NCPA - National Center for Policy Analysis

Turning Latin America Towards Capitalism

August 5, 1996

Throughout Latin America, political leaders are finally listening to their free market advisers, who are often U.S.-educated economists. They are acknowledging that there aren't any viable alternatives to market reform. And their economies are beginning to grow again after the Mexican peso devaluation in 1994 sent foreign capital scurrying.

  • These countries' economies are expected to post positive year-on-year growth numbers for the second quarter of 1996.
  • Inflation is at historic lows.
  • Except for Brazil, government spending in the larger countries is beginning to come under control.

Latin American economists say that leaders are not falling into the trap of quick-fix solutions and -- in many cases -- are showing astonishing political discipline. After decades of failed experiments in government intervention, many leaders recognize the only things that will bring a better life for their citizens are fiscal discipline, low inflation, stable currencies, rising foreign investment and freer trade.

  • Mexico has opened up its fiercely protected banking sector.
  • Brazil has begun to privatize its energy sector and to lift bars to private sector investments in communications and other areas.
  • Venezuela is reportedly adopting a reform scheme to bring the country back from the brink of economic chaos.
  • Argentina's new University of Chicago-school economic team is trying to dismantle a bankrupt social security system, rein in spending by local governments, and scrap antiquated labor laws and tax codes that stifle private sector competition.

It isn't going to be easy. The two-year outlook for many Latin American countries is high unemployment and stagnant salaries. But the long term is more promising.

Among the first to initiate economic reforms, Chile can now point to 12 straight years of strong growth, low unemployment, rising salaries and a sharp reduction in poverty.

Source: Jonathan Friedland, "Latin America Resists Reform Backlash," Wall Street Journal, August 5, 1996.


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