations in the industrial: The FDIs of
the TNCs have demonstrated to have the advantage of cleaner production systems, commonly
associated with new technologies, management and environmental standards which have
positive implications towards environment.
In the service sector: there are some environmental pressures. Some of them arising, for
example, from tourism activities.
III Economic globalization and the environment
III. 1. The environmental impact of exports and FDI’s
FDI and globalization have oriented some Latam economies -especially in South America - to
reallocate resources to the natural resource-intensive products. As mentioned before,
transnational firms do have some advantages in this aspect:
- They have a growing pressure to comply environmental international agreements (such us ISO
14001),
- They defend their image of “environmentally friendly company”.
- They have easier access to new technologies (and more resources)
III. 2. Changes in international context and the environment
Disadvantage: Latam countries’ problems of poverty and slow growth have worked to the
detriment of environment. On top of this there are increasing international environmental
regulations, which will difficult Latam's exports (if productions attempt against environmental
“good practices”).
Advantage: On the other hand, developed countries -responsible for the bulk of the ecological
damage- should compensate developing ones. As an example of this prospective developeddeveloping type compensation, we may refer to carbon credit policy designed by the Kyoto
Protocols. The Latam contribution to CO2 emissions is slow: 3.8 % of total, compared to its
share of 8.5 % of world population (1999).
Unfortunately, the US (the biggest CO -combustion gas- producer worldwide) has not ratified the
Kyoto Protocol. On the other hand, Latam countries are some of the most committed to them (17
of only 46 countries to have ratified the Protocol are Latin Americans in year 2002)
72
73
La furia de la naturaleza
Por Jeffrey D. Sachs , Para LA NACION
NUEVA YORK
Desde hace un año, vivimos una racha de espantosas catástrofes naturales: el tsunami en el
océano Indico, las sequías mortíferas en Níger y otros países africanos, el sismo en
Paquistán, los huracanes Katrina, Rita y Wilma, las avalanchas de lodo en América Central y
los incendios en Portugal.
Son hechos inconexos y la vulnerabilidad humana frente a la naturaleza es tan antigua como
nuestra especie. No obstante, esos fenómenos tienen algo en común: nos advierten
a todos que no estamos preparados para estos golpes masivos ni para los que, sin
duda, vendrán.
La explosión demográfica ha expuesto a millones de personas a nuevos tipos de
vulnerabilidad extrema. La Tierra tiene hoy 6500 millones de habitantes, casi 4000
millones más que hace medio siglo. Según la ONU, de continuar las tendencias
actuales, en 2050 tendrá unos 9100 millones.
A medida que aumenta la población, miles de millones de personas se apiñan en
las áreas vulnerables del planeta: cerca de las costas, carcomidas por las
tormentas y el ascenso del nivel del mar; en las laderas de las montañas,
expuestas a aludes y sismos; en regiones con poca agua, castigadas por sequías,
hambrunas y enfermedades. Los grupos paupérrimos siempre son empujados hacia los
lugares más peligrosos para que vivan y trabajen allí. Y mueran, cuando sobrevengan
catástrofes naturales.
Muchos fenómenos importantes son cada vez más frecuentes e intensos. En parte,
esto obedece al cambio climático. En el caso de los huracanes, la explicación más
probable es el calentamiento de la superficie marina, provocado por el
calentamiento global, que, a su vez, es obra del hombre. En las décadas venideras, la
Tierra seguirá calentándose inexorablemente, y esto acarreará incendios, avalanchas de
lodo, olas de calor, sequías y huracanes cada vez más frecuentes y fuertes.
De manera similar, al paso que el hombre ocupa en exceso nuevas partes del
planeta y entra en contacto con nuevos hábitat de animales, éstos le transmiten
enfermedades infecciosas que nunca había padecido, como el sida y la gripe aviaria.
Probablemente los cambios climáticos y la interacción entre hábitat originarán otras o
agravarán las ya existentes, como sucede este año con el dengue en Asia.
Otro elemento común a todos estos desastres es nuestra aterradora imprevisión,
especialmente en lo que respecta a socorrer a los miembros más pobres de la sociedad.
Después del Katrina, descubrimos que el presidente Bush había puesto al frente de la
Agencia Federal de Manejo de Emergencias (FEMA) a un amigote, en vez de nombrar a un
profesional. Los equipos y el personal necesarios para hacer frente a la crisis estaban en
Irak.
De igual modo, en lo esencial, Paquistán estaba mal equipado para enfrentar el sismo
reciente, en parte porque, como Estados Unidos, gasta demasiado en sus fuerzas armadas y
73
74
muy poco en salud pública y previsión de emergencias. Los organismos internacionales de
socorro también andan escasos de dinero y recursos.
Los gobiernos deberían tomar algunas medidas básicas. Ante todo, deberían
evaluar con detenimiento los riesgos específicos que afrontan sus países, incluidos
los inherentes a epidemias, cambios climáticos, fenómenos meteorológicos
extremos y terremotos. Para ello, tendrán que crear y mantener un sistema de
asesoramiento científico de alto nivel y calidad. Por ejemplo, Bush mejoraría
enormemente la seguridad de Estados Unidos y del mundo si prestara menos atención a los
lobbistas políticos y, en cambio, empezara a escuchar a los científicos destacados acerca de
los peligros crecientes que plantean los cambios climáticos ocasionados por el hombre.
Cada vez disponemos de mayor asistencia experimentada para llevar a cabo esta tarea. El
Banco Mundial y el Earth Institute de la Universidad de Columbia, del que soy
director, completaron recientemente una evaluación global de varios tipos de
fenómenos naturales: sequías, inundaciones, sismos, etcétera. Valiéndose de
métodos estadísticos y cartográficos avanzados, identificaron la distribución
mundial de estas amenazas. Otros colegas del Earth Institute y centros de investigación
similares estiman meticulosamente la evolución de estos riesgos, en vista de los cambios en
el clima y en la población global, así como en las pautas de asentamiento humano y viajes
internacionales.
Los dirigentes políticos no utilizan este tipo de información científica en la forma
adecuada, debido a las profundas divisiones que todavía persisten entre la
comunidad científica, los políticos y la gente común. En gran medida, el público no
está al tanto de los conocimientos científicos que poseemos sobre las amenazas y peligros
que enfrentamos. Tampoco sabe que podemos prever esos riesgos y, por ende, reducirlos.
Por lo general, los políticos son expertos en ganar votos o construir alianzas más
que en comprender los procesos globales subyacentes (climáticos, energéticos,
epidemiológicos y de producción de alimentos) que afectan a toda la población del
planeta. Ni siquiera existe una comunicación adecuada entre diversos grupos de científicos
(sanitaristas, climatólogos, sismólogos, etc.), pese al carácter interdisciplinario de muchas
amenazas actuales. Si queremos superar los peligros que encaramos, debemos cerrar estas
brechas entre políticos y científicos, por un lado, y entre estos últimos, por el otro. A lo largo
de este año, la naturaleza nos ha recordado qué está en juego.
Es casi seguro que las amenazas se intensificarán en los próximos años, al
aumentar la densidad de población y los cambios provocados por el hombre. Esta
es la mala noticia. La buena es que poseemos, mejor que nunca, la ciencia y la
tecnología necesarias para abordar estos problemas. Podemos construir un futuro
más seguro, pero únicamente si estamos dispuestos a usar nuestros conocimientos
y experiencia científica para el bien común.
Jeffrey D. Sachs es profesor de economía y director del Earth Institute, en la
Universidad Columbia.
74
75
Bill Clinton: "Si no hay esperanza, hay violencia".
Por Eurípedes Alcántara, September 2005
El ex presidente norteamericano cree que el mundo está ante un escenario
optimista gracias al poder de la sociedad civil y asegura que desde su propia
organización intentará hacer de la preservación del medio ambiente un camino
para alcanzar la prosperidad económica
CHAPPAQUA, Nueva York.- Bill Clinton entró con fuerza en la lucha por ser el más
prestigioso ex presidente de los Estados Unidos, puesto que viene siendo ocupado por
Jimmy Carter. En los próximos días va a presidir en Nueva York la primera reunión mundial
de la Clinton Global Initiative (CGI), una ONG con objetivos grandiosos, como el de
promover el crecimiento económico sin impacto ambiental y conciliar las diferencias
religiosas como forma de acabar con el terrorismo. A los 59 años, plenamente recuperado de
una operación de revascularización cardíaca, Clinton espera reunir casi mil líderes
empresarios, sindicales y políticos de todo el mundo en la reunión en Nueva York, que
coincidirá con la ceremonia de apertura de la Asamblea General de las Naciones Unidas.
"No es un encuentro como el de Davos o el de la propia ONU, sino un foro de activismo del
cual cada participante saldrá con una lista de tareas a cumplir -dice el ex presidente-. Quien
no cumpla no volverá al año siguiente."
-Hace semanas, mientras el IRA renunciaba al uso de la fuerza después de 36
años, Londres aún estaba sacudida por el terrorismo islámico. ¿Qué nos enseña
esa coincidencia sobre el mundo en que vivimos?
-En primer lugar, pienso que, en parte, el IRA renunció al uso de la fuerza porque el pueblo
irlandés no quiere un futuro violento. Eso muestra lo que puede hacer una década de paz.
En ese período, Irlanda del Norte experimentó un rápido crecimiento económico y toda la
comunidad, más allá de sus diferencias, se sintió asociada en un solo futuro. Por eso,
cuando el IRA anunció la deposición de las armas, estaba reflejando la voluntad pública. En
segundo lugar, el hecho de que Irlanda del Norte tenga una conducción religiosa responsable
también tuvo su peso. El IRA aceptó que su desmovilización fuese monitoreada no sólo por
la comisión internacional que ayudé a organizar en 1998 sino también por líderes de las
iglesias católica y protestante. Esa es una historia. Lo que ocurrió en Londres es otra. Por lo
visto, algunos jóvenes profundamente desilusionados, personas sin futuro que no se sentían
parte de la comunidad, acabaron siguiendo un camino totalmente diferente bajo la influencia
de religiosos radicales. ¿Qué nos muestra esa coincidencia? Que podemos tener terror
globalizado en una sociedad abierta. Muestra que la influencia religiosa puede ser positiva
pero también negativa. Cuando alguien se considera dueño de toda la verdad y transforma
eso en programa político, ese alguien piensa que puede matar a quien esté en desacuerdo
con él. Eso es el mal. El bien es creer que Dios es amor y que es preciso buscar un camino
pacífico de conciliación de las diferencias. Entonces, encuentro que vimos esos dos caminos,
el bueno y el malo, aconteciendo al mismo tiempo casi en el mismo lugar. Vimos no sólo el
horror y la muerte en Londres, sino también el trazado del camino para un futuro mejor en
Irlanda del Norte.
-¿El terror de origen religioso puede ser erradicado?
-Lo más importante, desde mi perspectiva, es mantener la esperanza presente en el corazón
de la gente. Cuando se elimina la esperanza de alguien, todo lo que queda es la violencia.
Las personas que piensan en el mañana sintiéndose plenas, que tienen experiencias
positivas de vida, ya sea en el trabajo, en la comunidad o en la escuela, no se hacen
75
76
terroristas. El terrorismo es producto del aislamiento y de la sensación de alienación
de la cultura que se quiere atacar. La religión puede y debe ser parte importante
del camino al futuro común que queremos construir. La elevación del nivel de vida
en los países pobres es otra.
-Elevar los niveles de consumo de cientos de millones de personas en Asia y Africa,
¿no apresuraría el agotamiento de los recursos naturales? Si todos los habitantes
de la tierra alcanzasen el mismo nivel de consumo de los de California, ¿habría un
colapso ambiental, verdad?
-La respuesta más corta es sí. Pero la más larga es que es posible crear riqueza sin destruir
el medio ambiente. Ese es el gran desafío. En todo el mundo las reservas de agua están
disminuyendo, los suelos fértiles están siendo erosionados y la producción de granos
presenta una tendencia de caída. América del Sur es una de las pocas regiones del mundo
que lograron aumentar la producción de soja y de otros granos gracias a la tecnología y la
abundancia de tierras fértiles. Pero es una excepción en el mundo. La regla es la escasez de
agua y de tierras cultivables.
Por tanto, uno de los objetivos más importantes de mi iniciativa es encontrar
maneras de hacer de la preservación del medio ambiente un camino para alcanzar
la prosperidad económica. De otra forma, la reacción de las personas, digamos en
China y en la India, puede ser muy negativa. Pueden pensar que la preservación
ambiental es una trampa de estadounidenses y europeos para impedir el
crecimiento económico de sus países. Por eso tenemos que incentivar el uso de la
energía solar, de la energía eólica, y ayudar a popularizar técnicas de cultivo de
alta productividad, que nos ayuden a preservar el suelo y el agua. Así la gente va a
entender que preservar las hace más ricas y no más pobres. Las estadísticas nos
muestran otro efecto benéfico de elevar el nivel de vida y el consumo de las
poblaciones: a medida que los países se enriquecen, el crecimiento poblacional
pierde intensidad. Cuando se sabe que el mayor impacto poblacional del planeta
está en los países que tienen las grandes reservas forestales, queda clara la
importancia de ayudarlos a enriquecerse.
- Recientemente usted dijo que el mundo tiene que entrar en la fase posglobalización. ¿En qué consiste esa fase?
-La globalización de la economía tuvo efectos muy positivos, pero mucha gente no
se benefició. La única manera de ampliar esos efectos benéficos es poner en
escena a la sociedad civil. Creo que llegó la hora de que las organizaciones no
gubernamentales, las empresas, las entidades de trabajadores y las organizaciones
internacionales intenten desarrollar una política social y ambiental que esté a la
altura de los desafíos y oportunidades planteados por la globalización. El sistema
económico global solo no tiene cómo resolver todos los problemas, ni local ni
globalmente. Cuestiones como la degradación ambiental y el aumento de la
pobreza y de la desigualdad no pueden ser enfrentadas sólo por las fuerzas del
mercado. Por tanto, considero poco realista imaginar que podamos tener una
economía globalizada sin la contrapartida de una acción global social. Mi idea es
básicamente contribuir a la creación de una sociedad civil global con asociaciones
que trasciendan las fronteras nacionales y regionales.
-¿No está siendo demasiado optimista respecto de los resultados prácticos que
pueda lograr?
-Creo que unidos podemos producir resultados reales en un plazo más corto del que se
imagina. La sociedad civil global está expandiéndose rápidamente desde el fin del
76
77
comunismo real. Si usted mira lo que sucedió en el mundo desde la caída del Muro de Berlín,
en 1989, verá que tres fenómenos grandes y poco publicitados están dando forma al mundo
contemporáneo. El primero es el hecho de que, por primera vez en la historia, más
personas viven bajo gobiernos democráticos que bajo dictaduras. El segundo es la
expansión geométrica de Internet. El tercero es la consolidación de las ONG como
organismos de acción de amplitud mundial.
-Dejando de lado el hecho de que las naciones democráticas sólo en raras
ocasiones inician una guerra entre sí, ¿qué otras oportunidades fueron abiertas por
los fenómenos que describe?
-La explosión del uso de Internet como una herramienta de la ciudadanía ha sido
vital. Los chinos, por ejemplo, usaron Internet para obligar a su gobierno a
reconocer la gravedad del SARS, la gripe asiática, y tomar las medidas necesarias
para impedir su avance. Agréguese a eso la capilaridad de las ONG en los países en
desarrollo y en los países ricos y tenemos un escenario bastante optimista. La explosión de
las ONG va desde la Fundación Bill Gates, que gasta miles de millones de dólares en
tratamientos de salud en India y Africa, hasta las organizaciones menores que dan microcrédito en América latina, en Africa y en el sur de Asia. Bien, lo que creo que puedo hacer es
proporcionar a toda esa gente la posibilidad de concentrar sus acciones de modo que se
vuelvan más efectivas. Espero crear un ambiente en el que líderes empresarios, sindicales,
políticos y ONG puedan sentarse juntos y decir: bien, estas son las cosas que tenemos que
comenzar y terminar en el plazo de un año, estas son las áreas que consideramos vitales
para nuestro futuro común, etcétera.
-Los grandes proyectos suelen ser una invitación a la acción de los corruptos. ¿No
teme que eso pueda echar todo a perder?
-No es necesario que los proyectos sean grandes. Creo que hay diversas maneras de
financiar proyectos sin correr el riesgo de alimentar la corrupción. Para eso la calidad de las
personas es fundamental. En muchos países del extinto bloque comunista, hay a veces
veinte o cincuenta personas realmente capaces en el gobierno en medio de una burocracia
podrida y que no funciona más. ¿Qué podemos hacer? Identificar a las personas buenas y
ayudarlas. Estoy de acuerdo en que, cuando el gobierno es deshonesto, la ayuda equivale a
tirar el dinero a la basura.
-¿Se imagina volviendo a la Casa Blanca en la condición de "primer marido"?
- No sé nada de eso. Estoy muy orgulloso de mi mujer, que viene haciendo un trabajo
excepcional en el Senado y va a buscar la reelección en 2006. Antes de pensar en cualquier
otra cosa, ella tiene que enfrentar esa campaña. Lo que puedo decir es que estoy muy feliz
con el trabajo de mi fundación, buscando salvar vidas y resolver problemas.
77
78
11. The Latin America agenda for trade and investment
(Classes 15 and 16)
We may start this chapter by defining the concept of Productivity
Productivity: Is the amount of output created (in terms of goods produced or services
rendered) per unit input used. For instance, labor productivity is typically measured as output
per worker or output per labour-hour. With respect to land, the "yield" is equivalent to "land
productivity. Increases in productivity improve the societies´ living standards creating additiones
income. This iisue is central to the process of generating economic growth and capital
accumulation.
