For the past dozen years, most Latin American economies have been run in accord with the so-called Washington Consensus - a collection of free-market economic policies that called for privatizing state enterprise, dropping barriers to trade and investment, and keeping government spending in line with revenue. These reforms have delivered sharply lower inflation, increased exports, and access to international capital, but the real, bottom-line results remain elusive.
Latin America's economies are still plagued by slow and uneven growth, great poverty, and extreme inequality. From 1990 to 1999, the region's economies grew, on average, less than 3 percent a year. That's better than the 1 percent growth of the 1980s, but less than one-half of Latin America's 6 percent average in the 1960s and 1970s, and below what the World Bank estimates is necessary to reduce poverty. It is far short of what free markets were supposed to deliver.
Of 20 Latin American countries, only three - Argentina, Chile, and Peru - grew by more than 5 percent a year during the 1990s, although three others will come close: the Dominican Republic, El Salvador, and Panama. But a disturbing number, including Colombia, Ecuador, Paraguay, and Venezuela, are losing ground. Most Latin Americans are poorer in 2000 than they were in 1980. And Latin America suffers the worst income disparities of any region in the world - with more than half of the region's income going to one-seventh of its people.
Moreover, recent global economic turmoil has revealed Latin America's vulnerability to external shocks. The international crisis which began in Asia in 1997 has been extremely damaging. Indeed, 1999 will be the region's worst in the past 15, with a contraction of more than 2 percent in per capita income and record levels of unemployment. The collapse of the Mexican peso in 1995 also provoked a regionwide slump. It's no wonder that many are asking whether it is time for Latin America to abandon, or at least substantially moderate, its free-market policies.
The core question is whether Latin American nations can effectively manage their economies in a globalized market. Can they take advantage of massive international capital flows seeking investment opportunities, while avoiding economic turbulence and financial shocks? And if Latin America does capture the benefits of foreign trade and investment, will the gains be distributed equitably and the losers protected?
Most Latin American political leaders and financial managers are betting their countries can compete globally. They're resisting the populist temptations that have often plunged Latin America's economies into crisis. They're trying to control spending and collect more taxes. Nowhere is there serious discussion of renationalizing privatized enterprises, reimposing high tariff barriers, or shutting out foreign investment. Even President Hugo Chavez of Venezuela, who has denounced "savage market capitalism," has not strayed from market orthodoxy. The governments of Argentina, Brazil, Chile, and Colombia, all battered by economic recessions, have stuck with market policies despite eroding public support.
Latin America has no choice but to stay enmeshed in the global economy. Foreign capital from trade, investment, and borrowing is essential for rapid and sustained economic growth - and that growth provides the only hope for addressing poverty and inequality.
No developing country can fully defend itself against global economic upheaval. But it's possible to limit the damage and hasten recovery - by making sure financial institutions are well managed and regulated, public agencies are accountable and transparent, deficits and imbalances are kept in check, and the poor are provided some cushion against the fallout.
Economic reforms need to be deepened, not discarded; dramatic improvements are required in labor legislation, tax policies, pension programs, and educational and judicial systems. The recent global crisis has cost Latin America dearly. The price, however, would have been far higher if the region's economies had not been shielded by a dozen years of policy and institutional reform.
Despite Latin America's lackluster economic and social performance this decade, the right choice for the region's governments is to stick with their market-reform programs.
*Peter Hakim is president of Inter-American Dialogue, in Washington. This month's column is drawn from the Dialogue's recent report on hemispheric affairs, 'The Americas at the Millennium: A Time of Testing.'
(c) Copyright 1999. The Christian Science Publishing Society