Latin America Essay Examples

Import substitution industrialization (ISI) refers to trade and economic policy which supports the replacement of foreign imports with domestic production. It is based on the fact that a country should attempt to reduce its foreign dependency by the local production of industrialized products. The ISI managed to bring in growth for several decades through the protection of nascent industries from strong competitors in the global market until they were able to compete. Though it was successful for some time, it brought in decline in economic growth as it had run out of steam in the Latin America. As such, there were many capitals in the world market in the early 1970s like petrodollars-all available at borrowing at attracting interest rates. As such, many borrowed heavily and thus the Latin American region was unable to pay these debts when the oil crisis stepped in. this is so as interest rates increased and the loans borrowed gained much interest leading the countries involved to a huge debt crisis.
The 1973 and 1979 oil crises brought in adverse effects to many countries and as such the Latin America was also not spared. This rice in the prices of oil during this period triggered great inflation in Latin America. The fact that the prices of oil were high hurt Latin American government most as exports declined since the initial domestic cost of production increased highly and major importers reduced the amount of goods they bought from abroad. Also the governments that had taken loans from commercial banks at floating interest saw the interest on their debt go up at a very high rate. Thus the oil crisis brought in economical recession in the Latin America. The combination of petrodollars and oil crisis brought in a huge debt crisis in the Latin America.
The above events led to the application of the Washington Consensus which was brought up by John Williamson in 1989 with the motive of describing economic policy recommendations for the crisis wracked developing countries. This consensus gave several prescriptions to the Latin American region. Prescription for the region include policies in such areas like microeconomic stabilization, expansion of market forces within the domestic economy and economic opening with respect to both trade and investment.
Neoliberal economic policies are policies that deregulate and expand the economy of the market. It includes the exclusion of barriers to trade for example tariffs and government subsidies of national industry and the implementation of national policies that favor the needs of business and investment. The tax rates of business are decreased. These policies were put into practice in the Latin America and it was advantageous in some way since it allowed for the countries to compete with other nations for foreign investment and also prevent the loss of foreign investment to a competing nation. Neoliberalism became dominant in the Latin America due to the existing debt crisis, the failure of ISI, availability of highly educated technocrats and public support. Though the policies were advantageous to some of the nations, they were also hurtful for many of the Latin American residents. This is because income inequality increased in most nations that implemented the reforms. Job losses as well as subsequent higher unemployment rates resulted to sale of state run enterprises and the scaling back of the public services.