For example, the economic expansion of the later 1990s in the United States was basically
allowed by the massive increase in worker productivity that occurred during that period. The
growth in aggregate supply allowed increases in aggregate demand and decreases in
unemployment while at the same time that inflation remained stable.
Diversification of production and sustained increases of productivity is a result of a long
term process involving: technological, commercial and institutional continuous learning.
They include the implementation of horizontal neutral policies (independents of any specific
sector) and policies targeted to have impact on systemic competitiveness (Porter’s)
We will divide this chapter in the following three levels:
I. The national agenda
II. The regional agenda
III. The international agenda
I. The national agenda:
I. 1. To develop export promotion policies:
Many of Latam, countries based their export increase in a small number of products. Those
countries with a wider base of export products unfortunately have concentrated their export
market in the US (Mexico and some Caribbean countries).
So either they have few exportable products or they have few export destinations!
We may identify several effective tools for exports promotion:
-
A competitive exchange rate (Argentina did not do its home works here!).
An active diplomacy and the use of diplomatic network for commercial uses,
An active export promotion policy oriented to diversify export base: Mostly in favor
of high value-added products
Access to financing,
The establishment of mixed (stated and privately owned) export promotion
agencies,
The creation of investment banking channels which may supply venture capital for
new activities: We may recall PROCHILE (the export promotion office of Chile) as a
very efficient initiative in this regard.
78
79
I. 2. Policies on linkages and clusters.
The integration of the export sector to the national economy is a standpoint of success in the
country’s integration with the international economy. This means an effort to integrate the export
sector to the rest of the national economy, so the growth in exports flows to the overall country’s
economy. Policies to create more and better production linkages are crucial in this matter. Some
of these policies may be:
- The promotion of forward linkages: Vertical integration along the value chain to final markets
departing from raw material production, (areas with potential may also be found in tourism,
assembly of product branding activities, etc.)
- The promotion of associations among business enterprises: Big companies to be induced
to support and promote linkages (Techint and its small suppliers’ network, SGRs and so forth,
some examples within the automotive industry, tourism, etc.). Another interesting example is
Intel’s FDI in Costa Rica which relies on a commitment of the Costa Rican government to help
the modernization of local supplier and their integration to Intel’s network. This was
accomplished by several technological, commercial and managerial training programs,
administrated through the Local Chamber of Industry and many other national institutions
- The development of logistical, quality-control marketing and technical consultancy
services: to help and facilitate export related activities
II. The regional agenda:
Regional agreements have shown to be vulnerable to the Latam countries’ crises. As
mentioned in Chapter 8, it is necessary to evolve toward the generation of “a
comprehensive regional policy of integration and development”
For example, a regional financial architecture would mean the coordination of macroeconomic
policies (Europe experience is valuable in this matter, but take into consideration that it took
them 25 year to coordinate this policies!)
There is a need to homogenize phyto-sanitary rule, legal and educational frameworks, improve
physical infrastructure (there is no route between Panama and Colombia!!!) and harmonize
transport and overall regulations.
Regional integration favors gains in scale of production, gains in diversification to non traditional
exports, in the production of more knowledge intensive products (f. example: Argentina’s
Microsoft branch sales in Central America). Joint R&D investments (and efforts). It also creates
advantages for SME (small and medium enterprises) to conquer external markets and to
improve their managerial and technological practices in the exchange of experiences with
neighboring SMEs
In synthesis, the region (and the sub regions) needs much stronger institutional structures to
make progress: macroeconomic and regulatory coordination, the improvement of physical
infrastructure and finally, the advocacy to common interests within hemispheric and global
policies.
79
80
III. The international agenda
International negotiation within current globalization process is going far beyond conventional
commercial agreements, taking into consideration issues that previously fell exclusively within
the domain of national policy (international movements of the factors of production,
environmental regulatory legal and labor standards, etc.)
As we referred to asymmetries in previous lessons, negotiations should take them into
consideration. Some of the subjects:
- The liberation of trade in agricultural products: Quantitative and qualitative restrictions quotas among others-, the discontinuation of export subsidies from developed countries, etc.
- Developing countries must emphasize their need to increase rate of development to
consolidate progress already been made in previous agreements: This would require
policies to offset previously mentioned asymmetries (many of Stiglitz' recommendations and
critics are related to this matters)
- Two pending subjects: Labor mobility and the flow of technological and financial resources
from more to less advanced regions for explicit purpose of ensuring the convergence of levels of
developments (if there are any doubt on this need of a healthy globalization, 50 years is nothing
and how would these problems be at that time?: the Amazon’s rain forest, the Ozone hole, the
increase of world temperature e due to the concentration of CO2…)
Agricultura subsidiada y pobreza rural
Por Alieto Aldo Guadagni (August 2003)
Europa, los Estados Unidos y Japón controlan las reglas de juego del comercio internacional
en contra de los agricultores de los países en desarrollo, lo cual significa quitar la escalera
del progreso para la población más desesperada... Con nuestras acciones estamos
cosechando pobreza en todo el mundo" (The New York Times, 20/7/03). Para ilustrar la
validez de este editorial vale citar lo que ocurre en Tanzania, donde el gobierno holandés
apoya a sus productores lácteos hace más de veinte años, pero adonde, por el otro lado, la
Unión Europea exporta leche en polvo con subsidios que triplican la donación holandesa, con
lo que em7pobrece a ese país africano.
La próxima negociación multilateral de la Organización Mundial del Comercio (OMC) en
Cancún nos dirá si se desea avanzar en la reducción de la pobreza mundial, según las metas
fijadas por los jefes de Estado de las Naciones Unidas en la Declaración del Milenio (2000).
Aquí viene al caso recordar que tres de cada cuatro pobres viven en áreas rurales, de
manera que la lucha contra la miseria se gana o se pierde en este ámbito. La disminución de
la pobreza rural exige un aumento en la productividad de la agricultura de los países en
desarrollo, pero para que esto sea posible es indispensable la apertura de los hoy cerrados
mercados de los países industrializados.
Estas naciones traban el libre acceso de la producción de los países en desarrollo y, además,
distorsionan los mercados con subsidios a la producción y la exportación agrícolas. La
pobreza rural es la más endémica y penosa forma de pobreza en el mundo, por lo cual las
trabas al libre comercio agrícola son socialmente regresivas.
80
81
Podemos citar doce hechos muy elocuentes:
- Los subsidios agrícolas de los países industrializados son seis veces superiores a su ayuda
a los países pobres.
- De cada dólar de subsidio agrícola sólo la cuarta parte apoya a los pequeños agricultores
europeos: el resto se lo llevan los productores grandes. Como estos subsidios empobrecen a
los agricultores de los países en desarrollo y además encarecen la canasta alimentaria de los
más pobres de los países ricos, crece la desigualdad, de la cual se acusa a la globalización.
- Los aranceles que aplican los países industrializados a sus importaciones agrícolas trepan
a medida que aumenta el grado de procesamiento (hasta 1000 por ciento en Corea, 500 por
ciento en la UE y 350 por ciento en los Estados Unidos). Así se traba la incorporación de
tecnología para incrementar el valor agregado y se condena a los países en desarrollo a
exportar bienes primarios sin elaborar, que tienen menores barreras.
- Las barreras técnicas aplicadas a las importaciones agrícolas por los países desarrollados
tienen en muchos casos un objetivo proteccionista.
- La Ronda Uruguay sirvió poco para reducir el proteccionismo agrícola. En casos como el de
las carnes, trigo, arroz y lácteos, el arancel efectivo es ahora superior al vigente antes del
Acuerdo de Marrakesh.
- Una vaca europea tiene un subsidio de la UE que llega a 2,50 dólares por día, mientras
que el subsidio para una vaca japonesa es de 7,50 dólares diarios. En Africa el 75 por ciento
de la población gana menos de dos dólares por día.
- Los productores de algodón de los Estados Unidos tienen subsidios que triplican toda la
ayuda de los Estados Unidos a los países africanos. Estos subsidios contribuyen a
empobrecer a los agricultores algodoneros del norte y del este de Africa.
- Los subsidios de la UE permiten producir remolacha azucarera en la septentrional
Finlandia, lo cual contribuye a que los eficientes pero pobres productores azucareros de los
países tropicales apenas sobrevivan.
- Gracias a los enormes subsidios al trigo, la UE pudo pasar de importar cinco millones de
toneladas anuales en los años 70 a exportaciones de 20 millones en los 90, con lo que
desplazó a productores eficientes.
- La protección al arroz en Japón equivale a un arancel del 700 por ciento del precio del
arroz eficientemente producido por Vietnam y Tailandia.
- La nueva Ley Agrícola de los Estados Unidos (2002) otorga fuertes subsidios al maní,
protegido además por una barrera arancelaria del 150 por ciento.
- Los pobres de los países en desarrollo producen bienes de exportación que enfrentan en
los países industrializados tarifas hasta cuatro veces más altas que la correspondiente a las
modernas manufacturas industriales.
Globalización equitativa
No habrá reducción de la pobreza si no se facilita el crecimiento de los países en desarrollo,
pero para muchos de ellos no habrá crecimiento sin avances tecnológicos en su agricultura.
Como los pobres producen principalmente bienes agrícolas (además de otros productos
intensivos en trabajo), es evidente que el orden comercial mundial está sesgado
negativamente contra ellos.
Los países industrializados agrupados en el G-7 son los únicos que pueden definir si el
mundo avanzará hacia una globalización equitativa en la reunión de la OMC en Cancún, en el
mes de septiembre. ¿Es pedir mucho que sus gobiernos tomen en serio la liberalización
comercial, que es crucial para erradicar la pobreza, como apunta The New York Times?
El autor es el representante argentino en la Junta Directiva del Banco Mundial
81
82
América latina puede salir del atascadero
Por Jeffrey D. Sachs
Para LA NACIÓN
21/7/2004
NUEVA YORK
Uno de los mayores enigmas de la economía mundial es el mal desempeño de América
latina. A comienzos de los años 80, entró en un atascadero del que todavía no ha salido. En
buena parte de la región, los ingresos per cápita crecen despacio (cuando crecen) mientras
las grandes crisis se suceden unas a otras. Ha ensayado muchas políticas, en especial la
liberalización del comercio, la privatización de las empresas estatales ineptas y las reformas
presupuestarias. Aun así, hay algo que la retiene.
La falta de un crecimiento enérgico es tanto más desconcertante al ver sus ventajas y
logros sociales, que no son pocos. Posee abundantes recursos naturales y vastas tierras
fértiles. El estado de salud de sus habitantes es razonablemente bueno. La alfabetización ha
progresado en todos los países; en la mayoría de ellos, ya ha llegado al 90 por ciento, o
más, de la población adulta.
Los índices de natalidad han caído en picada, a tal punto que muchas naciones
probablemente experimentarán una nivelación demográfica en las próximas décadas. Ha
mejorado el status de la mujer. Las niñas acceden a la educación a la par de los varones y,
en muchos países, sus índices de matriculación son superiores. Los latinoamericanos serán
famosos por su cultura machista, pero las mujeres integran cada vez más la fuerza laboral
y alcanzan posiciones destacadas en la política y en la sociedad.
América latina se jacta de poseer otras ventajas a largo plazo. Su población se concentra
cerca de las costas, con buen acceso al comercio internacional, y es mayoritariamente
urbana, lo cual también ayuda al crecimiento. A decir verdad, si la juzgamos según las
pautas internacionales, no es una región pobre. Más bien, está atascada en la franja de
medianos ingresos, entre los lugares más pobres del mundo y los países con ingresos altos
de América del Norte, Europa y Asia oriental.
¿Cómo se explica, entonces, la incomprensible falta de crecimiento real durante el último
cuarto de siglo? La atribuyo a dos problemas no resueltos, pero solubles. El primero -las
divisiones sociales- se remonta al siglo XVI, cuando los europeos conquistaron el Nuevo
Mundo. Pocas regiones del orbe nacieron en medio de una conquista tan violenta. Los
europeos sojuzgaron a las poblaciones indígenas y trajeron esclavos africanos, de manera
masiva, sobre todo a Brasil y a la cuenca del Caribe.
Las uniones mixtas entre europeos, indígenas y africanos crearon sociedades complejas
desde el punto de vista étnico y racial. No obstante, a la larga, la tendencia a la dominación
europea, el sometimiento de los aborígenes y los negros, y una pobreza arraigada se
convirtieron en una lacra de las sociedades latinoamericanas. Todavía hoy, la desigualdad
de los ingresos (una de las mayores del mundo) refleja las viejas pautas de división étnica
y racial.
Dicha desigualdad arroja una larga sombra. Desde hace añares, los ricos se resisten a
pagar los impuestos necesarios para invertir más en la educación y la salud de los pobres.
Con ello, perpetúan las profundas divisiones sociales y dejan a mucha gente sin las
condiciones de salud y capacitación que requiere la competitividad global. En algunos
lugares, como Brasil, la situación está mejorando; es un buen augurio. En otros, como
Guatemala y ciertas zonas andinas, persisten las divisiones sociales cargadas de violencia y
desconfianza.
82
83
Más allá de todo esto -y aquí paso al segundo problema- se ha desatendido bastante una
falla fundamental de la estrategia económica, reflejada en una diferencia capital entre los
debates públicos sobre políticas en América latina y en Asia. Los asiáticos discuten cómo
actualizar su tecnología. Sus gobiernos llevan a cabo una acción implacable para acrecentar
las capacidades científicas y tecnológicas de sus economías. Los latinoamericanos discuten
mucho menos la revolución tecnológica global y rara vez dan especial importancia a las
políticas nacionales tendientes a estimular la ciencia y la tecnología.
Resultado: América latina no ha aprovechado en forma adecuada las revoluciones
tecnológicas globales. Los países asiáticos en desarrollo ya producen computadoras,
semiconductores, medicamentos y software. En cambio, hasta Chile, la nación
latinoamericana con mejor desempeño, sigue siendo en gran medida una economía
exportadora basada en los recursos, muy concentrada en el cobre y los productos agrícolas,
dos sectores tecnológicamente sofisticados, pero que constituyen una base estrecha para el
desarrollo a largo plazo.
La situación dista de ser desesperante. Brasil se ha mostrado capaz de ser una potencia
exportadora tecnológica. Cabe señalar sus éxitos en la exportación de aviones y numerosos
alimentos no perecederos. México también ha empezado a movilizar una significativa
destreza tecnológica. Si se lo propusieran en serio, Chile, la Argentina y otras naciones
podrían convertirse en productoras agrícolas de alta tecnología y ponerse, por ejemplo, a la
vanguardia de la biotecnología aplicada a la agricultura.
Sin embargo, los latinoamericanos todavía no han intentado fomentar una revolución
tecnológica. Ciertamente, no con la atención, habilidad, compromiso y financiación que
dedicaron los asiáticos. Tal impulso podría desempeñar un papel importante como
trampolín del crecimiento económico.
De aplicar esta política, deberían comprometerse a gastar mucho más en proyectos de
investigación y desarrollo, como lo han hecho los países asiáticos. Su objetivo debería ser
llevarlos del actual 0,5 por ciento del PBI a un 2 por ciento, en parte brindando apoyo
estatal a los laboratorios y las universidades, en parte incentivando al sector privado.
Deberían recibir con los brazos abiertos a las multinacionales de alta tecnología, como lo
hizo Asia.
También deberían poner más atención en la formación científica y tecnológica, y alentar a
un mayor porcentaje de estudiantes secundarios por seguir carreras universitarias. Los
gastos estatales en becas, así como en la construcción y ampliación de universidades, y las
inversiones en materiales informáticos para escuelas y comunidades pueden coadyuvar
notablemente al logro de estos fines.
Existe una interdependencia entre los programas sociales y los tecnológicos. Unos y otros
exigen que las sociedades latinoamericanas inviertan más en sus pueblos para que América
latina pueda incorporarse a la vanguardia de la productividad global. Si estas inversiones
llegan a todas sus comarcas, ya sean ricas o pobres, las perspectivas regionales mejorarán
enormemente.
© Project Syndicate y LA NACION
(Traducción de Zoraida J. Valcárcel)
El autor es profesor de economía y director del Earth Institute, en la Universidad Columbia
83
84
12. Michael Porter's Competitive Advantage
(Classes 17 and 18)
Strategic planning as a formal discipline originated in the 1960s and early 1970s. Japanese
success did not seem to depend on planning as much as it did on quality, corporate and national
culture, and management itself. Yet, the need for planning remains, for, as Peter Drucker
reminds us: Management has no choice but to anticipate the future, to attempt to mold it,
and to balance short-range and long-range goals.
The idea behind long-range planning is: "What should our business be? It is necessary in
strategic planning to start separately with these three questions:
- What is the business?
- What will it be?
- What should it be?
Long-range planning should prevent managers from uncritically extending present trends into
the future, from assuming that today's products, services, markets and technologies will be the
products, services, markets, and technologies of tomorrow, and above all, from dedicating their
resources and energies to the “defense of yesterday”
Peter Drucker asked, "What do we have to do today to prepare for tomorrow?” In this
sense, Michael Porter's work is very useful for planning in a world in which outcomes are not
certain. His book “The Competitive Advantage of Nations” has been called "brilliant" by
some and "nothing new" by others.
Porter's work does provide powerful tools to find out why some firms are successful and other
not. We will briefly define three of the main Porter’s concepts:
3. IV. 1. Competitive Strategy
3. IV. 2. Competitive Advantage
3. IV. 3. The Competitive Advantage of Nations
3. IV. 1. Competitive Strategy
Porter's book Competitive Strategy, published in 1980, is an exhaustive look at strategy. His
context is the world of the late 1970s, but the structure that he sets out is a very useful vehicle
for the business historian. "The essence of formulating competitive strategy is relating a
company to its environment". The company should identify the “success factors” of its
performance. Which are the elements that make a company more successful than its
competitors?.
