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date: 24 April 2017

Neoliberalism and Free Trade in Latin America

Summary and Keywords

First utilized in Latin America in response to the mid-20th-century decline of populist economic policymaking in the region, modern neoclassical theory, or neoliberalism, can be generally defined as a market-oriented form of economy policymaking that seeks to decentralize state authority and redefine state administrative responsibilities through deregulation, privatization, and the creation of common markets. Based on principles of classical 19th-century economic liberalism, the economic and political framework of neoliberalism advocates for a dramatically limited role for the state, which should only act to maintain the integrity of contract law and private property as a means of supporting the market. In the absence of state intervention, neoliberalism in Latin America alternatively emphasized the role of multilateral organizations, such as the International Monetary Fund, the World Bank, Inter-American Development Bank, and the U.S. Agency for International Development in bringing financial stability and growth to the region through the manipulation of interest rates, the devaluation of exchange rates, and the establishment of free-market pricing of goods. Ultimately, the widespread implementation of neoliberal reforms through the 1980s and 1990s ushered in a new era of transnational economic policymaking that had long-term, mixed results for the environmental, political, and social landscape of Latin America.

Keywords: free market, debt crisis, social unrest, macroeconomics, common market, development, trade, tariff, investment, financial, transnational, populism, economic policy, reform, neoliberal

Transitions and the Beginning of a Crisis

As early as the 1930s, Latin American economic policymaking was dominated by an import-substitution-industrialization (ISI) model of development, characterized by heavy state interventionism, a publically subsidized private sector, and stiff tariff barriers designed to deter foreign competition. By 1950, the efficiency of the ISI economic model for Latin American development came under increasing assault as nations in the region faced growing foreign competition following the creation of the European Common Market in 1957. To gain collective strength against the renewed economic power of postwar Europe, seven Latin American nations—Argentina, Brazil, Chile, Mexico, Paraguay, Peru, and Uruguay—signed the Treaty of Montevideo in 1960 to form the first common market in the region, the Latin American Free Trade Association (Asociación Latinoamericana de Integración/Associação Latino-Americana de Integração, or LAFTA).1 LAFTA’s foundational initiative, a gradual, twelve-year tariff elimination program, was the first significant step in what would eventually become a wave of free-market reforms that swept across Latin America. This process should not be viewed as a homogenous, inescapable process by which populist, ISI policies were wholly replaced by neoliberalism, but rather as a multifaceted socioeconomic transition across the uneven political terrain of the region.

Ecuador and Colombia joined LAFTA in 1961, Venezuela in 1966, and Bolivia in 1967, but despite LAFTA’s attempts at economic stabilization through market integration, rising international oil prices and a slowing of the average annual growth rate from 3.5 percent in the previous decade to 2.4 percent by the mid-1970s brought about average inflation as high as 10 percent for the region.2 Long-term state development efforts had not yielded sufficient economic and industrial growth, and they relied heavily on the importation of capital goods and foreign technology. Under the ISI model, high protective tariffs, subsidies for domestic industries, and rapid industrialization exacerbated trade deficits, increased the national debt, and quickly increased the rate of rural-to-urban migration. Development was hampered by widespread economic inequality, which prevented the rise of a sufficiently large consumer class capable of supporting domestic industries and brought about rapid growth in urban areas that increasingly struggled to provide basic public services, such as affordable housing, electricity, potable water, sanitation, policing, and education.3

State responses to this global economic crisis varied dramatically across Latin America. Despite rising inflationary pressures, populist Mexican Presidents Luis Echeverría Álvarez (1971–1976) and José López Portillo (1976–1982) borrowed heavily from international commercial banks to sponsor significant public spending programs on education, health care, and housing. In Venezuela, President Carlos Andrés Pérez (1974–1979) nationalized the nation’s oil industry in order to finance massive programs for industrial and agricultural development.4 Elsewhere in the region, the creation of new common markets continued as Venezuela became the fifth member of the Andean Pact in 1973, alongside Bolivia, Colombia, Ecuador, and Peru. Originally formed in 1969 following the signing of the Cartagena Agreement, the common market created under the Andean Pact sought to promote industrial development and social integration within the subregion. The Amazon Cooperation Treaty Organization, formed in 1978 by Bolivia, Brazil, Colombia, Ecuador, Guyana, Peru, Suriname, and Venezuela, sought to foster collaborative scientific development in the Amazon Basin in order to mitigate the spread of tropical diseases, improve transportation infrastructure, and promote international tourism.5

