Latin America: economic and business context

Abstract

This article offers a detailed view of key drivers for the wide-ranging economic reforms in the region during the 1990s, chiefly the Washington Consensus and the increased political stability. It highlights the key developments and results of the reforms in the areas of privatization (across industries), foreign investment and trade liberalization. It further provides insight into how the opening up of the regional economies resulted in multinationals penetrating and thereafter increasing their ownership of business across sectors, how, as a result, the public-sector share shrank during the period and how the local businesses adapted to this changed environment. The article also touches upon some key structural changes in the labour market as a result of the developments of the 1990s. This is followed by an exploration of the key themes and challenges facing the regional economies in the years ahead – economic, social and geo-political.

Keywords:

• Foreign investment
• privatization
• trade liberalization

Notes

1 John Williamson is a senior research fellow at the Institute of International Economics, a non-profit organization headquartered in Washington, DC, devoted to the study of international economic policy. The term ‘Washington Consensus’ was later widely used by the author in his numerous works that followed on Latin America. See www.iie.com/jwilliamson.htm

2 After the Second World War, Latin American countries pursued an import substitution-based economic policy. In order to gain access to the local markets, companies had to invest in local manufacturing facilities.

3 Maquila or maquiladora is derived from the Spanish word maquilar which historically referred to the milling of wheat into flour, for which the farmer would compensate the miller with a portion of the wheat, the miller's compensation being referred to as maquila.

4 Remittances represent 2 per cent of Mexican GDP. As source of foreign currency they are second to oil exports (US$4.9b) and the maquila profits (US$4.57b) (Banco de México, 2003).

5 The Maquila Program of Mexico started in 1964 and permitted US firms temporarily to export parts manufactured in the US for assembly in Mexico. Re-export to the United States was done with a tariff on the overseas value-added component.

6 As of 21 May 2003, Brazil's benchmark interest rate was at 26.5 per cent.