Political and Economic Changes in Latin America - Essay Example

?Introduction During the last decades Latin America has undergone great political and economical changes. Their main component is democratization. Military dictatorship in most countries of South America was replaced by democratically elected governments, and in Mexico the one-party system was removed. The new constitutional regimes are far from perfect democracy but the tendency for the better is obvious. The economic developments are also significant. During the short period of time the countries have changed their strategies and lowered the trade barriers, privatized state-owned enterprises and implemented major reforms in the tax system. The economy of such countries as Chile, Mexico, Argentina and Peru is now much more open than before. Even in Brazil, where the resistance to market reforms continued in the 90 years, government policy as a whole turned in the direction of foreign trade liberalization and privatization. The changes in both spheres – political and economical – were rather difficult for the countries. In contrast to the predictions of many analysts new democratic regimes have proven to be viable even in a severe economic crisis. Ultimately, most of them show the ability to implement difficult but much-needed market reforms. Now the countries of Latin America are facing new, more complex tasks, which differ from the previous problems at least in two important aspects. First of all, conditions of policy have changed. In the past reformers were opposed by supporters of import-replacing model and the dominant role of the state. Before government did not pay so much attention to the problems of private investment, market competition, and prudent macroeconomic policies. Now the debate is centered on the extent of state support to private sector and focus on the issues like distribution and the actual economic growth. There are the disputes around the economic policy which closely related to the changing nature of policy challenges facing the young democracies of Latin America. The task of overthrowing the military dictatorship and preventing the return to authoritarian rule gave way to the issues of efficiency and accountability of the elected governments. The results of these political challenges impact on the issues of economic growth and property. Economic overview and challenges The neoliberal reforms of 80-90-ies have been repeatedly criticized and continue to cause controversy today. The incentives for economic growth, which are created by market-oriented policies, derive from several sources. In the context of economic globalization, external financing is crucial for the balance of payments in all countries. In Latin America, as in other developing countries, governments in most cases are aware of the importance of maintaining the confidence of private investors and institutions like the IMF and World Bank. The significance of these goals is well demonstrated by the Mexican peso crisis. In 80-ies a typical reaction to these events was to limit imports and capital movements, in the mid-90'ies answer to the crisis was the deepening of liberal reforms. The past experience has also demonstrated how important it is to maintain continuity of policy. Export-oriented East Asian countries have successfully emerged from the debt crisis, which sharply contrasted with the profound failure of the political experiments in Brazil, Argentina and Peru. The lessons of this experience are still being discussed, but already had a consensus on the need for a cautious approach to macroeconomic policy (Frieden, 2000). Finally, the probability of the direct cancellation of the results of past reforms is limited by internal factors. In countries such as Chile and Mexico, the political influence of export-oriented business provides a powerful motivation for the continuity of policies. Moreover, the successful stabilization programs have gained wide popularity among lower-income groups, which particularly were affected by high inflation. Thus, although the opposition argue for more vigorous measures to promote employment and assist the poor, few of those who occupy public office, agree to take the risk back to the days of macroeconomic instability (Weaver, 2004). The transition from stabilization to growth was much more problematic. In many countries the economic recovery began in 90-ies and was interrupted by the Mexican peso collapse of late 1994. Peso crisis struck a devastating blow not only for Mexico but also Argentina, and has had serious consequences for Brazil and Peru. However, by 1996-1997 there are the signs that the economy of these countries recover. Massive foreign aid from the USA and the IMF has helped Mexico and Argentina to overcome the crisis in 1997. The prospects for growth in the rest of the region also seem to be quite good, although most countries are still very sensitive to external shocks of currency crisis in Asia or the increase of interest rates in USA. The growth of the Chilean economy, which began in the mid-80-ies continue to develop. The new interpretations of this experience highlight the role of government assistance to exporters and regulation of capital flows, mitigating the consequences of the revaluation of the currency and financial panic. Virtually no one disputes the fact that the radical market reforms by Pinochet provide a fundamental condition for the success of this policy. The uncertainty about the results of past policies and the prospects for future growth triggers new debate how to proceed. The main question, however, is not in the return to "development policy" of the sample of the 60-70's, but in how to continue macroeconomic restructuring of the 80-90-ies. Most of the representatives of the international