In several Latin American nations, this period of economic instability was characterized by civil unrest, national strikes, and the violent dissolution of democratic governments in favor of bureaucratic-authoritarian regimes, which took the form of repressive military dictatorships. In June 1973, under pressure from urban guerillas and national strikes, Uruguayan President Juan María Bordaberry (1973–1976) closed the national parliament in favor of a military dictatorship that lasted until 1985. That same year, the bloody September 11th coup against Salvador Allende (1970–1973) in Chile ushered in an era of authoritarian military rule that lasted until 1990. The regime, under President Augusto Pinochet (1974–2000), was characterized by sweeping free-market reforms based on policy advice from a group of U.S.-educated economists known as the “Chicago Boys,” as well as by the killing and disappearance of thousands of domestic political dissidents under the auspices of U.S.-backed anti-communism efforts during the Cold War.6 As annual inflation reached 600 percent, political violence in Argentina forced President Isabel Perón (1974–1976) from office in 1976, leading to military control of the government until 1983.

As investor confidence in the region continued to slip at the end of the 1970s, a dramatic anti-inflation policy decision by the U.S. Federal Reserve raised the federal funds rate from 11.25 percent in September 1979 to a peak of 17.6 percent by April 1980, a rate increase that brought about two major economic recessions for Latin America during what became known as the “lost decade” of the 1980s.7 Latin American governments that had borrowed heavily from abroad were now devastated by stagnant economic growth rates. In 1980, the Treaty of Montevideo sought to replace LAFTA with the eleven-member Latin American Integration Association (Asociación Latinoamericana de Integración/Associação Latino-Americana de Integração) as a means of furthering economic, political, and social integration in the region. Founded on principles of political and economic pluralism, the association sought to create a true Latin American common market and establish a model for regional integration that would ultimately be far more meaningful than LAFTA. Duty-free concessions were granted to less-developed nations within the organization, and mechanisms for a regional tariff preference scheme were approved by 1984. New political and economic coalitions, such as the Latin American Integration Association and the Amazon Cooperation Treaty Organization, which formed within the region during this transitionary period, integrated the economies of democratic and authoritarian regimes through their common desires for foreign capital and the widespread reliance on the expertise of civilian technocrats.8

Following Mexico’s declaration of a moratorium on its debt payments in 1982, the subsequent economic reforms imposed as part of an economic stabilization plan created by the International Monetary Fund sought to lessen the state’s involvement in the operation of the economy and to deregulate markets. Dramatic cuts were made regarding public spending, exchange-rate targeting, restructuring of foreign debt payments, and a temporary freeze on many prices and wages.9 Mexico’s 1982 debt crisis and renegotiation with its commercial creditors stands as a watershed moment for the ushering in of significant neoliberal reforms in Latin America. As a result of this crisis, lending retracted from international capital markets and new financial reforms were put forward by the IMF and World Bank to serve as a model for future neoliberal reforms throughout the region in the 1980s and 1990s. During this implementation of neoliberalism, the general consensus in the international financial community was one that viewed state economic intervention as inherently inferior to that of the efficiencies of the free market. Thus, the market, not the state, should be the vehicle for the creation of jobs, industrial development, and encouragement of innovation. Between 1982 and 1983 alone, seventeen Latin American nations accepted new agreements with the IMF as a means of avoiding bankruptcy.10 The structural pressure to abide by the free-market, neoliberal, economic reforms mandated by the IMF and World Bank was dramatic, as failure to do so could result in economic exile and further financial crisis.

