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Is Economic Reform Dead in Latin America? Rhetoric and Reality since 2000

Published online by Cambridge University Press:  29 November 2011


Literature published a decade ago reflected a pessimistic view of the market-oriented reforms that Latin America carried out in the 1980s and 1990s, and many politicians have attacked these reforms openly. Indeed, the atmosphere is so negative that it would be reasonable to assume that many of the reforms have been reversed. This paper will take a new look at the situation ten years later. Our argument is that the reforms have generally not been reversed. The reversal that has occurred has been with respect to privatisation in a few countries; negative public opinion is also concentrated on privatisation; and the reforms helped to enable Latin America to take advantage of favourable conditions leading to high growth in the 2004–8 boom period and a relatively strong performance during the 2008–9 crisis. While much remains to be done to raise growth and improve distribution, objective information about the reforms is needed when policies for the future are made.

Spanish abstract

Publicaciones de una década atrás reflejaron una visión pesimista de las reformas del mercado que Latinoamérica efectuó en las décadas de 1980 y 1990, mismas que fueron atacadas abiertamente por muchos políticos. Ciertamente, la atmósfera ha sido tan negativa que sería razonable suponer que la mayoría de las reformas hayan sido revertidas. Hacemos una nueva evaluación diez años después. Nuestro argumento es que las reformas no han dado marcha atrás en general. Las reversiones que se dieron han sido con respecto a la privatización en algunos pocos países; la opinión negativa del público también se concentra en la privatización; y las reformas ayudaron a posibilitar a que América Latina aprovechara las condiciones favorables que llevaron a crecimientos elevados en el período de boom entre 2004 y 2008 y un desempeño relativamente fuerte durante la crisis de 2008–9. Aunque todavía hay mucho que hacer para elevar el crecimiento y mejorar la distribución, se necesita información objetiva sobre las reformas cuando se diseñen las políticas del futuro.

Portuguese abstract

A literatura publicada há uma década atrás refletia uma visão pessimista das reformas orientadas pelo mercado realizadas na América Latina nos anos 1980 e 1990. Muitos políticos já as criticaram abertamente. De fato, o ambiente é tão coibitivo que seria razoável assumir que muitas das reformas foram revertidas. Dez anos depois, tomamos uma nova perspectiva: argumentamos que, no geral, as reformas não foram revertidas. A reversão que ocorreu diz respeito à privatização em alguns países. A opinião pública negativa também concentra-se nas privatizações; as reformas auxiliaram a capacidade da América Latina de aproveitar condições favoráveis que levaram ao alto crescimento no período de boom de 2004–8 e um desempenho relativamente bom durante a crise de 2008–9. Embora ainda haja muito a ser feito para elevar o crescimento e melhorar a distribuição, informações objetivas sobre as reformas são necessárias para a formulação de políticas para o futuro.

Copyright © Cambridge University Press 2011

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1 Stallings, Barbara and Peres, Wilson, Growth, Employment, and Equity: The Impact of the Economic Reforms in Latin America and the Caribbean (Washington, DC: Brookings Institution Press, 2000)Google Scholar.

2 These quotations are, respectively, from Joseph E. Stiglitz, ‘More Instruments and Broader Goals: Moving Toward the Post-Washington Consensus’ (Helsinki: 2nd WIDER Annual Lecture, 1998), available at; French-Davis, Ricardo, Reforming the Reforms in Latin America: Macroeconomics, Trade, Finance (Basingstoke: Palgrave Macmillan, 2000)CrossRefGoogle Scholar; and Touraine, Alain, Beyond Neoliberalism (Cambridge: Polity Press, 2001)Google Scholar.

3 Stallings and Peres, Growth, Employment, and Equity.

4 Fanelli, José María and McMahon, Gary (eds.), Understanding Market Reforms, vol. 1: Philosophy, Politics, and Stakeholders (Basingstoke: Palgrave Macmillan, 2005)Google Scholar; Fanelli, José María and McMahon, Gary (eds.), Understanding Market Reforms, vol. 2: Motivation, Implementation, and Sustainability (Basingstoke: Palgrave Macmillan, 2006)CrossRefGoogle Scholar; and Fanelli, José María (ed.), Understanding Market Reforms in Latin America: Similar Reforms, Diverse Constituencies, Varied Results (Basingstoke: Palgrave Macmillan, 2007)Google Scholar.

