In the 1990s Latin Americans were patted on the back for ridding themselves, at long last, of the military dictators that had blighted the continent's history. But the dictatorship of generals, sadly, was replaced by the dictatorship of an idea: macroeconomic stabilization. Now that dictatorship, too, is beginning to crumble. May it be buried quickly.
In the wake of Argentina's full-scale collapse and the slowing of economic growth across the region, debates about economic policy have intensified. What, people ask, has Latin America really gained from the restrictive macroeconomic policies it has pursued, for the most part, since the debt crisis of the 1980s? Are people better off? Has the continent learned anything from this experience? Is it time for this dictator to go?
In the early 1980s, much of Latin America was in serious economic trouble -- triple-digit inflation, huge fiscal deficits and negative growth rates -- after decades of following a macroeconomic policy that emphasized import substitution. Then a group of Latin American economists educated in American universities began to suggest an entirely different development strategy.
They argued that integration into world markets demanded macroeconomic stability. In country after country, production shifted toward exports. According to this vision of development, macroeconomic policy should choke off inflation and rein in fiscal deficits, with foreign private financing becoming the principal source of investment capital.
In the face of the reality it has produced, this "vision" is now being savaged for its blindness. Its proponents and adherents failed to consider such fundamental and traditional macroeconomic variables as demand, production, investment, consumption, employment, wages and the distribution of income. All of these disregarded details were part of neoclassical economic theory at least since the 1960s. Perhaps they enjoyed that role for a reason.
What have been some of the effects in Latin America of making macroeconomics supreme? The Economic Commission for Latin America and the Caribbean (CEPAL) has compared the periods from 1945 to 1980 and 1990 to 2000. Among its most important findings:
On average, inflation rose by 20 percent annually from 1945 to 1980, 400 percent in the 1980s, and 170 percent in the 1990s;
Exports grew four times as much from 1990 to 2000 as in 1945-1980, with imports duplicating the rate of growth of exports;
Only Argentina and Chile demonstrated dynamic economic growth from 1990 to 2000; by this year, only Chile remained in this category. In terms of per capita GDP, the region's average annual growth rate of 3.1 percent in 1945-1980 fell to 1.6 percent in 1990-2000;
Income distribution worsened. Whereas 35 percent of all households lived below the poverty line in 1945-1980, the share rose to 38 percent in 1990-2000.
Despite years of failing to improve income distribution or to create real jobs, investment, and livable wages, the dictatorship of macroeconomics remains entrenched. Latin American governments obstinately continue to give priority to fiscal discipline and controlling inflation in the hope of attracting foreign investors.
Mexico offers an excellent example of this flawed policy. From 2001 to this year, Mexico's GDP has fallen by an average of 0.7 percent per year, 933 of the foreign-owned maquilas have shut down, translating into a loss of more than 290,000 jobs, or 27 percent of all maquila operations. Manufacturing has likewise lost 660,000 jobs -- 15 percent of the total.
Yet the prevailing macroeconomic emphasis on controlling inflation and fiscal deficits means that a real exchange rate of the peso that was overvalued by 30 percent is simply ignored, and bank loans to the productive sector are vanishing. This year, for instance, commercial banks financed a mere 22 percent of the number of firms they backed in 1995. In short, the productive sector is being sacrificed for the sake of controlling inflation and the fiscal deficit. Pursuit of these macroeconomic goals was one the primary causes of Argentina's economic woes.
Across Latin America, a dangerous polarization has resulted. Large domestic and foreign export-driven corporations and investors are favored at the expense of the productive sector and salaries. The dictatorship of macroeconomics is neither inclined to make concessions or to learn from past experience. This can only be explained as the result of a Manichean ideology that insists on a stark choice between macroeconomic stability and chaos.
In contrast to this simplistic vision, a growing group of academics from the region's universities and businessmen, such as Carlos Slim in Mexico, have proposed the need to reform economic reform. They call for the creation of public policies that, together with private initiatives, will reorient the political economy by putting employment, real wages and regional integration at the center of a new development strategy that can be sustained well into the future.
It is already clear that it is impossible to sustain an economically viable macroeconomic policy with a crisis-ridden productive sector that fails to create jobs or to distribute income relatively equitably. Moreover, it is clear -- or should be clear from the experience of Argentina and Bolivia -- that social and political stability is impossible to achieve if something isn't done to stem the deterioration of real wages that excludes a large and growing proportion of Latin American society.
Enrique Dussel Peters, professor of economics at the Universidad Nacional Autonoma de Mexico, has published several books on the political economy of Mexico and other Latin American countries.
Copyright: Project Syndicate
Saudi Arabian largesse is flooding Egypt’s cultural scene, but the reception is mixed. Some welcome new “cooperation” between two regional powerhouses, while others fear a hostile takeover by Riyadh. In Cairo, historically the cultural capital of the Arab world, Egyptian Minister of Culture Nevine al-Kilany recently hosted Saudi Arabian General Entertainment Authority chairman Turki al-Sheikh. The deep-pocketed al-Sheikh has emerged as a Medici-like patron for Egypt’s cultural elite, courted by Cairo’s top talent to produce a slew of forthcoming films. A new three-way agreement between al-Sheikh, Kilany and United Media Services — a multi-media conglomerate linked to state intelligence that owns much of
The US and other countries should take concrete steps to confront the threats from Beijing to avoid war, US Representative Mario Diaz-Balart said in an interview with Voice of America on March 13. The US should use “every diplomatic economic tool at our disposal to treat China as what it is... to avoid war,” Diaz-Balart said. Giving an example of what the US could do, he said that it has to be more aggressive in its military sales to Taiwan. Actions by cross-party US lawmakers in the past few years such as meeting with Taiwanese officials in Washington and Taipei, and
The Republic of China (ROC) on Taiwan has no official diplomatic allies in the EU. With the exception of the Vatican, it has no official allies in Europe at all. This does not prevent the ROC — Taiwan — from having close relations with EU member states and other European countries. The exact nature of the relationship does bear revisiting, if only to clarify what is a very complicated and sensitive idea, the details of which leave considerable room for misunderstanding, misrepresentation and disagreement. Only this week, President Tsai Ing-wen (蔡英文) received members of the European Parliament’s Delegation for Relations
Denmark’s “one China” policy more and more resembles Beijing’s “one China” principle. At least, this is how things appear. In recent interactions with the Danish state, such as applying for residency permits, a Taiwanese’s nationality would be listed as “China.” That designation occurs for a Taiwanese student coming to Denmark or a Danish citizen arriving in Denmark with, for example, their Taiwanese partner. Details of this were published on Sunday in an article in the Danish daily Berlingske written by Alexander Sjoberg and Tobias Reinwald. The pretext for this new practice is that Denmark does not recognize Taiwan as a state under