Economic policy trends in post-World War II Latin America

Abstract

Recent economic disturbances in Latin America-particularly the currency crises in Mexico in 1994-95 and Brazil in 1998-99-have prompted significant research and debate over financial sector reforms and appropriate monetary and fiscal policy for the region. The recent discussion over dollarization is but one of many such debates. ; As the author of this article demonstrates, the current rethinking of economic policy in Latin America is only the latest chapter of a much longer story. Well before the recent episodes of financial turmoil, Latin American economies had already proven vulnerable to external economic shocks. These factors interacted with (and in some cases, prompted) frequent changes in the region's economic policy orientation, resulting in high volatility of key indicators like inflation. ; This article surveys the evolution of economic policy and performance in Latin America in the post-World War II period. It highlights the impact of certain economic shocks the region experienced, including the declining terms of trade in the early postwar period, the oil shocks of the 1970s, the debt crisis of the 1980s, and the more recent emerging markets crisis of 1997-99. The author concludes that the recovery time from the recent crisis is expected to be briefer than for previous crises, with Latin America proving more resilient under the market framework of the 1990s than under the state-led economic policies of earlier decades.