Term Paper: Economy of Latin America

Pages: 8 (2628 words)  ·  Bibliography Sources: 1+  ·  Level: College Senior  ·  Topic: Literature - Latin-American  ·  Buy This Paper

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[. . .] In addition, the resulting emergency aid that emerged as a result (out of a fear of default on loans rather than any altruistic motive), only underscored its dependence on outside aid, investment, and influence.

Of course, no discussion of the damaging economic effect dependency has on the Latin American economy as a whole can be complete without touching specifically on the Argentinean Crisis. Indeed, many consider the recent extreme economic crisis in Argentina to be an embodiment of the problems associated with the entire region.

In Argentina, the economy suffered from a dramatic recession in the late 1990's to which various governmental leaders responded by implementing so called "austerity programs" in an attempt to gain control of the situation. However, these measures were so extreme and painful to the population (especially cuts in education, salaries, pensions and job programs), that a kind of unstable "revolving government" began to exist, where officials would gain office and resign, resulting in destabilization and general mistrust. As a result, in November, 2001, people began to withdraw large amounts from the country's banks, prompting the government to restrict withdrawal amounts -- leading to widespread panic. In addition, unemployment began to rise dramatically, and pensions began to be converted into treasury bonds and government backed loans to pay debts (placing the pensions in extreme peril). By January, the country had declared a state of emergency, devalued its peso by a full one third. However, as many will attest, the real issue in the Argentinean crisis was the role of Argentina's dependence on the outside influence (and loan "bailouts) of the United States and the IMF.

According to a February 18, 2004 article in The Economist:

Argentina and the International Monetary Fund (IMF) go back a long way. In 1991, Argentina's foreign minister famously declared that he was seeking "carnal relations" with Washington. The White House never fully requited this desire. But the IMF has been in and out of bed with Argentina ever since, offering advice (between 1991 and 2002, it sent around 50 missions to the country) and money (at the beginning of this year, Argentina owed the IMF $16 billion).

Unfortunately, this relationship (one of classic dependence) would end in disaster, or, according to the article, "the messiest of breakups."

In December of 2001, the IMF stopped "pouring money into the defense of Argentina's indefensible currency peg (at parity with the dollar); Argentina defaulted, devalued the peso, and descended into economic and political turmoil."

However, this was not to be the end of the dependency relationship. In fact, in a move that many would compare to that of a common loan shark, last September, the IMF decided to loan $13.5 billion to Argentina (over three years), to "assist" the country in repaying past loans. However, like Brazil, Argentina would once again have to acquiesce to outside reform suggestions for their economy, as well as discuss repayment of the estimated $88 Billion debt it continues to owe. However, this (rather miniscule, relatively speaking) loan is contingent on these reforms, and is not offered in a lump sum. Instead, perhaps like any "unsavory character," Argentina is to receive the loan in three smaller pieces, dependent on how well it conforms to IMF expectations. Interestingly, Argentina does show at least a bit of spirit by threatening "not to repay $3 billion due to the Fund on March 9th unless the IMF guarantees to keep sending the cheques." -- hardly what one would call a "healthy relationship." -- as Alan Reynolds writes in his article, "Cry for Argentina:"

The serious issue is that IMF loans are tempting bait to politicians, but the strings attached to these loans end up wrapped around the borrowing country's throat. The IMF washes its hands of responsibility, like Pontius Pilate. But their wrecking ball hangs over the whole globe, and you never know where it may come crashing down next. Let's hope it isn't poor Afghanistan.

The terrible thing about all of these examples, from Brazil to Argentina, is that this trend of almost inescapable dependence is pervasive throughout the whole of the Latin American economy. It is not just one or two countries. In addition, the real tragedy is that the human cost of the economic ravages of dependence is real. Poverty grows among the majority, education suffers, unemployment shoots upward, inflation rises, governments destabilize -- all resulting in real problems globally (illegal immigration, political unrest, loan default, exportation of jobs to desperate workers in these suffering countries).

Indeed, the great difficulty with a dependence-based economy is the extreme difficulty (many would say impossibility), of an emergence from the trend. Many would assert that once the pattern is established, it stays that way, regardless of effort to the contrary (look at Brazil, for example). This is simply because humans naturally resist suffering, and populations will push for governments that will release them from overwhelming hardship that independence after years of dependence will require. If the population can get a leader that will reduce suffering through loans (and the IMF and other investors are willing to extend them), then they will. Further, if, in the long-term, those who offer the loans require the same types of measures that the population was suffering from in the first place, then one will see a case like Argentina.

Under such circumstances, free trade, globalization and free trade associations will naturally take the brunt of the criticism of the world (that part of the world on the short end of the economic stick, that is). However, one has to wonder what the alterative is. Is there really any solution that can break the cycle of dependence of the Latin American economy? Many economists would say no. Perhaps, if the element of morality and the commonality of humanity were introduced, it may have an effect. However, there is still the fact that all nations in the global economy would have to agree on just what is the bottom line -- unfortunately, as long as that line has a dollar sign attached, there isn't much hope at all.

Skidmore, Thomas E. And Peter H. Smith. 2001. Modern Latin America. New York:

My Brazil by Sergio Koreisha, 1997 http://darkwing.uoregon.edu/~sergiok/brasil.html

CIA World Fact Book: Brazil, 2000 http://www.odci.gov/cia/publications/factbook/br.html#econ

Skidmore, 2001: 4. (The end of the affair? Economist Feb 18, 2004)

Bibliography

CIA World Fact Book: Brazil, 2000 Retrieved from Web site on March 26, 2004 http://www.odci.gov/cia/publications/factbook/br.html#econ

Koreisha, Sergio. My Brazil. Homepage. 1997. Retrieved from Web site on March 26, 2004 http://darkwing.uoregon.edu/~sergiok/brasil.html

Reynolds, Alan. "

The end of the affair?" Economist Feb… [END OF PREVIEW]

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