Academic journal article Harvard International Review

Market Solution to Poverty: The Decade of Latin America and the Caribbean

Academic journal article Harvard International Review

Market Solution to Poverty: The Decade of Latin America and the Caribbean

Article excerpt

A generation ago, Latin America and the Caribbean (LAC) was known for debt crises, military dictatorships, hyperinflation, and grinding poverty. Today, the region is characterized by regional political and economic integration, increased global market share for its exports, sound financial management, and declining unemployment. Most importantly, it is a region that has internalized its role in the world. Imbued with new choices and an independent voice, the region is emerging as the center of the South-South-East exchange of goods and financial capital between LAC, Africa, and China. It is time for the world to look at Latin America and the Caribbean in a new way.


Though results vary between nations, LAC's accomplishments as a region include 5 percent annual growth that propelled at least 60 million people out of poverty during the five years that led up to the global financial crisis in 2009, and the remarkable economic recovery in 2010 due to countercyclical programs, targeted government spending, and lower interest rates that prompted the region to grow 6 percent. This resilience can be explained by improved fiscal positions, increasing levels of international reserves, lower public debt, greater exchange rate flexibility, and the proliferation of independent central banks.

These are the institutional outcomes of democratic maturity, the result of decades. of focus on greater freedoms and transparency. Though major challenges remain, such as inequality and inadequate infrastructure, the trend toward greater choices and opportunities for the poor through pro-innovation policies like export-led growth, firm-level competition policies, and conditional cash transfers that support education and health outcomes cannot be denied.

Perhaps the most important change that is happening is the mindset change from viewing the poor as hapless victims and passive recipients of aid who may never escape the poverty trap, to seeing them as self-determined, potentially successful actors in the economy.

At the Opportunities for the Majority Sector of the TDB, we believe that the key is to view people in low-income communities neither as problems to be addressed nor merely as consumers of established products, but as respected partners in national economic development. This is a particularly deeply entrenched perspective when it is viewed in light of the region's recent history.

The 1980s: The Lost Decade

Today, young people in Latin America and the Caribbean are surprised to hear that the price of certain items such as bread, milk, and clothing once changed daily. People raced to currency exchange offices to purchase dollars with their paychecks to guard against fluctuations. This was considered the best way to fight inflation.

At the start of the 1980s, LAC gross domestic product (GDP) began at 7.8 percent of world GDP. Rising oil prices allowed the accumulation of debt that led to the Mexican debt crisis in 1982, which in turn curtailed credit to the entire region. Regional inflation went from 159 percent in 1985 to 1,189 percent in 1990. New currencies were frequently introduced. Government budgets and payrolls were cut against the backdrop of limited democratic freedoms. Regional growth stagnated, and the poor were hit hardest of all. LAC GDP ended the decade down at 6.4 percent of world GDP, and 64 million people had joined the ranks of the poor.

Overnight, terms such as "adjustment program" and "austerity measure" became part of people's everyday vocabulary. Children could recite macroeconomic indicators as easily as football scores. This led to a new generation of more technocratic leaders. Often trained in the United States and inspired by the potential in the Asian tigers, they formed trusted networks with a shared, pro-innovation vision, promoted open trade policies and privatizations, and brought the import substitution model to an abrupt end. …

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