Fast Forward

Latin America on the Edge of the 21st Century

Scott B. MacDonald

• Publisher: Routledge
• Year: 2018
• eBook ISBN: 9781351293341
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

Latin America is developing rapidly. As the authors see the region, a small group of countries has found a fast-forward button. In these countries change is exciting, occurring at such a rapid pace that a major breakthrough hi economic growth appears within grasp. After an almost decade-long period of recession and stagnation, many Latin American economies now have elected governments. With a few exceptions, most have also improved their socioeconomic conditions beyond meeting basic human needs. Yet few North Americans or Europeans are aware of these advances. How does Latin America fit into the changing world in the 1990s, and why should someone living in the United States, Europe, or developed parts of the Pacific Basin care?

Fast Forward shows that Latin America's economic renaissance clearly has implications for a post-Cold War world order. Latin America is starting to make important contributions, particularly in the areas of international diplomacy, economics, and culture. Collectively, Latin Americans now demonstrate a coherent collective will about where they wish to take themselves. This does not mean that U.S. influence in the Americas will soon disappear, but that new challenges in the international system will force greater equity in Western Hemisphere relationships.

While Latin America in the 1990s offers much to be excited about, the authors caution that there are dangers in being too enthusiastic. The always-present potential for top-down authoritarian approaches must temper enthusiasm about a better Latin American future. Despite this, the authors see a well-defined departure from past economic modes occurring and the potential for a higher level of development for some countries. This book is for economists, sociologists, and political scientists interested in economic and political development, and researchers interested in Latin America in particular.

Introduction

In March 1995, one financial advisor cautioned his readers: “Do not—I repeat, do NOT—sell any of your Latin American stocks, bonds or mutual funds. Chances are, you would be making exactly the same mistake as those hapless investors who dumped their holdings on October 19, 1987. In the long run, your Latin investments will provide handsome returns because that part of the world is steering away from inflation and adopting free enterprise. As a result, solid economic growth is virtually guaranteed.”¹ Despite Latin America’s economically depressed 1980s and the wake-up call of the 1994—95 Mexican peso crisis, financial markets and much of the business community remain relatively upbeat about the future of Latin America. In July 1995, only months after Mexico had been regarded on the critical list, the Mexican government issued a $1 billion bond, which U.S. investors lined up to purchase. Three questions flow from this outlook: first, is the optimism about the region deserved?; second, who is leading the economic-development parade?; and finally, where is the parade going?

Open the business section of any major newspaper and look at the stocks, and an interesting discovery can be made. Tucked in between the blue-chip stocks of IBM, General Electric, and NYNEX are a plethora of Latin American stocks representing the major telephone and telecommunication networks of Argentina, Chile, and Mexico, utilities in Bolivia and Chile, major banks, and a number of mutual funds covering the entire region. These are not penny stocks, but commercial paper traded on the New York Stock Exchange with a relatively high value and the ability to hold their own in tough international markets. It would have been difficult to foresee major investment houses and brokers selling shares of Latin American funds and companies in the early and mid 1980s. But in the 1990s, this is the case and, despite the 1994—95 Mexican peso crisis, this trend is likely to continue.

Over the next decade a number of countries in the region will be severely challenged (for example Mexico and Venezuela), but a systemic repeat of the 1980s is not likely. However, while there have been considerable changes in the region’s economies, and Latin America’s position in the world has been considerably upgraded, the region’s transformation is not yet complete. Domestically, socioeconomic imbalances remain significant and large segments of populations are not quickly benefiting from recent economic reforms—worse, some are arguing that in the short-term severe dislocations are more likely. There is no doubt that poverty and dysfunctional public sector institutions remain an Achilles’ heel in any scenario of Latin America’s future.

Nonetheless, Latin America is gradually becoming less economically dependent on the core industrial countries. There is a trend toward interdependence, both within the region and with nonregional trade partners. This is evident by the sizeable and growing number of Latin American stocks now traded daily on the New York Stock Exchange, the NASDAQ, and the American Stock Exchange. The bonds of Latin American governments and corporations also show up in the portfolios of major insurance companies and state pension organizations. Conversely, U.S trade and investment patterns in Latin American economies have made the region a prime growth area along with the Asia/Pacific area.

