5.9 Kaufman
“Latin America in the global economy: Macroeconomic policy, social welfare, and
political democracy” in States, Markets, and Just Growth: Development in the 21st
Century.
“Although the expansion of international trade and capital markets (i.e. “globalization”)
has created new opportunities for growth in developing countries it has also left large
segments of the world’s population increasingly vulnerable to uncertainties and crises in
trade and financial markets.” (97)
Distinctions between Latin America and other regions (Africa, Asia) – 1980s-90s -embraced ‘neoliberalism’” -- because of:
- proximity to US/US has dominated region (“in early 1990s, over 40% of Latin
America’s trade was with the US…US is still the largest single source of portfolio
and FDI in Latin America” (99). Asia and Africa have been less influenced by
US and more influenced by Japan and EU, respectively.
- Legacy of ISI – level of debt became unsustainable in 1980s
Therefore, Latin America has experienced this neoliberal, pro-market influence in a less
diluted way than Asia or Africa; Chile experience with market reforms supported this
philosophy for the rest of the region.
Structural changes in Latin America were characterized by variation in the types of
regimes that instituted reforms, and the pace of those reforms. Even so, most every
country in the region moved to liberalize trade (study described on pp 102-103 displays
evidence of this); capital flows increased:
- avg tariff went from 46% to 12% between 1985-95
- avg variance among products reduced from 20% to 6.4%
- trade as % of GDP increased from 20% to 30% in 1970s-90s (still less trade than
Asia)
- 1990 - Latin America was 1/3 lower than Asia in net capital flows; by 1997 was
higher
- stock market capitalization incr in Latin America in 1990s, overtaking Asia
But has this move to liberal market economies promoted growth? Despite liberalization,
these economies still open to economic shocks because of large current accounts and
fiscal deficits in Mexico and Brazil (largest economies in the region); and currency
appreciation and large volume of maturing dollar debt.
Economic shocks of mid- to late-90s precipitated capital flight and devaluation; both
Mexico and Brazil responded with tightening of monetary policy to contain inflation.
Kaufman suggests that they did this to “regain credibility in financial markets” in the
short run, and that in the long run they wouldn’t have drastically changed policy for
political reasons.
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The questionable nature of the outcome of Washington consensus-motivated policies
resulted in more disagreement over macroeconomic policy in general. Did
macroeconomic policies responding to the crisis make the situation worse or better than it
would have been otherwise?
Latin American countries became poorer and more unequal as a result of 1980s
recessions, though there is disagreement over whether this was a result of the crisis itself
or of SAPs. Growth in the 90s eased poverty, but not inequality – suggesting that
“poverty will decline if countries can maintain macroeconomic stability and economic
growth” (110). Welfare reform and growth are “mutually interdependent and tend to
reinforce each other over the long run” (124). Given that reforms take place in the
context of limited resources and high demand for social services, the question seems to
be “whether reforms will generate sustainable high growth, which can potentially offset
the negative short- and medium-run impact of reform” (111).
Two major issues in welfare reform:
- universalism vs targeted poverty relief – who should benefit?
- Social vs individual financing and provision – how involved should the
government be?
Similarly, in terms of health care, should more resources be devoted to prevention or
treatment of disease? Welfare reform models in Latin America generally “liberal” (i.e.
privatization), again due to US/BWI influence – but to a lesser extent than
macroeconomic reforms. This may be because social policy involves more stakeholders
(educators, healthcare providers) and stronger constituencies (unions, associations), thus
greater likelihood of compromise and lesser likelihood of radical reform.
In terms of politics, some politicians appeal to voters by criticizing neoliberalism;
political parties have deteriorated somewhat in Latin America, along with party
identification. This makes it tricky to define “stable and broadly-based social
compromises over development and welfare strategies” (116). Economic stabilization is
popular politically; despite political alienation, Kaufman suggests that many people in
Latin America are now “pro-market,” because of any positive experiences of the last 20
years, or because of resignation.
Brazil – huge economy, loosely organized parties and decentralized federal system;
problems that led to economic crisis still exist and solutions difficult to decide politically
because of patronage, powerful state governors.
Mexico – like Brazil, political uncertainties, poverty, political alienation, and inequality
threaten development. However, Mexico’s efforts at economic restructuring,
reorganization of banking system, and NAFTA integration have it in a better place than
Brazil. Still, Mexican government needs to be more accountable to citizens, and address
questions related to human rights and rule of law.
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