financial sector and the Latin American political elites place the primary emphasis on the initiatives that deepen the market reforms. The most important and simultaneously conflicting proposals relate the deregulation of labor markets and the privatization of pension funds. The first is to increase employment by reducing job security for a large number of civil servants and trade unionists. The second would entail a temporary loss of revenues, but is expected in the medium term will decrease the burden of budget expenditure on the maintenance of normal pension system and increase incentives for savings and investment (Frieden, 2000). There are the suggestions from the international financial institutions as for privatization of mining and infrastructure sectors, which is still state-owned, the greater regulation of the banking sector and further deregulation of commercial transactions, more efficient and more transparent legal support contracts. The alternative conceptions focus on the measures of governments to stimulate competition in the private sector, but without the massive tax breaks and state investments, which were characteristic of the industrial policy of the previous years. Such "competition policy" is not necessarily opposed to the measures mentioned above. The dispute is only whether the government plays a stronger role in addressing the "failures "of the market and providing assistance to the private sector in its adaptation to the increased market competition. Such assistance could include provision of information and limited funding for small and medium-sized companies entering the export markets, encouraging the creation of producer associations, training of workers, etc. The proponents of alternative growth strategies give the different assessments of experience of Latin America in previous years. Even Chile, usually considered to be a model of successful market reforms, is mentioned as an example of government action to promote exports through marketing information and grants. Brazil could also become an important regional model of an active competition policy, if there is economic growth which continues since 1993. The major role in its foreign trade liberalization has played the early 90's, but the policy promoting competition was also important (Weaver, 2004). An important starting point for analysis is the experience of East Asian countries, especially South Korea. The proponents of market reforms emphasize the cautious macroeconomic policies pursued there, realistic exchange rates and some liberalization of the import regime for domestic exporters. The proponents of a more active role of the state for its part indicated the significance of various measures of industrial policy: from soft loans to selective protectionism, direct subsidies, the use of state-owned enterprises and government support for cartels in the private sector. The real policy is influenced by more immediate and specific interests. In most Latin American countries it is easy to find the examples of market imperfections. Therefore, even a center of economic orthodoxy as the World Bank cautiously acknowledges the role that public authorities can play in solving the problems of coordination and information in the private sector. It is important that "competition policy" has received substantial support from business associations, including those which are dominated by large conglomerates and from local economists. Specific recommendations vary widely from state support of technological innovation and invest in infrastructure to supply marketing information and export subsidies. Some of these measures are already being used in several countries, including Chile and Mexico. It is not surprisingly that after the reforms of 80-ies a number of economic agents require assistance from the state. In many cases we are talking about aid, which would provide the "push" to improve the competitiveness of local producers to global markets. At the same time, the advocates of competition policy, apparently, often exaggerate the possibility of Latin American countries in this regard. When it comes to overcoming the resistance of rent-oriented groups, local businesses, very few of these countries can boast of being successful. The basis for the discussion on the relation between the objectives of strengthening market institutions and policy competition may be reached unanimity on the importance of maintaining a balance of internal finance and balance of payments. In its most constructive form of such a discussion should take place in terms of "more-less" rather than "either-or." The region it is hardly possible the unified model of development. In Brazil a long history of interaction between a dynamic private sector and state bureaucracy could provide the basis for the success of recent initiatives in the field of industrial policy. There are the same opportunities in Columbia and Chile. Conversely, in the countries where the relations between the state and the business community are marked as the unpredictability and antagonism (eg, Argentina and Peru) a less interventionist approach has meaning. The choice of policies may vary from country to country depending on economic history and political situation (Weaver, 2004). Poverty and inequality in income. Social policy. Even if Latin American governments succeed in initiating economic growth, they will face complex and longstanding problems of inequality in income and poverty. Available data are far from reassuring. In the 80-90-ies in most countries the proportion of substantially of poor has increased and income distribution has worsened. Brazil and Mexico are among the most problematic countries in this respect all over the world. The income inequality is excessively high in