Friday, October 27, 2006

Latin America ´s economies reforms:Some facts and Myths (I)

It has been usual to argue that Latin America economiesa are not getting all the benefits from Globalization , even worst it is behind Asian countries, because of its lack of additional and deeper reforms to make it more competitive, specially important these days to face the challenged posed in global markets, by countries like India and China .-
But , is it necessary to go further on with deeper reforms to get higher benefits from globalization? Or , Is it a necessary condition for competition with Asia to implement deeper reforms?.-
First let take a look at the current record concerning the impact of the past reforms done in the nineties. A recent IMF paper, (WP/06/210.Growth and reforms in Latin America: A survey of Facts and arguments. J Zettlemeyer ),analyses Latin America reforms from a broader than usual perspective ,such that it is possible to separate facts (which is the topics the IMF paper is concerned about) ,from myths about it. From my point of view, which of course is not the key one, some of the myths are:

M1:Latin America still depend on government willingness to engage in deeper reforms., because private sector business in Latin America, is not mature enough yet, to be the key leader for further economic integration.-
M2:The view of the State role in the economy, is not possible to change further, because Latin America still need a strong state for social development., stable economic growth and fair income distribution.-
M3:The reforms done in the nineties, were not properly focused, such that the results it has gotten, has not been as successful as it was expected.-
These myths are still pending on the collective mind and somehow the intellectual elites, because much of the free trade experience ,state reforms, market orientated economic policy and institutional changes , were carried out during a very difficulty period for democracy values, such that these achievements were not the outcome of a clear consensus about the path based on such free trade, markets and a smaller role for the State. However, facts indicates that Latin America people might actually have a different perception of these issues and myths ,as long as the economies have managed to have economic growth, better opportunities for the poor, and higher social mobility expectations than with the former situation. The region as a whole, was a lot of more stable during the 1990´s (average growth 3,5 %)than in the two previous decades.( the seventies and the eighties),which given the fact that the region was more open to capital flow volatility and the terms of trade were far less favourable than the previous years ,this is quite significant. Latin America voters are not necessarily supporting deep changes of policies but improvement in its social effectiveness. (M3)
Private business are doing new investment across Latin America, fostering a new wave of closeness between regional governments to push further the integration agenda. (M1). On the other hands, Chile ´s experience is still a benchmark on how the State can be reformed , without loosing its ground on social issues. The State in its current model (the so called colonial bureaucratic state)is not the best way to induce growth, quite on the contrary it is a constraint for growth .All those countries which have the better performance in terms of growth ,are the ones which have reduced the Stat role in the economy (M2).

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