5 Eduardo Lora and Ugo Panizza, ‘Structural Reforms in Latin America under Scrutiny’, IDB Working Paper 470 (Washington, DC: IDB, 2002).

6 Kuczynski, Pedro Pablo and Williamson, John (eds.), After the Washington Consensus: Restarting Growth and Reform in Latin America (Washington, DC: Peterson Institute for International Economics, 2003), p. 2Google Scholar.

7 Anoop Singh, Agnès Belaisch, Charles Collyns, Paula de Masi, Reva Krieger, Guy Meredith and Robert Rennhack, ‘Stabilization and Reform in Latin America: A Macroeconomic Perspective on the Experience since the Early 1990s’, IMF Occasional Paper 238 (Washington, DC: IMF, 2005), p. xiv.

8 World Bank, Economic Growth in the 1990s: Learning from a Decade of Reform (Washington, DC: World Bank, 2005), p. 8Google Scholar.

9 Ocampo, José Antonio, ‘Beyond the Washington Consensus: An ECLAC Perspective’, CEPAL Review, 66 (1998), pp. 728Google Scholar.

10 Gruben, William C. and Aim, Richard, ‘Is Latin America Saying Adios to Market-Friendly Reforms?’, Economic Letter: Insights from the Federal Reserve Bank of Dallas, 2: 7 (2007), pp. 111Google Scholar.

11 See, for example, Cleary, Matthew R., ‘A “Left Turn” in Latin America? Explaining the Left's Resurgence’, Journal of Democracy, 17: 4 (2006), pp. 3549CrossRefGoogle Scholar; Javier Corrales, ‘The Backlash against Market Reforms in Latin America in the 2000s’, in Jorge I. Domínguez and Michael Shifter (eds.), Constructing Democratic Governance in Latin America (3rd edition, Baltimore, MD: Johns Hopkins University Press, 2008), chap. 3; Baker, Andy, The Market and the Masses in Latin America: Policy Reform and Consumption in Liberalizing Economies (New York: Cambridge University Press, 2009)CrossRefGoogle Scholar; and Baker, Andy and Greene, Kenneth F., ‘The Latin American Left's Mandate: Free-Market Policies and Issue Voting in New Democracies’, World Politics, 63: 1 (2011), pp. 4377CrossRefGoogle Scholar.

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13 For case studies, see, for example, Snyder, Richard, Politics after Neoliberalism: Reregulation in Mexico (New York: Cambridge University Press, 2001)CrossRefGoogle Scholar; Teichman, Judith, The Politics of Freeing Markets in Latin America: Chile, Argentina, and Mexico (Chapel Hill, NC: University of North Carolina Press, 2001)Google Scholar; and Weyland, Kurt, The Politics of Market Reform in Fragile Democracies: Argentina, Brazil, Peru, and Venezuela (Princeton, NJ: Princeton University Press, 2002)Google Scholar.

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15 Brooks, Sarah M. and Kurtz, Marcus J., ‘Capital, Trade, and the Political Economies of Reform’, American Journal of Political Science, 51: 4 (2007), pp. 703–20CrossRefGoogle Scholar.

16 Magaloni, Beatriz and Romero, Vidal, ‘Partisan Cleavages, State Retrenchment, and Free Trade’, Latin American Research Review, 43: 2 (2008), pp. 107–35CrossRefGoogle Scholar.

17 Kingstone, Peter and Young, Joseph, ‘Partisanship and Policy Choice: What's Left for the Left in Latin America?’, Political Research Quarterly, 62: 1 (2009), pp. 2941CrossRefGoogle Scholar.

