Estudiante

There is no alternative to Neo-liberalism in Latin America. Discuss

The 1990’s was a decade of high expectations for Latin America. Policy makers throughout the continent implanted neo-liberal economic reforms as a panacea for the economic recovery of the region. This set of policies were also denominated “the Washington Consensus” referring to the common denominator of policy advice givenby Washington based institutions such as the IMF and the World Bank to Latin American countries .

The 1980’s had left a legacy of inflation and economic stagnation. Neo-liberal reform succeeded in overcoming these two major concerns through fiscal austerity, monetary restraint, trade liberalisation and privatisation of state owned companies. Foreign capital poured in and economic growthresumed, albeit at a moderate level. Despite this initial success, other factors of the economic recovery were neglected, notably income distribution and raising levels in absolute number. In relative numbers it fell throughout the 1990s. of poverty in the region. Source of evidence? Moreover, the 1994/95 and 1998 crises unveiled the vulnerability of the economic recovery and raised doubts on thelong-term sustainability of the neo-liberal model.

The aim of this paper is to assess whether the neo-liberal ideology Is neoliberalism an ideology and why? can overcome these failures or whether it should be rejected altogether, and substituted by an alternative ideology. It will argue that although the flaws of the model are evident, neo-liberalism has achieved certain successes that shouldnot be underestimated. Moreover, recent literature point out at the need to focus the current model “on improving the quality of investments in human development, promoting the development of sound and efficient financial markets, enhancing the legal and regulatory environments [and] improving the quality of the public sector” . This new agenda of second generation reforms has been called the“Post-Washington Consensus” and its main objective is to promote equitable distribution of income as well as rapid growth without discarding some neo-liberal policies that have achieved good results.

The paper will be structured as follows. The first part will provide a background on the emergence of neo-liberalism in the 1990’s focusing on the reasons why it was so widely accepted. The second partwill investigate the flaws and the nature of threats to neo-liberalism in Latin America. In particular, it will concentrate in understanding the problems of balance of payments and the role of foreign capital. It will argue that the dependency on foreign investors as opposed to domestic savings for domestic investments accentuates the vulnerability of the model. Moreover, the low rate ofproductive investment as compared to consumption further threatens long term growth. In addition, the productivity gap of Latin America compared to other developing regions and the composition of exports, dependant mainly on primary products, further weakens the solidity of economic growth. Finally, it will look at the political tensions created by increased poverty and inequality and the threat ofloosing political power to implement further reforms. The third part of the paper will investigate the possible alternatives to pure neo-liberalism focusing principally on the role of the state to promote growth with equity.

During the post World War period, Latin America pursued an Import Substitution Industrialisation (ISI) strategy based on protectionism and state intervention in policydesign. It relied on large flows of foreign investment in the form of FDI and borrowing. These policies lead to high growth rates that averaged 5.5 per cent from 1950 to 1981 source?. However, many critics have argued that these rates where achieved in an extremely favourable international environment. Moreover, it is also argued that ISI -failed to address endemic problems of inflation and...