Recurring Themes in Latin American Economic Though: From Prebisch to the Market and Back
Latin American countries have been prone to external shocks from foreign economies; examples include drastic changes in commodities prices, international interest rates, and the direction of cash inflows and outflows. Raul Prebisch said that the economic policies of Latin America cannot ignore external factors. He argues that the results have been four stages of economic policies and growth in Latin America in the last fifty year. These stages are:
First Stage: Prebisch and Import Substitution
External demand and growth and their relationship to Latin American economies must be analyzed to understand the policies...
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This increased the problems in the local economies because production levels could not adjust.
Afterwards some governments started to apply policies such as deregulating international trade by decreasing tariffs, decreasing government spending, and by privatizing state-owned companies. Chile was a clear example of these policies during Pinochets government. The result was an increase in confidence by domestic and international investors.
Fourth Stage: The Mexican Financial Crisis, a New Dependency?
Latin American countries depend on the international investments. During the late 1980s and early 1990s Mexico had high interest rate which triggered large amounts of international investment. During 1994 to 1995 the peso was devaluated and a financial crisis happened and then international investment quickly shifted out of Mexico. This triggered a Mexican crisis where internal policies were implemented as the Mexican government applied some similar Prebisch policies bringing Mexico in an economical crisis.
Among these stages exists many similarities, as we know the ISI policies were not efficient illustrated by the fact that the Latin American countries started to import the goods that they did not have. Because the balance of payments was very unequal the amounts of dollars were not enough to pay for imports helping to increase debt. Due to the dollar money supply shortage to pay for imports the government started to put some regulations like tariffs and taxes as a way of retaining dollars into the economy. Because the ISI policies were proved as inefficient countries