Latin America: Neoliberal failure and the search for alternatives

A process of intense market reforms has now been under way for 13 years in Latin America. Since the onset of the debt crisis, marked by the Mexican default of August 1982, a combination of inuences has transformed the Latin American economy in asilent revolution' which has affected every corner of the continent. Suf® cient time has now passed to attempt a preliminary assessment of the successes and failures of market reforms, and to look at likely sources of new ideas in the future. The forces driving market reforms include both domestic and external pres- sures. Domestically the debt crisis was a sign of the exhaustion of the previous model of import substitution which, while it had led to the successful industrial- isation of the larger economies, bequeathed a legacy of underinvestment, inef® cient protected industry and social and economic inequality. In the 1970s Latin American governments had postponed the inevitable adjustment by indulg- ing in an unprecedent borrowing spree. When the inux of hard currency came to an end, the region was forced to adjust at a time of global recession. Externally, the start of the debt crisis came at the high point of the neoliberal assault on Keynesianism- marked by the elections of Margaret Thatcher in 1979 and Ronald Reagan in 1980- and the collapse of the French Socialist govern- ment's attempt to reate the economy following FrancE ois Mitterrand's election in 1981. Latin America's crippling shortage of foreign exchange forced govern- ment after government to turn to the International Monetary Fund ( IMF) for relief, placing unprecedented power in the Fund's hands, which it used to implement a rapid neoliberal market reform programme across the region. The programme broadly consists of three stages. The ® rst involves an initial period of stabilisation, since the neoliberals see ination as the greatest obstacle to growth. This is followed by a broader process of structural adjustment to im- plant a functioning market economy in the country bygetting the prices right', removing arti® cial distortions such as price controls or trade tariffs and allowing the unregulated market to determine the most ef® cient allocation of resources. Because of its role in distorting prices and generally interfering with the free operation of the market, the state is seen as part of the problem, not part of the solution; the economy has to be restructured to reduce the state's role and unleash the private sector. This means privatisating state ® rms and the broader deregulation of trade and investment. Deregulation should also remove