Economic Development Of Latin America - Book Report/Review Example

Economic Development Of Latin America Question 1. Inflation in Latin America has been relatively high due to inappropriate policies and constant commodity price shocks. Additionally, this is due to the adoption of monetary programmes that are not necessarily applicable to the Latin American nations in consideration of other more developed nations (Franko 233). As such, monetarist theorists posit that Latin American inflation is as a result of other conventional factors for inflation like in other parts of the world. On the other hand, structuralism approach draws a line between the institutional structures of Latin America as being the factor that defines the increased instances of inflation in the area (Franko 267). High inflation in Latin America during the 1980s and 1990s can best be attributed to flawed monetary and economic policies particularly given that the period characterized a major period for economic growth in the region. Additionally, the lack of proper institutional structures resulted in a fragile public distribution structure consequently aggravating the inflation problem (Franko 187). Controlling inflation calls for the need to identify means and mechanisms of reducing the money supply in the economy. Governmental institutions are normally in the best position to control inflation through such mechanisms as monitoring the monetary, fiscal and reserve rate policies. By doing this, the various factors that result in increased money supply will be put in check, thereby reducing inflation. Similarly, approaches used could be based on monetary or structural approaches. As such, orthodoxy focuses on stabilization mechanisms that are centred on a monetarist basis, like in Brazil between 1960s and 1970s.This mainly involved the IMF’s attempts at maintaining favourable monetary environment to facilitate stabilization (Franko 209). Besides, heterodoxy entails adopting a stabilization approach based on structuralism, much like was the case in Argentina. This mainly entails a combination of programs that aim to stabilize the economy through income plans, financial modification and monetarist restructuring. Question 2. International trade has taken up the new role in Latin America by enabling globalization. Additionally, this has assisted the region in streamlining their economies in line with the global economy, thereby aiding integration between their policies and international levels. Moreover, international trade has eased the openness of trade with the region in light of improving international prices for commodities from the region. Consequently, one of the major features of trade reform is in line with structural adjustment that enabled for the repealing of policies that maintained import substitution. Trade reforms were mainly focused on removing the protectionist ideologies that characterized Latin American trade in the 1980s (Franko 289). Additionally, trade reforms focused on eliminating restrictive prohibitions and licenses that characterized international trade in Latin America. Consequently, trade reforms have resulted in benefits such as increased trade with external markets, which increases the economic power of the region. Moreover, the increased markets makes it possible to focus on international standards, which is of better worth than national standards. On the other hand, costs have to be conceded since international trade makes it difficult for domestic industries as they are faced with better international products. This could eventually reduce domestic trade. Attempts towards liberalization include increased neutrality towards trade, and union of the exchange rates to assist in streamlining the price tools. This has mainly been successful in Argentina as the processes enabled reduction of local income to increase export strength. However, this was not particularly successful in the Brazilian economy due to the structural and political variations in relation to Argentina. Question 3. In light of the Latin American privatization of the 1980s and 1990s, the major firms that were targeted were the poor performers. Rationale were put in place to assess the profitability of firms before privatization, consequently delimiting the firms that were eligible for denationalization. Consequently, one of the major benefits associated with privatization was increased profitability as associated with better management of the firms. This is due to the increased efficiency than would be under government control. The major costs would be that the government would lack control over essential services, and this could result to runaway prices that could eventually make essential services a far-reach for the nationals (Franko 299). The key sectors for privatization in Latin America included water and sanitation and also public service provisions such as health and telecommunications. The privatization success in these sectors varied from one country to another as per the different structures available. A case in point is the privatization of water resource and sanitation services in Colombia. This case study proved to be more successful than a similar case for Argentina. Additionally, the privatization of Telmex in Mexico resulted in improved and more modern services that eventually increased revenue (Franko 298). Its privatization made it one of the leading telecommunication companies in the world, though it was still largely profitable before the privatization. An area for success in consideration of Colombia’s water privatization was the subsequent reduction in the rate of rationing that characterized water services under government control. However, a principal problem is like in the Chilean privatization of the social insurance program. This failed due to the increased amounts of management fees and lack of proper participation to make it a worthy undertaking. Question 4. Foreign investment in Latin America was one of the major programs for increasing economic power of the region. An argument for it held that foreign investment would assist in increasing the power of the local currency by trading in international currencies that are much stronger. On the contrary, an argument against it held that foreign investment would result in constant shocks as the local economy would be stretched to limits due to different economic powers of foreign investors. Initially, foreign investment policies focused on increasing the amount of investment in the Latin American countries. During these stages, limitations, or oversight, were not majorly focused on. Consequently, foreign investment policies that initially focused on increasing the investment level without any oversight have been repealed to allow for economic thought on the viability of major foreign investments, given that various factors affect their success rates in various countries. Specific countries in Latin America have had differing programs in light of foreign investments. Countries such Brazil and Peru don’t have any limitations that govern the way that natural resources are to be governed. However, other countries such as Colombia have limitations that guide the areas that foreign investors are allowed to operate within, while demarcating others for the locals. Under foreign investments, direct investments refer to those in which the investor directly enters a foreign land and makes direct reserves (Franko 378). On the other hand, foreign portfolio investments refers to investments that may not be so direct, as in the case of investing in stocks. Major risks associated with portfolio investment is that the lack of direct control makes it dependent to the local forces that exist in the country they are invested. Additionally, this makes it more difficult to manage than direct investment. The Mexican Tequila effect was as a result of devaluation of the currency in addition to structural changes that inverted the tight currency regulations that existed. Loosening tight controls is tantamount to open economy policies, while it also enabled investors to speedily exhaust the low central bank reserves. Therefore, the crisis was related to foreign investment and open economy policies. Question 5. Societal thinking on the environment and development have changed through the perception that sustainable development has to factor in aspects of the environment. This is because the environment is the major source of resources that in turn power developments. This change is based on the existence of a trade-off between development and environment since most improvements in developmental features rarely factor in the required changes to facilitate environmental sustainability (Franko 356). Development is only sustainable as long as it factors in all other prerequisites such as the environment and proper management. In order to balance concerns for the present generation while still keeping future generations in mind, it is worth considering the various elements that define development. Oversight bodies need to be set up that focus on evaluating development projects to assess their sustainability in the long-run. Additionally, such bodies also need to put benchmarks that have to be passed by development projects, and this should be in line with maintaining sustainability. Additionally, there are opportunities that exist in line with actions that benefit both the economy and the environment. A major opportunity exists in investing in green energy as the major source of drive for most power hungry developmental projects. This will improve efficiency as well as having no impact on the environment. Additionally, opportunities exist in taking care of the environment through activities such as recycling. Besides caring for the environment, this will aid in boosting the economy through the numerous economic activities that can be realized through recycling. Key environmental problems in Latin America have been experienced in Brazil, Mexico and Venezuela. Mexico is mainly faced with increased air pollution due to the large population it has and the numerous factories (Franko 424). Additionally, Brazil’s environmental concerns are as a result of continuous destruction of its rain forests. On the same front, Venezuela is mainly faced with environmental pollution that results from oil and its related products. Works Cited. Franko, Patrice. The Puzzle of Latin American Development. New York, NY: Rowan & Littlefield, 2007. Print. Read More