For the U.S. consumer, anecdotal evidence is slowly materializing: almost half the orange juice consumed in the United States comes from Brazil, Colombia is a prime source of flowers, and the raspberries in the local grocery store that you are eyeing come from Chile or Guatemala. The shrimp put on the grill could come from Ecuador or Panama, and the wine to complement dinner could be produced in Argentina or Chile. Brand names like Corona, Dos Equis, and Concha y Toro are gradually becoming part of the North American consumer consciousness. Few North Americans are aware that the Mexican glass conglomerate, Vitro, controls over a quarter of the U.S. glass market; just as few Europeans know that another Mexican industrial giant, Cemex, has bought substantial interests in Spain’s construction sector.

The interdependence between Latin America and North America (the United States and Canada in this instance) was also mirrored in the U.S.-led effort to support Mexico in early 1995 when the peso came under attack by international currency traders. Mexico is a major trade partner of the United States and a key location for U.S. overseas investment. Although the same relationship does not exist between Canada and Mexico, the latter is growing in significance as a trade and investment partner. Moreover, the 1993 passage of the North American Free Trade Agreement makes events in Mexico City more keenly felt in Washington, D.C. and Ottawa than any time prior. Simply stated, Mexico’s troubles are eventually those of the United States and Canada either through mutual security concerns (such as the drug trade), lost markets, or complications with foreign exchange rates, let alone illegal immigration flows.

What Do These Signs Suggest?

Latin America’s role in the post-cold war world order is being shaped by economic dynamism, more effective diplomacy, and a cultural explosion. The region in all its complexity is undergoing significant structural changes and many of the current economic- and political-reform programs are providing the foundations of a hemispheric revival that, if successful, will carry into the next century. Latin America is emerging from the “lost decade” of the 1980s to a renaissance in the 1990s, in which its 466 million people are, through their democratic process, increasingly articulating their view of the way things should be in the international political and economic system. Although the renaissance is more pronounced in some countries than others (and perhaps bypassed in a few), Latin America as a whole has in recent years demonstrated a more coherent collective will of itself.

This does not presage the end of U.S. leadership in the Western Hemisphere. It simply points to a more mature regional interaction, a greater pace of cooperation in the Western Hemisphere, and a new equation in the international system. These trends were, to some degree, codified at the Summit of the Americas in late 1994. Held in Miami, this conclave of the leaders of the Americas save one, Fidel Castro, drew out an optimistic future of domestic economic growth, trade expansionism, and more equitable social distribution. The notion of a hemispheric free-trade area by the year 2005 became the cornerstone of the aspirations of senior government and business community leaders, trade negotiators, and international organization bureaucracies.

The striking feature of these developments may not be the ambitious free-trade area envisioned for the next century as much as the sea-change in individual and governmental attitudes that has occurred since the mid-1980s and the dark days of Latin America’s debt crisis. The region’s profound and painful economic reforms have been undergirded by a renewal in democratic leadership. The societal consensus this has engendered in most Latin American societies has become the key building block for maintaining a dramatic renaissance in the hemisphere. The implications of this renaissance are being absorbed by the region’s local community organizations and business leaders, both large and small, as well as increasingly by the global investment community. For their part, government leaders are forging the kinds of regional political interaction and cooperation that made the Miami Summit possible.

Latin America’s Fast-Forward Process

The last decade has been a time of almost bewildering transformations—the end of the Communist bloc and the Soviet Union, a militarily spectacular and victorious allied war against an Iraq that had invaded Kuwait, and long and deep recessions followed by recoveries in the United States, Japan, Canada, Australia, and Europe. Parts of Africa and Asia, such as Rwanda, Somalia, Liberia, and Afghanistan have spun out of control; and large parts of the former Soviet bloc are racked with myriad new problems ranging from bankruptcy, the smuggling of plutonium, scandals in recently re-activated financial sectors, and the resurgence of undemocratic political forces.