However, we may say that:
- It is usually difficult to identify success factors relevant to a particular situation.
- Even when a success factor has been diagnosed to be relevant, the implications for the
managers are not completely concrete.
The structural analysis of industries includes descriptions of:
- Rivalry among existing competitors
- The threat of new entrants
- The threat of substitute product or services
- The bargaining power of suppliers,
- and the bargaining power of buyers
84
85
The intensity of rivalry among existing competitors depends on the balance of competitors,
industry growth, the size of fixed or storage costs, the amount of differentiation or switching
costs, the minimum size of investment, the types of competitors and the size and type of exit
barriers.
Porter considers barriers to entry (related with the threat of new entrants) which include
economies of scale, product differentiation, capital requirements, switching costs, access to
distribution channels, cost disadvantages independent of scale, government policy, and
expected retaliation.
Substitute products offer alternatives and limit the size of profits. Substitutes also depend on
price and the ease of switching costs.
The bargaining power of buyers depends on the volume of purchases relative to the sellers
capacity, the fraction of cost the purchase represents, the degree of standardization of the
purchase, the level of switching costs, the level of profits, the threat of backward integration, and
the importance of its quality. The bargaining power of suppliers mirrors that of buyers.
Competitive strategy should lead a firm to either a cost or differentiation target. A firm may
also seek a niche based on cost or differentiation. Porter argues very strongly that a firm
should not attempt to both differentiate and be a low cost leader. The danger is that a firm
may be caught in the middle and lose to those firms that do specialize.
So, there are two basic types of competitive advantage a firm can possess: low cost or
differentiation. The two basic types of competitive advantage combined with the scope of
activities for which a firm seeks to achieve them, lead to three generic strategies for achieving
above average performance in an industry: cost leadership, differentiation, and focus. The
focus strategy has two variants, cost focus and differentiation focus.
1. Cost Leadership
In cost leadership, a firm sets out to become the low cost producer in its industry. The
sources of cost advantage are varied and depend on the structure of the industry. They may
include the pursuit of economies of scale, proprietary technology, preferential access to raw
materials and other factors. A low cost producer must find and exploit all sources of cost
advantage. If a firm can achieve and sustain overall cost leadership, then it will be an above
average performer in its industry, provided it can command prices at or near the industry
average.
85
86
2. Differentiation
In a differentiation strategy, a firm seeks to be unique in its industry along some
dimensions that are widely valued by buyers. It selects one or more attributes that many
buyers in an industry perceive as important, and uniquely positions it to meet those needs. It is
rewarded for its uniqueness with a premium price.
3. Focus
When an organization can not afford either a wide scope cost leadership or a wide scope
differentiation strategy, a niche strategy could be more suitable
The generic strategy of focus rests on the choice of a narrow competitive scope within an
industry. The focuser selects a segment or group of segments in the industry and tailors its
strategy to serving them to the exclusion of others. Competitive advantage is generated
specifically for the niche. A niche strategy is often used by smaller firms. A company could
use either a cost focus or a differentiation focus.
With a cost focus, a firm aims at being the lowest cost producer in that niche or segment. With a
differentiation focus, a firm creates competitive advantage through differentiation within the niche
or segment.
There are potential problems with the niche approach. Specialist in niches could disappear in the
long term. Cost focus is unachievable with an industry depending upon economies of scale e.g.
telecommunications
“The danger is being 'stuck in the middle”
3. IV. 2. Competitive Advantage
The book Competitive Advantage, written in 1985, sets out the concept of the value chain.
"Every firm is a collection of activities that are performed to design, produce, market,
deliver, and support its product."
Primary activities in the value chain are: inbound logistics, operations, outbound logistics,
marketing and sales, and service. Support activities include firm infrastructure, human resource
management, technology development, and procurement.
Porter demonstrates that a firm may develop a competitive advantage in any one of these
areas. Individual firms' chains also become linked with buyers and sellers and it becomes
important for a firm to tap into these value chains. Porter returns to his early work on cost
advantage and differentiation to show that the value chain affects these goals. He considers
competitive advantage in the context of technology, competitor selection (there are good and
bad competitors), industry segmentation, and substitution.
He also examines the concepts of offensive and defensive strategy (Calza yeast producer
example)
86
87
3. IV. 3. The Competitive Advantage of Nations
“The Competitive Advantage of Nations” seeks to determine how nations become
economically successful. A nation's industrial firms will be successful the more rivals
they have. Open the borders to foreign competition, enforce anti-trust laws, and do not
favor mergers. Once firms in an industry stop competing, the industry will undoubtedly
stagnate, at least relative to their foreign rivals.
Horizontal strategy is a concept of group, sector, and corporate strategy based on competitive
advantage, not on financial considerations or stock market perceptions. Corporate strategies
built on purely financial grounds, provide an elusive justification for the diversified firm.
Moreover, the benefits of even successful financial strategies are often temporary.
Horizontal strategy -not portfolio management- is the essence of corporate strategy.
A nation can not succeed in the long run using low wages as a cost advantage. It will
never become competitive and it will not become rich. Porter comes to these conclusions by
focusing on why nations become home bases for successful international competitors in various
industries and services. He does this by examining ten countries--the United States, Japan,
Germany, Switzerland, South Korea, Great Britain, Sweden, and Italy. He also looked at
Singapore and Denmark, but did not report on them.
Porter argues that the term "competitive nation" has little meaning. Instead, the economic
goal of a nation should be to produce a high and rising standard of living for its citizens.
To do this a nation, or rather the industries of a nation must become more productive.
Hence he studies what makes an industry and then later an economy productive. Upgrading is
the key.
Improving factor productivity allows firms to compete in sophisticated industrial segments and
new industries, while maintaining full employment. A failure to upgrade them, results in slower
productivity growth, declining competitiveness, and eventually unemployment.
Porter uses these concepts to create a "diamond," the four forces which determine success for
an industry:
1, Human, physical, knowledge, and capital resources, as well as infrastructure
2. The demand conditions
3. The presence (or absence) of related and supporting industries (clusters) that are
world competitive
4. Firm strategy, structure, and rivalry
1, Human, physical, knowledge, and capital resources, as well as infrastructure:
A good supply of physical resources is not essential for economic growth as the case of
countries like Japan and South Korea show. In fact, he believes that countries such as Canada
and Australia (or Argentina?) have too "many" resources and this has prevented them from
becoming internationally competitive in industrial products.
2. The demand conditions: By this, he does not mean "aggregate demand" in the economist's
sense, but rather the dynamic effects. The quality of demand is more important than its quantity.
North Americans accepted low quality automobiles in the 1960s and 1970s from domestic
suppliers and this opened the market to foreign producers. He is interested in the composition of
home demand, the size and pattern of growth of home demand, and the mechanisms by which a
nation's domestic preferences are transmitted to foreign markets. For example, countries like
Sweden and West Germany, which restrict advertising, are not internationally competitive in
consumer industries, because they do not know how to market. On the other hand, the United
87
88
States developed a competitive advantage in medical products because there is still a private
market for medical services in that country. Government-sponsored health programs tend to be
more cost conscious than results oriented.
3. The presence (or absence) of related and supporting industries (clusters) that are
world competitive: The computer industry located in Silicon Valley is an example.
4. Firm strategy, structure and rivalry: This point of the diamond formed the core of Porters
earlier books. The context in which firms are created, organized, and managed, as well as the
nature of home competition varies among nations and plays a role in determining how
successful firms and industries will be.
Porter emphasizes commitment to an industry as important and argues that mobility of
resources in the economist's sense may actually be detrimental since too rapid a movement of
human resources could imply a lack of trained workers. "Chance" in such forms as war, oil
shocks, or acts of pure invention will have an influence, but they are ultimately secondary.
Government will also be important, but not determinant. Basically government's role should be to
influence the generation of the four points of the diamond.
The "diamond" becomes the method of analysis for most of the book. Porter stresses the
dynamic and interdependent nature of the four points of the diamond. He demonstrates how the
absence of any of these elements can lead to a loss of national advantage. But he particularly
stresses domestic rivalry as the most important element of this analysis. Firms may not respond
to opportunities unless they are pushed. "Competitive advantage emerges from pressure,
challenge, and adversity, rarely from an easy life."
Porter uses the "diamond" to look at the German printing industry, the United States patient
monitoring equipment industry, the Italian ceramic tile industry, and the Japanese robotics
industry in some detail. He emphasizes the importance of domestic rivalry and how its absence
may prove costly for some of these industries. Mergers seem to offer opportunities for success
by developing economies of scale, but the lack of domestic rivalry seems even more important in
hurting the industry. He stresses that free trade makes the domestic or home base all the more
important. Industry may emigrate from or not develop in a location where all four elements of the
diamond are not strong. Reliance on a competitive advantage based on factor costs will not
be successful, because somewhere there will always be a location or country where
factor costs are cheaper.
Porter’s argument is that after World War II, industrial history is a story of creating, not exploiting,
existing advantage. It is a story of overcoming disadvantage. High labor costs are a static, or a
competitive weakness, but they force firms to find new (and better) ways of manufacturing, thus
becoming a dynamic advantage. Or, to give a more recent example, restrictive environmental
controls should not be viewed as a cost burden, but rather as an opportunity to develop an
advantage in a new area.
Porter’s message for governments is to develop the "diamond." This means using government
as an aid, but not as the primary force. He does not believe that industrial policies (targeting) will
be ultimately successful. Targeting distorts market signals and alters the incentives of firms to
compete in an industry. When this happens, pressure is placed on government bureaucracies to
pick industries where the diamond can be developed and exploited. Such countries as South
Korea, which have practiced targeting, have had mixed results. Despite targeting machinery and
chemical industries, South Korea has not become competitive in these industries.
88
89
Porter emphasizes that nearly every industry he studied in almost all of the countries took
responsibility for creating or improving human resources. Firms that train their workers will keep
them because employees want to work for such employers. He also emphasizes the role of
education and training for all of the successful postwar economies he studies. A nation will not
have the ability to respond to opportunities, unless human resources have the ability to exploit
them. Indirect targeting by government in this area should prove beneficial because it provides
more opportunities for firms to be successful.
La receta de Porter para la competitividad de Latinoamérica:
es el turno de las empresas
Tomado de The Wall Street Journal 10 de Junio de 2004
Atlas Eléctrica S.A., uno de los principales fabricantes de electrodomésticos de Costa Rica, se
ha convertido en un caso de estudio en la escuela de negocios de Harvard. Su lección: cómo
una firma centroamericana logró expandirse más allá de sus estrechos mercados locales.
Para Michael Porter, experto sobre estrategia y competitividad, esta firma es ilustrativa de
cómo miles de empresas en América Latina han superado sus entornos locales de negocios
para competir en los mercados internacionales. Atlas es uno de sus mejores ejemplos en su
clase microeconomía y competitividad en la escuela de negocios de la Universidad de Harvard.
Desdichadamente, Atlas es una excepción. De acuerdo con el índice de competitividad
empresarial (BCI por sus siglas en inglés), desarrollado por Porter como parte del índice de
competitividad de los países, que publica cada año el Foro Económico Mundial, la mayoría de
los países latinoamericanos retrocedieron significativamente en términos de competitividad en
los últimos años, especialmente en el terreno empresarial. Un hecho que explica en gran
medida la razón por la cual la riqueza y el nivel de vida no mejoraron. Porter cree que la pérdida
de la competitividad de la región tiene dos grandes explicaciones: por un lado la crisis
económica global de fines de los 90 y principios de esta década y, por otro, un proceso de
reformas económicas a medio camino.
Porter, quien encabeza la lista de los 50 principales gurús de negocios del mundo de la
consultora Accenture, evaluó las perspectivas de América Latina en una entrevista reciente
con The Wall Street Journal.
WSJ: En los últimos años se ha sentido una enorme frustración en América Latina
porque las reformas de los años 90 no han generado los cambios esperados. ¿Cuál
puede ser la causa de esa sensación, de esa decepción generalizada
Porter: Es cierto, ha habido una gran decepción. Pero en primer lugar creo que justamente los
países que han tenido los mejores resultados son aquellos que hicieron las reformas como El
Salvador y Chile. Creo que en América Latina hubo demasiada concentración en las reformas
macroeconómicas y en la infraestructura física, sin suficiente atención a la parte
microeconómica, como la competitividad y la eficiencia regulatoria.
Las reformas macro son muy dolorosas. Requieren grandes sacrificios, pero no generan por sí
solas economías más productivas. La productividad depende de las firmas, de su capacidad
para competir en niveles más altos de eficiencia. Los países latinoamericanos empezaron la
tarea pero no la terminaron.
89
90
WSJ: ¿Es por ello que como región la competitividad empresarial de América Latina
decreció en los últimos años?
Porter: En parte es el resultado de la caída de la demanda y del ambiente de la economía global
en los últimos años. Pero la falta de reformas que modifiquen el entorno en el que las empresas
compiten es una razón fundamental. Incluso los países de la región que mejor desempeño han
tenido, no han logrado los mismos avances de los líderes en Asia y Europa del Este.
WSJ: ¿Cuáles son esas reformas necesarias a nivel micro?
Porter: Es todo aquello relacionado con el ambiente de negocios en el que las empresas
compiten. La calidad del recurso humano, la eficiencia de las administraciones, las
regulaciones, los incentivos relacionados con propiedad intelectual, las políticas de
competencia.
Durante la década de los 90, los países estuvieron dedicados a las privatizaciones, reformas
macroeconómicas, tratados de libre comercio y mejoras en la infraestructura física. Todo eso es
importante, pero a menos que más empresas sean más sofisticadas y eficientes, ninguna de
estas cosas va a llevar a un aumento de la prosperidad. Usted puede abrir los mercados, pero a
menos que mejore la eficiencia en los negocios, no va a tener inversión extranjera, no va a
tener empresas listas para exportar. Sólo hay una manera de crear riqueza y esta es a través
de las empresas. Un país puede heredar riqueza, por ejemplo, la abundancia de recursos
naturales. Puede heredar un buen clima para la producción agrícola, pero eso no crea riqueza.
La riqueza se crea cuando las firmas pueden ser eficientes y productivas en bienes y servicios y
venderlos al mercado internacional. El punto central de los problemas de América Latina está
en la productividad. Abrir los mercados no cura el problema de productividad, ni hacer las
reformas macro.
WSJ: ¿Pero, en realidad, qué proporción de la riqueza de un país depende de las
empresas?
Porter: De acuerdo con nuestro análisis, el 83% de las diferencias en el PIB per cápita se
explican por la competitividad empresarial. Es decir, cuando un país realmente está superando
en el mejoramiento del ingreso, en igualdad de condiciones, lo más seguro es que sea por sus
empresas.
WSJ: ¿Qué han hecho países como Chile o El Salvador para mejorar en aspectos micro
que otros no han hecho?
Porter: Si se mira el informe de competitividad de las empresas, se ve que Chile es el más
desarrollado de todos los países latinoamericanos. Y es comparable con Portugal y superior a
Grecia. Es muy fuerte en incentivos y en la intensidad de la competencia. Las debilidades tienen
que ver con recurso humano y tecnología. El Salvador, es muy débil en recurso humano, en
tecnología y en infraestructura física, pero han hecho un gran esfuerzo por simplificar los
trámites, reducir la burocracia, crear incentivos impositivos y abrir la competencia interna. Y
esos pasos conducen a empresas más eficientes y a la generación de competencia más
productiva dentro de la economía. Eso les permite aumentar muy rápido su Producto Interno
Bruto per cápita.
WSJ: Mencionó los que más han ganado en competitividad empresarial, ¿cuáles son los
países que podrían ser líderes en el futuro?
90
91
Porter: Creo que Colombia es un país que realmente sorprende. A pesar de la situación política
y de seguridad, en nivel de emprendimiento Colombia se destaca como un lugar donde están
ocurriendo cosas interesantes. Es un caso en el que las empresas superan el propio entorno de
negocios. Hay una enorme capacidad emprendedora. A Costa Rica también le va muy bien,
aunque no es muy dinámica porque todavía tiene los vestigios de una economía paternalista.
Costa Rica se ha beneficiado mucho de su recurso humano y está muy alto en capacidad
científica y técnica, pero bajo en infraestructura física.
México, ha mostrado una vitalidad con un enorme crecimiento en exportaciones, y no sólo en
recursos sino en productos más elaborados como los del sector automotor, entretenimiento,
equipos de comunicaciones. Brasil tiene una economía muy diversa, pero ha perdido
participación en el mercado de exportaciones entre 1991 y 2001. No se ve la misma vitalidad. El
país está creciendo en productos agrícolas, cuero y muebles, en cambio México ha logrado
apartarse de los sectores tradicionales. Perú sigue dependiendo de los recursos naturales.
WSJ: ¿Quienes definitivamente se están quedando?
Porter: En términos de crecimiento per cápita en los últimos diez años, Venezuela está al final
de la lista, incluso por debajo de Argentina. Por varias razones está en retroceso en todo lo que
tiene que ver con competitividad. Si Venezuela no tuviera petróleo estaría totalmente
desesperada.
WSJ: Usted identifica los países en tres fases de competitividad: los que dependen
exclusivamente de bienes básicos, los que adoptan tecnologías y los que son altamente
innovadores. ¿Dónde está América Latina?
