In order to maintain a stable economy, it is critical for governments to adopt relevant policies that cushion crucial sectors from economic shocks. The failure in this regard is likely to result in a vulnerable economy that cannot guarantee the survival of vital sectors in the aftermath of a global phenomenon such as the Great Depression.
Although some economic policies may vary from one region to another, others play a crucial role in the transition of any developing country into industrialization. The political environment in a region is crucial concerning the adoption and proper implementation of various economic policies. Policy makers play a central role in reforms and thus possess significant effects on a country’s economic transformation.
The Great Depression largely marked the onset of changes in the economic policies adopted by Latin-American countries. This period adversely affected a significant portion of the Latin America, which largely depended on the role of supplying raw materials to different parts of the world as a means of generating income.
Because of the weakening of the global economy, industries in the affect countries minimized the importation of raw materials. This severed the chief source of foreign currency for various Latin-American countries and led to a rising trend of poverty and social chaos.
Thus, there was the need for collaborative efforts by various stakeholders within Latin America to draft economic policies that would safeguard different aspects of the Latin-American economy. Leaders in Latin America acknowledged the need to change economic policies and promoted the discarding of the free-market model in favor of import substitution (Ca?rdenas et al., 2000).
The applicability of this model remained satisfactory for various Latin-American countries until the 1980s. The import-substitution model focused on the reduction of the dependence of the economy of a country on foreign parties. To achieve this objective, countries in Latin America embarked on various aspects of local production.
The policies on import substitution ensured the state’s participation in aspects such as nationalization and subsidization of industrial and agricultural raw materials. Other measures included increased tax rates and the imposition of protectionist trade policies. The adoption of these measures focused on the protection of local industries and stabilization of economies in various Latin-American countries.
The import-substitution model attracted support among Latin-American countries due to the consideration that most of the industrialized countries employed various aspects of import substitution to attain states that are more self-sufficient.
Another factor that led to the adoption of import substitution in Latin America was the need to address the rising trend of unemployment and poverty largely attributed to the global economic crisis at the time. The Great Depression caused significant economic shocks throughout the world, and declining domestic employment in Latin America.
However, from around the 1980s, import substitution policies began to loss favor among developing countries, including those in Latin America. Policies relating to import-substituting industrialization (ISI) led to losses and debts within Latin America due to the introduction of various programs by the World Bank and other bodies that brought about market liberalization.
Following the 1980s’ debts that caused crises in various Latin-American countries, concerned parties identified the need to privatize the management of previously nationalized entities, and thus began adopting market-oriented economic policies (Solimano & Soto, 2005).
In the 1990s, Latin America witnesses a significant change in the manner of management of capital-intensive sectors such as telecommunication. Financial shortages and the lack of adequate investment in various aspects of technology are some of the crucial factors that instigated the shift towards privatization. The previous model of import substitution forced most Latin-American countries to participate in various aspects of importation.
This promoted the adoption and integration of concepts relating to a market-oriented economy. The effects of the debt crisis of the 1980s created numerous barriers that introduced challenges concerning access to financial markets. This resulted in a trend of declining availability of capital in most of the Latin-American countries. Market-oriented policies provided a framework upon which the government could attract sources of capital.
These policies facilitated the privatization of electricity and telecommunication sectors, which were largely capital intensive. The importance attached to these sectors resulted from the realization of their prospects for expansion due to high demand. Thus, they provided a platform through which the government could achieve its various objectives.
Political reforms in Latin America also influenced the adoption of market-oriented policies. This resulted due to influence by policy makers who promoted new democracies. By the end of the 20th century, most of the countries in Latin America had adopted a framework based on the three principal concepts used to attract private capital (Bethell, 2008).
The first approach was the privatization of key sectors through the public sale of shares or concession contracts that transferred the ownership and administration of various capital-intensive entities. The other approach was the elimination of restrictions that hindered the influence of private capital on public monopolies. This strategy facilitated the generation of investments that availed capital and promoted the operation of various sectors.
The third approach was the drafting of regulations, and the establishment of bodies to ensure that private investors adhere to the set standards and rules. Another factor that led to the adoption of market-oriented reforms in Latin America was the influence by international financial institutions. These institutions gained significant control in the region due to their role as the main source of credit for the capital-deficient Latin America.
The lack of funds for various government projects presented an opportunity for the involvement of financial institutions in technological modernization as an aspect for generating fiscal assets. However, the adoption of market-oriented policies varied among different countries in Latin America. For example, while Chile adopted the reforms on electricity at around 1982, Mexico adopted such reforms in 1999 (Frieden et al., 2000).
In addition, although Costa Rica was successful in its attempts to privatize telecommunication, Argentina failed to achieve similar goals that year. These discrepancies also arose concerning the outcomes of market control. Some countries adopted the monopolistic aspect of market regulation. However, countries such as Mexico adopted the fixed-term monopoly concepts and other aspects that promoted market-controlling reforms.
Although the adoption of various economic reforms in Latin America face challenges, the outcome of the implementation of those reforms positively transformed the region and introduced significant levels of self-sufficiency.
While the economic recession induced the onset of the industrial imposition, negative effects associated with import-substituting industrialization promoted the need for other economic reforms that would guarantee the survival of Latin-American countries in both the local and global economies. Although economic reforms were crucial in Latin America, a narrow scope that focused largely on the local economy introduced hindrances that necessitated the re-evaluation of Latin America’s economic policies in the global perspective.
Bethell, L. (2008). The Cambridge history of Latin America. Cambridge: Cambridge University Press.
Ca?rdenas, E., Ocampo, J. A., & Thorp, R. (2000). An economic history of twentieth-century Latin America. Houdsmills, Basingstoke, Hampshire: Palgrave ;.
Frieden, J. A., Pastor, M., & Tomz, M. (2000). Modern political economy and Latin America: theory and policy. Boulder, Colo.: Westview Press.
Solimano, A., & Soto, R. (2005). Economic growth in Latin America in the late 20th century: evidence and interpretation. Santiago, Chile: CEPAL, Economic Development Division.