The aim of this Chapter is to:

Understand the process of construction of the new Latin America nations during the 20th century and its consolidation as modern nations.

  1. The Consolidation of Latin America, 1830-1920.
  2. Economy, 1830-1920.
  3. Cultural Expression.
  4. Latin america’s socio economic development after 1930.
  5. Import-Substituting Industrialization (ISI).
  6. How does ISI it works?
  7. The rural crisis
  8. The Cuban Revolution and its effects on Latin america’s socio economic development
  9. The Alliance for Progress. America stategy to stop the communist influence in Latin America.
  10. The “Lost Decade”.
  11. 1982 Mexican crisis.
  12. Heterodoxy and the Brady Plan.
  13. Chilean model.
  14. Washington Consensus.

  1. The Consolidation of Latin America, 1830-1920s.
  2. The break with Spain and Portugal did not bring with it any immediate changes in the existing social and economic structures.
  3. Latin America´s newly independent nations did not create societies characterized by equality.
  4. The colonial structures continued; most patriot leaders were from Creole families high in the social hierarchy, once the wars had been won, formed a new ruling class who soon experienced a resurgence of their conservative, antiliberal instincts.
  5. Economy, 1830-1920s.
  6. During Colonialism, the XIX century and the beginning of the XX century, Latin America followed an outward-oriented model of development based on free trade and the exportation of primary commodities.
  7. During the 19th century, Latin America was forced to forge economies in a world trade network already dominated by European nations.
  8. Unlike much of the developing world, Latin America cast off European imperialism in the 19th century.
  9. After 1850, in response to European demand for Latin American products, the economy quickened. Enhanced trade permitted greater state development of important infrastructure, such as roads and railroads.
  10. The extraordinary growth of Latin American economies from the 1870s can be explained due to the rising demand in Europe for raw materials to supply manufacturing industry and food for the expanding population of the cities. At that time Latin America profited from its “Comparative advantages”.
  11. The pattern was established that the Latin American economy was strictly dependent on levels of imports supported through the world trade network.
  12. At the beginning of the XX century, the Central and South American economies depended almost completely on the export of raw materials and agricultural goods: wheat and beef for Argentina and Uruguay, salitre (Chilean nitrate) for Chile and guano for Perú, copper for Bolivia and Chile, bananas for Central America, sugar for Cuba and Brazil, coffee for Brazil and Colombia, eventually petroleum for México and Venezuela.
  13. Until WWI the export-economies continued to function profitably. After 1918 however, structural readjustments in the World markets unsettled Latin American trade and loosened the hold of the white élites on their societies.
  14. The Wall Street Crash (October 1929) and the depression that followed in the 1930s brought new special forces, particulary the urban classes, into national politics.
  15. These new social forces tried to replace oligarchic liberalism with some form of corporate state, whose leaders proceeded to initiate programmes of state-led industrial development.

  1. Cultural Expression.
  2. The end of Spanish colonial dominance opened Latin America to other European influences in the decades after independence.
  3. French neoclassical tradition was particularly influential.
  4. Romanticism shifted Latin American attentions to symbols of Americanism, such as Indians, gauchos, and slaves.
  5. Historical studies reflected the European concepts of positivism and progress.
  6. By the 1870s, the political dominance of liberalism produced more realistic literary efforts, which often criticized social and political systems.
  7. Popular culture remained largely unaffected by trends among the elite.
  8. Starting the twentieth century.
  9. By the 1870s, the political dominance of liberalism produced more realistic literary efforts, which often criticized social and political systems.
  10. Popular culture remained largely unaffected by trends among the elite.
  11. Latin america’s socio economic development after 1930.
  12. Latin America is one of the regions in the world that has experimented with more development models. Some of these models will be presented and explained in this study book.
  13. Import-Substituting Industrialization (ISI).
  14. Starting in the late 1930s most Latin American nations followed an economic strategy based on protectionism, government controls, and a broad involvement of the state in economic activities.
  15. After the Second World War many governments, following the lead of Brazil, Argentina and México, and with the assistance of USA, chose to industrialize their economies through the substitution of imports.
  16. In the context of Latin America development, the term Latin American structuralism refers to the era of import substitution industrialization in many Latin American countries from the 1950s until the 1980s.
  17. The theories behind Latin American structuralism and ISI were organized in the works of Raúl Prebisch, Hans Singer, Celso Furtado, and other structural eco-nomic thinkers, and gained prominence with the creation of the United Nations Economic Commission for Latin America and the Caribbean (UNECLAC or CEPAL).