When President Alan Garcia (1985–1990) of Peru refused to raise the level of debt repayments above 10 percent of foreign exchange earnings, the nation saw its credit rating downgraded by creditors in the United States and was declared ineligible for any new loans from the IMF and World Bank.11 Conversely, nations that adhered to austere neoliberal conditions as part of new lending agreements received more favorable repayment schedules and lower interest rates. The IMF first employed this tactic in 1984, when international financial lenders rewarded Mexico by extending its debt repayment schedule to fourteen years following the nation’s acceptance of greater neoliberal restructuring.12 These austerity measures, aimed at creating liquidity, ultimately suppressed access to foreign investment and left many Latin American nations unable to produce the economic growth needed to meet their debt obligations. The subsequent socioeconomic crisis of the 1980s brought about by these austerity measures marked the end of decades of populist government rule and ISI policies in favor of a free-trade, market-oriented strategy that courted a dramatic surge in new foreign investment and that had profound social, political, and environmental consequences for the region.

First-Generation Neoliberal Reforms

In the aftermath of the 1982 debt crisis, subsequent lMF loans, or “structural adjustment plans,” to borrower nations compelled them to reorient industry toward an export-based model, deregulate domestic industries, slash spending on social programs, denationalize state-subsidized companies, and seek the elimination of all tariff barriers. As Latin American governments sought to reduce the state’s control over the functioning of the market, they also sought to outsource state functions to the private sector and privately funded foundations, as well as to nongovernmental organizations (NGOs) from around the world.13 Jamie Peck and Adam Tickell’s observations on this shift toward a new model of transnational governance point out that “in the asymmetrical scale politics of neoliberalism, local institutions and actors were being given responsibility without power, while international institutions and actors were gaining power without responsibility.”14 The growing influence of multinational corporations and lending institutions over state policymaking during this period of neoliberal reform stifled and silenced oppositional voices that otherwise might have advocated for an alternative version of reform. Thus, disputes over policy implementation were largely among multilateral lenders, the transnational bourgeoisie, and government technocrats.15

By the mid-1980s, Bolivia, Costa Rica, Mexico, Peru, and Venezuela had launched their own large-scale reform efforts, while Chile continued its program of neoliberal reforms begun a decade earlier. Thousands of public-sector employees were cut from government payrolls, forcing a reorganization of the labor market, which in turn increased the number of workers forced into subsistence employment in the informal economies of Latin America. The end of many tariff barriers devastated much of the agricultural sector in Latin America, forcing small farmers into direct competition with heavily subsidized, multinational agribusinesses. Many farmers declared bankruptcy and lost their lands, leading to a further surge of foreign agricultural imports to substitute for the drop in domestic production. Unemployment as high as 15 percent became widespread in rural areas, leading to a mass migration into urban centers and the creation of a new transnational workforce driven by economic hardship. The average per capita income for the region from 1981 to 1983 fell by 8 percent, barely higher than ten, or in the case of some nations, twenty years earlier.16 Additionally, the accumulation of foreign debt accelerated across Latin America, rising from $20.8 billion in 1970 to $314.4 billion by 1982, causing foreign investment to flee the region and the availability of commercial loans to all but vanish.17 The region was compelled to spend less on social services, education, and health care and more on servicing its growing debt. Despite the implementation of modest neoliberal reforms, the socioeconomic indicators of many Latin American nations continued to worsen, ultimately leading to a reappraisal of policymaking by the international financial community.

At the close of the decade, many debtor nations were no closer to financial health than they were prior to the implementation of neoliberal reforms. Average inflation in the region reached a decade high of 1,206 percent in 1989, while regional debt increased nearly 150 percent from 1981 to 1989. Currency devaluations became the norm as many Latin America nations sought to stabilize the nominal exchange rate relative to the U.S. dollar, the most severe case being Argentina, which endured an annual rate of nominal depreciation of over 1,607 percent.18 By the end of the “lost decade,” the region’s population living below the poverty line had grown by 64 million people, hunger was killing 40,000 people per day, and the minimum wage had shrunk to under 70 percent of its level in 1980.19 Civil unrest flared up across the region in response to austerity measures and subsequent neoliberal reforms, particularly in Venezuela when President Carlos Andres Perez (1989–1993) abruptly ended federal petroleum subsidies, generating a 100 percent rise in the price of gasoline and a 30 percent rise in public transportation costs. In February 1989, two days of protests and rioting centered on Caracas were ultimately suppressed in one of the most brutal instances of state-sponsored oppression in Venezuela’s history.20 The ensuing military crackdown, known as the Caracazo, left as few as four hundred and as many as three thousand people dead or disappeared from confrontations with the nation’s armed forces.

