Economy of Latin America Term Paper

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Economy of Latin America:

Short Overview

The economic situation of any specific geographic and geopolitical area is an integral part of the overall "picture" of the state of that area. Although much is said about the increasing "globalization" of the world economy -- that, essentially, the individual market areas of specific countries and regions are moving toward a single, world economy, there remain significant economic trends and pressures within varied geo-political areas that are quite unique. Indeed, although a so called "new economy" may be emerging in which all nations may be directly interconnected, that does not mean that all will be equal. Instead, it seems that there will be some nations (at least for a time), squarely on the top of the hill, while those countries that are already on the bottom will stay there as a result of their "top down" dependence. The economic situation of Latin America in specific is one of these areas.

Latin America is a geographic area often described as including all of the countries south of the United States border. Of course, this geopolitical area is incredibly diverse culturally, linguistically, and politically. Yet, despite this diversity, the region holds significant interlocking similarities in its micro and macro economic landscapes. Of course, no discussion of the economic situation of Latin America can begin without referencing the tremendous influence the powerhouse economies of the United States and Europe has held over the region as a whole. Indeed, many would even assert that Latin America has not only been influenced by the economic policies and influences of the so called "first world" nations, but has been largely subordinated to the interests and wills of those countries. According to Skidmore and Smith, in their work, Modern Latin America:

Latin America has occupied an essentially subordinate or dependent position, pursuing economic paths that have been largely shaped by the industrial powers of Europe and the United States. These economic developments have brought about transitions in the social order and class structure, and these changes in turn have crucially affected political change. (42)

Although, on the surface, the influence of Europe and the United States on the Latin American Economy could be seen as a "good thing," perhaps (as some would like to believe) influencing the development of more "democratic" and progressive political systems, it can actually have a very opposite effect. Instead, the Latin American economy can be viewed as being dependent on the state and demands of the "First World" markets. This results in the notion that that Latin American economy is characterized by "the dependency theory" -- an economic condition usually credited as emerging from the legacy of colonialism.

Although the problems of dependency may seem to be socially based (perhaps stemming from class and social stratification as a result of racial power imbalances emerging out of colonial influences), and resulting from the policy decisions of the early power brokers of the newly independent nations, they actually have a great influence on the economic development and current economies of the region. Indeed, as Latin America entered into its development period following the end of colonialism, an era in which it would focus on creating a balance of import and export activity, most of the benefit of the emerging economies of the various countries (which varied significantly depending on the country in question), would go to a relative few, resulting in future political destabilization -- setting the stage for its future dependence on foreign nations.

Further, attempts by countries to exploit their natural resources often resulted in a need for outside (foreign, First World), investment, which naturally served to somewhat economically "colonize" those countries dependent upon the investors. For example, during the Industrial Revolution, British investment in Latin America as a whole grew from "85 million pounds sterling [1870] to 757 million pounds in 1913 - an increase of almost nine fold in four decades."

In addition, the two following World Wars would catalyze the economic development further -- yet again, in a form marked by even greater dependency.

The reason that the notion of increasing dependency is so significant is that this extreme economic reliance on outside investment would set the tone for the coming volitility of economic reality within Latin America. This is because of the region's inherent position (set up by this dependence) as a producer of goods -- and as such, an collective entity left to the blustery winds of external political and economic influence. As a result of this position, many of the individual countries within the region began to shift toward a new economic model -- known as "primary product import substitution," characterized by internal, national industries.

Not only could the creation of real industry capable of producing finished products help to shield the individual nations from external "shocks," it could also result in greater self-sufficiency with regard to their needs for finished goods (and less dependenency on their importation at prices set by the dominant markets). Unfortunately, however, emerging trends of globalization began to emerge in spite of Latin American efforts toward self sufficiency. Indeed, as post war economies (especially in Asia), began to compete for market demand for finished goods, Latin America increasingly was unable to compete -- thereby creating a vicious circle of decreased demand for Latin American goods, increased unemployment due to reduced production, higher political instability due to unemployment, and an increased dependence on outside investment and loans.

Again, according to Skidmore and Smith, "Over time, the world market prices of Latin America's principal exports underwent a steady decline in purchasing power." The trouble with this, of course, is that Latin America would be lured into the next phase of the "development" of their regional economy -- beyond mere "dependence" to virtual indentured servitude in the form of massive debt and foreign corporate exploitation. Here began the dark side of globalism (also suffered by other world regions, and the reason so many oppose the trend), or the downside of "free trade," that was to emerge in force in the 1970's.

As many would argue, national debt is among the foremost crippling influences on the economies of Latin American nations. As a result of the increasing lack of balance in the global market, many Latin American nations took immense loans from the World Bank and IMF. In fact, the jump in debt in the region grew by horrific leaps and bounds, from $27 billion in 1970 to over $231 billion by 1980. This resulted in crippling payments (to the tune of $18 billion), and rising inflation. Desperate to regain some kind of footing, many countries accepted so called "structural adjustments," in exchange for debt relief from the IMF, which included measures that specifically impacted the "average citizen," or those least well off. Among those countries that did agree to these "adjustments," inflation did fall. However, the price paid by the poor was high.

Interestingly, Brazil was one country that did not agree to IMF reform, and, as a result, was to suffer incredible inflation (to the tune of 2490% annually as of 1993). Although political factors were high on the list of motives of those in opposition to the IMF reforms, when the new finance minister, Fernando Cardoso, took office in 1993, Brazil was staggering under the weight of $122 billion of foreign debt. Forced as a result of this reality to acquiesce to reforms of their own, Brazil implemented wide reaching reforms. However, although these reforms did serve to bring down inflation, Brazil's recovery was to be short lived, as it weathered the 1998 global economic crisis.

Another example of the horrible position of the average Latin American economy due to its seemingly unavoidable dependence, is in the Cuban sugar industry and the result of the end of its alliance with the Soviet Union in 1992. Here, one notest that not only did the economy of Cuba plummet as a result of the end of outside support from the Soviets (the essence of dependence), but also as a result of the outside negative influence of the U.S. embargo.

Of course, when most North Americans think of Latin America, one of the first countries that come to mind is the neighbor to the south, Mexico. Not only is the average citizen familiar with the Mexican culture, due to the large Mexican immigrant population, but many have first hand experiences with the country from travel to the country. As a result, although most understand the disparity between the U.S. And Mexican economies, few understand the degree to which Mexico suffers under the same dependency issues that most other Latin American nations suffer from.

Indeed, although Mexico borders the United States, arguably one of the strongest and wealthiest nations on the earth, it boasts one of the lowest standards of living among average Latin American citizens. Unfortunately, like Brazil and Cuba, this reality in Mexico can be directly attributed to the high dependence of the Mexican economy on outside nations.

Like other Latin American nations, Mexico was…[continue]

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