Ricardo Ffrench-Davis

Towards an Evaluation of Regional Integration in Latin America in the 1990s

The decade of the 1990s has witnessed a wave of regional integration initiatives in Latin America: more than 14 agreements -free trade areas or customs unions- since 1990 with a handful more in varying degrees of negotiation (see Table 1). However, this was not just a Latin American phenomenon, as regionalism has more than ever become a global trend (Mistry [1996]). Indeed, now Japan, South Korea and Hong Kong are the only World Trade Organization (WTO) members which are not signatories to at least one preferential trade agreement (WTO [1995]). Regional integration is not new to Latin America. Economic integration played an important role in the region?s early Post-War economic history. The 1960s and 1970s saw a number of very ambitious initiatives inspired by the successful Western European experience (Ffrench-Davis, Munoz and Palma [1994]). Indeed, at its peak in the late 1960s and early 1970s, the topic of integration was hard to avoid in the discussion of Latin American development. However, disillusionment with integration processes had clearly set in by the late 1970s and the discussion of regional integration was all but silenced by the external crisis of the early 1980s.

How optimal are the extremes?: Latin American exchange rate policies during the Asian crisis

One common feature of the countries most affected by the Asian crisis and its shockwaves — such as Thailand, Malaysia, Indonesia, the Republic of Korea and Brazil — is that they had exchange rate systems that in different versions were closer to pegged systems than to floating systems (they were often called ‘soft pegs’). Countries with exchange rate bands, such as Israel, Chile and Colombia also suffered, while floating countries such as Australia, New Zealand and Mexico apparently fared better. Based on this, many observers have concluded that intermediate exchange rate systems are dangerous and that optimality is located at the extremes. This chapter evaluates this conclusion by analyzing the experiences of three different exchange rate systems: Those of Argentina, Chile and Mexico, which have diverging exchange rate policies, at least formally.1

The great Latin American debt crisis: a decade of asymmetric adjustment

In the 1980s, Latin America experienced the worst economic crisis since the world-wide depression of the 1930s. A common link running through this crisis was external indebtedness to the international private banking system.

Financial crises and national policy issues : an overview

In recent years a new type of crisis has developed in Asia and Latin America, with four features that differentiate it from the old type. First, international capital markets have been the major source of shocks, both positive and negative, to emerging economies. Second, capital flows have largely taken place between private suppliers and demanders; fiscal deficits have played only a secondary role, and indeed in most cases public finance has been in balance or surplus (Korea and Thailand before 1997; Argentina and Mexico before the Tequila crisis in late 1994). Third, this type of financial crisis has been suffered by emerging economies that were deemed to be highly successful by international financial institutes, risk evaluation agencies and the financial press. Fourth, flows have been characterized by a lack of regulation and supervision on both the supply and the demand sides. Domestic financial systems in recipient markets have often been liberalized without the parallel development of a significant degree of prudential regulation and supervision, while the new sources of supply have grown, usually unregulated.

The Industrialization of Chile during Protectionism, 1940–82

The objective of this chapter is to present an evaluation of the process of industrialization of Chile during the period 1940–82. The concept of industrialization is understood in the broadest sense, including industrial development as well as institutional modernization and social transformation. During the four decades which elapsed from the beginning of the 1940s, the Chilean economy completed a cycle of its economic development and began a new phase. The cycle of the so-called ‘development from within’, which had begun with the 1930s crisis, culminated in 1973–74 with the breakdown of the democratic regime.1 Throughout the decade of the 1940s the industrial growth rate reached an average of 8 per cent a year but thereafter declined perceptibly (Munoz, 1995). For the entire period 1950–71, an annual growth rate of 5.4 per cent has been estimated, well below the Latin American average for this period which reached 6.7 per cent (Benavente et al. 1996, table 4).

The policy implications of the Tequila effect

Latin America has been strongly affected by the changes that have occurred in capital flows over the last twenty years. During the 1970s, a large supply of funds was made available to the region; then, during the 1980s, there was a serious shortage of financing, and the region became a net exporter of funds. Between 1991 and 1994, it became a net recipient of large amounts of funds again, only to experience another sharp reduction of some of the main flows in late 1994 and early 1995, and a renewed access in 1996–97. In 1998–99, Latin America has been experiencing a new shortage of external financing, aggravated by a general worsening of the terms of trade. A crisis centred in Asian countries has now been the origin of a new recessive macroeconomic adjustment in the region.

Capital formation and the macroeconomic framework: a neostructuralist approach

One of the most characteristic features of Latin American economies during the 1980s was the low rate of capital formation. In addition, the rate of utilization of the available productive capacity exhibited a steep decline, carrying with it a drop in actual average productivity. These factors, which in fact bolster each other, account for the noticeable contrast between the slack economic growth in the 1980s and the dynamism exhibited by Latin American countries (LACs) in the three previous decades.

Selective policies under a structural foreign exchange shortage

Abstract Standard adjustment programs emphasize excessively demand-reducing adjustment mechanisms in economies facing a binding external constraint. The main policy instrument used to induce expenditure-switching and supply effects is the exchange rate. Despite its evident relevance, this instrument by itself cannot deal with the diversity of elasticities and transmission mechanisms. In the first section of this paper we provide evidence to show a clear non-first-best economic situation in Latin America during the eighties. The region exhibits significant maladjustments in the size and composition of output and demand, with a concomitant underutilization of installed capacity and a strong reduction in investment. In the second section we provide some theoretical examples on how changes in the size and composition of fiscal revenues and expenditures may help in reducing the undesired effects of external adjustment processes. We also argue that an active exchange rate policy may generate adverse fiscal effects if not accompanied by an adequate change in taxes and/or expenditures. These examples consider a model where output of non-tradable goods is sensitive to the size and composition of domestic demand while output of tradable goods is sensitive solely to relative prices. The difference in transmission mechanisms is the basis to argue for a greater diversity of policy instruments involved in adjustment programs – or selective policies.