Porter: Creo que América Latina es una mezcla. Aún muchos países como Argentina,
Venezuela, Paraguay son muy dependientes de sus riquezas naturales y no son
particularmente eficientes en utilizar esos recursos. Esas riquezas naturales no son malas en sí
mismas, pero un país tiene que explotar esos recursos de manera productiva, de modo que a lo
largo del tiempo un país pueda pasar a una etapa más avanzada de la competitividad. Pero lo
que encontramos es que cuando se tiene una enorme riqueza en recursos naturales, esto
tiende a retardar el desarrollo de las instituciones y las políticas que se necesitan para moverse
más allá. Por ejemplo Venezuela, con todo el petróleo que tiene, puede sobrevivir sin hacer
ninguna reforma. Chile es un buen ejemplo [de ser productivo con los recursos naturales],
aunque aún depende mucho de productos agrícolas y de minería. Están exportando, por
ejemplo, vino y de alta calidad.
WSJ: ¿Cómo ve a América Latina en la competencia frente a China?
Porter: Creo que China es mucho más dinámica que América Latina. La competencia con China
al mismo nivel va a ser muy difícil para América Latina. Creo que la principal oportunidad para
América Latina es justamente América Latina. La segunda gran oportunidad es América del
Norte, donde hay una ventaja en proximidad, logística y huso horario. No van a poder competir
con China en costos laborales. Van a tener que competir con valor agregado. Pero además,
creo que China no es una amenaza importante porque hay muy poco que se produzca en
Latinoamérica que vaya a emigrar a China.
91
92
Nordic countries and East Asian tigers top the rankings in
the World Economic Forum's 2005 competitiveness
rankings
Fragments, September 2005 - Geneva, Switzerland
Finland remains the most competitive economy in the world and tops the rankings for the
third consecutive year in The Global Competitiveness Report 2005-2006, released today by
the World Economic Forum. The United States is in second position, followed by Sweden,
Denmark, Taiwan and Singapore, respectively.
The rankings are drawn from a combination of hard data, publicly available for
each of the economies studied, and the results of the Executive Opinion Survey, a
comprehensive assessment conducted by the World Economic Forum, together
with its network of partner institutes (leading research institutes and business
organizations) in the countries covered by the Report. This year nearly 11,000
business leaders were polled in a record 117 economies worldwide. The survey
questionnaire is designed to capture a broad range of factors affecting an
economy’s business environment that are key determinants of sustained economic
growth. Particular attention is placed on elements of the macroeconomic
environment, the quality of public institutions which underpin the development
process, and the level of technological readiness and innovation.
“The Nordic countries share a number of characteristics that make them extremely
competitive, such as very healthy macroeconomic environments and public
institutions that are highly transparent and efficient, with general agreement
within society on the spending priorities to be met in the government budget.
The World Economic Forum has been producing The Global Competitiveness Report
for 26 years, and its unique mix of hard and soft data has made it possible to
accurately capture the broad range of factors seen to be essential to a better
understanding of the determinants of growth. Each year it has delivered a
comprehensive overview of the main strengths and weaknesses in a large number
of countries, making it possible to identify key areas for reform and policy
formulation.
China and India, 49th and 50th, respectively, now rank much more closely to one
another than in previous years. While China dropped 3 ranks, India moved up 5 places.
China had a slightly deteriorating score with regard to the country’s macroeconomic
environment, while India’s improved position is due to a somewhat higher rank in the area
of technology. Both China and India have had an excellent growth performance in recent
years. However, both countries continue to suffer from institutional weaknesses which,
unless addressed, are likely to slow down their ascension to the top tier of the most
competitive economies in the world.
As in previous years, Chile, ranked 23rd, leads the way in Latin America by a wide
margin. The gap with respect to the next best performer in the region has widened
from 26 places in 2004 to 31 places in 2005, a characteristic not seen in any other
region of the world. Chile continues to benefit from a combination of remarkably
competent macroeconomic management and public institutions, which have
achieved EU levels of transparency and efficiency: only 8 of the 25 EU members
have stronger performances in the area of public institutions.
92
93
Mexico has fallen 7 places since last year to 55th, ceding its second spot in the
regional ranking to Uruguay, while Brazil fell 8 places to 65th position. Both Mexico
and Brazil suffered major plunges in those indicators that capture the quality of
their public institutions, including factors such as judicial independence and
favouritism of government officials in policy-making and procurement decisions. In
the meantime, Venezuela, which had a ranking of 62 in 2001, continues its
precipitous decline to the bottom of the rankings, falling another 4 places to 89th
position overall this year. Widespread mismanagement has led to strong
deterioration in all areas measured by the index: the macroeconomic environment
has become highly unstable, the quality of public institutions has been eroded and
there has also been a measured decline across a broad range of technology
indicators.
Harvard Business School Professor Michael E. Porter presents the results of the
Business Competitiveness Index (BCI), an especially useful complement to the
GCI, with its emphasis on a range of company-specific factors conducive to
improved efficiency and productivity at the micro level, such as the sophistication
of the operating practices and strategies of companies, and the quality of the
microeconomic business environment in which a nation’s companies compete.
Results of the BCI rankings are fully reported in the Executive Summary and
available online at www.weforum.org/gcr
The Report contains a detailed country profile for each of the 117 economies
featured in the study, providing a comprehensive summary of the overall position
in the index rankings as well as a guide to what are considered to be the most
prominent competitive advantages and competitive disadvantages of each. Also
included is an extensive section of data tables with global rankings on over 100
indicators.
Additional Information in Spanish
Finlandia sigue siendo el país más competitivo del mundo, seguido por EE.UU., Suecia,
Dinamarca, Taiwán, Singapur, Islandia, Suiza, Noruega y Australia.
Chile es el país de América latina y el Caribe con mejores resultados en
competitividad, seguido, aunque a distancia por Uruguay, México, El Salvador y
Colombia, según los datos difundidos hoy por el Foro. En el ranking, la Argentina
se ubica en el puesto 72, detrás de Tanzania y Jamaica, pero respecto de 2004
avanzó dos posiciones.
El economista jefe del FEM, el boliviano Augusto López-Claros, al referirse a ese
país andino, ubicado como la 23 economía más competitiva del mundo. Chile, el
más competitivo de la región.
López-Claros señaló que “Latinoamérica tiene un país, Chile, con un nivel de
competitividad que se sitúa entre los de los países desarrollados. Como en
ediciones anteriores, Chile comanda la región latinoamericana por un amplio
margen".
"Chile tiene una increíble competitividad en las políticas macroeconómicas y una
política fiscal que es bastante admirable. Sólo hay ocho países en la UE que tienen,
93
94
por ejemplo, un entorno institucional mejor que Chile".
El modelo en que se basa el estudio ha sido desarrollado por los economistas
estadounidenses Jeffrey Sachs y John MacArthur.
En su exposición sobre la situación latinoamericana, el experto señaló que la
brecha entre Chile (23) y el siguiente clasificado, Uruguay (54), es de 31 puestos,
"una característica que no se da en ninguna otra zona del mundo". "
Asimismo se refirió a los casos de México y Brasil, las dos grandes economías de la
región, para señalar que el ICC mexicano cayó en 2005 un puesto, mientras que el
brasileño pasó del 57 al 65.
"Tanto México como Brasil han sufrido fuertes reveses en los indicadores que
reflejan la calidad de sus instituciones públicas, medida por factores como la
independencia de los jueces y el favoritismo por parte del gobierno en la toma de
decisiones de política y de adjudicación de contratos", explicó López-Claros.
En el caso concreto de Brasil, el economista consideró que el gobierno de Luis
Inázio Lula da Silva "lo está haciendo bien en los aspectos macroeconómicos",
pero también destacó que "en los últimos meses ha habido titulares adversos, que
no hablan muy bien del sector público", refiriéndose a los casos de corrupción que se
han producido en Brasil.
Tras Chile, Uruguay y México, aparecen clasificados en ese ranking El Salvador (56),
Colombia (57), Costa Rica (64), Brasil (65), Perú (68), Argentina (72), Panamá (73),
Venezuela (89), Honduras (93), Guatemala (97), Nicaragua (99), Bolivia (101), República
Dominicana (102)
De manera general, los especialistas del Foro indicaron que en la región
Latinoamericana coinciden dos graves problemas, como son los de índole
macroeconómica e institucional, a los que se suman otros como la excesiva
burocracia, la corrupción o las restricciones a la propiedad extranjera, presentes
en otras áreas en desarrollo.
94
95
13. The integration of Latam in global trade and production systems
(Classes 19 and 20)
Even though international trade of Latam countries have increased enormously during
the ‘90s, the region has been unable to transform its comparative advantages to
competitive features with the absorption of technical progress, which would finally lead
to greater social equity and human development .
We will now focus in:
I. Trade specialization in Latam
II. Investment flows and different corporate strategies being used in the region
I. Trade specialization in Latam
I. 1. General Trends
Between 1990 and 2001 Latam’s annual growth rate for merchandise trade was 8, 4 %in volume
and 8.9 % in value, only surpassed worldwide by China (including its trade with the US, Mexico
alone accounts for 50 % of Latam’s international trade). Imports grew faster than exports, which
generated larger commercial deficits and the deterioration of the region’s current account of
the balance of payment which accounted for 3 % of Latam’s GNP
GNP grew during the same period at a slow 2.7 % annual rate. There was a contrast: on one
hand increasing exports and FDI on the other this overall growth weakness
As explained in chapter 3, based upon Behrman (1972), there are 4 basic types of strategies for
Multinational Companies FDIs:
(i). Natural resources: Takes advantage of a country’s availability of natural resources (Oil/ gas
in Argentina, Bolivia or Venezuela, Copper in Chile, etc.).
(ii). Internal Markets: Focuses the internal markets of the FDI´s host country (banking, retailing,
telecommunications, electricity, etc.)
(iii). Economic efficiency: The FDI´s intends to take advantage of a country’s lower set of costs
(labor intensive industries –maquilas- in Mexico and Central America etc.)
(iv). Strategic capacities: Referred to competitive or strategic advantages developed within the
region where FDI is to be located. An example in Latam is the purchase of the Brazilian Brewery
Company Brahma by Belgium Interbrew). Examples worldwide may be: Technology based
industries at Silicon Valley, software activities in India (Bangalore Technology Park, etc) or the
purchase of Gillette by Procter and Gamble.
95
96
Based in this classification of the strategies, we may find there in the region three main patterns:
of FDIs:
- Mexico, Central America and the Caribbean: Economic Efficiency. Integration into vertical
flows of manufactured goods
- Some Caribbean countries and Panama: Focused in services: Following the previous
classification, we may include some of these activities into Natural Resources, those related to
the Panama Canal (transports and storage) as well as those activities related s and tourism. We
shall also consider the industry of off shore banking
- South America: Natural based resource commodities (with high intraregional trade) and
Internal Markets. A big percentage of the latter was due to the privatization process in South
America)
We observe that:
- The strategies of international companies have strong impact on these patterns of
integration into world trade flows.
- Unfortunately Latam specialization is mostly concentrated in low value-added products.
- The two most important destination of Latam’s increase of exports during the 90’s were the
region itself and the US.
- US, Europe and Japan accounted by year 2,000 for over 50 % of Latam’s exports. Except in
Mexico, intraregional trade is very important in Latam countries.
I. 2. The composition of trade in goods.
Since 1985 there was an increase of manufactured goods within the total export mix (from 24.3
% in 1985 to 52.3 % in 2,000) and consequently a decrease in primary goods (from 73.5 to 44.3
%). This change was more intense in Mexico and Central America. Mexico has become a more
dynamic and diversified exporter due to NAFTA, which absorbs more than 90 % of its exports. It
includes the defensive restructuring of USD automotive industry in response to Japanese
competition, the electronics industry (IBM, Hewlett Packard and Compaq among many others).
This demonstrates that Mexico has been a winner in the region in terms of international
competitiveness. Unfortunately this has not been transmitted to overall Mexican
economy, which has had slow growth during the last years.
The trend in South American was also to increase industrial exports, but less intense.
Still primary goods represent a big percentage of total exports: 59 % in Mercosur, 84 % in
the Andean Community and 89 % in Chile.
Brazil has a big economy and deserves special attention. The country’s foreign exchange rate is
to some extent responsible of sluggish export increase during the 90’s (a non-competitive
exchange rate from 1990 until its depreciation in 1998).
However by year 2005 Brazil had a huge increase in its exports basically due to the currency
depreciation in 2001 and 2002, which contributed to a dramatic current account adjustment: in
2003 and 2004, when Brazil ran record trade surpluses and recorded its first current account
96
97
surpluses since 1992. Productivity gains - particularly in agriculture - also contributed to the
surge in exports. By 2004 the country registered record exports, US$ 96 billion, and a record
trade surplus, US$ 33 billion
Brazil is also the country with the most active technology policy in the region (Sao Paulo’s State
industrial base, Embraer, Weg, Brastemp, etc.), but the country is still mainly a raw materials
exporter.
I. 3. Trade in services
During the last 20 years trade in services (telemarketing, software design outsourcing,
tourism, etc.) has grown faster than that of goods, accounting by 2,000 for 20 % of total
worldwide trade (us$ 1.400 billions). It is much more concentrated than trade of goods (5
countries account for 42 % of total services’ trade). Latham services’ trade accounted by 2.000
for just 56.2 billion or 4 % of worldwide total.
II. Investment flows to Latam
As a result of the significant increase in international capital mobility and Latam’s economic
reforms during the 90’s, FDI in the region increased more than fivefold during the decade, but
fell both from 2000 to 2002. By 2003/2004 it started to increase again.
FDI’s has been the most important source of financing, but on the other hand they generated an
associated increase of regional outflow in the form of repatriation of profits in recent years.
Since the early 90´s, the most rapid growth of FDI was oriented to services (helped by
privatizations region wide) especially in: telecommunications, energy, banking and retail
commercial chains. Until the late 80’s, FDI’s were headed to manufacturing for the supply of
Latam’s protected domestic markets.
We may define three basic FDI modalities:
-
-
-
Fixed capital formation in a host economy: The investor contributes to increase local
production capacity and usually local productivity (new plants, new equipment or new
technologies)
Acquisition or administration of public goods (privatizations): Privatization process
in most of the countries is almost finished and that is one of the reasons of decreasing
FDI’s, but there are still opportunities,
The purchase of private domestic assets (M&A’s): These two last alternatives do not
necessarily increase either country’s production capacity or productivity (in general they
help in these matters but it is not guaranteed)
97
98
II. 1. Comments in relations to the classification of FDI’s as proposed by Behrman:
As seen before, Behrman defined 4 basic types of strategies for Multinational Companies FDIs:
(i) Natural resources:
(ii) Internal Markets:
(iii) Economic efficiency:
(iv). Strategic capacities:
This is a simple way to classify FDIs, but we should take into consideration that FDI’s may
include multiple objectives (a combination of the basic strategies). For example the urea plant (a
fertilizer produced with natural gas as raw material) settled by Agrium (Canada), Dow Chemical
(USA) and Repsol (Spain) in southern Argentina is a good example of a FDI that focuses at the
same:
- Natural Resources (Argentina has natural gas the necessary raw material )
- and Internal Markets (even though a big percentage of this urea is exported, Argentina is
a big consumer, due to its important agriculture industry)
A recent study (Kulfas and others, 2002) shows that FDI invested in agro-industry, mining and oil
in Argentina (and also mining in Chile) have a high export ratio on top of supplying internal
markets.
At the same time, as we have seen the Chapter referred to Michael Porter, we may also classify
company strategic decisions in: defensive or proactive (Australian yeast production company
Calza and its French counterpart in Chile and Argentina)
In relation to services, many companies arrive to Latam looking for new markets. Privatization of
State owned assets (public utility concessions and large scale liberalization of
telecommunications, energy and financial services) prompted transnational corporations to make
massive investments into regional markets.
By means of these basic strategies, transnational companies linked Latam with the global
economy, and also helped to modernize certain sectors of infrastructure which are
essentials for building systemic competitiveness (such the case of….Argentina)
The purchase of existing assets has played an important role in FDI strategies within the region.
Firstly through the privatization of State owned assets (mainly in Argentina, Brazil, Peru,
Colombia and Venezuela). By the end of 90’s, as privatizations lowered, there was a growing
trend to “privately owned companies” buy-outs (some Mergers but mainly Acquisitions)
Overall, during the last decade, the purchasing of already existing assets, that includes two of
the three modalities described: Privatizations and Mergers and Acquisition of the domestic
private sector, accounted for some 40 % of total FDI’s, but it was exceeded (60 %) by
investment in news assets
We may highlight the difference between the purchase of already existing companies
compared to the FDIs of Fixed Capital formation in a host economy, as this latter adds
new production capacity and has demonstrated to be more effective in increasing the
host country’s productivity and competitiveness
FDI’s in the service sector during 1990-2000 accounted for some us$ 67 billion or 73.5 % of total
of us$ 94 billion. 50 % of this service arena investment was oriented to basic services (public
98
99
utilities: electricity, gas, water and telecommunications.) and the other 50% was oriented to
business services (banking, computer services and intermediation).
All of these mentioned developments produced a big change in corporate ownership within the
region. Foreign owned companies among the 1.000 largest rose from 312 in 1990 to 395 in 2000
and in terms of consolidated sales, they grew from 29,9 to 41.6 % in the same period. At the
same time, State-owned firm within this 1000 biggest, declined from 114 to 63 and sales’ share
from 32.5 % to 17.1 %.
