failed us eco policy in latin america

7/31/2019 Failed US Eco Policy in Latin America

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Failed U.S. Economic Policy in Latin America

LALS201-92: Perspectives on Latin America Kory Hunter

Summer 2011: June 13th July 7th

Neo-liberalism is a set of economic policies that have become widespread during the last

25 years or so. Although the word is rarely heard in the United States, you can clearly see

the effects of neo-liberalism here as the rich grow richer and the poor grow poorer.

Around the world, neo-liberalism has been imposed by powerful financial institutions

like the International Monetary Fund (IMF), the World Bank and the Inter- American

Development Bank. These polices are were established in Latin America for countries

who had massive amounts of external debt forcing them to turn to the IMF and the

World Bank to keep their government from collapsing. Loans were made available to

governments of Latin America with the condition of adopting structural adjustments

based on neoliberal policies. Structural adjustments are the policies implemented by the

International Monetary Fund (IMF) and the World Bank in developing countries. These

policy changes are conditions for getting new loans from the IMF or World Bank, or for

obtaining lower interest rates on existing loans. Conditionalities are implemented to

ensure that the money lent will be spent in accordance with the overall goals of the loan.

The SAPs are supposed to allow the economies of the developing countries to become

more market oriented. This then forces them to concentrate more on trade and production

so it can boost their economy. Through conditionalities, Structural Adjustment Programs

generally implement "free market" programs and policy. These programs include internal

changes (notably privatization and deregulation) as well as external ones, especially the

reduction of trade barriers. Countries, which fail to enact these programs, may be subject


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to severe fiscal discipline. Critics argue that financial threats to poor countries amount to

blackmail; that poor nations have no choice but to comply. i

I intend to argue that such policies have failed and left Latin America is a state of

economic disarray creating a society with an ever-widening income inequality resulting

in decades of declining GDP. Once a country accepts the conditions of the loan from the

IMF and World bank they become what is considered a neoliberal regime and are

expected to immediately implement the polices outlined in the structural adjustment. Aneoliberal regime typically includes monetarist policies to lower inflation and maintain

fiscal balance (often achieved by reducing public expenditures and raising the interest

rate), flexible labor markets (meaning removing labor market regulations and cutting

social welfare), trade and financial liberalization, and privatization. These policies are an

attack by the global ruling elites (primarily finance capital of the leading capitalist states)

on the working people of the world. Under neoliberal capitalism, decades of social

progress and developmental efforts have been reversed. Global inequality in income and

wealth has reached unprecedented levels. In much of the world, working people have

suffered pauperization. Entire countries have been reduced to misery.ii

Neoliberal polices that were exported to Latin America were exported with claim of

creating an economy that would foster economic growth and give people the opportunity

for upward mobility within the society as well as provide entrepreneurs with greater

access to global markets through free trade and the movement of capital. The polices

claim to be a key component to any economy that wishes to increase its middles class

and rise people up from poverty, to lives filled with unlimited opportunity, which is

simply not the cased if the level of poverty were measured the level of before and after


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neoliberals.

Mainstream economist often argue that neoliberal reforms will lead to a burst of growth

that will initially cause an increase in inequality, but then the trickledown effect should

reverse such a trend over time. In examining the shifts in income inequality for Latin

America from the mid-1980s to 2002-2003, there has been a clear tendency for

worsening inequality, though with certain exceptions, such as Colombia and the

Dominican Republic. Significant increases in income inequality occurred for Costa Rica,

Mexico, Venezuela and Argentina, with the latter being the most marked, e.g., the top

deciles went from 30.9% of national income in 1980 to 40.7 in 2002. iii

Latin America is a continent that has suffered from neoliberal restructuring since the

1970s, about 200 million people, or 46 percent of the population, live in poverty.

Between 1980 and the early 1990s (19911994), real wages fell by 14 percent in

Argentina, 21 percent in Uruguay, 53 percent in Venezuela, 68 percent in Ecuador, and

73 percent in Bolivia.iv

Another form of neoliberal policies utilized by the Unite State and equally has

shown results to indicate a miserable failure for the people of Latin America are free

trade agreements, again packaged with all the promises of economic growth and

prosperity, by the simple request of the opening of local markets to allow good and

services to flow freely in a globalized world proved an economic land mind for Mexico

in general and Mexican farmers more specifically. Since Mexico became a partner in the

North American Free Trade Agreement (NAFTA) in 1994, conservatives have touted the

country as a successful example of "neoliberal" reforms, including trade and investment

liberalization, deregulation, and privatization. NAFTA promoters heralded the increase in


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trade and investment flows between the three North American countries. Never mind that

these increases failed to deliver promised gains in poverty reduction or wage growth.

Today it's clearer than ever that Mexico's unfettered opening-up to the global economy

has made it exceptionally vulnerable. The United Nations Economic Commission for

Latin America and the Caribbean and the International Monetary Fund predict that

Mexico will be the hardest-hit of all large developing countries by the global crisis

because of its dependency on the U.S. market. Forecasts are for negative growth in 2009,

a manufacturing slump, growing unemployment (750,000 jobs were lost in 2008), and

ongoing capital flight.

v

A few of the countries in Latin America today have had enough of the broken

promises from the Unites States of economic growth and prosperity. They have begun to

chart their own course through a necessary awareness of self-reliance and self-

determination. They have come to understanding that policies based on taking from the

many and giving to the few is not sustainable and will eventually wreck havoc on a

society.After more than two decades of application of neoliberal economic policies in the

developing world, we are in a position to pass unequivocal judgment on their record. The

picture is not pretty. Consider economic growth first. In Latin America, only three

countries have grown faster during the 1990s than in the 1950-80 period. And one of

these three was Argentina, a country whose hopes of economic salvation through

financial integration with the world economy now lie in ruins. Among the former

socialist economies, real output still stands below 1990 levels in all but four of them. And

poverty rates remain higher than in 1990 even in Poland, unquestionably the most

successful of the East European countries. In sub-Saharan Africa, results remain very


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disappointing, and far worse than those obtained prior to the late 1970s.vi

One example of this failure is outlined in the accompanying chart, which shows

productivity (GDP per worker) for 10 of South America's economies (Argentina, Brazil,

Bolivia, Chile, Colombia, Ecuador, Peru, Paraguay, Uruguay, and Venezuela).

Productivity in these countries grew by an average of 2.8% from 1951 to 1975. Between

1975 and 1985, nearly every one of these countries had embraced parts of the

Washington Consensus (spurred both by the international financial institutions like the

World Bank and the International Monetary Fund and by local elites). From 1985 to

2000, the rate of productivity growth declined to 0.37% annually. This pattern was true

both for the group of the largest economies (Argentina, Brazil, and Colombia, which

together account for 75% of total GDP in this group) and for the smallest (the remaining

seven economies), as shown in the chart.vii


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Works Cited

IGreenberg, James B. 1997. A Political Ecology of Structural-AdjustmentPolicies: The Case of the Dominican Republic. Culture & Agriculture 19

(3):85-93

iiLi, Minqi After Neoliberalism: Empire, Social Democracy, or Socialism?

June 19, 2011

iiiDollars & Sense,Real World Macro (18th edition, Cambridge, Mass.:

Dollars & Sense, 2001),

ivPerez-Rocha, Manuel, Mexico: Neither a Failed State Nor a Model

Foreign Policy in Focus February 23,2009

vRodrik, Dani Alternatives to Neoliberalism, in Washington, D.C., May 23,

2002.

viBivens, Josh Washington Consensus leads to productivity stagnation in

South America November 2005 www.epi.org

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