Adjustment and Conditionality in Chile (1982–88)

Domestic adjustment to external shocks has been determinant of the economic performance of Chile in the 1980s. Creditor conditionality has also been present, as in other Latin American debtor countries. However, the design of adjustment policies has been determined more intensively by the economic approach of the government rather than by creditors. Actually it appears that the economic team frequently moved further in ‘orthodox’ policies and reforms than what creditors pressed upon other Latin American debtors (LADs).

Chile y la financiación innovadora para el desarrollo: Una experiencia para hacer globalización inclusiva

espanolLa actual globalizacion se caracteriza por una notable volatilidad de los flujos financieros, con elevados costos sociales y econo- micos. Desde 2004, Chile participo en una iniciativa internacional que ha procurado hacer correcciones en la globalizacion financiera y proveer financiamiento adicional para combatir la pobreza. Esta iniciativa procuraba contribuir al cumplimiento de los compromisos de la comunidad internacional contraidos en el Consenso de Monterrey de 2002 sobre Financiamiento para el Desarrollo. Este articulo presenta un breve recuento sobre la globalizacion financiera y el Consenso de Monterrey. Luego se resumen las propuestas y progresos logrados por la Iniciativa de Accion contra el Hambre y la Pobreza de la cual Chile fue cofundador, en 2004, respecto de un menu de “financiamientosinnovadores” que contribuirian a un desarrollo mas incluyente y a desalentar la volatilidad financiera. A continuacion se detalla la propuesta, en aplicacion, de un impuesto progresivo a pasajes aereos y la asignacion de la recaudacion principalmente a combatir el SIDA en paises pobres, la emision de derechos especiales de giro (DEG, y su concrecion parcial en 2009 para enfrentar la crisis global), impuestos sobre las transacciones financieras y fortalecimiento de las cuentas fiscales, combatiendo la evasion tributaria via los paraisos fiscales. Concluye reiterando la importancia de que los paises converjan en renovados esfuerzos para corregir el rumbo de la globalizacion. EnglishThe present globalization is characterized by a severe volatility of financial flows, with social and economic costs. Since 2004, Chile participated in an international initiative seeking to improve financial globalization and to provide additional financing to fight poverty, contributing to the fulfillment of the commitments of the international community in the Monterrey Consensus for the Financing for Development signed in 2002. This article presents, first, an overview of financial globalization and the Monterrey Consensus. Then follows an analysis of the menu of “innovative financing” proposals and progresses achieved by the Initiative of International Action against Hunger and Poverty of which Chile was co-founder in 2004; the menu seeks to contribute to a more inclusive development and to discourage financial volatility. One proposal already implemented of a progressive levy on air travel tickets and allocation of proceeds to fight AIDS in poor countries is detailed; a brief analysis follows on the emission of special drawing rights by the IMF (DEG, and its partial concretion in 2009 to face the global crisis), a currency/financial transactions tax, and strengthening of fiscal accounts by fighting the tax evasion via the tax havens. It concludes stressing the relevance that North and South countries converge in renewed efforts to correct the course of globalization.La actual globalizacion se caracteriza por una notable volatilidad de los flujos financieros, con elevados costos sociales y economicos. Desde 2004, Chile participo en una iniciativa internacional que ha procurado hacer correcciones en la globalizacion financiera y proveer financiamiento adicional para combatir la pobreza. Esta iniciativa procuraba contribuir al cumplimiento de los compromisos de la comunidad internacional contraidos en el Consenso de Monterrey de 2002 sobre Financiamiento para el Desarrollo. Este articulo presenta un breve recuento sobre la globalizacion financiera y el Consenso de Monterrey. Luego se resumen las propuestas y progresos logrados por la Iniciativa de Accion contra el Hambre y la Pobreza de la cual Chile fue cofundador, en 2004, respecto de un menu de “financiamientos innovadores” que contribuirian a un desarrollo mas incluyente y a desalentar la volatilidad financiera. A continuacion se detalla la propuesta, en aplicacion, de un impuesto progresivo a pasajes aereos y la asignacion de la recaudacion principalmente a combatir el SIDA en paises pobres, la emision de derechos especiales de giro (DEG, y su concrecion parcial en 2009 para enfrentar la crisis global), impuestos sobre las transacciones financieras y fortalecimiento de las cuentas fiscales, combatiendo la evasion tributaria via los paraisos fiscales. Concluye reiterando la importancia de que los paises converjan en renovados esfuerzos para corregir el rumbo de la globalizacion.The present globalization is characterized by a severe volatility of financial flows, with social and economic costs. Since 2004, Chile participated in an international initiative seeking to improve financial globalization and to provide additional financing to fight poverty, contributing to the fulfillment of the commitments of the international community in the Monterrey Consensus for the Financing for Development signed in 2002. This article presents, first, an overview of financial globalization and the Monterrey Consensus. Then follows an analysis of the menu of “innovative financing” proposals and progresses achieved by the Initiative of International Action against Hunger and Poverty of which Chile was co-founder in 2004; the menu seeks to contribute to a more inclusive development and to discourage financial volatility. One proposal already implemented of a progressive levy on air travel tickets and allocation of proceeds to fight AIDS in poor countries is detailed; a brief analysis follows on the emission of special drawing rights by the IMF (DEG, and its partial concretion in 2009 to face the global crisis), a currency/financial transactions tax, and strengthening of fiscal accounts by fighting the tax evasion via the tax havens. It concludes stressing the relevance that North and South countries converge in renewed efforts to correct the course of globalization.