Latin America's Path of Economic Reform

DURING this year and next, new presidents are scheduled to take office in 14 of the 20 Latin American republics. The last such large-scale transformation of leadership in the region occurred in 1989 and 1990, a time when most of Latin America was still mired in a protracted crisis of debt and lack of growth.

Although difficult to predict, this kind of sweeping political change will almost surely have important consequences for the region and for its relations with the rest of the world. The implications for economic policy have been the main focus of attention.

Will the new leaders sustain the dramatic economic reforms - emphasizing fiscal discipline, private markets, and export growth -

adopted by most Latin American countries in recent years? Or are governments likely to revert to more traditional policy approaches? This question is of some significance for the United States, now that its free-trade agreement with Mexico has gone into force and the Clinton administration is proposing to build similar economic partnerships with other nations of the region.

Latin America's two most recent presidential elections - in Venezuela in December and Costa Rica earlier this month - brought to power vocal critics of the so-called neo-liberal economic reforms, both of whom campaigned on promises to slow the pace of reform and even to reverse some aspects of it.

Particularly when coupled with the New Year's Day uprising in Chiapas, Mexico, the violent protests in Argentina's Santiago del Estero province, and the intense congressional resistance to economic reform in Brazil and Uruguay, these election results might suggest that reform is becoming more unpopular and difficult to maintain in Latin America.

That conclusion is not yet warranted, however. Venezuelan voters may not all be enthusiastic about recent economic changes, but in voting for former President Rafael Caldera Rodriguez, it was mainly political corruption, incompetence, and paralysis they were rejecting. For their part, the Costa Ricans again chose to switch parties, as they tend to do every four years, within their highly consensual system. The economic policies of Venezuela or Costa Rica are unlikely to change very much because of the elections. And presidential elections in the past year in Chile and Bolivia put strong market advocates into office.

It is not that economic adjustment and reform are universally popular in Latin America. They are causing hardship to some; many more see them as the source of their economic troubles. And these troubles continue to pose enormously difficult problems: Growth is still all too sluggish in most of the region; wages are mostly low and unemployment high; large balance-of-payments deficits are resurging in many places; and mass poverty and deep inequalities remain pervasive throughout Latin America.

Still, most Latin Americans are better off than they were three or four years ago. Inflation has been brought under control almost everywhere except in Brazil, where fiscal reform has remained elusive. Most countries are enjoying positive, if slow, per capita growth, in contrast to the persistent decline in regional incomes a short while back. Exports are growing, even if slower than imports. Capital flight has been reversed, and foreign investment is again flowing in significant amounts to the region. By and large, those countries that have done the most to reform their economies are performing better.

These reform efforts have failed so far to do much about poverty and inequality in the region. But most Latin American countries have always had a dismal record on that score, regardless of their economic strategy. Nothing is now more important in the struggle for social advancement than keeping growth up and inflation down. Economic growth creates jobs and pushes up wages. It forms the basis for increased tax revenue so that resources are available for public investment and social spending. And it diminishes the opposition to distributional measures.

All this has been amply demonstrated by Chile, the only Latin American country that has sustained a high growth rate and an effective anti-poverty campaign in the past few years. It should not be surprising that Chile also boasts the strongest consensus for economic reform in Latin America. The Opinion/Essay Page welcomes manuscripts. Authors of articles will be notified by telephone. Authors of articles not accepted will be notified by postcard. Send manuscripts by mail to Opinions/Essays, One Norway Street, Boston, MA 02115, by fax to 617 -450-2317, or by Internet E-mail to OPED@RACHEL.CSPS.COM.