Latin America's Underperformance
Article Summary and Author Biography
The peso crisis was a wake-up call for Latin America. Reformist political leaders realize their support will erode if the economies of the region do not turn around. But building robust economies requires deeper reforms, at a time when the people suffer from acute reform fatigue. For rapid growth with rising real wages, export growth must be higher and value added to exports increase. To foster these, Latin America must address long-neglected weaknesses with a next generation of reforms in education, infrastructure, banking, and the civil service.
Sebastian Edwards is Henry Ford II Professor of International Economics at UCLAs Anderson Graduate School of Management and a research associate at the National Bureau of Economic Research.
THE SHORT FUSE OF REFORM
In the last few years Latin American economies have undergone a remarkable transformation. Nations that sneered at the market system and pursued protectionist policies have suddenly embraced structural reforms aimed at stabilizing their economies, deregulating business practices, and becoming integrated with the rest of the world. After the Mexican peso crisis of December 1994, many observers predicted this process would end or, in some nations, be reversed. Their prediction proved false. Perhaps surprisingly, the reform effort continues -- albeit at a different pace -- in most countries. Now it appears that the Mexican crisis was a wake-up call for the region. Most political leaders realize that the reform process must intensify in order to build truly robust economies.
It is unclear, however, whether more rapid reform will be politically feasible. After almost a decade of reform, the region has little to show in improved economic performance and social conditions. Poverty has not been reduced. Growth has been modest at best. In many countries wages have stagnated, and job creation has been sluggish. For many countries, the reining in of inflation has been one of the few commendable accomplishments.
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