In 2003/2004 we see that some Latin American governments are offsetting and opposing to the
privatization policies of the ‘90s. The governments of some countries are intending to put more
control on privatized companies and are even reassuming some of these companies, as we may
see in Argentine President Kirchner’s current policy. But we may interpret this as and adjustment
of some failures that arouse from that process, rather than a complete reversion of it
II. 2. Impact of FDI’s on regional competitiveness
FDI’s should improve the region’s competitiveness. One way to measure it, is a country’s
percentage of total world imports. This ratio has increased in Mexico but decreased in South
America. The reason for this fact is related due to the profile of FDIs in each country (in Mexico
they were headed mainly to production efficiency seeking, but in Mercosur to market access
including privatizations)
South America export structures continues to be dominated by raw materials and
resource- based manufactures, in opposition to Mexico (specially after NAFTA and the
Tequila crisis) the Caribbean and Central America where non-resource based exports
have grown considerably.
99
100
14. FDI Today
(Class 21)
We will make a brief update of what has been going on recently in terms of FDIs in the region
and which are the remaining sectors that still have potential to attract foreign companies.
Therefore the issues in this chapter will be:.
I. Regional Panorama
II. Panorama for the different strategies, agents and modalities of FDI’s in Latam
I. Regional Panorama
Years 1999 – 2003
Even though there was a great growth of investment in Latam during the’ 90’s total amount
started to decrease since 1999 until 2004 when the trend has been reverted.
1. Latam FDI’s decrease (1999- 2003) main reasons:
- Slow growth in the USA, Japan and Europe
- An associated decline in corporate profits
- A decline in FDI’s worldwide
- The almost completion of Latam’s privatization process
- The same for takeover of large domestic firms by transnational corporations (TNCs)
- A phenomenon affecting Asia rather than Latam: China’s strong attraction of global FDI
- The countries should activate and clarify their FDI policies, which are much clearer in
Asian countries (see what is going on in Argentina and the reluctance of most referential
politicians to FDI’s!!)
- The region’s national crisis (Argentina, Venezuela, Bolivia among others)
As an example of the decrease of FDIs in the region from 1999 to 2003, we may see the
following graph with de amounts for Mexico, Brazil and Argentina
100
101
2. Current FDI’s in Latam (2004 and on)
The trend was again reverted in 2004 when FDI inflows to Latin America and the Caribbean rose
by 44%, to US$ 68 billion, after four consecutive years of decline, according to UNCTAD´s World
Investment Report 2005: Transnational Corporations and the Internationalization of R&D (1).
The resurgence in FDI occurred in 28 of the 42 economies in the region for which data are
available. Brazil and Mexico consolidated their positions as the largest recipients of this
investment, accounting for 27% and 25% of the total, respectively.
The report features a special section on TNCs and the internationalization of research and
development.
The largest FDI increases in Latin America and the Caribbean occurred in MERCOSUR member
and associate member countries, especially Argentina (125%), Brazil (79%) and Chile (73%)
(fig.1).
The report attributes the strong growth in investment in Central America and the Caribbean
mainly to a 46% rise in inflows to Mexico. In the Andean Community, total inflows remained
almost the same as in 2003. Notable exceptions were Colombia and Peru, which had clear
upturns of 53% and 37%, respectively, and Venezuela, Ecuador and Bolivia, which saw
decreases.
In terms of FDI outflows from the region, Brazil accounted for the largest share -- US$ 9.5 billion
-- of the total of US$ 11 billion. Overall, outflows stayed about the same as in 2003. The largest
Latin American Transnational corporations (TNCs) in the region are from Mexico and Brazil
(fig.2).
A combination of regional and global factors explains the FDI upturn. Strong economic growth in
the region following a long period of stagnation revived market-seeking FDI, the report says,
while at the global level, improving economic conditions encouraged export-led FDI, and a
strong increase in demand for commodities boosted resource-seeking FDI. The manufacturing
sector was the main recipient of FDI arriving in Brazil and Mexico, surpassing the services sector
for the first time since 1996 and 2000 respectively. Service-related activities in South America
continued to experience divestments by foreign firms last year, sustaining a trend that began in
the early 2000s.
The year 2004 saw major changes in policy towards private investment in the natural resources
sector, where inflows come largely from foreign firms, the report notes. The strong rise in
commodity prices led some governments to modify their tax regimes and change legislation so
that states can secure a major share of the rent coming from natural resources. Shifts of this sort
occurred in Argentina, Bolivia, Chile, Peru and Venezuela. While such measures tend to have a
dampening effect on FDI, other policy changes were made that could have market appeal for
foreign investment, such as new investment promotion regimes in Argentina and Brazil that
target industrial activities, and measures in some Caribbean nations to end monopolies in the
telecom sector.
FDI flows to Latin America and the Caribbean are expected to rise further in 2005, the report
predicts, as most of the driving forces behind their expansion in 2004 appear set to continue.
After a prolonged period of economic stagnation in the region from 1999 through 2003,
investments will be needed to modernize and expand production capacity and remove
infrastructural bottlenecks, mainly in energy, roads and ports, so as to meet growing internal and
external demand. Rising demand from China for natural resources has created expectations of
substantial increases in Chinese FDI flows to Latin America and the Caribbean in coming years.
101
102
We may see in Figure 1: FDI inflows to Latin America and the Caribbean, top 10 economies,
2003, 2004 (Billions of US dollars and per cent)
3. A Recent trend: The appearance of Latam TNCs:
During the last years a new phenomenon appeared: several Latam companies are becoming
increasingly global. That is the case of companies such as:
- Petrobras (Oil Company of Brazil): The Company expanded throughout the region and
has an investment program of over us$3 billion up to 2010 in Venezuela, Colombia, Ecuador
Bolivia and Argentina
- Cemex (Cement Company of Mexico, the third largest cement producer inn the world
after Lafarge-France and Holcim Switzerland) purchased RMC Group (UK), and also companies
in Venezuela, Dominican Republic, Panama and Colombia
By 2003 the five largest TNCs from Latin America and the Caribbean, by foreign assets (in
Billions of US dollars and per cent) are:
102
103
We will focus now in different countries’ current FDI panorama:
Mexico: The change of the Mexican laws regarding foreign ownership of banks in the country,
led to the acquisition on Banamex – Accival (Banacci) by Citygroup in 2001.This Citygroup
operation was one of many banking acquisitions in the country (Banco Bilbao Vizcaya of Spain
purchased Bancomer and BSCH also of Spain purchased Serfin)
The reminder of FDI’s in the country was attracted by business opportunities emerging for the
NAFTA (low cost manufacturing of electronics, clothing and automobiles, among others).There
have been a number of investments in increase of production capacity and productivity in these
industries. But during the last years, some FDI which could have been directed to Mexico are
now headed to China, due to the lower cost of production and the more active and clear FDI
policies.
Brazil: Brazil continues to attract new FDI’s. The privatization process has largely passed.
During the past decade there was also a strong investment flow to: automobiles, chemicals,
electrical and telecommunication equipment, food and beverages
In the automobile industry the need of increasing productivity led to the closure of several plants
in Brazil (track plants of GM and Daimler Benz) as well as in Argentina (Renault transferred
production to Brazil) in order to gain scale in their productive units.
Many TNC’s purchased exploration licenses and made several partnership arrangements with
national oil company Petrobras
There are still interesting opportunities in telecommunications (Telecom, Italy) the electrical
energy sector (Iberdrola and Endesa of Spain ) and it is expected that in spite of the dangerous
foreign debt profile of the country, Brazil will remain being a strong destination for FDI’s along
with Mexico, India and China.
Venezuela: The most attractive sector in the country has been the oil industry. Nevertheless,
current political problems have stopped the flow of FDI’s to the country
Chile: Chile remains as an interesting destination for FDI’s, for the acquisition of private firms
and for new investments, due to Chile’s political and economic stability (the unique investment
grade country in Latam). For most investors Chile represents a stepping stone for investments
elsewhere in South America. Recently some FDI’s were headed to the gas sector (purchase of
Gas Andes by Totaling Elf of France) electricity (Pennsylvania Power and Light) and to the
manufacturing sector (Anheuser Busch purchase of 30 % of Compañias Cerveceras Unidas).
Investment in highways promoted by government. Copper mining
Ecuador: Oils companies are investing in these countries .Ecuador has already finished the
construction of a heavy crude oil pipeline which doubled the country’s transport capacity (over 3
us$ billion investment). However, the country’s political instability is delaying new FDIs inflows
Bolivia: The big reserves of gas are exceeding Brazil needs - a gas pipeline has recently been
finished-. So that, several firms are studying various projects for developing these gas reserves
103
104
and the necessary infrastructure, in order to export the liquefied natural gas (LNG) from the
Pacific Coast to distant markets in Mexico and California. This issue was the origin of a popular
rebellion that ousted President Sanchez de Lozada by midst 2003.the future of this project is still
undefined and is closely related to the stability of the national government.
Peru: The development of the Camisea gas field was finished in 2004 and a natural gas pipeline
network to supply the capital city of Lima is in construction. Several FDI’s are also flowing into
the mining sector (Newmont mining Anglo Gold, Barrick Gold Corp –Yanacocha and several
other low production cost projects)
We will analyze Argentina separately and in detail.
II. Panorama for the different strategies, agents and modalities of FDI’s in Latam
As we have seen in previous lectures TNC’s invested in Latam during the ‘90s because they
searched for: production efficiency, raw materials and market access.
The international arena, the decreasing markets and the growth of these types of FDI’s flows to
China, lowered the output of production efficiency seeking American FDI’s in Mexico and the
Caribbean.
Firms searching for new markets, (public utilities, automobiles, chemicals and agro-industrial
among other, focused primarily on Mercosur), reacted slowing the pace due to Argentine crisis,
especially in the automotive industry, as there was also an overestimation on the region’s real
market. Banking FDI’s which were affected wit a positive impact during the ‘90s had a negative
impact since 2001. Privatization has been largely completed. Overalll, changing and unstable
rules for FDIs in several countries (especially in Argentina) have made investors uneasy
We may conclude that -in general- the FDIs in raw materials currently remains as the most
interesting segment for TNC’s.
4. Highlights FDIs today:
- Since 2004 FDIs in Latin America started to grow again for the first time since 1999, but the
region stills perform poorly as it has jus received only 5 % of FDIs
- A demonstration of problems of TNCs with the region: within NAFTA from 5 international
investment disputes in 1994 to 171 in 2004 (37 of those cases in Argentina!)
- Cost efficiency seeking FDIs: They keep increasing competitiveness of the host countries,
even tough these FDIs have declined favouring China
- Natural Resources strategy today: They are focused in the Mining and Oil and Gas industry
- Funds from European TNCs declined in comparison to those of the US.
- A trend is being reverted: TNC share of sales within the top 500 firms lowered from 43 % of
to 34 %. State owned companies of the primary sector are responsible for these changes:
104
105
Codelco and ENAP (Chile), ECOPETROL (Colombia) Petroecuador and Petroperu and the
Mexican, Venezuelan and Brazilian oil companies (PEMEX, PDVSA AND PETROBRAS).
- A potential source of FDIs: The Energy integration of the Southern Cone (Electricity, Oil and
Natural Gas)
- Automobile industry: Totalled us$ 56 billion in the region overall in 2004. Increasing demand
in the region (Mainly Mexico, Brazil and Argentina) is covering what was supposed to be an
excess of production capacity. Because of that, companies are intending to export to nontraditional destinations, such as: North Africa, Eastern Europe, the Russian Federation and
China.
- The Merger of Brahma (Brazil) and Interbrew (Belgium) in 2004 made the first brewing
company in the world in terms of volume of production. At the same time, in September
2005 SAB Miller’s purchased Bavaria Brewery (Colombia) for almost us$ 9 billion
- Local firm are evolving in the Soft Drinks industry (Mexico first per capita consumer worldwide)
FEMSA and Grupo Modelo (both Mexicans)
- Banking: Latam still plays a strategic role for Spanish banks (Bilbao-Vizcaya BBVA and
Santander-Central Hispano).
- Off shoring and Outsourcing: A new segment in Latam Off shoring and outsourcing (IT
Developers, Call Centers, etc.). Even though it is mainly concentrated in Ireland, Israel, India
and Canada and just 3 % of that type of investment is flow into Latam, it is increasing steadily,
mainly to Brazil, Mexico, Chile, Costa Rica and Argentina (lower costs and the same time zone)
- FDIs in the longer term, the prospects for FDI in the region depend on how successfully
countries in the region tackle structural weaknesses
105
106
15. Argentina: FDI and Corporate strategies
(Classes 22 and 23)
As seen in the former classes, even though the convertibility plan of the’90s brought
hyperinflation under control, it generated a number of distortions, which led to the 2001/2003
crisis:
- Exchange rate lag
- The associated trade deficit and increase of foreign debt
- Deficiencies in the privatization process (Argentina was the leader in privatizations in the
region)
The efforts made in the integration within the Mecorsur during the ‘90s converted Brazil in one of
Argentina’s main trading partners.
Argentina was also one of the main recipients of FDI during the ‘90s (between us$ 65 and 100
billion during the decade). Participation of foreign companies within the biggest argentine firms
rose from 24 %in 1991 to 50 % in 2000.
Most of FDIs were directed to existing assets (firstly through privatizations and then through
M&As) and also were headed to expand those line of businesses complementary with Brazil
(specially in the automobile industry)
The subjects we will see in this chapter are:
I. Foreign Capital in the Argentine Economy
II. Strategies of TNCs in Argentina
I. Foreign Capital in the Argentine Economy
I. 1. A bit of economic History
FDI plays a historic role in the country, since the late XIX century as the country consolidated its
position as an agricultural exporter. Railways, meat packing companies, public utilities and many
other investments were financed by foreign investors, particularly British companies. This
scheme ended in 1930 and Argentina embarked upon a process of industrialization based on
import substitution (like most of Latam) After WWII nationalization of public utilities made by
Peron and strong protectionist policies, lowered the foreign capital share in the country. In 1955
only 5 % was form abroad. Frondizi in 1958 encouraged foreign investors (until a new Coup
d’etat in 1962). During 1966-1969 foreign investment was channeled to the purchase of local
firms. Then, in 1973 the peronist party returned to power with new restrictions to foreign capitals.
During the peronist government (1973-1976), many foreign companies left the country (General
Motors among many others). Then the lost decade of the ‘80s took place and we finally arrive to
the expansion of FDI flows during the ‘90s.
106
107
Fragmento de una entrevista realizada por La Nacion
a Colin Lewis en Septiembre de 2004
LONDRES. Sus treinta años como investigador de la política social y económica desarrollada
en la Argentina y en Brasil durante los siglos XIX y XX han hecho de él una autoridad en el
tema. Tanto es solicitado como asesor de empresas en las capitales europeas como invitado
con frecuencia a las grandes conferencias que, en Europa y en América latina, giran en torno de
asuntos de la región.
Los libros recientes del historiador económico Colin Lewis van desde el estudio comparativo de
la empresa pública y privada en la construcción de los ferrocarriles en Brasil hasta el análisis de
la economía argentina en la década del 80 y la compilación del ensayo “Exclusión y
compromiso. Política social en América latina”, publicado por el Instituto de Estudios
Latinoamericanos de la Universidad de Londres en 2002.
Colin Lewis también es autor de “Argentina, una breve historia”, publicada en Oxford, en 2002, y
que aún se mantenía en algunas librerías londinenses en este verano del Norte. Según el autor,
el libro “explora la historia de la Argentina para explicar la paradoja del desarrollo: la transición
de confianza en el futuro a una situación casi de colapso... De integración social a atomización
social”
Ese tema lo ha ocupado toda su vida como docente e investigador en la London School of
Economics (LSE). Es autor de decenas de ensayos y monografías sobre la historia económica
de la región y asiduo participante en conferencias sobre las cambiantes fortunas de América
latina en Europa, en San Pablo (donde es profesor visitante) y en Buenos Aires. Lewis, de 59
años, nacido en Castellnedd, Gales, recibió su doctorado en historia económica en el LSE,
donde es profesor desde 1972. Es miembro correspondiente de la Academia Argentina de la
Historia desde 1992. Una visita a su despacho en el Departamento de Historia Económica, con
intención de reencuentro amistoso, dio lugar a esta charla.
-¿Por qué la Argentina se equivocó de rumbo en el siglo XX?
-Sospecho que quien pueda responder razonablemente a esa pregunta ganaría una fortuna
mañana mismo. Creo que la pregunta debe ser, también, cuándo. Para algunos, el cuándo
puede llegar a explicar el porqué. Como historiador de la economía mi consideración se
remonta al siglo XIX, cuando hubo profundas transformaciones económicas y políticas
en la Argentina. La economía se hizo más eficiente y, creo, había una sensación de
progreso social. Los indicadores de bienestar reflejaban mejoras sustanciales en la
segunda mitad del siglo. Hubo crecimiento en bienestar social entre fines del siglo XIX y
comienzos del XX. También se estaba institucionalizando la actividad política, se hacía
menos violenta.
-¿Cuándo empezaron a tomar un mal rumbo las cosas?
-Entre los años 20 y 30 del siglo XX. Hubo dos importantes procesos que no se sincronizaron.
En el período anterior a los años 20 hubo crecimiento y una capacidad bastante amplia para
incorporar a nuevos grupos a la estructura política. Era posible que algunos grupos obtuvieran
más beneficios sin que otros los perdieran. Pero hubo un cambio estructural en los años 20
y 30, cuando la economía no crecía tan rápido y, al mismo tiempo, seguía creciendo el
número de grupos que reclamaban mejores condiciones y mayor acceso a la política. Eso
ocurría en otras sociedades, no sólo en la argentina. Australia, por ejemplo, no recorrió un
107
108
camino fácil hacia la eficiencia económica, el pluralismo político y la democracia sostenida.
Hubo enormes tensiones allí cuando cambiaron las prácticas internacionales y fueron contra las
economías de exportación primaria. La diferencia crítica está en que la Argentina fue menos
capaz de combinar las crecientes demandas sociales y el espacio político cuando las
cosas le iban bien.
-Pero, ¿por qué la Argentina no alcanzó a hacer el ajuste?