  1. How does ISI it works?
  2. Import-substituting industrialization (ISI) requires the intervention of the states in the economy.
  3. The state placed high import tariffs on those foreign manufactures it planned to replace by local products. The protected home industries were then boosted with credits from state banks and by guaranteed prices. Demand for the local products was stimulated by controlling price levels, tax and exchange rates.
  4. For some time this approach seemed to work: economic growth picked up in many countries, industrialization proceeded at a brisk pace, and wages in the manufacturing sector increased rapidly.
  5. The newly developed industrial sector, which included huge steel plants, petrochemical complexes, refineries, and auto plants of various sizes, was highly inefficient, and in order to survive required higher and higher import barriers that kept foreign competition out of the country. Consumption goods were significantly more expensive than in the advanced and medium income countries
  6. The tendency of ISI development was for imports to exceed exports because of domestic industry´s dependence on foreign technology. Governments tried to keep the exchange rate artificially high so as to hold down the price of imports, but this policy produced recurrent deficits in the balance of payments, for the high exchange rate pushed up the price of Latina American exports in world markets and so reduced foreign earnings.
  7. These balance of payments had to be covered either by borrowing abroad or by printing money. The results were mounted foreign debts and chronic inflation.
  8. One of the collateral effects of protectionism was that the region’s currencies became artificially strong. This discouraged exports, hurt competitiveness in the agricultural sector, and generated a widening political gulf between city dwellers and the countryside.

  1. The rural crisis
  2. One of the most damaging effects of ISI, was the crisis caused in the rural areas. Agriculture was a way of providing cheap food for the growing population in urban areas as well as the greatest source of foreign exchange.

  1. The Cuban Revolution and its effects on Latin america’s socio economic development
  2. In the late 1940s the public in an increasing number of Latin American countries became frustrated by the lack of progress in social conditions, and by the brutality of authoritarian and dictatorial regimes.
  3. 1952. Guatemalan President Jacobo Arbenz – only the second person elected democratically in that Central American country – implemented an agrarian reform aimed at redistributing land holdings and reducing poverty among Gutemala’s indigenous population. These policies, however, were resisted by landowners and large multinationals, and generated a serious diplomatic rift with the United States. In 1954, with the support of the CIA, the Guatemalan military staged a coup that put an end to Guatemala’s incipient democracy and Arbenz’s socialist program.
  4. The Cuban Revolution (1953–1959) was an armed revolt conducted by Fidel Castro's 26th of July Movement and its allies against the government of Cuban President Fulgencio Batista.
  5. In the years to come small groups of armed men took to the jungles and mountains of Latin America in efforts to start revolutions that would eventually topple what they consider to be illegitimate and corrupt governments.
  6. Castro moved rapidly to the left and established close ties with the Soviet Union and the other members of the Warsaw Pact.
  7. Fidel became extremely popular in the rest of Latin America. Guerilla movements tailored after Cuba’s 26th of July Movement, quickly sprung in country after country.
  8. 1960 the Cold War had arrived in earnest in Latin America (In Nicaragua, rebel Sandinistas; South America, the upswing in Marxist revolutionary groups such as Chile's MIR and Uruguay's Tupamaros)
  9. The greatest threat presented by Castro’s Cuba is as an example to other Latin American states which are beset by poverty, corruption, feudalism, and plutocratic exploitation ... his influence in Latin America might be overwhelming and irresistible if, with Soviet help, he could establish in Cuba a Communist utopia." (Walter Lippmann, Newsweek, 27 April 1964).

