NCPA - National Center for Policy Analysis

Will Latin America Stay The Free-Market Course?

November 30, 1996

Some observers of Latin American trends say the free-trade, free-market reforms of recent years are facing a growing backlash due to current short-term disappointments. there is said to be a growing disgust with politics which is leading to violence -- from guerrilla actions to street crime.

In the late 1980s, a new generation of often U.S.-educated leaders launched privatization programs, financial liberalization and trade reforms which were politically popular and economically successful.

  • Inflation in the region fell from a mean of 196 percent in 1991 to just 19 percent last year.
  • The average budget deficit in Latin American countries was slashed by two-thirds -- from 5.5 percent of GDP in 1988 to 1.8 percent in 1995.
  • In the five years to 1994, intra-regional exports doubled to $32 billion as protectionism fell.
  • With the reforms, the region achieved GDP growth of 3.5 percent per year by 1991.

While the reforms have dramatically reduced the percentage of Latin Americans living in poverty, high population growth has guaranteed that the numbers of those in poverty soared. Many economists believe that a 6 percent economic growth rate in the region is necessary to reduce poverty in absolute terms.

But experts say that due to the fragility of banking systems from Mexico to Argentina, it may take another decade or more to achieve such a rapid growth rate.

Observers say that voters show evidence of being frustrated and angry at the reformers and impatient for more rapid economic progress. They are not, however, flocking to old-style populist and leftist parties because they lack any coherent alternative plans.

Source: "The Backlash in Latin America," The Economist, November 30, 1996.

 

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