Why Are the 1980s Considered to Be a Lost Decade for Latin America - Essay Example

Why are the 1980s considered to be a lost decade for Latin America? Latin America has had to contend with a variety of anti-liberal and resoundingly authoritarian regimes in recent memory and the term “bureaucratic-authoritarianism” was developed by political scientists to refer to the uniquely technocratic nature of authoritarian development in Latin American during the latter half of the twentieth century. The transition from authoritarianism to a liberal, democratic and free market system of governance can have a variety of important ramifications in the social, political and economic spheres. Bureaucratic authoritarianism was a feature of life for the countries of Argentina, Chile, Brazil, Peru and Uruguay during the latter half of the twentieth century. Alternatively, authoritarianism in Latin American was expressed through repressive state organs, a chokehold over the media and personal rule but neoliberal economic policies, particularly in Chile under the rule of military strongman Augusto Pinochet. Thus, while both Latin America and Eastern Europe share a legacy of authoritarian economic, social and political development in the latter half of the 20th century, the means through which authoritarianism was expressed will have ramifications on the transitions of each region with respect to a variety of social developmental factors (ODonnell, 2004). In the Latin American context, unique challenges are raised with respect to economic reform in a post-authoritarian setting. Seeking to understand why reforms have failed in the Latin American context, Homedes, & Ugalde (2005) explore the challenges associated with liberalization of the economic system. Looking at the Chilean and Columbian cases in comparative perspective, these scholars argue that neoliberal reforms undertaken in Latin America do not necessarily improve the efficiency of the economic system. Thus why dramatic changes are being implemented in the post-authoritarian period, reforms which involve privatization and decentralization do not resonate in a post-authoritarian system in which the legacy dictates what people have come to expect with respect to the provision of state services and the economy. Seeking to understand the important economic crises in Latin American leading to the need for reform, the following asks, why are the 1980s considered to be a lost decade for Latin America? Antecedents to the Latin American Debt Crisis As one of the most important financial crises in world history, the Latin American debt crisis occurred when a handful of Latin American countries defaulted on their loans to international creditors, provoking an international financial crisis. Accordingly, some Latin American countries such as Argentina, Brazil and Mexico, reached a position where their total foreign debt exceeded their gross national earnings and the result was mass default. With antecedents in the 1960s and 70s when many developing countries of the region borrow millions of dollars to implement mass development projects and government expenditures financed by foreign loans. The first oil crisis occurred between 1973-74 and had disastrous ramifications for the countries of the Western world and particular, the countries of Latin America. Announcing the oil embargo in early October 1973, the Arab members of OPEC, along with Egypt and Syria announced their oil embargo in response to what it perceived to be flagrant American support for Israel during what became known as the Yom Kippur War. This was in response to what many in the Arab world perceived to the unrelenting support of the United States toward the state of Israel. These sentiments were exacerbated by events such as Operation Nickel Grass, in which the United States blatantly rearmed Israel during the Yom Kippur War. Although the United States was the initial target of the embargo its scope was later defined to include any county which supported Israel during the War. Using their economic leverage and the ability to wreak havoc on international financial markets, the Arab countries of OPEC used this multilateral organization for political purposes. Seeking to exert pressure on much of the West for its support of Israel during the recent War, but also dating back to 1948 and the establishment of a modern Jewish state in the Middle East, the Arab countries of the OPAC sought to punish the supporters of Israel (Vietor, 1984) Ramifications of the First Oil Crisis As punishment for their perceived support of Israel during the Yom Kippur War, OPEC cut oil production in October of 1973 and placed an embargo on the supply of crude oil to the West, affecting nearly all of the countries of Latin America. In addition to this unilateral embargo, price increases followed and the market price for oil jumped four-fold. From a low in 1973 of $3 per barrel, the price of oil jumped to $12 a barrel and kept on increasing. Accordingly, The decision to quadruple prices at the beginning of 1974 was a deliberate political decision taken by OPEC on the embargo’s coat-tails, and later maintained by production restrictions. Indeed the view of the energy