  1. The Alliance for Progress. America stategy to stop the communist influence in Latin America.

  1. After the Cuban Revolution, the Cold War had arrived in earnest in Latin America. The Kennedy Administration decided to apply a two-prong strategy to stop the communist threat:
  2. First: Military assistance was provided to the region’s governments. The aim was to professionalize local armed forces, allowing them to engage successfully Marxist insurgents. Scores of Latin American military officers went through the Pentagon-sponsored School of the Americas in Panama.
  3. Second: Large economic assistance program named the “Alliance for Progress”. This was formally launched in August 1961, at the Punta del Este (Uruguay) meeting of the Inter-American Economic and Social Council.
  4. Kennedy´s Promises: Rate of growth of per capita income of at least 2.5 percent per annum. More equitable distribution of income. Diversification of regional exports. The implementation of “programs of comprehensive agrarian reforms”. Elimination of adult illiteracy and the expansion of educational coverage; the construction of massive housing for the poor; low inflation and price stability. 2 billion dollars per year , for atleast ten years.
  5. Alliance for Progress. Problems: Poorer countries; limited expertise in economics and it was nearly impossible to design coherent economic programs aimed at meeting the Alliance’s goals. The ruling class opposed many of the measures espoused by the Alliance. Land owners were against any form of land reform. Great reluctance to implement the type of austere policies required to bring down inflation. As time passed, enthusiasm turned, first into skepticism, and then into open criticism. Latin American politicians argued that the Alliance was too political, excessively anti-communist.
  6. The “Lost Decade”.
  7. During the 1970’s, the financial turmoil provoked by the oil crises of 1973 and 1979 resulted in large amounts of funds looking for places where to be invested.
  8. In 1973 the international price of oil increased by more than 200 % (4 dollars per barrel to little over 12 dollars per barrel). 1979 it increased by another 125% (32 dollars per barrel). These major price changes shaped in a fundamental way the path followed by the Latin American countries during the last quarter of the 20th century.
  9. Large increase in oil prices affected oil exporters and importers in very different ways. The former and, in particular Mexico and Venezuela embarked on ambitious development plans aimed at rapid industrialization; Mexico’s President José López Portillo, said “we will administer abundance.”Inefficient investment projects that were laden with corruption. Oil importing countries. borrowing liberally from abroad. Accumulated foreign debt at a pace that turned out to be unsustainable.
  10. During the next seven years income per capita in most Latin American countries barely grew. In 1989 the rate of inflation in Argentina exceeded 3,000 percent; in Bolivia it was almost 12,000 percent in 1985, and in Brazil it climbed to almost 3,000 percent in 1990.
  11. During most of the “lost decade” many countries in the region were governed by military dictators that violated human rights, prohibited dissent, and persecuted political opponents.
  12. 1982 Mexican crisis.
  13. The collapse of the Mexican peso. In one year it lost almost 75 % of its value.
  14. Causes behind: Economic excesses and policy mistakes of the import-substitution era. Government regulations and controls, coupled with generalized protectionism, had greatly distorted the price system. Misallocation of productive capital. Instead of financing capital projects in areas where the country had competitive advantages, huge investments were made in inefficient and gigantic initiatives with low or no economic return.
  15. Heterodoxy and the Brady Plan.
  16. Efforts to find a “silver bullet”. Plans based on heterodox ideas, such as generalized price controls and half-baked monetary reforms, were implemented in Argentina (Austral Plan), Brazil (Cruzado Plan), and Perú (Plan Inti). Heterodox plans were presented as a way of simultaneously solving the debt crisis and reducing income disparities. Perú spiraled into political chaos, with the Maoist “Shining Path” guerilla movement The collapse of the Mexican peso. In one year it lost almost 75 % of its value.
  17. Brady Plan. This initiative was based on three simple principles: First, defaulted bank debt was to be exchanged for new long-term bonds with a lower face value. Second, in order to be eligible to participate in the Brady debt exchanges the country in question had to show a commitment to implement some basic economic reforms.Third, the creditor banks provide funds, in order to help them jump-start their economies, resume growth and propel enough activity as to return to a normal state of affairs.
  18. Chilean model.
  19. During America moved further and further in the direction of protectionism and government control, a experiment was taking place in Chile. Under the of a military government in 1973 free market reforms were being implemented at a rapid pace. Transform Chile into an open, stable, highly productivity economy that could compete internationally and grow through export expansion.“Chicago boys”, Milton Friedman.During the 1970’s, the financial turmoil provoked by the oil crises of 1973 and 1979 resulted in large amounts of funds looking for places where to be invested.
  20. In 1973 the international price of oil increased by more than 200 % (4 dollars per barrel to little over 12 dollars per barrel). 1979 it increased by another 125% (32 dollars per barrel). These major price changes shaped in a fundamental way the path followed by the Latin American countries during the last quarter of the 20th century.

  1. Washington Consensus.
  2. As the 1980s turned into the 1900s an increasing number of Latin American countries embarked on market-oriented reforms.
  3. These programs, which have received the name of the “Washington Consensus”.
  4. Efforts to reduce fiscal imbalances and inflation, open the economy to international trade, deregulate investment and the business sector, develop domestic capital markets, and privatize state owned enterprises.
  5. Target public expenditures towards the poorer groups in the population.
  6. Priority should be given to government expenditures aimed at improving social conditions and reducing poverty; generalized subsidies, which benefit mostly the middle class, were to be avoided.
  7. Deep tax reforms, in order to reduce evasion, increase government income and eliminate perverse incentives to production and investment.
  8. Reduce the extent of protectionism, and to rationalize trade policy.
  9. Encourage foreign direct investment.
  10. Privatize inefficient state owned enterprises.