Starting in the 1930s the Latin American economies adopted highly protective trade policies aimed at encouraging the industrial sector. Contrary to what was expected by the intellectual fathers of the Import Substitution Industrialization strategy, these policies resulted in largely inefficient firms that were unable to compete with the rest of the world, and required increasing government help to survive. Although from time to time a particular government tried to move away from protectionism and engage in trade liberalization policies, the dominant development paradigm throughout the region, until recently, emphasized inward growth, government intervention, and high import barriers.1 In the mid-1980s, Latin America had one of the most distorted external sectors in the developing world (see Table l).* Starting in the mid-1980s, however, there was a remarkable transformation in economic thinking in Latin America. The once dominant views are slowly giving way to a new approach based on market orientation, macroeconomic equilibrium, and trade openness. This new market-oriented perspective on economic development has been pioneered by Chile, which in the mid-1970s embarked in a unilateral process of structural reform. The Chilean process was consolidated in early 1990 when the newly elected democratic government of President Patricia Aylwin decided to support and further the market-oriented reforms initiated during the Pinochet regime. In the late 1980s and early 1990s more and more countries in the region have followed Chile and implemented sweeping trade reforms. Perhaps the most ambitious liberalization project has been undertaken by Mexico through the North American Free Trade Agreement (NAFTA). In the 1980s largely as a result of the debt crisis unleashed in 1982, economists dealing with Latin America, as well as with other developing areas, began to recommend with increasing insistence development strategies based on market-oriented reforms that include as a fundamental component the reduction of trade barriers and the opening of international trade to foreign competition. Even the staff of the United Nations Economic Commission for Latin America (ECLA), at one time the most ardent supporter of protectionist policies, began to favor outward orientation. Moreover, the World Bank, the International Monetary Fund (IMF), and other multilateral institutions routinely required the developing countries to embark on trade liberalization and to open up their external sector as a condition for receiving financial assistance. The collapse of the Communist system in Central and Eastern Europe in the late 1980s and early 1990s added impetus to the analysis of policy reform and structural adjustment. The opening of the external sector and the convertibility of the currency are, in fact, at the center of almost every reform package proposed to former Communist nations.