Chapter 86 Section 4 Latin America

There are of course various political economies within the broad framework of "the West."A particularly instructive example is Latin America, where two different and opposing models have been experimented with.The first is what the economist Hernando de Soto describes as "mercantilism," which has a longer but less glorious tradition.It originated in the colonial administrations of Spain and Portugal, and has been perpetuated by corrupt dictatorships of the left and right.Later, the international organizations promoting "development economics" gave it too much support.Mercantilism is based on the concentration of economic power in central hands, making it beneficial to powerful individuals and groups and preventing outside competition.Latin American countries are largely responsible for failing to enjoy North America's growing prosperity.Mr. de Soto was the first to conduct research on the economic situation in Lima, Peru.Research shows that it is now a so-called "black economy" due to corrupt, unpredictable excess management, which is supporting people's need for housing, markets and transport.

Most Latin American countries had to spend many of their gains in the 1980s on debt repayments.These debts were borrowed to finance the misdirected policies of the 1970s.However, led by Chile, then Mexico, Argentina, Brazil, and now Peru, they have all substantially changed their "mercantilist" approach towards limited regulation, sounder finances, privatization, and deregulation.It is also very important to point out that although there is often advice and assistance from international agencies, it is not because of their advice and assistance that there is also this clearly visible new direction in Latin America, just like the economic success in the Asia-Pacific region. Same.

Of course, due to international hostility to General Pinochet's regime, Chile was forced to act unilaterally to revive its economy with liberal economic prescriptions.These prescriptions continued to be used later in democracies.Therefore, Chile reduced the money supply to limit hyperinflation, lowered import tariffs, welcomed foreign investment, promoted privatization (sold 350 state-owned enterprises), and even affected the social security system by privatization.It feels successful in every way.The export-led economy has been growing steadily.In addition, Chile's economy is more balanced and diversified, making it more resistant to adverse factors.Chile used to rely almost entirely on copper exports.Computer software, wine, fish, fruit and vegetables are now exported in such quantities that even the European Community is now clamoring for a boycott of its products.It's a dramatic change, and one that shows dramatically how a free economy can pay off.

The situation in Mexico is similar.For decades, a quasi-authoritarian totalist regime kept Mexicans impoverished. When I attended the "North-South" summit in Cancun in 1981, Mexico was still stubbornly misdirecting investment into large capital projects, hiding behind tariff barriers, and pursuing redistributive social policies.Indeed, it was a very appropriate place to promote the rhetoric of the Third World, and heard so much talk about it at the time.But then I visited the country in 1994, and it underwent welcome and dramatic changes under the leadership of President Salinas.Inflation has come down.Finances are in good shape, tariffs have been reduced, union power has been curtailed, and 996 of the original 1,155 state-owned companies have been sold, merged or closed - including the sale of 18 national banks, which is a key factor in the financial services sector around the world. Largest merger and acquisition process ever experienced.Mexico's recent currency crisis, which has knock-on effects at home and abroad, was not the result of such reforms but of traditional spending spree ahead of elections.When these met the limits of Mexico's fixed exchange rate, there was capital flight and the peso plummeted.This lesson shows that, if microeconomic reforms are to be solidly implemented, it requires sound money and orthodox fiscal,

However, when I visited Mexico for the second time in 1994, it was about to sign an agreement with the United States on the North American Free Trade Area.Such aggressive action would have been unthinkable in earlier days, when anti-American sentiment and protectionist tendencies prevailed.The NAFTA initiative has broader implications.In the past, Latin American regional trade agreements were generally designed to close borders to prevent wider international trade competition.Now, like the Andean Group (Venezuela, Colombia, Ecuador, Peru, and Bolivia), Mercosur, and Mercosur (Brazil, Argentina, Paraguay, and Uruguay), the participating countries see these trade agreements as a means to promote freer trade .

Whatever Argentines thought at the time of the defeat in the Falklands, it shook the Argentine people, produced its first democratic government and, more recently, under President Menem, received the economic effectiveness of free market policies, currency Inflation fell, a far-reaching privatization program was undertaken, and subsidies, regulations, and tariffs were reduced.The economy is growing fast. Brazil is the fifth largest country in the world with the sixth largest population.It has abundant natural resources.Undoubtedly, it has the greatest potential.Even with policies that were largely wrong in the past, its economic growth rate bears this out.Now it has embarked in earnest on policies of lowering inflation, reducing government borrowing, and promoting privatization, although it still has a lot to do in order to limit excessive administration and the corruption that accompanies it.Economic optimism and political caution are an appropriate response to the situation in Peru.Free-market economic policies began to pay dividends, privatization programs were successful, and economic growth was strong.But political stability was also needed if the full benefits of a free-enterprise economy were to overcome the legacy of "mercantilism."