18 The countries included are Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Paraguay, Peru, Uruguay and Venezuela.

19 The indices measure the degree to which the economy is more open and more market-led. Each index is normalised to fall between zero and one, with one being the most reformed. The difference between each country's raw index is expressed as a percentage of the difference between the maximum and minimum observations for all countries over the entire period. For more information, see Stallings and Peres, Growth, Employment, and Equity, pp. 43–7; and Samuel Morley, Roberto Machado and Stefano Pettinato, ‘Indexes of Structural Reform in Latin America’, ECLAC Working Paper, Serie Reformas Económicas, no. 12 (Santiago: ECLAC, 1999).

20 Stallings and Peres, Growth, Employment, and Equity, pp. 86–8. Controls included lagged GDP growth, external debt, foreign direct investment, inflation and the real exchange rate.

21 The countries were Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Jamaica, Mexico and Peru.

22 This evaluation holds for tariff behaviour. Non-tariff barriers need to be taken into account to obtain a complete picture. Recently, for example, in response to global economic problems, both Brazil and Argentina have increased the use of non-tariff barriers (see The Economist, 24 Sep. 2011, pp. 47–8).

23 This is a common interpretation of the NAFTA process: see, for example, Hufbauer, Gary Clyde and Schott, Jeffrey J., NAFTA Revisited: Achievements and Challenges (Washington, DC: Peterson Institute for International Economics, 2005), p. 3Google Scholar.

24 In particular, PTAs (or free trade agreements, FTAs) with the United States have investment clauses. In Latin America, such agreements are in effect with Central America, Chile, Mexico and Peru, while those with Colombia and Panama have been signed: for a discussion, see Gagné, Gilbert and Morin, Jean-Frédéric, ‘The Evolving American Policy on Investment Protection: Evidence from Recent FTAs and the 2004 Model BIT’, Journal of International Economic Law, 9: 2 (2006), pp. 357–82CrossRefGoogle Scholar.

25 Manzetti, Luigi, ‘Public Opinion Backlashes and the Risk of Re-Nationalization in Latin America’, Law and Business Review of the Americas, 15: 4 (2009), pp. 6380Google Scholar.

26 Chong, Alberto and López-de-Silanes, Florencio (eds.), Privatization in Latin America (Stanford, CA: Stanford University Press, 2005)CrossRefGoogle Scholar, table 1.1.

27 Such operations include the announcement of a takeover of two subsidiaries of the Mexican Grupo Maseca (GRUMA), which together constitute the second-largest corn and wheat flour manufacturer in the country; some real estate in downtown Caracas; a supermarket chain; and some minor foodstuff producers.

28 In May 2010 Bolivia announced the nationalisation of three large electrical power-generating companies (owned by English and French corporations) and an important power distribution company (owned by Pennsylvania Power & Light). This was in addition to some minor nationalisations of railways and power dams, whose value is in the range of US$ 10–20 million.

29 See Barbara Stallings with Studart, Rogerio, Finance for Development: Latin America in Comparative Perspective (Washington, DC: Brookings Institution Press, 2006)Google Scholar, chaps. 2 and 4.

30 Calculated from IMF, Global Financial Stability Report (Washington, DC: IMF, October 2009)Google Scholar.

31 Arturo Porzecanski, ‘Latin America: The Missing Financial Crisis’, ECLAC Working Paper, Studies and Perspectives Series, no. 6 (Washington, DC: ECLAC, 2009).

32 ECLAC, Preliminary Overview of the Economies of Latin America and the Caribbean 2009 (Santiago: ECLAC, 2009), pp. 47–8Google Scholar.

33 A summary of the new policies can be found in IMF Survey (5 April 2011); a fuller analysis is contained in two IMF documents that can be accessed through links in the above article. Some emerging economies believe that the shift has not gone far enough. See, for example, ‘Brazil, India Spurn IMF Capital Controls Framework’, an analysis by the Bretton Woods Project, an NGO that takes a critical approach to IMF and World Bank policies on financial issues, available at

34 Even strongly reformist governments, such as those of Carlos Menem in Argentina, Fernando Collor in Brazil and Carlos Salinas in Mexico, maintained certain sectoral policies, in particular for the automotive industry, despite their strong support of the market-led economic model: see Wilson Peres, ‘The (Slow) Return of Industrial Policies in Latin America and the Caribbean’, in Mario Cimoli, Giovanni Dosi and Joseph E. Stiglitz (eds.), Industrial Policy and Development: The Political Economy of Capabilities Accumulation (New York: Oxford University Press, 2009), pp. 175–200.

