Introduction to Growth, Reform, and Adjustment: Latin America's Trade and Macroeconomic Policies in the 1970s and 1980s

Abstract

After 2 decades of sustained growth averaging 6% per annum, in the early 1980s Latin America entered a period of severe adjustment. The need for this adjustment resulted, to a large extent, from a series of major shocks-both exogenous and policy induced?that greatly disturbed the region's economy. The principal exogenous shocks were the oil price increases of 1973-74 and 1979-80; the drastic deterioration of the terms of trade experienced after 1980; and the dramatic rise of world interest rates in 1980-82, which provoked a steep increase in the debt-service burden. At the policy level, the dramatic increases in government expenditure and fiscal deficits and the liberalization reforms attempted by some of these countries, as well as a general substantial increase in external indebtedness, constituted the most important events. Some countries went from being highly praised economic miracles to international pariahs. Others, which in the midto late 1970s were flooded with abundant foreign exchange-obtained mainly through the exportation of petroleum-are now experiencing difficulties servicing their foreign debt. The region is at this moment struggling to overcome the worst recession since the 1930s. As it slowly emerges from the crisis, it finds a substantial portion of its export earnings mortgaged for the near future to service the accumulated external debt and a general scarcity of additional external funds.