Bolivia, Chile and Venezuela. The debt crisis has knocked down the social supply system. In per capita the costs in the region have fallen over the period between 1980 and 1985 by 18%. Even more significantly, the share of social expenditure in total government spending reduced (16%). In other words, during the period of extraordinary difficulties, the social supply moved away into the background. Chile is the only exception to the general trend of deteriorating of social conditions. Employment and real wages there is a noticeable increase since the early 90's, partly due to the extremely rapid expansion of exports of labor-intensive agriculture, fisheries and forestry. In addition, the decrease in the number of groups of people with incomes below the poverty line is the result of the implementation of poverty reduction programs of 80-90-ies (Kingstone, 2010). In Argentina, Mexico and Brazil, an average of 40% of the population is also becoming poor, along with the poorest groups in rural and urban informal sector. It is important to note the deterioration of living conditions of workers, union members and lower-middle class. This creates a breeding ground for protest against the reforms, especially against plans to transfer the focus of social security to the poorest population groups. It should be stressed that the deterioration of social indicators is a consequence not of neoliberal policies, and crisis. Indeed, the hyperinflation primarily hit the low-income groups, so the governments emerging from inflation, even using the stringent stabilization measures, often receive broad popular support. Moreover, if reforms are conducive to economic growth, the number of groups living in absolute poverty begins to decrease. At the same time the market reforms expand the range of social inequality. In many cases, privatization has provided the fabulous profits to narrow economic elite groups for large-scale production cuts. The removal of subsidies on food, fuel and transportation also had negative consequences for lower-income groups. It should be noted that the model of investment, economic growth, in the short term does not lead to a reduction in income inequality. In most countries (Mexico, Peru and Venezuela), growth in production was provided primarily by the large manufacturers of capital goods. However, small and medium-sized enterprises have achieved little being oriented to a more labor-intensive products. Despite the advantage in the cost of wages, they were unable to overcome the informational and financial barriers to successful competition in foreign markets. In the more traditional sector of consumer goods of daily demand they are pressed by imports from the developed countries. As a result, even where there has been economic growth, it is too slow to compensate for the high unemployment caused by the crisis and the initial stage of market reforms. Even while the democratic governments it would be impossible to overcome the inequality in incomes quickly - because democracy does not imply their radical redistribution. But it is possible to carry out a deliberate policy to minimize the direct costs of restructuring the economy, and in the long term - and social inequality. World Bank for some time supported the targeted poverty reduction, including subsidies for children and women, the unemployed, and the organization of public works. Similar measures were implemented by governments, carried out the market-oriented reforms in Bolivia, Mexico and Chile - and under Pinochet, and with new democratic governments. Although progress has been uneven, these efforts have had some positive effect, even in a situation of recession and budget constraints. In principle, the market-oriented growth strategies are consistent and more extensive measures to reduce inequality. Increased spending on health care and primary education has taken a prominent place in the famous plan by D. Williamson which is an attempt to synthesize the approaches of the so-called Washington consensus of economic adaptation. The positive economic impact of investment in human capital was stressed. The support for education and health, land reform is not only facilitating the provision of poor, but also provide the necessary impetus to growth. Such policy is connected with difficulties. The social spending is not only too small in absolute terms, but also correctly distributed: university funding comes at the expense of spending on primary school: the money spent on hospitals, rather than on preventing the most common diseases. Pension and other social support systems are limited in scope and have a weak financial base. Distribution of aid tends to be overly centralized and bureaucratic. Social reforms are possible, but they face many institutional and political problems. Privatization and decentralization can eventually enhance the quality and efficiency of services provided. Nevertheless, the difficulties of such a transition can not be underestimated. Currently, in most countries the state and municipal governments are lack of the personnel and resources needed to implement appropriate policies, as well as to regulate and control the activities of private firms in this field (Frieden, 2000). The institutional reforms and the redistribution of costs meet the objections from labour unions and those who is already receiving social benefits. State employees, primarily engaged in health and education are integrated into labour unions and actively defend their interests. They insist on maintaining the administrative centralization and job insecurity, which hampers the steps for the restructuring of social systems. The conflicts over the distribution of social benefits seriously affect the reforms in this area. Political incentives for anti-poverty