35 See ibid.; and Peres, Wilson (ed.), Políticas de competitividad industrial en América Latina y el Caribe en los años noventa (Mexico City: Siglo XXI, 1997)Google Scholar.

36 Government of Brazil, ‘Innovate and Invest to Sustain Growth’ (Rio de Janeiro: Government of Brazil, 2008).

37 See, for example, Arnson, Cynthia J. with Perales, José Raúl (eds.), The ‘New Left’ and Democratic Governance in Latin America (Washington, DC: Woodrow Wilson International Center, Latin America Program, 2007)Google Scholar; Arditi, Benjamin, ‘Arguments about the Left Turns in Latin America: A Post-Liberal Politics?’, Latin American Research Review, 43: 3 (2008), pp. 5981CrossRefGoogle Scholar; Cameron, Maxwell A. and Hershberg, Eric (eds.), Latin America's Left Turns: Politics, Policies, and Trajectories of Change (Boulder, CO: Lynne Rienner, 2010)Google Scholar; Weyland, Kurt, Madrid, Raul and Hunter, Wendy (eds.), Leftist Governments in Latin America: Successes and Shortcomings (New York: Cambridge University Press, 2010)CrossRefGoogle Scholar; Levitsky, Steven and Roberts, Kenneth (eds.), The Resurgence of the Latin American Left (Baltimore, MD: Johns Hopkins University Press, 2011)Google Scholar.

38 Castañeda, Jorge G., ‘Latin America's Left Turn’, Foreign Affairs, 85: 3 (2006), pp. 2843CrossRefGoogle Scholar. Critiques include Cameron, Maxwell A., ‘Latin America's Left Turns: Beyond Good and Bad’, Third World Quarterly, 30: 2 (2009), pp. 331–48CrossRefGoogle Scholar.

39 Panizza, Ugo and Yañez, Mónica, ‘Why Are Latin Americans So Unhappy about Reforms?’, Journal of Applied Economics, 8: 1 (2005), pp. 12Google Scholar.

40 The 1996 question asked whether trade among countries is beneficial; 67 per cent said yes. The 2003 question concerned the benefits of free trade agreements; 43 per cent said they were very or somewhat beneficial. Over 70 per cent agreed that foreign investment should be promoted.

41 Although there is a 20- to 30-point difference between the two sets of scores, the ordering is quite similar.

42 Latinobarómetro, ‘Informe 2009’, available at

43 Baker, The Market and the Masses.

44 These periods are based on annual data. Quarterly data, based on year-to-year variation, show that negative growth in Latin America began in the fourth quarter of 2008 and ended in the fourth quarter of 2009: ECLAC, Economic Survey of Latin America and the Caribbean 2009–2010 (Santiago: ECLAC, 2010), pp. 1819Google Scholar.

45 See, for example, Ocampo, José Antonio, ‘The Macroeconomics of the Latin American Economic Boom’, CEPAL Review, 93 (2007), pp. 728Google Scholar; Inter-American Development Bank (IDB), All that Glitters May Not Be Gold: Assessing Latin America's Recent Economic Performance (Washington, DC: IDB, 2008)Google Scholar; Alejandro Izquierdo, Randall Romero and Ernesto Talvi, ‘Booms and Busts in Latin America: The Role of External Factors’, IDB Working Paper, no. 631 (Washington, DC: IDB, 2008).

46 ECLAC, The People's Republic of China and Latin America and the Caribbean: Towards a Strategic Relationship (Santiago: ECLAC, 2010)Google Scholar.