-Mi respuesta sería que los cambios ocurridos anteriormente eran menos profundos de lo que
parecieron en su momento. El modelo de desarrollo era extensivo, en vez de ser intensivo.
La economía no mejoró en eficiencia cuando los mercados internacionales se lo hubieran
permitido, cuando los precios estaban altos. Había una ilusión de modernidad, una imagen
de eficiencia, pero la eficiencia no tenía sustancia. Quizá se pueda aplicar el mismo argumento
al escenario político: era mucho menos incluyente de lo que había parecido ser en los años 20.
El cierre progresivo de la economía en los años 30 era comprensible para esos tiempos,
y muchos países emprendieron la retirada del sistema internacional. Pero la Argentina
siguió cerrada durante demasiado tiempo. Otros países reingresaron a la economía mundial
en lo que podríamos llamar una versión temprana de la globalización, inmediatamente después
de la Segunda Guerra Mundial. La fase cerrada de la Argentina duró mucho más, y fue
mucho más profunda que en Australia y en Brasil. Es inevitable, a partir de ese análisis,
observar las personalidades del momento. Si nos colocamos después de la Segunda Guerra
Mundial estamos hablando de Juan Perón. La Argentina hoy sigue culpando o halagando la
obra de Perón, aun cuando él estaba en una crisis reconocida en su propio discurso del 1° de
mayo de 1949. El país había comenzado a andar mal cuando Perón convocó a producir diez
por ciento más para cubrir los faltantes. Perón reconocía su fracaso. Y, sin embargo, al día de
hoy la Argentina se divide en peronismo y antiperonismo, pero tenemos que ponerles nombre a
nuestros errores para poder seguir adelante.
-¿Qué condiciones hicieron que Perón fuera el hombre del momento?
-Como dije, creo que hubo un grado de exclusión muy alto en un período anterior, antes
de los años 30, que permitió que emergiera una figura como Perón. La apariencia de
crecimiento, de apertura, la sensación de progreso en una etapa anterior, se cerró de golpe en
los años 30. Luego vamos descubriendo que la exclusión anterior era más profunda de lo que
parecía y que la inclusión que ofrecía el peronismo era mucho menos amplia de lo que
prometía.
-Otras sociedades lograron estudiar a las personalidades del momento y superarlas.
Brasil, por ejemplo, hizo su balance de la gestión de Getulio Vargas (1883-1954) y siguió
adelante. ¿Por qué la Argentina no ha podido hacer su estudio de situación, dejarlo ahí y
avanzar?
-La Argentina y Brasil tienen economías muy diferentes. Las políticas eran muy diferentes en los
años 20 y 30. Los historiadores en América latina ven fenómenos parecidos en ambos países.
Se compara a Vargas y Perón como actores en una transición parecida. Pero desde el punto de
vista de la historia económica yo miro los modelos. El nuevo modelo fue, para ambos, la
industrialización, y la Argentina se convirtió en el país más industrializado de América latina en
los años 30 y más acá. Pero el proyecto de industrialización, si bien más lento, fue más
efectivo en Brasil. Si se mira el cambio de estructuras en las dos economías en el tercio
central del siglo XX, es decir, entre 1930 y 1960, lo que se ve es que el compromiso con el
modelo de industrialización es aceptado por un espectro institucional mucho más amplio
en Brasil que en la Argentina.
108
109
-¿Por qué?
-Los historiadores que miran a Brasil dicen que, al margen de sector económico o clase
social, los principales grupos se comprometieron con el proyecto de industrialización. En
Brasil, el único aspecto discutido era si la industrialización debía hacerse en una
economía cerrada o en un modelo abierto. No había desacuerdo sustancial en torno de si
había que industrializar. Eso no lo vemos en la Argentina. Hubo poco acuerdo sobre la
industrialización. Algunos grupos se comprometieron con ella, otros la objetaron con
vehemencia, y no fueron solamente los dirigentes y dueños del campo. En Brasil hasta el sector
agropecuario se adhirió al proyecto para desarrollar un mercado doméstico. En la Argentina, la
situación se torna altamente personalizada. Fue un proyecto capturado por un sector, en lugar
de expandirse a todo el sistema.
-Está de moda decir que Frondizi fue un estadista que se anticipó a su tiempo. El intentó
popularizar la idea de la industrialización y el mercado abierto. ¿Qué pasó?
-El momento, el tiempo elegido, es importante. En términos de acceso a capitales y mercados
algunas veces es más fácil impulsar proyectos cuando están de moda. No se puede subestimar
el apoyo de EE.UU. a Brasil a fines de los años 30, y nuevamente en los 50 y 60. Juscelino
Kubitschek (1902-76) y Frondizi son figuras casi contemporáneas, pero hay mucho mayor
apoyo efectivo para el desarrollo de Brasil. Brasil despertó en los 60 a mucho más interés en
EE.UU. que Argentina. Frondizi no gozaba de ese ambiente externo favorable, porque desde
afuera se veía mucho más desacuerdo dentro de la Argentina.
-Hay que recordar que John F. Kennedy ofreció un gran respaldo a Frondizi, si bien éste
lo desperdició con su voto sobre Cuba.
-Más que a la relación personal, yo me remitiría a la estructura institucional. Hacia fines de los
años 50 y comienzos de los 60 se transmitía la sensación de que el proyecto ya debía estar
montado, a pesar de las crisis políticas. Aunque había empresas en ambos países que se
esforzaban por avanzar, siempre parecía que había más compromiso en Brasil que en la
Argentina. En los años sesenta hubo más oportunidades para la inversión en Brasil que en la
Argentina. La industria brasileña era menos avanzada que la Argentina, el sector manufacturero
era más pequeño, por lo tanto había más posibilidad de expansión y había más acuerdo sobre
el camino por seguir. La Ford fue a Brasil en los años 50 porque veía una continuidad de
políticas. El escenario argentino para la empresa extranjera que más se asemeja a la de Brasil,
en términos de inversión, ocurre en la segunda mitad de los años 60, durante la dictadura de
Juan Carlos Onganía. Luego vino una "política de cangrejo", que significa cambiar de rumbo a
cada rato sin preaviso. Lo que sucedió en la Argentina fue que Onganía avanzaba sobre los
cimientos del proyecto Frondizi, pero hubo dudas e inconsistencias sobre cómo proseguir, cosa
que revela que el proyecto no estaba enraizado y que no había sido suficientemente apoyado
por los actores nacionales de importancia.
-Es interesante observar las dictaduras de la Argentina y Brasil, que fueron
contemporáneas, y, con alguna diferencia, la de Chile. Los militares en Brasil y Chile
dejan una base económica sólida para el futuro civil, mientras que los militares en la
Argentina dejaron una economía quebrada.
-Los historiadores pueden reconocer que la calidad de administración económica en
Brasil fue bastante mejor que en la Argentina. Eso no habla de la calidad de los
administradores o de los ministros. Los individuos fueron igualmente competentes en ambos
países: la diferencia la produce el marco institucional en el que operaban. No se puede dejar de
tomar en cuenta la brutalidad de un gobierno. Pero tampoco se puede dejar de mirar si había o
109
110
no consenso sobre el rumbo de la economía, bajo civiles o militares. En Brasil aparece la
administración institucional más eficiente.
-En la Argentina estamos en nuestro 21er. año de estabilidad constitucional. Aunque más
que una democracia parece una "privilegiocracia" explotada por el elemento político más
mediocre. ¿Cómo se ve este desarrollo?
-Es importante reconocerlo cuando se piensa en la magnitud de la crisis política y económica
que existió en los últimos dos años y medio. Hay que recordar la crisis que determinó la partida
adelantada de Raúl Alfonsín, la hiperinflación, hasta llegar al colapso de un modelo económico
en 2001 y 2002. Debe de haber pocas sociedades que, relativamente, hayan salido tan bien de
una situación así. Mirando los hechos en el contexto del pasado reciente, pocos hubieran
pensado en un shock tan grande sin que se sufriera un golpe militar o alguna otra forma de
toma autoritaria del poder. Se han evitado las peores prácticas del pasado. De alguna forma, si
bien no está de moda decirlo, la continuidad constitucional refleja la fuerza de la
sociedad civil. Hay una tendencia a ver a la sociedad argentina como atomizada, con muy
poca cohesión, pero la forma en que la sociedad reaccionó en defensa de Raúl Alfonsín durante
los motines militares, el reclamo público de una economía limpia, en los años 90, y el reclamo
de transparencia política en las elecciones de 1999 son evidencias de resistencia en la
sociedad civil.
-¿Por qué no vemos eso en la política?
-Quizá se deba a que hubo muchas reformas en los últimos veinte años: constitucional,
económica, administrativa, fiscal. Pero la reforma importante pendiente es la de la clase política.
-Alfonsín fue defendido, pero cayó. El reclamo "que se vayan todos" no sacó a nadie.
Pero usted dice que hay fuerza civil...
-Alfonsín sostuvo la recuperación democrática. Los argentinos algún día pueden llegar a
valorarlo. Y ese esfuerzo inicial en democracia alienta el reclamo civil posterior. Para un
historiador es fácil manifestar esto, aun sin pruebas contundentes. Como usted, yo no usaría
fácilmente el término democracia para lo que hay en la Argentina. Gran parte del déficit
democrático argentino se debe a que algunas organizaciones políticas no han sabido practicar
la democracia interna. No hay mucha evidencia de que el Partido Justicialista se vaya haciendo
más democrático o institucionalizado. Ya que hemos nombrado a algunos actores, hay que
reconocer que una de las personas responsables de la destrucción de lo que parecía en algún
momento un proceso de democratización interno del peronismo fue Carlos Menem. Uno de los
puntos negativos del éxito económico de los comienzos de la década del 90, que causó una
enorme pérdida de talento joven en la política, fue que el peronismo perdió la oportunidad de
democratizarse como partido. Algún estudioso, mejor equipado que yo para evaluar las políticas
del peronismo, dijo que una de las lecciones tristes de los 90 fue la inhabilidad del peronismo
para acceder a la democracia.
Por Andrew Graham-Yooll
Para LA NACION
110
111
La "necesidad" de crecer más
Por Miguel Angel Broda
Para LA NACION August 8, 2004
(Fragment)
El desempeño de las últimas décadas muestra un panorama decepcionante. Hoy el ingreso real
per cápita se ubica en los mismos niveles que hace 30 años, en torno de $7400 (valuado a
precios constantes de 1993). En ese lapso, hubo 15 años no consecutivos de aumentos,
contrarrestados por 15 años de caída. La comparación internacional también es
desalentadora: mientras que en 1975 el ingreso per cápita argentino representaba el 65% del
ingreso promedio de una muestra de 13 países seleccionados de distintos continentes, ese
porcentaje cayó a sólo 46% en 2003. Si se toma como referencia a España, por ejemplo, la
proporción de los ingresos per cápita de ambos países cayó del 86 a 16% en el mismo
período. Y comparando con Chile, el ingreso per cápita argentino que equivalía al 172%
del chileno en 1975, se derrumbó hasta 70% el año pasado.
Este mal desempeño repercutió fuertemente sobre la pobreza y desigualdad, siendo los
períodos de crisis aquellos en los cuales hubo un mayor deterioro social. De hecho, la crisis
hiperinflacionaria de 1989 y 1990 hizo que el nivel de pobreza saltara 30 puntos, de 15% en
1987 a 47% en 1989 en la antesala del fin del gobierno de Alfonsín (ambos datos se refieren al
Gran Buenos Aires). Tras el descenso posterior (a 20%) que provocó la estabilización de la
economía, trepó a 27% con el tequila. La recesión iniciada a mediados de 1998 elevó la
pobreza a 29% en 2000, hasta que el colapso de 2001 a 2002 la catapultó a un nivel
explosivo de 54,3% (en octubre 2002, llegó al 57,5% a nivel del total país), para luego
descender a 46,2% a fin de 2003. (NOTA: 37 % en Enero de 2006)
Paralelamente, la desigualdad se fue acentuando a tal punto que la Argentina se convirtió
en el país de América latina donde más aumentó la regresividad en la distribución del
ingreso. Mientras en 1974 el 10% más pobre de la población se llevaba el 2,8% del
ingreso nacional total, en 2003 esa proporción cayó a sólo 1,2%. Y la brecha de ingresos
entre el segmento más pobre y el más rico pasó de 9,5 a 37 veces en ese lapso, después de
haber alcanzado un pico de 47 veces en el peor momento (segundo trimestre de 2002).
Nuevamente, los años de crisis (1988 y 1989 y 2001 y 2002) fueron los más devastadores en
términos de equidad en la distribución del ingreso...
...Sobre la base de los trabajos publicados recientemente, se puede deducir que con
tasas de crecimiento de 3 a 3,3% promedio por año (alrededor del 2% anual per cápita) a
partir de 2005 como pretende el Gobierno, la Argentina sólo podría retornar a los niveles
de pobreza de mediados de la década de los 90 (del orden de 17 a 18%) recién entre 2025
y 2040, es decir que se tardaría nada menos que entre ¡20 y 36 años! En cambio, si
alternativamente el país lograra crecer a tasas más elevadas, entre 6% y 8%, sólo serían
necesarios 10 años para reducir el flagelo de la pobreza a los niveles de mediados de los
90.
111
112
I. 2. The expansion of FDI flows during the 1990s
FDI inflows grew in the late ‘80s and gathered a momentum during the ‘90s, reaching a total
amount of over us$ 80 billion during the period 1992-2000, to a maximum of almost us$ 24
billion in 1999. Since then and until 2003, the FDIs decreased every year, especially after the
2002 foreign debt default
The following table shows the FDI inflows between 1992 and 2002:
The Graph 2 shows FDIs as a percentage of GPD and of gross fixed capital formation in the
country
112
113
During the ‘90s, the argentine government implemented several economic reform which favored
FDI inflows:
- The introduction of a convertibility regime with a fixed exchange rate (which lasted
over ten years).
- Privatization of most of state owned companies.
- Legislation permitting free capital movements.
Initially, the new owners after privatizations were:
- The state itself (in a small percentage),
- Some local groups
- And multinationals.
In a following stage, companies gradually restructured their capital base, when the foreign
companies bought stakes form local companies.
Privatizations were the main magnet for foreign investment. From 1993 on, when national YPF
Oil Company was finally sold, a shift from privatization to M& of privately-owned companies
occurred. During the period 1992 - 2001, over 55% of FDIs in Argentina corresponded to
asset transfers involving “change of hands” rather than new investment. A great deal of
these purchases was done with external borrowing, benefiting from the international liquidity of
that time (non financial sector borrowed over us$ 35 billion during that period)
Until 1999, an approximate destination of FDI was:
- 33% to oil sector
- 23 % to manufacturing
- 21% to privatized public utilities (electricity, gas, water transports and communications)
- 11 to banking sector
- The rest to several other sectors (tourism, hotel business and gambling among others)
Source: ROBERTO H. CACHANOSKY ECONOMIST
113
114
In relation to the geographic origin of the FDI’s:
- Spanish for about 40 %
- United States 25 %
- France 7 %
- Rest from several countries: Chile, Italy, Germany Holland United Kingdom and
Netherlands among others
I. 3. Foreign Capital in the transition to the twenty-first century
Local businesses’ structure was dramatically changed after FDI in privatizations and M&As.
1991 -1995 was a period of high economic growth along with an increasing concentration of
economic activities around large corporations. While economy grew 24 % in that period, sales of
the country’s 100 largest companies rose 74%.
Currently most of TNCs capital structure conform the classic TNC subsidiary, but there are some
partnerships among local and foreign companies. In an analysis of the biggest companies in the
country, State owned companies decreased form 14 to only 3 while foreign ownership grew from
9 to 17.
We may resume the sequence as:
-an increase of foreign owned companies accompanied by a steep decrease of state owned
ones
- After the privatization process lost strength M&As of privately owned companies started
- The initial joint ventures of local and foreign companies resulted in a final foreigners’ buyout of
most of stakes
In relation to exports, during the period 1990-2000, Argentina’s stake of total world imports
increased from 0.37 % to 0.45 %. The increase was particularly concentrated in the former five
years of the decade (1990-1995) and the largest increase was concentrated in: raw materials
(petroleum, livestock goods and agriculture). The automobile industry also increased exports
(reaching up to 3 % of industry’s world total imports) but it was mostly oriented to other
Mercosur countries, so cannot be regarded as a genuine signal of increase of competitiveness
of the sector.
TNCs accounts for a large proportion of exports (they export more than large locally owned
firms) , but as a big percentage of FDIs were headed to privatization (which supply the internal
market) the increase of TNCs in foreign trade was not proportionally related to the strong FDI
inflow in the period.
II. Strategies of TNCs in Argentina
As mentioned before, regional market seeking and investment in raw materials were the two
main channels for FDIs in the country:
Based upon a research of two argentine economists (Chudnosky and Lopez in 2001) only 12 %
of resultant FDI were headed to raw materials sectors while 88% (!!!) corresponds to strategies
directed mainly to the domestic market seeking.
114
115
In order to advance to a deeper analysis, we may divide the different TNCs strategies in the
country in:
1. Market seeking
2. Resource Seeking
A brief synopsis would be:
Market Seeking
Raw materials seeking
Services (privatizat., domestic)
Services (M&As, domestic)
Manufacturing (regional)
(domestic and for export)
Telecom., Energy, Water , highways, etc.
Banking and Finance, Retail
Automobile , Foods and Bev., chemicals, etc.
Agriculture, Oil and Gas, Mining
1. Market seeking
1.1. Local market seeking-strategies in the service and infrastructure sector.
Foreign investors have been heavily involved in:
1. 1. a. Service and infrastructure sector: Especially during the early ‘90s.