Latin America is a region also undergoing considerable changes. Most U.S. citizens were forced to come to grips with this new reality during the national debate for the ratification of the North American Free Trade Agreement (NAFTA). Ultimately, NAFTA passed, but the perceptions of Mexico and Latin America generated by the debate were not always encouraging. In effect, the debate touched upon the role of the United States in a new international system which involves closer relations with its neighbors, one of which is Latin America. Some of these debates resurfaced when international attention briefly focused on Mexico in the aftermath of its disastrous peso devaluation in December 1994 and the currency crisis that followed. There was considerable suspicion that not much had changed and that the problems of one Latin American country were the same throughout the region. This is clearly not the case.

Latin America is undergoing an uneven economic and political renaissance. The southern cone countries of Argentina, Chile, and Uruguay are enjoying a more sustained economic recovery and have weathered the 1994—95 international currency crisis relatively well. The same cannot be said about Mexico and Venezuela, both of which were the source of high expectations, but have been disappointing and curiously problematic. The outlook for Colombia remains uncertain as long as the mismatch between the nation’s economic potential, and political and security challenges continue. At the same time Peru, long on a downward economic spiral compounded by substantial political problems, appears to be moving on a course toward recovery. The same, perhaps, can be said of Latin America’s largest economy, Brazil, long troubled with divisive politics. The Cardoso administration that came into office in early 1995 is seeking to bring a deeper and more sustained process of reform to the country. The verdict on Latin America’s smaller economies, including Central America and the Caribbean region, remains uncertain, but is most certainly dependent on the sustainability of the hemisphere’s renaissance.

Latin America’s fast-forward process is therefore defined here as a structural transformation of local economies from state-dominant to more market-oriented growth strategies by promoting exports and allowing imports, the diversification of products and trade partners, fiscal responsibility, and the privatization of large-scale state holdings. It also entails an openness to foreign investment and membership in key international economic institutions, including the International Monetary Fund, the World Bank, Inter-American Development Bank, and the GATT which is now superseded by the new World Trade Organization.² Much of the fast-forward process reflects the “Washington Consensus,” a phrase coined by the Institute of International Economics’ John Williamson.

However, to trade and market liberalization, sound fiscal and monetary policies, and privatization, we add a second, more long-term round of reforms that encompass institution-building (or reinventing government to perform better at lower costs): judicial and law enforcement reforms, educational reforms, financial and consumer regulatory reforms, local government administrative and budgetary reforms, and substantial retirement pension and health care reforms. As Moisés Nairn observes: “Opening the stock market to foreign investors or eliminating subsidies can be done with the stroke of a pen and can have immediate results. Building the equivalent of a Securities and Exchange Commission or organizing a well-targeted social program to compensate the poor for the loss of subsidies requires complex organizational efforts that take much longer to bear fruit.”³

Key elements to the success or failure of Latin America’s transformation are pragmatic, democratic, and responsible leadership, a degree of social equity, and higher educational levels. It is important to underscore the latter—changes in the global economy increasingly demand a more literate workforce capable of assimilating new technologies and harnessing them to drive the national or even regional development process. At the same time, failure to address social inequalities provides fertile ground for political turmoil that can derail the fast- forward process.

These considerations lead us to focus particular attention on the region’s larger and more influential actors. Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela are pivotal nations, shaping the definition of the changing regional environment. We have added Cuba to the equation. Its political and socioeconomic development lag is an aberration, and a point of continued U.S. strategic interest. Changes are on the horizon and Cuba’s reintegration into the region’s economic and political system will probably be a catalyst for a renewed Caribbean-Central American environment. Combined, this emerging Latin American renaissance has implications for the United States and for its European and Asia-Pacific partners and competitors, ranging across economic, political, and security interests.