47 Antoni Estevadeordal and Alan Taylor, ‘Is the Washington Consensus Dead? Growth, Openness, and the Great Liberalization, 1970s–2000s’, NBER Working Paper, no. 14264 (Cambridge, MA: NBER, 2008). The relationship between trade liberalisation and growth remains a contentious one. A first round of literature portrayed trade opening as very positive for growth, while a second round strongly criticised the earlier work and declared scepticism that any constant, as opposed to contingent, relationship exists. The Estevadeordal and Taylor paper returned to the idea of a positive relationship, based on three advances. The first concerned the time period of the data used; previous analyses were based on data from before the point at which the main trade liberalisation occurred. A second advance was focusing on tariffs, the most direct policy variable that governments have to open trade. Third, the authors distinguished between tariffs on consumer goods as opposed to intermediate and capital goods, arguing that the latter are most relevant for growth.

48 The data used are from ECLAC, Latin America and the Caribbean in the World Economy, 2008–2009 (Santiago: ECLAC, 2009)Google Scholar. They do not disaggregate imports into consumer, intermediate and capital goods; rather, the disaggregation is by level of technology. Examining which goods fall into the ECLAC categories, however, intermediate goods are mainly in the medium-level technology category and capital goods fall into the high-technology category. These categories are the basis for Table 5.

49 Stallings and Peres, Growth, Employment, and Equity, pp. 86–8.

50 Even though most foreign direct investment consisted of buyouts of existing plants rather than greenfield investment, the new owners almost always provided fresh capital to make their products more competitive.

51 Calculated from ECLAC, Statistical Yearbook for Latin America and the Caribbean (Santiago: ECLAC, 2009)Google Scholar. As would be expected from the data in Table 6, the volume increase was much larger in the 1990s than in the 2000s. It was in the earlier decade, before the positive terms-of-trade shock, that the reforms had their main supply effect.

52 Calculated from ECLAC, Preliminary Overview of the Economies of Latin America and the Caribbean 2010 (Santiago: ECLAC, 2010)Google Scholar.

53 Calculated from ECLAC, Statistical Yearbook for Latin America and the Caribbean (Santiago: ECLAC, 2009)Google Scholar.

54 For an overview comparison of the three companies, see PennEnergy, ‘Special Report: Pemex, PDVSA, Petrobras: How Strategies, Results Differ’, Oil & Gas Journal, 107: 29 (2009), available at It is interesting that Pemex was able to increase gas production even as oil production was falling. Technical factors as well as political ones are clearly relevant in determining supply response.

55 ECLAC, Time for Equality: Closing Gaps, Opening Trails (Santiago: ECLAC, 2010)Google Scholar, chap. 3.

56 Mario Cimoli, Nelson Correa, Gabriel Porcile, Annalisa Primi, Sebastián Rovira, Giovanni Stumpo and Sebastián Vergara, ‘Crisis económica, tecnología y producción. ¿Otra odisea para América Latina?’ in Giovanni Stumpo (ed.), La especialización exportadora y sus efectos sobre la generación de empleo: evidencia para Argentina y Brasil (Santiago: ECLAC, 2009), pp. 15–38.

57 Data on the advanced economies are from IMF, World Economic Outlook Update (Washington, DC: IMF, January 2011)Google Scholar, table 1.

58 See, for example, Porzecanski, ‘Latin America’; Ocampo, José Antonio, ‘Latin America and the Global Financial Crisis’, Cambridge Journal of Economics, 33: 4 (2009), pp. 703–24CrossRefGoogle Scholar; World Bank, Office of the Chief Economist for Latin America, The New Face of Latin America and the Caribbean (Washington, DC: World Bank, 2010).

59 IMF, World Economic Outlook (Washington, DC: IMF, October 2009)Google Scholar, table A-13.

60 ECLAC, Time for Equality; Nancy Birdsall and Augusto de la Torre, with Menezes, Rachel, Washington Contentious: Economic Policies for Social Equity in Latin America (Washington, DC: Carnegie Endowment for International Peace, 2001)Google Scholar.

61 A similar categorisation is found in Nancy Birdsall, Augusto de la Torre and Felipe Valencia Caicedo, ‘The Rise and Fall of the Washington Consensus: Assessing a “Damaged Brand”’, in José Antonio Ocampo and Jaime Ros (eds.), Handbook of Latin American Economics (New York: Oxford University Press, 2011), pp. 79–107.

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