On the other hand, the liberalization in Latin American countries was still relatively limited during the 1980s, which meant that most of the industries were either controlled by central authorities or private initiative was generally not encouraged that much. This translated to the commercial segment as well, with private initiatives for import and exports being still relatively rare.
At the same time, foreign companies were not encouraged to penetrate the Latin American market and this was still a trend at the beginning of the 1990s. Only during the 1990s the U.S. companies and some of the European ones (notably from Spain or Italy) began to invest in Latin American countries and to benefit from the large internal market that Latin America was offering.
The reasons that the trade between Latin American countries and the U.S. And the EU experiences such a boom during the 1990s can be found in the gradual opening of the Latin American market, along with an encouragement for exports, a rise in internal consumption and the general governmental policies that were aimed at boosting the volume of trade and accelerating the liberalization process. Let's have a look at each of these in part.
The opening up of the Latin American market meant that foreign companies found at the beginning of the 1990s a business environment that facilitated foreign implementation in these countries and that created the premises for the further development of these economies.
With new management methods and production techniques, the Latin American economies gradually grew at a rate that allowed them to increase their exports as well, because there were surpluses that could not be turned towards the international market. This in part explained the growth in exports from Latin America, mainly towards the EU and the U.S., where the companies investing in Latin America were also located.
At the same time, it was obvious that with the growth of the economies, the internal consumption also increased, this being immediately reflected into the import levels with the main suppliers from the EU or the U.S. Internal consumption meant a constant increase in demand levels from the internal market, because the potential consumers had the revenues to spend on imported products.
On the other hand, governmental policies also meant political negotiations, not only for the creation of free trade agreements between some of the countries in the region and the United States or countries in the European Union, but also for the simplification of administrative and custom procedures, which encouraged the better circulation of goods and services and facilitated the dialogue between exporters and importers. It did not necessarily resume to the governments simplifying the procedures, but also direct actions in terms of promoting trade, including through diplomatic means.
The consequences of the trade liberalization wave to which Latin America participated during the 1990s had both positive and negative consequences. On one hand, the positive consequences are obvious. The countries in the region became involved in a mechanism at a global level that encouraged commercial trade, boosted revenues both for internal producers and the government and brought the Latin American products and goods on the EU and U.S. markets. At the same time, liberalization meant that products could enter the Latin American market as well.
It is interesting to see some of the negative consequences of commercial liberalization, this being in general connected with the incapacity of the local governments to properly manage the economical realities. Increased trade, including increased levels of import, meant that consumption would not only not be managed, but would be constantly encouraged until it could no longer be controlled.
Consumption is obviously a positive thing, but stops being so when it starts generating high levels of inflation and macroeconomic unbalances. With this in mind, the growing commercial relations with the EU and the U.S. brought about, even if indirectly, economic crisis like the one that Argentina experienced during the early part of 2002 and for which one of the factors responsible, the pegged currency, was in fact affected by the trade circuits as well.
Latin American trade followed a constantly ascending trend with its main partners, the European Union and the United States, starting in the early 1970s, continuing rather timidly during the 1980s, only to encounter significant growth rates during the 1990s and after 2000. While the governmental policies in place during the 1980s did not allow for such a commercial expansion, the liberalization that followed throughout the 1990s meant that the countries of Latin America began to open more and more and participate to the international flow of goods and services.
At the same time, although the obvious positive consequences of this liberalization process, there were also important setbacks deriving from the government's incapacity to manage appropriately the economic boom that also translated in higher volumes of trade. Macroeconomic imbalances and currency exchange problems translated into economic collapses, like the one that Argentina experienced during 2002.
The potential for growth in Latin America remains very high, which means that the trade volumes are likely to increase in the future as well. With Western companies outsourcing to Latin American countries and with new technologies in place, the trade structure is likely to change from primary products to increasingly more manufactured goods.
1. Georgiu, George (September 1989). Changing Pattern of U.S.-Latin American Trade. Atlantic Economic Journal. Volume 17, No. 3.
2. Hornbeck, J.F. (May 2007). U.S.-Latin America Trade: Recent Trends. CRS Report for Congress. On the Internet at http://ncseonline.org/NLE/CRSreports/07Jun/98-840.pdf.Last retrieved on September 5, 2008
3. EU-Latin America relations on the eve of the Lima Summit. May 2008. On the Internet at http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/08/286&format=HTML&aged=0&language=EN&guiLanguage=en.Last retrieved on September 5, 2008
4. Latin America and the Caribbean. On the Internet at http://ec.europa.eu/trade/issues/bilateral/regions/lac/index_en.htm.Last retrieved on September 5, 2008
Georgiu, George (September 1989). Changing Pattern of U.S.-Latin American Trade. Atlantic Economic Journal. Volume 17, No. 3.
Hornbeck, J.F. (May 2007). U.S.-Latin America Trade: Recent Trends. CRS Report for Congress. On the Internet at http://ncseonline.org/NLE/CRSreports/07Jun/98-840.pdf.Last retrieved on September 5, 2008
EU-Latin America relations on the eve of the Lima Summit. May 2008. On the Internet at http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/08/286&format=HTML&aged=0&language=EN&guiLanguage=en.Last retrieved on September 5, 2008
Latin America and the Caribbean. On the Internet at http://ec.europa.eu/trade/issues/bilateral/regions/lac/index_en.htm.Last retrieved on September 5, 2008