Question

With respect to economic factors in Latin America, describe export dependence, import substitution, debt crises, and the impact of free trade agreements such as NAFTA.

(250 words and no plagiarism please)

Answer 1

The Latin American debt crisis was a financial crisis that originated in the early 1980s often known as "La Década Perdida", when Latin American countries reached a point where their foreign debte their earning power, and they were not able to repay it.

In the 1960s and 1970s, many Latin Americancountries, notably Brazil, Argentina, and Mexico, borrowed huge sums of money from international creditors for industrialization, especially infrastructure programs. These countries had soaring economies at the time, so the creditors were happy to provide loans. Initially, developing countries typically garnered loans through public routes like the World Bank. After 1973, private banks had an influx of funds from oil-rich countries which believed that sovereign debt was a safe investment. Mexico borrowed against future oil revenues with the debt valued in US dollars, so that when the price of oil collapsed, so did the Mexican economy.

Between 1975 and 1982, Latin American debt to commercial banks increased at a cumulative annual rate of 20.4 percent. This heightened borrowing led Latin America to quadruple its external debt from US$75 billion in 1975 to more than $315 billion in 1983, or 50 percent of the region's gross domestic product (GDP). Debt service (interest payments and the repayment of principal) grew even faster as global interest rates surged, reaching $66 billion in 1982, up from $12 billion in 1975.

NAFTA has brought significant economic and social benefits to the Mexican economy. Trade,

FDI and growth outcomes improved as a consequence of NAFTA and Mexico’s earlier unilateral reforms i initiatedin the mid 1980s. Real wages have recovered rapidly from the 1995 collapse, and the poverty rateh followed a similar path. Yet one key conclusion from careful evaluation of the impact of NAFTA is that the treaty does not suffice to ensure economic convergence in North America. Mexico still suffers from important gaps that constrain its ability to catch up with its Northern neighbors. The statistical evidence (Chapter 1) shows that unilateral trade reforms and NAFTA helped Mexico enter into a process of economic convergence with respect to the U.S., and after 1995 the gap between its Gross Domestic Product (GDP) per capita and that of the U.S. has evolved more favorably than in other Latin American and Caribbean economies.

In the context of Latin American development, the term "Latin American structuralism" refers to the era of import substitution industrialization in many Latin American countries from the 1950s until the 1980s. The theories behind Latin American structuralism and ISI were organized in the works of Raúl Prebisch, Hans Singer, Celso Furtado, and other structural economicthinkers, and gained prominence with the creation of the United Nations Economic Commission for Latin America and the Caribbean (UNECLAC or CEPAL). While the theorists behind ISI or Latin American structuralism were not homogeneous and did not belong to one particular school of economic thought, ISI and Latin American structuralism and the theorists who developed its economic framework shared a basic common belief in a state-directed, centrally planned form of economic development. In promoting state-induced industrialization through governmental spending through the infant industry argument, ISI and Latin American structuralist approaches to development are largely influenced by a wide range of Keynesian, communitarian, and socialist economic thought. ISI is often associated and linked with dependency theory, although the latter has traditionally adopted a much broader Marxist sociological framework in addressing what are perceived to be the origins of underdevelopment through the historical effects of colonialism, Eurocentrism, and neoliberalism.