crisis as the inevitable result of a developing shortage of energy supplies gave way to a shorter-term political view of global oil supplies (Yergin, 1993). Thus, the precipitants and the ramifications of this crisis were political in nature and had a dramatic affect in the Americas. Although almost the entire Western world was affected by the first oil crisis, the United States faced many important repercussions for its support of Israel. These included the rising retail price of gas, price controls, gas rationing and ensuing domestic turmoil as a result of the dependence of the United States consumer on the ready availability of inexpensive gasoline. The first oil crisis set the stage for rising oil prices as demand never ceases to outstrip supply. In the Latin American context, the first oil crisis greatly increased the indebtedness of the countries of the region. We now turn to an analysis of the results and causes of the “lost decade” (Harvey, 2007). The Lost Decade What did severe indebtedness mean for the major countries of Latin America? The first world oil crisis, massive spending on development projects during a period of heightened industrialization and declining cash reserves for the major countries of Latin America and world recession precipitated the lost decade. According to the World Bank, in the 7 years between 1975 and 1982, the foreign debt of the countries of Latin America grew by 20.4% to more than $315 billion USD (Harvey, 2007). Once debt repayments became impossible, the start of the lost decade began in earnest. According to political economist Enrique R. Carrasco, regional power Mexico set the stage for the mass defaults when in August 1982 it stunned the financial world by declaring that it could no longer continue to pay its foreign debt. Not long after Mexicos declaration came similar announcements from other Latin American debtor countries, such as Brazil, Venezuela, Argentina, and Chile. The prospect of massive defaults posed grave problems for creditor countries, such as the United States. Government regulators discovered that commercial bank creditors, particularly the big U.S. ("money center") banks, had dangerously low levels of capital that could be used to absorb losses resulting from massive loan defaults. Policymakers were also worried that there was no central authority or forum that could oversee an orderly resolution of the crisis, such as a global bankruptcy system (Carrasco, 2006). With interest payments and debt service payments reaching almost $70 billion, debt repayment became unsustainable and the result was massive defaults. In essence the lost decade was a decade in which economies sunk and in which development was lost. The most serious ramification of the lost decade was the imposition of economic stabilization programs and structural adjustment through international lenders such as the IMF and World Bank. It is to aspect of the lost decade that we now turn. Ramifications of The Lost Decade The International Monetary Fund (IMF) and the World Bank have effectively succeeded in managing the international financial system by creating the “rules of the game” for the global economy and by applying the principles of the Washington Consensus to countries in need of developmental aid. The IMF is a multilateral international organization which ensures the compliance of its member states with the macroeconomic principles of this organization. Managing exchange rates and balance of payment between member states, the International Monetary Fund lends money and is notorious for the stringent macroeconomic conditions to applies to its loans. As such structural adjustment policies implemented in the wake of the massive defaults in Latin America represent unpopular aspects of these conditions. Accordingly, Structural Adjustment Policies are a controversial component of the lending practices of the IMF. As with the International Monetary Fund, the World Bank is an international financial organization which engages in the controversial practice of Structural Adjustment loans and exists primarily as an international lending organization. Critics of globalization argue that this phenomenon is thinly disguised neo-imperialism and actually represents an insidious attempt to spread Westernization and Western concepts of capitalism, exploitation and greed across the globe. World systems theorists would argue that globalization does nothing more than entrench the dominant economic position of the developed countries of the West while perpetuating an unequal global distribution of wealth thus ensuring the continued subservient status of the developing countries of the world, within the current global economic system. Global economic institutions such the World Bank and the International Monetary Fund often bear the brunt when it comes to criticizing the global economic system and the state of global affairs. Their policies in Latin America remain unpopular as the lost decade really was a period in which development was lost. As a result, these organizations are routinely criticized as being anti-democratic, exploitative in nature and often as agents of Western imperialism. Members of the anti-globalization