In every government, the main aim of the policymakers is to maintain stable economic growth and reduce inflation as well as unemployment. To achieve this, governments, through various economic departments, implement policies that are expected to spur economic development. In this regard, governments usually come up with different policies, which are expected to enhance the living standards of citizens. However, not every policy will give positive results as expected by the policy formulators. Consequently, it is important for policies to be evaluated continuously in order to ensure that the expected outcomes are met, and if not, the action is taken immediately to avoid economic deterioration. Latin American countries have, for the last century, tried various economic policies to improve their economies. While some of these policies have really helped the countries, there have been cases where some policies have failed.
During the great depression of the 1930s, most Latin American countries were net importers, especially for industrial commodities. However, these countries were unable to continue importing the goods because their sales reduced drastically. In addition, the exports by Latin American countries were majorly primary goods which did not fetch enough income (Baer and David 20). The Latin American governments were therefore challenged to start manufacturing some products locally. Taking a cue from Italy and the Soviet Union, both of which had managed to induce industrialization, Argentina and Brazil sought to initiate domestic industrialization by implementing import substitution policies. The economist from both countries believed that these governments could only develop if they built industries which used primary products to manufacture cheap consumer goods (Santiso 19).
In that regard, various incentives were put in place to encourage, and in fact, support the prosperity of the infant industries that would emerge. The incentives included tariffs that were reduced for domestic industries, as well as several other supporting policies (Weyland 48). On the same note, Latin American countries and especially Brazil and Argentina, implemented policies that sought to improve the agricultural sector, thus increasing the income of most people. This was done with the aim of increasing the purchasing power of the locals, hence increasing the market for industrial commodities.
Despite implementing the import substitution industrialization policy, Latin American countries were forced into a debt crisis in the 1980s due to a substantial increase in the world interest rates, coupled with lower commodity prices in the region. At this point, the import substitution policy had reached its exhaustion, and it was time to explore other options (Schneider 34). Brazil opened up to international trade in a move to save the local industries by increasing markers. To achieve this, Brazil had to eliminate the restrictions it had imposed during the import substitution era. Therefore, in the late 1980s, import tariffs were reduced while import quotas for some commodities were eliminated. In addition, Argentina formed a currency board in the early 90s, which helped to reduce inflation. All these policies helped to attract international trade partners as well as foreign investors.
In addition, Brazil’s real plan of 1994 had various policies that have been influential in its growth (Reyes and Charles 120). According to the real plan, inflation was to be kept as low as possible while investment, employment, and gross domestic product (GDP) growth were to be stabilized in the long term. Moreover, the social imbalances which were rampantly needed to be reduced substantially and steadily for that matter. It should be noted that Latin American countries have also formed economic partnerships, where the trade among them is carried out with minimal restrictions. In this regard, the countries have been able to increase the market for each other, especially between Brazil and Argentina, which are major trading partners (Baer and David 41).
The import substitution policy was successful in the larger Latin American countries that had huge population numbers because there was enough market for the industrial commodities that were produced. This also helped in enhancing domestic employment, thus reducing unemployment, which was an economic problem. Additionally, the primary underwent a value addition process, which increased their prices, thereby increasing the earnings from exports. On the same note, the economic policies pursued by the Latin American countries helped in fostering social and economic growth by a great deal. In the 1990s, Latin American countries opened up to the international markets and foreign direct investments. This made economies grow significantly, and domestic industries access larger markets for their products (Santiso 73). This can be supported by the current economic stability of some Latin American countries, with Brazil joining the list of economically stable emerging markets.
Nevertheless, the policies were not all that good from their inception to date. The import substitution policy required the governments to restrict the importation of some goods. When the international interest rates rose significantly in the 1980s, Latin American countries found themselves in economic problems, which led to their current debt crisis (Weyland 60). On the other hand, the inflexible labor set of laws implemented by Argentina led to high rates of unemployment that are witnessed in the country to date. Though it has been argued that the employment laws are changing, there are still very high rates of unemployment in Argentina, especially since the late 1990s.
In this regard, Latin American countries need to learn that totally banning the importation of goods is not really healthy for the economy. This is because the country needs a larger market for its products, and if it restricts foreign trade, then its goods will probably not be bought by other countries. On the same note, opening to international trade helps in attracting foreign investment, which not only helps in fostering the development of a country but also mitigates the effects of economic shocks like financial crises and depressions (Schneider 92). Additionally, through the policies that they have implemented in the last century, Latin American countries have learned that exporting primary goods exclusively will not help in developing the country. Therefore, it is important to come up with local industries to reduce dependency on agricultural goods and add value to products before exporting them. This will not only increase the earnings from the exports but also empower local citizens by increasing employment opportunities to supplement the incomes of people.
The economies of some Latin American countries are very dynamic and have the potential to continue growing at very impressive rates for a long period of time. Brazil has seen its GDP growth rate increase every year, especially since the late 1990s, making it one of the largest economies in the world (Reyes and Charles 58). These countries also have diversified economies that are very attractive to foreign investments. Consequently, policies pursued by Latin American countries, especially Argentina and Brazil, allow foreign investment and, at the same time, open up to international markets, including the United States of America and the European Union. Given these incentives, investing in Latin American countries with good policies will be a good idea. However, care should be taken because there are other countries like Cuba, with wanting economic policies.
Baer, Werner, and David V. Fleischer. Economies of Argentina and Brazil: A Comparative Perspective. Northampton: Edward Elgar Publishing, 2011. Print.
Reyes, Javier A., and Charles Sawyer. Latin American Economic Development. New York: Taylor and Francis, 2011. Print.
Santiso, Javier. Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free-Marketeers. Cambridge: MIT Press, 2006. Print.
Schneider, Ben Ross. Business Politics and the State in Twentieth-Century Latin America. Cambridge: Cambridge University Press, 2004. Print.
Weyland, Kurt. The Politics of Market Reform in Fragile Democracies: Argentina, Brazil, Peru and Venezuela. Princeton: Princeton University Press, 2002. Print.