SUNS4513 Wednesday 22 September 1999


Latin America: Reforms neither huge success nor flop, says ECLAC



Rio de Janeiro, Sep 20 (IPS/Mario Osava) - Economic liberalisation reforms, implemented since last decade in Latin America and the Caribbean, failed to achieve the desired results, a representative of the Economic Commission for Latin America and the Caribbean (ECLAC) told a gathering of economists in Brazil last week.

However, they did not have disastrous results either, said Barbara Stallings, director of ECLAC's Economic Development Division, who discussed conclusions reached by the UN regional agency regarding the impact of the process of liberalisation on nine countries in the region.

The results, as well as the conditions in which the nine countries began to throw open their markets and reduce the role of the state in economic activity, were diverse, Stallings told the seventh Congress of Latin American Economists, which ran Monday through Friday in Rio de Janeiro.

Chile, a pioneer in economic liberalisation in the region 20 years ago, as well as Argentina, Bolivia and Peru were all experiencing dismal economic and political conditions when they turned to the reforms.

Runaway inflation, low levels of growth, dictatorships and ungovernability, including guerrilla activity in some countries, led policy-makers to believe they had little to lose - a conviction that encouraged them to apply aggressive reforms, said Stallings.

Swift implementation of the reforms was also pushed by the IMF and the World Bank.

The rest of the countries chosen for the study - Brazil, Colombia, Costa Rica, Jamaica and Mexico - were able to implement the changes in a more gradual and selective manner, she said, partly because some of them were enjoying a reasonable level of economic growth.

The same was true of Chile in a second stage, following the 1973- 90 military dictatorship.

The reforms, which opened the economies in question to trade as well as foreign capital, with deregulation and the privatisation of public assets, coincided with macroeconomic policies focused on fighting high inflation rates.

In some cases there were "contradictory" decisions, such as opening up markets while maintaining overvalued local currencies - practices which later gave rise to exchange crises like those suffered by Mexico, Argentina and Brazil, said Stallings.

The case of Brazil is a clear example of liberalisation followed by a heavy imbalance in external accounts, stressed Antonio Correa de Lacerda, president of Brazil's Federal Council on the Economy, commenting on the ECLAC study.

The foreign direct investment attracted by the opening of the Brazilian economy mainly went towards the services sector. In other words, it did not contribute to increasing exports and achieving an equilibrium in Brazil's balance of trade, as those who opted for the reforms had intended, said Lacerda.

At any rate, the countries that set out on the reform process in the present decade benefited from the expansion of global trade and a renewed flow of foreign capital into Latin America - although the inflow of capital also led to economic crises, said Stallings.

She pointed to both "winners and losers" in terms of countries as well as branches of the economy and sectors of the population. Argentina, Bolivia, Chile and Peru, for instance, achieved levels of growth that exceeded Latin America's period of highest growth, from 1950 to 1980, and outstripped that of the other countries
studied.

With respect to employment, Bolivia, Mexico and Peru headed the pack. In regional terms, average unemployment did not differ much from that seen from 1950 to 1980, Stallings pointed out, although it was running high in Argentina despite strong economic growth.

The decline in employment was sharper in terms of quality than quantity, due to a boom in precarious jobs in the informal sector, and the subsequent widening of the gap between the wages earned by skilled and unskilled workers, she added.

But that development did not have a substantial effect on equity, because the inequality in wages was compensated by other mechanisms, such as a drop in demographic growth, rise in the quality of and access to education, and social policies, according to ECLAC.

While Latin America remains the region with greatest social inequality in the world, the situation has not significantly changed from previous decades, Stallings pointed out.

The World Bank's Eliana Cardoso acknowledged that the economic reforms chalked up only partial success in the region. Aimed at boosting productivity and growth while reducing poverty and inequality, the reforms did not always meet those expectations in practice, said the Brazilian economist.

Based on its study, ECLAC mainly recommended policies to curb the volatility of short-term capital and help ward off crises by managing and foreseeing the cyclical movements of the economy.

The regional agency also advised strengthening the markets of labour, capital, knowledge and technology, in order to keep them from being dominated by transnational corporations.

In order to bolster employment and make progress towards equity, support for small and medium companies is necessary, said ECLAC. Lastly, the UN agency stressed the need for a united effort by governments and the private sector, while salvaging the role of the state.