movement represent a backlash against the dominant economic ideologies of our time including capitalism and neoliberalism as the economic order of the day (Coburn, 2000). In tandem with the structural adjustment policies imposed from above by international organizations such as the IMF and World Bank, another important consequences of the lost decade was the imposition of neoliberalism as a guiding economic force and the abandonment of Import Substitution Industrialization (ISI) for export-oriented growth in the face of near total economic collapse. The economies of Latin America, as they exists today, rests largely on the shoulders of neoliberal economics and the entrenchment of capitalism as the dominant economic system in the Americas. Neo-liberalism, the belief in laissez-faire economics, was best articulated by Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States in the 1980s. US President Ronald Regan famously remarked “government was not the solution but the problem” (Hobsbawm 1994). Neo-liberals put all of their faith in the distributive capabilities of the invisible hand of the free market, and believe that business was inherently good and that government bad. The government was longer interested in the provision of welfare but existed to stimulate the capitalist economic market. The United States under Ronald Reagan was thus described as the “greatest of the neo-liberal regimes” (Hobsbawm 1994). Accordingly, The essence of neo-liberalism, its pure form, is a more or less thoroughgoing adherence, in rhetoric if not in practice, to the virtues of a market economy, and, by extension, a market-oriented society. While some neo-liberals appear to assume that one can construct any kind of ‘society’ on any kind of economy, the position taken here is that the economy, the state and civil society are, in fact, inextricably interrelated (Coburn, 2000). The main effect of structural adjustment programs in Latin America is the region-wide spread of neoliberalism and the entrenchment of capitalism as the dominant – some would say sole – viable economic system for the economic systems of the region. This is the result of the lost decade with important ramifications throughout Latin America and around the developing world (Harvey, 2007). Concluding Remarks One positive note as a result of the lost decade has been the transition of many Latin American countries from authoritarianism to democracy. As we discussed in the introductory paragraph of this assignment, authoritarianism has been a feature of the Latin American condition for years what is interesting about the lost decade is that profound economic crisis effectively discredited the bureaucratic-authoritarian regimes of the region paving the way for a series of democratic transitions. Today, democracy is a feature of Latin American society but the crisis decades irrevocably changed the economic underpinnings of the region. The lost decade was a decade lost to development and the result has been the complete overhaul of the economic systems of the region. According to Enrique R. Carrasco, is not hard to find evidence showing that the poor, women, children and other groups (indigenous peoples) suffered disproportionately as a result of structural adjustment programs during the 1980s. As Latin Americas economies stagnated (experiencing zero or negative economic growth), per capita income plummeted, poverty increased, and the already wide gap between the rich and the poor widened further. The debt crisis seriously eroded whatever gains had been made in reducing poverty through improved social welfare measures over the preceding three decades. These developments led policymakers to label the 1980s "the lost decade of development." (Carrasco, 2006). Accordingly the lost decade represented the end of economic autonomy and alternative forms of economic development. With the exception of a few countries in the region (Venezuela under Hugo Chavez is the most prominent), neoliberalism and free market economic growth is a feature of the existence of these countries. Thus the lost decade signaled an important economic shift in the Americas and set the stage for IMF and World Bank inspired growth in Latin America (Harvey, 2007). REFERENCES Carrasco, E.R. (2006). The 1980s: The Debt Crisis and The Lost Decade. Iowa City: University of Iowa. Coburn, D. (2000). Income inequality, social cohesion and the health status of populations: the role of neo-liberalism, Social Science & Medicine, vol. 51, no. 1, pp. 135-146. Harvey, D. (2007). A Brief History of Neoliberalism. Oxford University Press, London. Hobsbawm, E. (1994). Age of Extremes: The Short History of the Twentieth Century: 1914-1991. London: Abacus Homedes, N. & A. Ugalde. (2005). “Why Neoliberal Health Reforms have Failed in Latin America.”. Health Policy, 71.1, 83-96. ODonnell, G. (2004). The Quality of Democracy: Theory and Applications. Notre Dame: University of Notre Dame Press. Yergin, D. (1993). The Prize: The Epic Quest for Oil, Money, and Power. London: Simon & Schuster. Vietor, R.H.K. (1984). Energy Policy in America Since 1945: A Study of Business- Government Relations. Cambridge: Cambridge University Press. Read More