programs are weak due to the lack of organization of the poorest. Conversely, the middle classes, university students and seniors usually have a strong resistance to attempts to reallocate spending on health and education in favor of low-income groups. Thus, despite the weakening of labor unions in the public sector, the effective restructuring of social services remains a challenge (Kingstone, 2010). Failure in solving these problems contributed to the growth of skepticism and apathy that makes achievements of Latin American countries rather fragile in political and economic reforms. The biggest threat, however, relate to the "quality" of democracy and long-term growth prospects. The political aspects incomes are even more important. Democracy requires the dispersion of power within society, i.e. social pluralism. However, where education, professionalism, money and social connections are concentrated within a single elite group, there is a concentration of political power, and it undermines the foundations of genuine democracy. Policy challenges of growth and property put on the agenda of the more complex tasks of political and administrative coordination than in the initial stages of reform, when necessary measures can often be quickly carried out using solutions of the executive branch. In the late 90's it is already impossible. Nevertheless, since the constitutional institutions in Latin America remain, there are some opportunities for a gradual strengthening of democratic institutions and achieve broad agreement on social and economic policies. The combination of international and domestic factors seems to be conducive to the preservation of formal constitutionalism in most countries even in the absence of further reforms. The most important of these factors are associated with the weakening of ideological polarization after the end of the Cold War. The collapse of the Soviet Union deprived the revolutionary groups of their main foreign patron, and the ultra-right forces - reason for alarmism on the alleged communist threat. As a result, the U.S. government, foreign businesses and conservative domestic political forces in most of Latin America are less sympathetic to the anti-communist dictatorships. Unfortunately, elections and the constitutional form of government can not guarantee the representativeness and accountability of governments. Much progress in this direction has been undermined by the need for decisive action to overcome the economic crisis. Macro-economic instability and political difficulties have motivation for autocratic rule in the style, the network-based reform decrees or laws of the state of emergency. This style is evident everywhere in the region in Bolivia (1985-1989), Brazil (1990-1992). Venezuela (1989-1993) and Mexico (1988-1994). The experience of Argentina and Peru is more an example. In Argentina, President Menem K. succeeded in an environment of hyperinflation, but the reforms carried out by him gave him the opportunity to go far beyond the conventional office. Menem issued a lot of questionable constitutionality of the ordinances, subdued the Supreme Court and limited press freedom. He spent the constitutional changes allowing him to apply for re-election and remain in power longer than one term. In Peru, President Fujimori has demanded the emergency powers after the elections in 1990, and in 1992 he dissolved Parliament. All democracies have a contradiction between the need for quick decisions of executive power, on the one hand, and the principles of multiparty system, on the other. Ultimately, in order the democratic regimes in Latin America could effectively solve the problems of growth and ownership; the executive power should be depersonalized and perform a high degree of responsibility. The possibility of forming genuinely democratic states will depend, among other things, on strengthening the party and public organizations that play a key role and "political" and "civil" societies, respectively (Kingstone, 2010). The mechanism of political parties has had a profound influence on the sequence of economic policies and democratic governance. In some countries (Chile and Costa Rica) party system has shown a considerable strength and continuity, but in most other countries, it was characterized by vagueness programs, conservation populist patronage, the instability of the electoral framework and political organizations. These weaknesses have been accompanied by the economic crisis and market reforms. Cuts in social responsibility of the state has reduced the opportunities for patronage, has caused the erosion of trade unions and other public organizations that make up the base of the existing parties. In most countries, the party failed to create an alternative coalition. Just as in the U.S. and other industrialized countries, there is a growing role of television in the political process that reduces the traditional role of party organizations in informing voters about candidates and policies. It is obvious that in different countries party systems differ significantly from each other. In Argentina, for example, the distribution of votes changed to 20%, which means a major shift in the balance of forces. Moreover, it appeared in the mid-90's third party (called the Broad Front), attracted to its ranks many supporters of the radical parties. Similarly, data on Venezuela does not reflect the actual collapse of the major parties that had happened in the early 90's. Only in Chile there is a tendency toward political consolidation with the formation of a strong left-centrist coalition between Christian Democrats and Socialists. The instability of party systems is particularly apparent in Ecuador, Peru and Brazil. In Brazil and Peru the gap in votes cast for the winning