Latin America after a decade of reforms
Dr Susana Nudelsman, Visiting Researcher University of Geneva

The Washington Consensus has triggered different critics. Its intellectual author believes that some of the reforms applied in Latin American countries during the nineties have been accomplished whereas other topics have come into the scenario. He provides updated guidelines which include crisis proofing, completion of the first generation of reforms and aggressive second generation (institutional) reforms, and income distribution and social agenda. It has been proposed that neoliberalism should not oppose mainstream economics, only its misuse so that orthodoxy can be combined with heterodoxy. An approach based on the idea that the world needs much less consensus and much more experimentation is also suggested. Some of the critics have found that the numerous reforms produced various positive aspects but also much dissatisfaction. Basically, there is a need to reform present reforms in order to improve economic performance as well as equity.

In the context of a rapid world financial integration, developing countries have the possibility of attracting large capital flows. The challenge for these countries is how to exploit the growing investor interest in their markets and so to enter a virtuous cycle of productive financial integration rather than a vicious cycle of boom and bust. International capital markets have shown to be imperfect. The phenomena of twin crises, sudden stops, ‘original sin’, and high risk premium have become key issues in the analysis of emerging market economies. At the domestic level, the higher interest rates needed to attract foreign capital represent a higher domestic cost to borrowers negatively affecting domestic investment; they also increase the cost to the government of servicing its public domestic debt. To cope with external vulnerability it is important to direct financial investments to productive projects, to encourage domestic saving as well as  to promote tradables over nontradables. At a global level, the increased frequency and intensity of international currency and financial crises suggest that instability is global and systemic. With no doubt, there is room to improve national policies and institutions; however, a strengthening of institutions and arrangements at the international level is also required.

The lack of progress in distribution seems to be closely associated with the slow progress in the process of accumulation of capital- physically and mainly human. By the end of the nineties, the international circumstances, the implementation of the market reforms and the process of democratization in the region contributed to a rise in the demand for institutional reforms in areas such as justice, education, finance, and public administration. The concept of governance has been increasingly emphasized whereas the quality of public institutions plays a decisive role because they represent the bridge between development and politics. When economic progress is judged, it is important not to reduce the analysis to the limited categories of a specialized field but to evaluate the process in its multiple connections with the world of values, which comprises all the contents of the historic and social realities. Likewise, development can be understood as a process of expanding the real freedoms that people enjoy. It entails the removal of the main sources of lack of freedom: poverty and tyranny, poor economic opportunities and systematic social deprivation, neglect of public facilities and intolerance or overactivity of repressive states.

Latin American countries and the world in general could learn several lessons from Switzerland. Indeed, it is peaceful, prosperous and fully employed. It makes frequent use of referenda and legislation initiated by the people. It possesses many socio economic divisions for so a small population being all of them taken into account in government. Another secret of Swiss success is that it applies federalism and the principle of subsidiarity to an unusual degree. Fiscal competition- based on low taxes and high entrepreneurship and investment- has been a main factor in explaining its enviable wealthy performance. Switzerland is considered a safe place for investors while banks have managed to maintain their reputation for honest dealing. On the whole the message is optimistic. After a decade of reforms, Latin America has the possibility to learn from both its successes and its failures. Although the nineties represent a new source of problems, they are also the impetus to look for a new approach to development. 

 

Contact

Dr Victoria Curzon Price
Universite de Geneve
Faculte des Sciences Economiques et Sociales
Uni Mail / CH- 1211 Geneve 4
Victoria.Curzon-Price@ieug.unige.ch

Dr Susana Nudelsman
Universidad de Buenos Aires
Facultad de Ciencias Economicas
Cordoba 2122- 1120 Buenos Aires
snudelsman@yahoo.com