1.1. b. Private sector services: During the rest of the ´90s, especially retail and the financial
sector. There was a booming growth of supermarket chains all over the country and a
concentration of the banking system in hands of big foreign institutions.
1. 1. a. Service and infrastructure sector: Privatizations were made with strongly captive
market and monopolistic traits, as well as entry barriers and complex regulations that
guaranteed a level of profitability (cost benefits indicates this was a way to obtain better prices
for those companies!). The terms of privatizations demanded a specific degree of investments
and quality standard targets to the new owner’s. These investments were made by bank
borrowing and reinvestments of earnings. There was a modernization of management and
marketing techniques
Telecommunications: State owned Entel was privatized (as well as cellular telephony, air and
cable TV). Entel -the state owned telephone company- was split in two geographically divided
zones: the southern one was bought by Telefonica of Spain, the northern by France and Italian
Telecoms. Currently there are four major operators that have stakes in almost all the segments
of the markets. Between 1990 and 2001, telephone services jumped form 3.6 to 8.1 million and
mobile services from 200,000 to 7 million (NOTE : In January 2006 almost 20 million), but the
cost of the service for the consumer was very high during that period.
Energy: Privatization of oil and gas and of the electrical system. The electric sector was split in
several units of generation, transmission and distribution. The main players were Spanish,
American, Chilean and French firms. Energy demand of neighboring countries gave rise to new
electricity transmission lines and gas pipelines. Under the new administration of Duhalde in
2002, devaluation of the national currency generated a sharp mismatch between assets and
liabilities of these companies which are facing a severe mass bankruptcy panorama. The
companies are refinancing their banking debts and have had great diminution of their stock
value (Telefonica and Endesa of Spain are two of these cases)
115
116
1. 1. b. Private sector services: – Commerce and finance:
Retail commerce: There was a trend towards a concentration of activities around supermarket
chains. Currently with less than 1 % of the number of stores these companies sell about 57 % of
billing compared to less than 30 in 1990. French Carrefour Casino and Promodes, Dutch Ahold
(NOTE: In 2004 left the country), American Wall Mart and Chilean Jumbo, opened stores all
around the country. This took to predominance over small businesses and suppliers and led to
frequent price wars.
Financial sector: Even though subsidiaries of foreign banks have been in Argentina for
decades, they use to have a secondary role due to the big size of state owned (national and
provincial) banking institutions. Beginning in1995 and based upon the purchase of existing
institutions, the international banking companies grew enormously. Banks such as: Spanish
Bilbao Viscaya and Santander Central Hispano, American Citibank and Bank Boston, French
Societe Generale, National de Paris and Credit Agricole, Canadian Scotia Bank … (NOTE: Buy
January 2006, some of them have already left the country)
1. 2. Market-seeking strategies in the domestic and sub regional markets
FDI for manufacturing activities have been channeled to sectors that offer a raw material
advantage -gas, oil, food industry- or to those that take advantage of existing promotion policies
such as the automobile industry. The exchange rate lag has played against FDIs in these
sectors, even though the Mercosur and the big national growth during the decade encouraged
transnational firms to invest in these activities. The new plants have world class technology and
tended to replicate the corresponding parent companies’ output profile. These subsidiaries have
not internalized research, development or product or process design, and only partially
internalized marketing and sales activities. These strategies are headed to capture the
advantages of lower barriers to movements of goods and factors of production within Mercosur.
The industries that received the biggest FDIs are:
1. 2. 1. The automotive sector: Automobile industry in Argentina took shape in the late ’50 with
the irruption of several American manufacturers but the industry sharply contracted during the
late ‘70s, when General Motors withdrew from the country, while other manufacturers developed
partner or licensing strategies (Ford and Volkswagen , Peugeot and Fiat). By 1991 a promotional
regime was implemented along wit a strong domestic consumption increase (from 1990 to 1994
output increased fourfold). TNCs renewed their investment strategies taking back the control of
their subsidiaries and setting up new investments in order to supply to the Mercosur countries,
while specializing different factories with different models in order to create scale of production
within each manufacturing facility within the region. More luxury models were established in
Argentina and more compact cars in Brazil.
This search for scale, specialization and modernization, took the industry to a situation of
excessive production capacity and even though these subsidiaries were not supposed to be
oriented to the export markets they finally were obliged to do so. The market plummeted in
1997, so from then on the situation has been even worse. The industry is currently in a big
recession since the beginning of 1999.
116
117
The automobile industry in Brazil and Argentina
Source; UNCTAD
In the 1990s, in these countries, the automobile industry benefited from a specific industrial
policy. Brazil and Argentina had already entered into an industrial agreement even
before the inception of Mercosur that provided for a system of compensation,
which was then extended to all Mercosur countries. The compensation system was
strengthened in 1994 through the Protocol of Ouro Preto and slightly revised later.
It stipulated the gradual elimination of tariffs among the member countries and
the establishment of a common external tariff, and permitted the use of
investment incentives. The main purpose was to secure a balanced exchange in the
automobile sector between Argentina and Brazil and to provide a certain level of import
protection (Bonelli, 2001).
This contributed immensely to attracting foreign investors interested in exploiting the
regional market. Argentina, in particular, became more attractive to investors as a
result of the enlarged Mercosur market, so that the companies could produce on a
much larger scale. As a consequence of the special Mercosur regime, and in line with the
new strategies adopted by the existing TNCs, Argentina began to specialize in a small
number of upper grade models, while Brazil concentrated on mass production of a
lower class of cars. Consequently, there was a spectacular rise in production, by 400 per
cent between 1990 and 1994, partly also due to a rise in domestic consumption (Kosacoff,
2000b).
The new interest in the automobile industry also led to deep restructuring related
to changes in TNCs’ strategies. On the one hand, new trends leaned towards less
vertical integration and towards the external provision of parts and accessories.
There was also less plant engineering. Assembly of imported components, rather
than of locally integrated production, began to characterize the sector (Benavente et
al., 1997).
MCs played an active role in this integration process. Intra-industry and, in
particular, intra-firm trade became important, and ties between the TNC branches
in Argentina and Brazil were strengthened (ECLAC, 2001 and Berg, Ernst, Auer,
forthcoming), which resulted in greater imports of car components.
Production plants underwent a major rationalization and modernization process,
but still faced problems of scale economies; this led them to create new plants
conforming to international production standards. In general, the international
competitiveness gap was reduced in this sector in terms of the product quality and
efficiency levels (Ferraz et al., 2004).
The economic crisis and lower consumption in both countries since 1999 led to a fall in
production, by 24.5 per cent in Argentina between 1993 and 2000 and by 10.0 per cent in
Brazil and to the transfer of some activities from Argentina to Brazil.
1. 2. 2. Food and beverages: It has been one of the main attractions of the country
TNCs have expanded though the purchase of already established national companies: Nabisco,
French Danone, Swiss Nestle, Italian Parmalat, British Cadbury, Brazilian Brahma and Cica and
Chilean Luccetti. They rapidly boosted exports. This industry had some kind of “natural
protection” due to the high ratio between transport and production costs and the comparative
advantages of raw material production in the country. Subsidiaries in Argentina tend to
specialize in the core business of the parent company
117
118
There is also integration of complementarity within Mercosur, This strategy made possible the
fullest use of installed capacity facilitated by duty free trade and better harmonization of technical
and marketing standards within Mercosur.
1. 2. 3. Chemicals and petrochemicals: There are three main areas of interest for TNCs:
Pharmaceuticals, beauty and cleaning: targeting the internal market: Bayer,
Monsanto, Temis Lostaló, Procter and Gamble, Unilever among many others
Agrochemicals: Closely related with the rapid expansion of agriculture, Atanor, Profertil
(Agrium of Canada and Spanish Repsol)
Petrochemicals: Related with the large increase of natural gas production: Dow
Chemical, Japanese Itochu and Repsol
2. Resource seeking strategies: access to Argentina’s natural resources
2. 1. Agricultural commodities: Edible oils, cooked meats, grains, favored by the availability
and low cost of raw materials. These outputs are headed to the world markets rather than the
national or regional ones and the products have generally low degree of processing.
2. 2. Oil: The privatization of YPF (the National oil company) provided the Federal government
over us$ 5 billion of total income and was bought by Repsol. There are many foreign investors in
this industry: Chevron, Amoco, Exxon, Shell and Brazilian Petrobras, among many other
2. 3. Mining: A change of legislation since 1992 to 1995 attracted TNCs to the nation’s mining
activity. The country has been described by several international experts as the “last mining
frontier” due to the still unexplored mining wealth. Bajo de la Alumbrera, Cerro Vanguardia (gold
projects operated by Australian MIM Holdings, North and Canadian Rio Algom) Salar del
Hombre Muerto (lithium, FMC Lithium), Pirquitas (silver, Canadian Sunshine). There are several
other projects postponed until national situation and market conditions improve.
FDIs Today
As seen before, FDIs inflow to Argentina reached a peak in 1999 of over us$ 25 billions and has
diminished since then. By year 2002, FDIs totaled less than us$ 1 billion. By 2006 figures are
growing back and FDIs are increasing. However, the lack of a clear and stable legal framework
for FDIs in the country is a strong limitation for the TNCs to consider Argentina as a feasible and
profitable investment decision.
Many TNCs have left the country since the 2002 default (several banks public utilities, industrial
companies, etc.) This fact has been an opportunity for local and foreign investors and vulture
funds to enter into the Argentine market at a low cost. That was the case of companies like
118
119
Telmex (a Mexican telephone company) that purchase CTI and Metrored for just a small
percentage of the original investment.
Other examples are: the purchase of Disco Ahold (Dutch) by Jumbo (Chile), the purchase of a
part of the stock of Telecom (the part that belonged to France Telecom) by the argentine family
Werthein, the purchase of EDELAP by the Dolphin Investment Funds, several foreign banks that
left the country and were purchased by local bankers and many other operations in areas like,
electricity production and distribution, potable water companies, etc.
Many argentine owned big companies have been sold to foreigners since 2001.Some examples
are: Perez Companc (Oil and Gas) was sold to Petrobras (Brazil), Quilmes (the biggest beer
producer of the country, partially sold to Brahma, Brazil) Cementos Loma Negra (to Camargo
Correa, Brazil), Acindar (to Belgo MIneira, Brazil)
Investment as a percentage of GDP is below 20 %. That means that the new investments barely
cover the amortization of the total accrued fixed investment in the country. Analysts say that if
the ratio of total investments over GDP does not grow the country will have strong limitations to
maintain a growth rate that would help to increase the standards of living and the human
development of the argentine population.
Fragment:
“El mundo nos da otra oportunidad”
Pablo Gerchunoff, Economist, October 2005
Quizá porque puede mirar hacia atrás en perspectiva, el economista Pablo Gerchunoff se anima
a hacer pronósticos sobre uno de los fenómenos más volátiles del país: su economía. Y su
visión es optimista. Para Gerchunoff, la historia económica argentina se caracteriza por una
sucesión de marchas y contramarchas, de períodos de crecimiento a los que siguen
períodos de declinación y crisis. Ahora, afirma, hay una oprtunidad para que la actual
fase ascendente no derive, fatalmente, en una nueva crisis. “La Argentina empieza a
vislumbrar la posibilidad de un patrón productivo nuevo, a partir de un cambio en el
comercio mundial”, sostuvo.
Especializado en la historia de las políticas económicas de los siglos XIX y XX, Gerchunoff es
profesor e investigador de la Universidad Torcuato Di Tella, miembro del Conste y director de
investigaciones de la Fundación Pent. Ha planteado sus ideas en los libros “Entre la equidad y
el crecimiento. Ascenso y caída de la economía argentina, 1880-2002” y “El ciclo de la ilusión y
el desencanto. Un siglo de políticas económicas argentinas”, en colaboración con Lucas Llach.
Gerchunoff -que se define ideológicamente como "un antiguo social demócrata permeado por
ideas provenientes del liberalismo clásico"- muestra los datos, esgrime los números, hace
comparaciones y se apoya en su filosofía: "El escepticismo es la haraganería de los
intelectuales en la Argentina. Es más fácil pensar que la realidad va a ser como fue y no pensar
que de aquí en adelante puede ser distinta".
-¿Por qué cree que se puede estar inaugurando un ciclo largo de crecimiento?
-Lo que determinaba las marchas y contramarchas en la economía del país era la pérdida
de inserción de la Argentina en el comercio mundial. Aquella Argentina de 1880 a 1930
119
120
tenía un engarce feliz entre su estructura productiva y lo que demandaba la primera
potencia del mundo. Eso le daba una dinámica de crecimiento que cada tanto se detenía,
pero con una tendencia expansiva. Eso se interrumpió en 1930. La Argentina optó
entonces, casi sin alternativas, por la sustitución de importaciones, por el desarrollo de una
economía cerrada. Cuando, más tarde, el comercio revivió, lo hizo con un sesgo muy
intraindustrial y muy adverso, por lo tanto, a los productores de materias primas. El otro gran
momento duro fue 1975. Después de los shocks petroleros, la caída de los términos del
intercambio fue muy dramática, con una tasa de interés especialmente alta. La Argentina
sufrió las siete plagas de Egipto en ese período casi infernal que va de 1975 a 2002. Creo
que es posible que ahora el mundo nos esté ofreciendo una nueva oportuidad. Me parece que,
mirando los datos y la dinámica de la realidad, esa oportunidad está apareciendo con una
fisonomía propia.
-¿En qué lo ve?
-Un factor es la recuperación de la demanda de las materias primas, de los recursos
naturales que la Argentina sabe producir y de la demanda de los productos
transformados a partir de esos recursos naturales. Eso genera un hecho novedoso, que
es un aumento persistente de los precios de las materias primas, por lo cual aquello que
produce la Argentina rinde más hoy que en el pasado. La pregunta que surge es ésta:
¿acaso hay alguien que esté ocupando el lugar que ocupaba Inglaterra entre 1880 y
1930? Mi respuesta es que puede ser que sí, que puede ser que los países asiáticos, y en
particular China, sean las nuevas potencias industriales emergentes y que estén a la caza
de materias primas, alimentarias y no alimentarias. Si es así, se trata del segmento del
capitalismo mundial más dinámico de la Tierra, y quiere decir que hay un nuevo engarce
posible.
-¿Tiene mayor potencialidad que aquella Inglaterra?
-Lo que dicen los datos es que China e India están creciendo al 8% anual, que son el 40%
de la población mundial y que están a la búsqueda de alimentos, de materias primas, de
petróleo. ¿Se ve un aumento de los precios de las materias primas argentinas? Sí, se ve.
¿Eso tiene que ver con el aumento de la demanda asiática? Sí, así es. ¿Ese aumento está
acompañado por algún movimiento de los precios de lo que importa la Argentina? Sí, en
efecto. Estos países asiáticos producen bienes industriales hechos con mano de obra
muy barata, que tiran abajo los precios de lo que importamos. Por un lado, aumenta el
precio de lo que nosotros vendemos y, por el otro, cae el precio de lo que nosotros
compramos. Quiere decir que el poder de compra de lo que vendemos está creciendo,
algo que no nos pasaba desde 1927. La Argentina empieza a vislumbrar la posibilidad de
un patrón productivo nuevo a partir de un cambio en el comercio mundial y en la
dinámica relativa de los distintos países en ese comercio mundial.
-Este es un escenario coyuntural favorable. ¿Cree que hay una decisión política del
Gobierno para aprovecharlo?
-¿Por qué hablamos sólo del Gobierno? Me preguntaría por la sociedad argentina, no
solamente por el Gobierno o el nivel estatal. ¿Hay un empresariado argentino? ¿Hay
actores sociales que estén, al menos, intuyendo esta oportunidad y preparándose para
ella?
-¿Los hay?
-Yo creo que los hay. La reacción modernizante del agro argentino en los últimos años, la
expansión de su producción, la incorporación de tecnologías nuevas no son
independientes de esto. También se ve en el surgimiento de un abanico de sectores
industriales, como la siderurgia y el aluminio, que nacieron al amparo de la protección,
volcados al mercado interno y que de pronto se revierten hacia el mercado mundial. Otro
120
121
aspecto es la explosión del turismo, que está aprovechando los recursos naturales. La
otra ventaja argentina es la calificación no desdeñable de su mano de obra. La
biotecnología, la minería... son cosas que están ocurriendo ya.
-¿Y qué hace el Gobierno?
-Le contestaría con una afirmación débil: el Gobierno no está obstaculizando este nuevo patrón
productivo. El hecho de que tengamos un presidente de raigambre peronista en favor del tipo de
cambio real alto es una novedad extraordinaria. El peronismo siempre fue salarios altos y
tipo de cambio bajo. Sin darse cuenta, sin saberlo, entre Menem y Kirchner (y los dos
repudiarían la continuidad que estoy estableciendo) están terminando no con el estilo
político del peronismo, pero sí con la sociedad peronista y con el patrón productivo con
el que el peronismo nació.
-No parece haber cambios en las desigualdades en la distribución.
-No hay patrón productivo en el sistema capitalista si no hay un Estado de Bienestar
acorde, consistente. El Estado de Bienestar que acompañó a la economía mundial entre
1945 y los shocks petroleros, fundado en el seguro social, es irrecuperable. Lo que no
puede ser es que no tengamos otro. China y el Asia nueva están definiendo con su gran
ejército industrial de reserva el nivel de los salarios de los trabajadores no calificados en
el mundo. Una vez que se asienten los polvos de la destrucción de la crisis 1998-2002,
nos vamos a encontrar con que los salarios reales del trabajo no calificado van a ser
persistentemente bajos. Hay que construir un nuevo Estado de Bienestar que tenga
como eje central la educación, porque es lo que puede levantar el nivel de calificación de
la mano de obra para sacarla de ese nivel de competencia con los trabajadores no
calificados que entran en el mercado mundial.