and the losing party has reached 54-70%. The excessive party fragmentation poses a serious problem. Two-party system can hardly provide a representation of the diversity of interests that require their registration in Latin America. The instability of party systems is rooted in a number of socio-cultural factors that are beyond the control of political elites (rapid changes in communication systems and social structure). However, electoral laws and principles of representation can affect the goals of politicians and party structure. For example, increasing the threshold for representation in legislative bodies can greatly influence the number of really functioning parties. Similarly, the centralization of the nominating process and expanding the constituencies may have an impact on party discipline and policy orientation. Poverty and Inequality The main problem of educational system in Latin America is that it is of rather low quality. The quality of education in Latin America is much inferior to the rest of the world, in particular in maths and natural sciences. For instance, during the tests conducted in 2003 by the Organization for Economic Cooperation and Development, the Brazilian students were in the end of the list in mathematics. Mexico students were the 37-th place, and Uruguay showed the highest level among countries in Latin America was in 35-th place. The students of Latin American were especially poor in solving the tasks. This shows the low level of the education system in the countries of Latin America, which still focuses on learning using a mechanical memory. Unfortunately, the results in reading are also low. The University education in Latin America is also behind other countries all over the world. The Times of London made the survey in 2004 according to which there is no Latin American university among the most famous universities all over the world. The situation is completely different in China and India, the universities of these countries are popular, particularly in the natural and applied sciences. (Kingstone, 2010). In order to improve the situation, Latin America needs the reforms in educational system. There should be made some reforms in teaching. The teachers should be paid according to the results of their work. The performing of these reforms needs great political affords. Global economic integration has changed the power structure in the world. The new world order that was formed in the era of globalization has revealed the helplessness of the developing countries in confronting the economic giants. Latin American countries are facing a new set of threats and challenges. The first of these challenges was the problem of geo-economic instability in Latin American region. It was the result of the use of neo-liberal economic model of Latin American countries under the patronage of the U.S. in their integration into the world economy (Grosh, 1995) . The policy of monetarism caused the growing of social instability and led to a wave of crises in the region. As a consequence, at the beginning of the XXI century the rise of South-East Asia took place against the backdrop of severe financial, economic and social crises in Latin America. The main reason for falling rates of growth of Latin American countries, according to the American sociologist, I. Wallerstein, was the monetarist course of economic liberalization on the recommendation of the IMF. In contrast, the countries of Southeast Asia took the path of protectionism and national security of economy. The failure of monetarist model was experienced by leading countries: Brazil, Argentina, Mexico.   The liberal reforms the late 80's in Mexico have led to the social and economic crisis. Brazil and Argentina followed the Mexican crisis. A particularly difficult situation was in Argentina, also extending the path of liberal reforms according to the IMF prescriptions. Another important issue of Latin American countries is a sharp polarization in society between the wealthy elite and the rapidly growing poverty of the majority that is the cause of permanent social instability in Latin America. The rising unemployment and falling of living standards rise to the situation of the Civil War. To solve this situation, many Latin Americans migrate to the U.S. and Canada. The number of illegal migrants, penetrating through the Mexican border to the U.S. is estimated at 1-1,5 million annually. Geopolitical strategy of Latin American is oriented on solving the following: 1) the awareness of the need to unite the Latin American countries for a total economic policies and to uphold the common positions on the world stage; 2) creating a counterweight to U.S. pressure in the region by building new economic and political relations with the European Union and Russia. These two tasks are interconnected and dependent on relations with the United States.  Despite the change of forms and methods of geopolitical control, the U.S. strategy for Latin America in recent years remained the same - the desire for hegemony in the continent. If in the first half of the XX century the political pressure prevailed and even military intervention of the U.S. into the region (Mexico, Haiti, and the Dominican Republic), today a soft geo-economic pressure under democratic slogans dominates. The U.S. began to pay attention to building a constructive relationship with Latin America in economic and political spheres. The desire of Americans intended to ensure that Latin American political and economic structures were becoming more similar to the West and have been fully controlled. This is intended to serve as regional groupings, through which the U.S. carried out the influence and control.   