Defining Latin America

Economists Eliana Cardoso and Ann Helwege capture Latin America’s diversity in the following observation:

In Chichicastenango, Guatemala, the local people wear handloomed clothing bearing the traditional pattern of their home town. Women wear backstrap looms between tending fields and cooking meals. In Buenos Aires, Argentina, women race between supermarkets, nursery schools, their offices, and their psychoanalysts. Half of the population of Guatemala cannot read and write; Argentina’s illiteracy is less than 5 percent. Both countries face debt crises, inflation, and unemployment, yet the differences in their economic bases are so profound as to make a mockery of efforts to address their problems in the same breath.⁴

We easily acknowledge the vast diversity that is encompassed in the term “Latin America.” In a geographic sense, this book refers to the community of nations that begins with Mexico in the north and, heading south, includes Central America, the Caribbean, and South America. Latin Americans are largely Roman Catholic with a sizeable Protestant minority, and generally speak Spanish (Portuguese in Brazil). For its part, the Caribbean includes a large number of English-speaking nations, Haiti (Creole and French are also spoken), as well as countries with French and Dutch dependencies (areas not emphasized in this study). As a whole, this large region that begins at the U.S. border with Mexico accounts for over 466 million people and some of the developing world’s most competitive economies (for example, Chile) and largest economies (Brazil, the 7th largest in GDP size in 1995, and Mexico, the 20th largest).

The World Bank defines Latin American and Caribbean countries as middle-income economies; only Haiti is regarded as low-income, placing it among the poorest countries in the world. This means that most of the region enjoys a higher standard of living than countries in Sub-Saharan Africa, South Asia, Central Asia, and is on a rough par with the newly developing Eastern European countries. Only four major Latin American countries—Argentina, Brazil, Venezuela, and Uruguay—qualify for the upper middle-income bracket, which makes them comparable in World Bank terms to South Africa and Greece. However, Latin America clearly lags behind the dynamic Asian economies, such as Hong Kong, South Korea, Singapore, and Taiwan.

The structure of Latin American economies varies considerably. Global commodity markets are important for a number of Latin American countries: coffee from Brazil, El Salvador, and Colombia; oil from Venezuela, Mexico, and Ecuador; and sugar from Cuba, Guyana, and the Dominican Republic. Yet, the days that even small commodity price fluctuations were earthquakes in local economies are largely over. Agriculture as a percentage of GDP has declined. Many of today’s Latin economies are more broadly based on industry and services. This is not to say that Latin American nations have economies as highly industrialized or service-oriented as Singapore’s, but the overall trend since the 1960s has been to downsize agriculture and augment industry and services.

The contrast between the reality of Latin American economies and politics and the perceptions of North Americans is a complicated matter. For many, a beleaguered Central America was the overwhelming image of the past decade—with right-wing death squads in El Salvador and Guatemala, the Sandinistas and their leftist revolution in Nicaragua, and the outside involvement of the United States, Soviet Union, and Cuba. The perception of Latin America in the 1980s was characterized by the external debt crisis, riots and demonstrations against International Monetary Fund-imposed austerity programs, and grinding poverty. Added more recently to these largely unpleasant images were the faces of drug kingpins and their cronies, from Pablo Escobar in Colombia to General Manuel Noriega in Panama. The perceptions are also defined by images of refugees and illegal immigrants streaming into the United States, symbolic of L...

Table of contents

• Cover
• Title Page
• Copyright
• Table of Contents
• 1. Introduction
• 2 A Changing Latin America
• 3 The Trendsetters I: Chile
• 4 The Trendsetters II: Argentina
• 5 The Game Intensifies: Colombia
• 6 Mexico: From Trendsetter to ...
• 7 Brazil: Curiously Problematic
• 8 A Road with Many Detours: Venezuela
• 9 Echoes in Peru
• 10 Albanian End-Game or Democratic Transition? Cuba Reaches the Twenty-First Century
• 11 Outlook for the Fast-Forward Process
• Appendix: The Difficult Decade: The 1980s
• Bibliography
• Index