The modernization strategy, crises and adjustment in Latin American economies

Abstract

The objective of the paper is to analyze why the pattern of growth based on the Washington consensus, implemented in many Latin American semiindustrialized economies, has so frequently led to a fall in private savings and to foreign-exchange crises. Thus the author considers the underpinnings and consequences of the most important measures taken by those economies, by referring to financial liberalization and the opening of their domestic markets to import competition, as well as to the priority given to the foreign over the domestic market. The author shows that the adjustment package normally brings about a fall in output and employment, coupled with inflationary pressures and a worsening of income distribution. He also argues that output recovery, when it takes place, comes into being thanks to an improvement in external conditions and to an expansion of government demand. Thus, it is the government and not the market that leads the recovery.