The Auto Industry in Latin America: The Challenge of Adjusting to Economic Reform

By Sanchez, Enrique P. | Business Economics, April 1992 | Go to article overview

The Auto Industry in Latin America: The Challenge of Adjusting to Economic Reform


Sanchez, Enrique P., Business Economics


WHILE HEADLINES focus on the rapid collapse of the centrally planned economies, the Latin American countries proceed on their own fast march toward liberalizing their economies. This march is already forcing rapid adjustments by the traditional players in these markets. It will drastically change the nature of the auto industry in the region during the next decade.

In order better to understand the upcoming changes in the Latin American auto industry, it is essential to analyze the key elements of the structural changes that transform the Latin American economies from a state-controlled into a free-market system.

STRUCTURAL REFORMS

Today almost all the major economies in Latin America, with the possible exception of Brazil, have aggressively moved away from the import substitution and state-controlled development model that prevailed since the 1940s. Chile was the first coun| try to attempt such a move in the late 1970s, under the Pinochet regime. Although some of the elements of economic reform were not implemented until 1984. Bolivia followed the Chilean example in 1985, after more than two years of hyperinflation. Yet, annual inflation still remains above 20 percent in Chile. In Bolivia, while annual inflation is in the one-digit level, privatization is still to come.

It was not until the Mexican experience in 1988 that the key elements of success were defined and the sequencing of implementation clearly identified. Subsequently, Argentina in 1989, Venezuela in 1990 and Colombia in 1991 also took decisive steps toward liberalizing their economies. Brazil, the largest economy in the area, is still dragging along and finding many (mostly political) difficulties in adopting the process. It is not coincidental that in all cases except Chile the decisive steps were taken as a last policy alternative. The steps were to end a recession produced either by the 1982 debt crisis directly, or by the 1983-86 adjustment policies, or to end hyperinflation of Bolivia in 1985 and Argentina in 1989. The key elements of reform in each of these countries, and how the auto industry will have to adjust to such reforms are interesting.

MEXICO: A FAST AND SIMULTANEOUS PROCESS

The Mexican experience is perhaps the clearest example to identify the key factors contributing to quick success. In 1988 Mexico began its economic restructuring by focusing simultaneously on four interrelated issues: price stabilization, privatization, domestic deregulation and trade liberalization.

The price stabilization process was buttressed through a series of social pacts. The first was announced in December 1987, when annual inflation was 160 percent. Mexico's policymakers recognized that without stabilizing the public sector's budget it would be impossible to implement a responsible monetary policy. Price stabilization would not have lasted longer than the failed experiences of the Austral (Argentina, 1985) and the Cruzado (Brazil, 1986) plans. The control of the public deficit was achieved through both the revenue and the expenditure sides. On the revenue side, tax reform was implemented broadening the tax base and simplifying the tax structure, and the laws were rigorously enforced. On the expenditure side, major cuts in public sector investment were implemented, all subsidies were eliminated (including gasoline subsidies, in spite of Mexico's oil richness) and an agressive privatization program was immediately begun.

By 1991 only 212 firms remained in the public sector out of the 1156 that existed in 1982. More importantly, while most of these firms were sold to private investors (domestic and foreign), many were simply closed, in spite of the high political cost of higher unemployment. Many organizations that had been set up within the public bureaucracy to oversee public companies were eliminated, "leaning up" the administration.

The third element of economic reform was domestic deregulation. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

The Auto Industry in Latin America: The Challenge of Adjusting to Economic Reform
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.