Implementing the "international political forces" in the beginning of the XX century the USA had interfering into the politics of Panama, Haiti, Cuba, Mexico, Dominican Republic, and Nicaragua. Since 50-ies of XX century until the end of the second millennium, the U.S. intervention in the life of the continent virtually ceased.   The end of the XX century made some ??changes in the geopolitical system of the force fields of the continent. There are new processes in politics, economy, which largely are due to the acceleration of scientific and technological progress, the formation of transnational corporations and other causes. An important feature of these changes is that into their orbit the countries from all over the world are involved. Latin America is experiencing the positive as well as the negative impact of the new situation. The prospect of strengthening of the independence of Europe and Asia worried the U.S. politicians since the Second World War. This concern was increased by the development of independence in Latin America. In modern conditions, when the United States are mired in the Middle East adventures American continent is eager to escape from the tutelage of the United States. The regional integration in Latin America is a key and increasingly important issue that, according to Washington, portends defiant exit from the world under U.S. control. The energy resources remain the determining factor in the international relations, including in the U.S. foreign policy toward Latin America. At the beginning of the XXI century in Latin America the left-of-centre politicians are very popular. The indigenous population is becoming more active and influential, particularly in Bolivia and Ecuador. In these countries, they want to enter a national control over oil and gas production, or, in some cases, even to halt such production. The relationship between Venezuela and Cuba are strengthening, and each of the countries is making a contribution. Venezuela supplies cheap oil, and in return Cuba organizes programs in education and health. Cuba does this throughout the third world countries. Cuban medical assistance is welcome all over the world (Kingstone, 2010). The countries of the continent, despite the opposition of the United States, are seeking the ways to integrate into the global economy for objective reasons.  The internal causes of integration were: a sluggish economy in Latin America (it is typical for the most of the continent), the lack of competitiveness of products on the world market, unsustainable economic development, unemployment, inflation, social unrest, etc. The most important external cause is the globalization of world economy, which serves one of the driving forces of scientific and technological progress, upgrading production and accelerating the growth of productive forces, enhance the interaction of all forms of international economic exchange (of world trade, the export of capital, technical and scientific cooperation, etc..). But globalization has sharply increased the competition in all subregions of the continent, strengthening of economic instability: rapid fluctuations of economic conditions, rising unemployment, rising bankruptcies, lower wage workers and employees. European experts underline the interest of Latin American countries in cooperating with the EU, because Latin America does not want to gain one-sided dependence on the U.S. As priorities for cooperation were considered the programs of regional integration, economic reform, promotion of the development of export opportunities, social development, poverty alleviation, modernization of the state apparatus and the protection of the environment. However, within the Hispanic community relations with the EU often a wave of criticism is caused. This applies to delay the negotiations to reduce the barriers of export of agricultural goods to EU markets. The refusal of the EU to make concessions on these issues is understandable, since in some EU countries the agricultural sector plays a significant role. However, the EU is becoming a major investor in the region, as opposed to the U.S.      Conclusion 1. The Latin American region, and particularly its leading states - Brazil, Mexico and Argentina, occupies an intermediate position between the developed nations of the North and the developing countries of the South. 2. In the 50-70-ies Latin American countries, mostly developed in the framework of import - substitution model with a strong protectionism and the simultaneous formation of exports. As a result, Latin America now has a solid industrial potential, but at the same time the implementation of state programs of industrialization has led to a chronic state budget deficit, a shaky financial situation and the growth of external debt. 3. At the turn of 80-90 in most of Latin American countries liberal economic reforms were carried out. As a result, the condition previously fallen economic growth, the deficit of state budget and the inflation rate reduced, external trade was liberalized. Bibliography Frieden, Jeffry A; Tomz, Michael; Pastor, Manuel Jr., Modern Political Economy And Latin America: Theory And Policy, Westview Press, 2000. Print. Grosh, Margaret E., “Five Criteria for Choosing among Poverty Programs,” in Lustig, Nora (ed.), Coping with Austerity: Poverty and Inequality in Latin America, Washington, D.C.: The Brookings Institution, 1995. Print. Kingstone, Peter, The Political Economy of Latin America: Reflections on Neoliberalism and Development, Routledge; 1 edition, 2010. Print. Raczynski, Dagmar (ed.), Strategies to Combat Poverty in Latin America, Washington D.C.: Inter- American Development Bank, 1995. Print. Weaver Frederick Stirton , Latin America In The World Economy: Mercantile Colonialism To Global Capitalism (Latin American Perspectives), Westview Press, 2000. Print. Read More