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A Regional Approach to Latin America's Economic Crisis
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13842 |
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CURRENT ISSUES
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12 / 1988 |
2,798 Words |
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William J. Weissman
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The Great Depression of the 1930s had a profound impact on Latin America. The prosperity that had arisen from a continuous expansion of raw material exports came to a halt. So vulnerable were Latin America economies that enactment of protective Smoot-Hawley Tariff in the United States triggered a surge of anti-Americanism in assorted countries. Amid the rubble, a number of Latin Economists—Argentine Raul Prebisch became the most prominent—began to advocate principles of import substitution, whereby Latin America countries would attempt by industrializing to move from the periphery to the center of the world economic alignment. No longer would Latin America subject itself to the whims and whines of the developed countries.
Fifty years later, and after countless experiments with populist/nationalist import substitution, Latin America remains on the periphery. For that reason, import-substitution industrialization and supporting policies such as the Kennedy administration's Alliance for Progress have not fared too well in the eyes of most historians.
Often overlooked is that import substitution, coupled with the post-World War II demand for products, did usher in a period of sustained economic growth. Latin America gross national products quadrupled between 1950 and 1980. As part of the industrialization campaign, steel production, virtually nonexistent in 1950, could fulfill 75 percent of the region's needs in 1970. Nevertheless, rapid population growth swallowed up much of the GNP increases, commodity prices dwindled in value, and an excess of steel glutted the world market in the 1980s. While these and other factors have impaired its advances, import substitution may lay claim to some belated credit for lifting Latin America out of the depths of economic ruin and for changing the way that Latin Americans view their position in the world economy.
After decades of growth under populist and military regimes, Latin America in the 1980s has had to cope once again with economic stagnation. Shrinking economies have been combated by austerity measures. Progress has been made on the population explosion, where annual rates of growth have decreased from 2.7 percent in the late 1960s to 2.3 percent the 1980s. (In the same period, Africa's population growth rate has increased.) Spiraling debt and low commodity prices, meanwhile, continue to preclude any region-wide, prolonged economic turnaround. No strategy seems to work. Alan Garcia's plan in Peru to reduce everything—government, exchange rates, and debt servicing—may have spurred the highest growth rates on the continent (8.5 percent in 1986 and 7 percent in 1987), but inflation, unemployment, and a shortage of investment capital continue to beset the Peruvian economy.
None of the conventional policy options offers much hope: Free-market nonintervention means control by foreign capital, while protecting infant industries or defaulting on debt principal assures a lack of foreign investment and possible retaliation by industrialized countries (as in U.S. trade sanctions imposed in November 1987 to offset Brazil's shielding of its computer industry). The Cuban prototype of transferred dependency no longer serves as anyone's escape, and it is likely that Soviet economic priorities under Mikhail Gorbachev will remain domestic for a while. Latin American governments cannot export profitably enough to acquire the surplus they need to pay off their massive debts, nor can they punish their populations by reducing importans and imposing additional austerity
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