Overview and summary

Abstract

This symposium analyzes the recent liberalization and stabilization attempts in Chile, Argentina. and Uruguay attempts remarkable for their speed and coverage. To bring these analyses together in one volume seems natural because the three experiences were so similar. All three countries started with highly protected economies. inflation, balance-of-payments crises. widespread government intervention, and production systems in considerable disarray. All three countries launched liberalization policies that spanned commodity and factor markets. And all three followed the same path toward stabilization: the battle against inflation was first based on control of the money supply; then the exchange rate was used to reduce inflationary expectations. The initial results were as remarkable as the reforms. Inflation was reduced. fiscal deficits were controlled, and growth was restored. But, in the early 1980s. all three countries were .again in crisis. The objective of the reforms was to realize the gains from better allocations of resources and investment. This objective was to be achieved by moving to market regulated economies. One intention was to eliminate the traditional bias against exports and thus to spur the growth of exports, which required an increase in the effective exchange rate for exportables and a decrease in that for import-competing sectors. A second intention was to deregulate interest rates and foreign capital inflows and thus to provide more credit to activities with the highest returns. The motive here is to draw the lessons for other developing countries confronting liberalization and stabilization problems. Why did these unusual experiments fail? To what extent did various parts of the packages succeed or fail? Was the failure due to external events or to bad policies? Were the institutional arrangements for deregulation appropriate? The introduction to Part I presents some analytical issues that arise from the experiences of the three countries. It addresses the general issue of opening an economy to trade and to flows of foreign capital and the related issues of sequencing and policy coordination. It also explores differences in the speed of adjustment in labor and commodity markets and the implications of these differences for the design of macroeconomic policy. The other papers in Part I explain and evaluate the macroeconomic performance of the liberalization and stabilization policies in each country. First. each paper describes the reforms and in an appendix provides a chronology of the many reforms. perhaps the place to start for the uninitiated reader. The descriptions are accompanied by summaries of the authorities’ intentions when the reforms were launched. The approach to implementation is also addressed when it gave rise to policy reversals and conflicting signals. Second, the papers construct stylized analytical frameworks to help interpret the macroeconomic outcome of the liberalization and stabilization policies in each country. These frameworks help to draw the stylized outcomes of the reforms. The papers in Part II rely on financial statements to analyze the adjustments by firms. The data span the period covered by the reforms in each country and provide the basis for simple statistical models. Groups of firms (exporters vs.