Economic Reform and Stabilization in Latin America

Economic Reform and Stabilization in Latin America

Economic Reform and Stabilization in Latin America

Economic Reform and Stabilization in Latin America

Synopsis

Great economic change is now occuring and will continue to occur in Latin America. This study analyzes the economic problems of the Latin American nations and sketches possible solutions to them. The focus is on positive economic analysis rather than normative political analysis. The contributors to this volume first analyze common economic and monetary problems of the Latin American nations and then suggest possible frameworks for solutions. Problems discussed include: floating exchange rates, peso speculation, real exchange rates, exchange rate reform, optimal tariff policies, economic liberalization in LDCs, financial markets and income distribution, external shocks, the Latin American debt problem, and microfoundations of financial liberalization.

Excerpt

Major liberalization experiments have recently taken place in Latin America. Argentina, Chile, and Uruguay are the best-known cases. Ecuador and Mexico are also now in the process of economic liberalization. in the Southern Cone, the initial success of such experiments was followed by the collapse and abandonment of liberalization. Yet the reasons behind this failure are unclear. It is important that the historical record be correctly analyzed, which this volume attempts to do.

Economic stabilization is nearly always a policy goal in the Latin American context. Stabilization measures are being applied nearly everywhere: the dramatic June 1985 Austral plan of the Argentinian government, the August 1985 austerity program of the Mexican government, and the 1985 stabilization program of the Dominican Republic are only a few among many attempts to bring prices and the exchange rate under control. These stabilization programs typically involve layoffs of government employees, reductions in government spending, and changes in the exchange rate regime--from floating to fixed in the case of Argentina, from fixed to floating in the case of Mexico and the Dominican Republic. Real shocks such as the fall in the price of oil have adversely affected oil exporters such as Ecuador and Mexico, but these have been cushioned somewhat by the recent decline in the real rate of interest on foreign debt and the real depreciation of the dollar. Other real shocks such as the September 1985 earthquake in Mexico City have rendered stabilization more difficult and painful.

Stabilization and adjustment measures are clearly linked to the need to service foreign debt. This debt is rising in many cases, and it is not a problem that is likely to disappear soon. Bolivia is in default officially, others are in default unofficially. Yet others such as Ecuador and Costa Rica have successfully rescheduled their debt and are paying it off. This volume focuses on economic reform and stabilization in Latin America and the Caribbean.

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