-Pero hasta que la educación causa efectos pasa mucho tiempo. ¿Qué política social se
puede aplicar en el corto plazo?
-En el corto plazo, las políticas sociales no pueden ser éstas, completamente miopes. Tienen
que acortar los plazos de la educación a través de los oficios. Hacer planes intensivos en mano
de obra, aunque la mejor tecnología no sea intensiva en mano de obra. Sacrifiquemos
productividad en este caso, para ser una nación socialmente integrada. Yo veo al Gobierno en
un vacío tremendo en todo esto.
-¿Qué influencia tiene la idea argentina de que se vive de crisis en crisis, de estar
esperando el próximo colapso económico?
-Nosotros somos muy volátiles en lo que creemos de nosotros mismos. Quiero recordar,
para vergüenza de todos nosotros, que como sociedad creíamos que íbamos al Primer
Mundo en 1993. Cuidado con proyectar hacia atrás el pesimismo 1998-2002, porque lo
que caracteriza a la Argentina es, en realidad, la ciclotimia, la euforia y la depresión, lo
mismo que a su economía. No es que haya habido una Argentina dorada y después una
depresión continuada. Hubo momentos buenos y otros malos. Es una ciclotimia que está
en la dinámica de la economía y la sociedad.
121
122
Appendix 1
Selected Latin American Countries
Economic Briefs (2003)
Source: www.economist.com
www.aladi.org
Argentina
Brazil
Uruguay
Paraguay
Chile
Bolivia
Mexico
Colombia
Venezuela
Peru
Ecuador
122
123
Argentina Fact sheet
Population: 37m (2000)
Land area: 2.7m sq km
Currency (peso) Ps1=US$1 (2001, year-end)
Ps3.20=US$1 (February 2003)
GDP: Ps267bn (2001); US$267bn (2001, market exchange rate) US$382bn (2001, at PPP)
GDP growth : negative since 1999 (-4.5% (2001); -11% (2002))
GDP per head : US$7,116 (2001, market exchange rate); US$10,202 (2001, at PPP)
Background
Protectionist and populist economic policies in the post-war era led to economic stagnation and
hyperinflation in the 1980s. Carlos Menem of the Partido Justicialista (PJ, known as the Peronists), who
was elected president in 1989, abandoned the party's statist ideology in favor of market economics and
liberalization, resulting in a period of rapid growth. His failure to deepen fiscal and structural reform in his
second term (1995-99) left the economy vulnerable to a series of external shocks in 1997-99. Fernando
de la Rua's centre-left government, which was unable to halt the economic decline, collapsed after two
years in office in December 2001 amid violent protests. A Peronist, Eduardo Duhalde, was elected interim
president by Congress at the start of 2002 to complete Mr de la Rua's term, but polls have now been
brought forward by six months, to April 2003.
Foreign trade
Merchandise export earnings remained broadly stable in 2001, at US$26.6bn, but imports (fob) fell sharply
to US$19.2bn. The trade surplus widened to US$7.5bn and the current-account deficit shrank to
US$4.6bn.
Major exports 2001
Manufactures
Processed agricultural
products
Primary products
Fuels & energy
% of total
31.2
28.0
Major imports 2001
Intermediate goods
Capital goods
% of total
34.0
25.0
22.0
13.3
Consumer goods
Capital goods parts
& accessories
18.0
16.7
Leading markets 2001
% of total
Leading suppliers
Mercosur(a)
NAFTA(b)
EU
28.2
11.1
11.0
Mercosur(a)
NAFTA(b)
EU
% of
total
36.5
21.7
5.5
More economic data
123
124
Brazil Fact sheet
Population: 174.5m(a) (2001)
Land area: 8.51m sq km
Currency R2.36:US$1 (2001, av) R3.6:US$1 (February 2003)
GDP R1,185bn (2001) US$503bn (2001, at market exchange rate) US$1,309bn (2001, at PPP)
GDP growth 1.9% (1997-2001, av) 1.5% (2000)
GDP per head US$2,880(a) (2001, at market exchange rate) US$7,500(a) (2001, at PPP)
Background
Democratic rule resumed in Brazil in 1985 and a new constitution was ratified in 1988. Fernando Henrique
Cardoso was re-elected to a second term as president in October 1998. That term began with a maxidevaluation of the Real in January 1999, but sound policymaking created the conditions for economic
recovery in 1999-2000 as market sentiment towards Brazil improved. Prudent policies have restored
macroeconomic stability, but the reform process remains incomplete. Contagion from Argentina and a
difficult external environment limited growth and worsened public solvency indicators in 2001.
Foreign trade
A trade deficit of US$696m and a current-account deficit of US$24.6bn, equivalent to 4.1% of GDP, were
recorded in 2001.
Major exports 2000
Transport equipment & parts
Metallurgical products
Soybeans, bran & oils
Chemical products
% of total
16.6
10.7
8.1
7.4
Major imports 2000
Machinery & electrical equipment
Chemical products
Transport equipment & parts
Oil & derivatives
% of total
32.5
16.7
13.7
8.8
Leading markets 2000
% of total
US
Argentina
Netherlands
Germany
24.3
11.3
5.1
4.6
Leading
suppliers 2000
US
Argentina
Germany
Japan
% of
total
23.3
12.3
7.9
5.3
124
125
Uruguay
Population: 3.34 m (2000)
Land area: 176.215 square kilometers
Capital: Montevideo
Government: Republican Democracy
PBI : us$ 19.648m (1999)
Coin: Peso
Paraguay
Population: 5.496.000 (2000)
Land area: 406.752 square kilometers
Capital: Asunción
Coin Guaraní
PBI :us$ 8.588 m (1999)
PBI :us$ 8.588 m (1999)
Languages: Spanish, Guarani
Bolivia
Population: 8.329.000 (2000)
Land area: 1.098.581 square kilometers
Capital: Sucre; La Paz ( Administrative)
Government: Republican democracy
PBI :us$ 7.912m (1999)
Coin: Peso boliviano
125
126
Chile Fact sheet
Population: 15.2m (2000) Land area: 756,626 sq km
Currency Peso (Ps): Ps636.39:US$1 (2001, av); Ps677.20:US$1 (May 7th 2002)
GDP: Ps37.8trn (2000); US$70.2bn (2000, at market exchange rate)
GDP growth: 3.8% (1997-2001, av); 2.8% (2001)(a)
GDP per head: US$4,620 (2000, at market exchange rate); US$14,172 (2000, at PPP)
Inflation: 4.4% (1997-2001, av); 3.6% (2001, av)
Background
In a referendum held in December 1988 mandated under the 1980 constitution the military ruler, Augusto
Pinochet, failed to obtain the majority that would have enabled him to remain in office for another eight
years. A democratic presidential election was subsequently held in December 1989, when Patricio Aylwin,
the candidate of the centre-left Concertacion de Partidos por la Democracia (Concertacion) coalition, was
elected president for four years. Eduardo Frei, also a member of Concertacion, won a six-year term in
December 1993. On March 11th 2000 Mr Frei handed over power to a third consecutive Concertacion
president, Ricardo Lagos, who had won the second round of the presidential election on January 16th
2000.
Foreign trade
Chile's single import tariff rate was cut from 9% in 2000 to 8% in 2001 and is scheduled to fall further in
2002, to 7%, and to 6% in 2003. The effective trade-weighted average tariff rate fell from 6.7% in April
2000 to 5.5% in April 2001 owing to the schedule of tariff preferences granted through Chile's bilateral
trade accords with Bolivia, Canada, Colombia, Ecuador, Mexico, Peru and Venezuela, and its association
agreement with members of the Mercado Comun del Sur (Mercosur, the southern cone customs union).
This rate will continue to fall by about 1 percentage point per year until 2003. In 2001 export earnings fell
to US$17.4bn and imports to US$15.9bn.
Major exports 2001
Copper
Fruit
Cellulose
Leading markets 2001
US
Japan
UK
China
Brazil
% of
total
38.7
7.0
6.9
Major imports 2001
% of
total
18.9
12.4
7.1
5.9
4.9
Leading suppliers 2000
Intermediate goods
Capital goods
Consumer goods
US
Argentina
Brazil
China
Japan
% of
total
60.7
21.0
18.2
% of
total
18.5
15.9
7.4
5.5
3.9
126
127
Mexico Fact sheet
POPULATION: 100m(a) (2001)
POPULATION GROWTH: 1.8%(a) (average, 1997-2001)
LAND AREA: 1.9m sq km
CURRENCY (MEXICAN PESO (PS)): Ps9.34:US$1 (2001, average); Ps9.10:US$1 (February 25th 2002)
GDP: Ps5.4trn (2000); US$575bn (2000, at market exchange rate); US$892bn(a) (2000, at PPP)
GDP GROWTH: 4.3%(a) (average, 1997-2001); -0.3%(a) (2001)
GDP PER HEAD: US$5,810(a) (2000, at market exchange rate); US$9,020(a) (2000, at PPP)
Background
Mexico was ruled by the Partido Revolucionario Institucional (PRI) or its predecessor, the Partido
Revolucionario Nacional (PRN), between 1929 and 2000. Once strongly nationalistic and interventionist,
the PRI embraced free-market policies and economic liberalization in the 1990s. Victory for the
presidential candidate of the centre-right Partido Accion Nacional (PAN), Vicente Fox Quesada, in July
2000 is leading to changes in the political system, but the PRI remains the largest party in Congress.
Foreign trade
Trade liberalization has deepened following a free-trade agreement between Mexico and the EU in 2000.
In 2000 exports totalized US$166bn and imports US$174bn, 35.4% of which was accounted for by the
maquila (offshore assembly for re-export) industry, producing a trade deficit of US$8bn. The currentaccount deficit reached US$18.2bn, equivalent to 3.1% of GDP.
Major exports 2000
Manufactures
Maquiladora (b)
Oil
Agricultural products
88.0
47.7
9.8
2.2
Major imports 2000
Intermediate goods
Maquiladora (b)
Capital goods
Consumer goods
% of total
76.6
35.4
13.8
9.6
Leading markets 2000
US
Canada
Germany
Spain
% of total
88.7
2.0
0.9
0.9
Leading suppliers 2000
US
Japan
Germany
Canada
% of total
80.4
4.1
3.6
2.5
127
128
Colombia Fact sheet
Population: 42.3m (2000)
Land area: 1.14m sq km
Currency: Ps2,300:US$1 (2001, average Ps2,336:US$1 (June 7th 2002)
GDP: Ps170trn (2000); US$81.3bn (2000, at market exchange rate); US$286.9bn (2000, at PPP)
GDP growth: 1% (1996-2000, av); 2.8% (2000)
GDP per head: US$1,920a (2000, at market exchange rate); US$6,800a (2000, at PPP)
Background
Since becoming a republic in 1819, Colombia has suffered intermittent periods of violence. Power-sharing
agreements between Liberals and Conservatives reduced the incidence of violence in the early 1960s, but
led to the emergence of guerrilla groups, as other political forces lost importance. An ineffective legal
system, coupled with deep social disparities, has encouraged guerrilla movements and crime. Efforts to
modernize political institutions and control crime have had little success. Between 1970 and 1995
Colombia recorded the lowest macroeconomic volatility indices and the second highest economic growth
rate in Latin America. The economy was liberalized in 1991, which boosted growth. However, external
shocks and tight monetary policy used to curb inflation—which was exacerbated by currency depreciation
and a widening fiscal deficit—led to recession in 1998-99. Inflation has fallen to single-digit levels since
1999, which favored a relaxed monetary stance, but low confidence and adverse international conditions
have kept growth subdued.
Foreign trade
In 2001 merchandise exports (customs basis) were US$12.8bn and merchandise imports (freight-onboard basis) US$12.3bn. The current-account deficit was US$1.7bn or 2.0% of GDP in 2001.
Major exports 2001
Oil and coal
Chemicals
Coffee
% of total
34.5
14.4
6.2
Major imports 2001
Intermediate goods
Capital goods
Consumer goods
% of total
45.1
34.8
19.6
Leading markets 2001(a)
US(b)
Venezuela
Ecuador
% of total
42.8
14.2
5.5
Leading suppliers 2001(a)
US(b)
Venezuela
Mexico
% of total
34.8
6.3
4.7
128
129
Venezuela Fact sheet
Population : 24.6m (2001)
Land area: 912,050 sq km
Currency Bolivar (Bs)
GDP Bs90trn (2001); US$125bn (2001, at market exchange rate)
US$215bn (2001, at PPP)
GDP per head US$5,073 (2001, at market exchange rate) ; US$8,747 (2001, at PPP)
Background
Between 1958 and the mid-1990s two parties, Accion Democratica and the Comite de Organizacion
Politica Electoral Independiente, alternated in power. Frequent economic crises and corruption scandals
contributed to a widespread decline in support for them in the 1980s and 1990s, culminating in 1998 in the
election of Hugo Chavez, a former lieutenant-colonel who had led a failed coup in February 1992. Elected
with a mandate for radical political reform, in 1999 his government replaced the 1961 constitution with a
left-leaning state-centred charter. A national election held in July 2000 in compliance with the new
constitution saw Mr Chavez re-elected with a comfortable majority, albeit with a record rate of abstentions.
Political polarisation has been acute since 1998, and street protests increasingly frequent since 2000. An
abortive coup in April 2002 briefly unseated Mr Chavez. The economy is currently being paralyzed by an
indefinite nationwide stoppage (the fourth in less than a year) launched by the opposition in December in a
bid to force Mr Chavez to step down.
Foreign trade
Exports of goods totalled US$27.1bn in 2001 and imports US$17.3bn, resulting in a trade surplus of
US$9.7bn, which was partly offset by a deficit of US$4.8bn on the invisibles account, leading to a currentaccount surplus of US$4.4bn.
Major exports 2001 % of
total
Oil & gas
86
Other
Capital goods
14
14.2
Leading markets
2001
US
Brazil
% of
total
43.7
3.6
Major imports 2001
Raw materials & intermediate
goods
Consumer goods
Leading suppliers 2001
US
Colombia
% of
total
62.1
20.2
% of
total
32.4
5.6
129
130
Peru Fact sheet
Population: 25.7m (2000)
Land area: 1.29m sq km
Currency Nuevo sol (Ns) Ns3.51:US$1 (average, 2001) Ns3.45:US$1 (May 28th 2001)
GDP Ns189.5 bn (2001) US$54.1bn (2001, at market exchange rate) US$133bn (2001, at PPP)
GDP per head US$2,084 (2000, at market exchange rate) US$5,064 (2000, at PPP)
Background
Following the resignation of Alberto Fujimori, the president of Congress, Valentin Paniagua, became
interim president on November 22nd 2000. Mr Paniagua ensured free and fair presidential and
congressional elections in April and June 2001, and transferred power to the newly elected president,
Alejandro Toledo of Peru Posible, on July 28th 2001. Mr Toledo has a mandate to reform Peru's
democratic institutions, which became tools of the central government under Mr Fujimori. Mr Toledo is
also seeking to devolve more power to the provinces. The first regional elections to be held in Peru will
take place on November 17th 2002, at the same time as municipal elections. A truth and reconciliation
commission investigating human rights abuses and political violence in 1980-2000 has until July 2003 to
report its findings.
Foreign trade
The tariff system on imports comprises three rates, 4%, 12% and 20%, with a weighted average tariff of
around 10%. Most non-tariff barriers to trade have been eliminated. In 2001 exports totalled US$7.1bn
and imports US$7.2bn.
Major exports 2001
Gold
Copper
Fishmeal
US$ m
1,166
987
926
Major imports 2001
Intermediate goods
Capital goods
Consumer goods
US$ m
4,333
2,295
1,880
Leading markets 2000
US
UK
Switzerland
China
% of total
27.5
8.3
8.0
6.4
Leading suppliers 2000
US
Chile
Spain
Venezuela
% of total
27.0
8.4
6.4
4.4
Ecuador Fact sheet
Population : 12.2m (2001)
Land area: 276,840 sq km
Currency: The US dollar replaced the sucre in 2000, but sucre coins still circulate as factionary money;
under the constitution, the sucre remains the official currency at a fixed rate of Su25,000:US$1
GDP US$18bn (2001, at market exchange rate) ; US$48.6bn (2001, at PPP)
GDP per head US$1,479 (2001, at market exchange rate)
US$3,997 (2001, at PPP)
Background
Ecuador has been a presidential democracy since 1979, but its institutions are fragile. Economic
deterioration in the past decade has contributed to increased political instability. Lucio Gutierrez, who is
backed by left-wing and indigenous organizations, will be inaugurated as president on January 15th 2003,
taking over from the outgoing Gustavo Noboa.
130
131
Foreign trade
Around 60% of Ecuador's export earnings come from oil and bananas. Other primary products account for
most of the remainder, leaving the country vulnerable to external and climatic shocks. Dollarization has
exposed a lack of competitiveness in some export industries. Ecuador has benefited from high oil prices
since 2000. Recovery in consumer demand and the construction of a new oil pipeline have led to a rapid
rise in imports of both capital and consumer goods, pushing the trade balance into deficit.
Major exports 2001
Oil & oil products
Bananas
Shrimp
Tinned fish
% of total
39.3
18.5
5.8
5.7
Major imports 2001
Raw materials
Capital goods
Consumer goods
Fuels & lubricants
% of total
37.0
31.0
26.5
5.5
Leading markets 2001
US
Peru
Colombia
Italy
% of total
38.3
7.3
6.9
4.3
Leading suppliers 2001
US
Colombia
Japan
Venezuela
% of total
24.7
14.4
6.6
5.5
131