These worsening socioeconomic conditions and the potential for significant political destabilization of the region prompted U.S. Treasury Secretary Nicolas Brady to propose a series of debt-reduction agreements at the Bretton Woods Committee Conference on Third World Debt in 1989. Once again, Mexico would serve as a model for other nations in the region following the implementation of these new reforms under what would become known as the Brady Plan. Designed to provide a more flexible set of options, or a “menu approach,” to commercial creditors for the collection of debt, the Brady Plan allowed existing loans to be exchanged for a variety of debt-reduction bonds that lowered creditors’ exposure to as low as 65 percent of pre-Brady levels in exchange for partial debt forgiveness for borrower nations.21 Following Mexico’s 1989 acceptance of new lending terms under the Brady Plan, other debtor nations in the region, such as Costa Rica (1989), Venezuela (1990), Uruguay (1991), Argentina (1992), and Brazil (1992), agreed to debt forgiveness and restructuring under customized Brady deals with the IMF and World Bank. As a result of debt restructuring under the Brady Plan, the average public-sector external debt in Latin America declined from 60 percent to 40 percent of GDP and average public-sector deficits to less than 1 percent of GDP.22

Lacking sufficient funding, shackled by hyperinflation, and facing growing social unrest, many Latin American nations seemingly had little choice but to accept the regimen of neoliberal reforms proposed by international financial lenders and the IMF which centered on creating export-focused growth. Every Latin American nation with the exception of Cuba had already incorporated neoliberal economic reforms into their domestic policymaking by the early 1990s, but this process was by no means homogenous across the landscape of the region.23 Early adopters of neoliberal policies in the mid-1980s, such as Argentina, Chile, and Jamaica, outpaced Colombia and Uruguay, which advanced reform ahead of later adopters Bolivia, El Salvador, Nicaragua, Paraguay, Peru, and the Dominican Republic. Nations slower to implement significant reforms, such as Brazil, Costa Rica, Ecuador, Honduras, Mexico, and Venezuela, waited until the mid-1990s to implement exchange-rate liberalizations, labor reforms, and significant privatization efforts.

The Decade of the Washington Consensus

Hope for relief from many of the negative aspects of austerity measures came with the release of the 1991 Human Development Report by the United Nations Development Programme, which advanced a “lack of political commitment” as the principal cause of human neglect and pointed to the hindrance placed on developing markets by a lack of access to adequate education, health care, nutrition, and family-planning services. The report criticized the widespread withdrawal of governmental funding from the public sector and pointed to this downturn in investment into “human priority concerns” as a contributing factor in the shrinking of private investment and as a restriction on economic growth.24 In the aftermath of the report, neoliberal economic policymakers advocated for a market-friendly approach to development, which placed new emphasis on investment in people, macroeconomic stabilization, maximization of individual nations’ competitive advantage on the global market, and the creation of financial incentives for innovation and initiative.

These more socially sensitive economic-policy recommendations found in the 1991 UN report were based heavily on an earlier 1989 article by John Williamson, an economist and fellow at the Institute for International Economics in Washington, DC. Generally known as the “Washington Consensus,” Williamson’s ten economic policy instruments recommended for implementation in Latin America eventually became part of the collective mind-set among major U.S. think-tank agencies. His report advocated for: (i) sustained fiscal deficits maintained at no more than 1 to 2 percent of gross national product; (ii) an end to subsides for state-owned enterprises and increased public investment in health, infrastructure, and education; (iii) moderate marginal tax rates and a broad tax base; (iv) moderate but market-determined interest rates to promote investment; (v) a competitive real exchange rate founded on an “outward-oriented” economic model; (vi) the maintenance of moderate general tariffs at 10 to 20 percent levels, and heavier but temporary tariffs for infant industries; (vii) the liberalization of foreign direct investment through the use of debt-equity swaps; (viii) the privatization of state-owned enterprises to increase competition; (ix) the deregulation of industry; and (x) the improvement of the insecure status of property rights in Latin America.25

Several authors have pointed out that the policy recommendations found in the Washington Consensus were not originally created by Williamson but, rather, by Latin American policymakers, who designed the reforms in response to the real problems taking place both within and outside the region and presented them as participants in a 1989 Institute of International Economics conference organized by Williamson himself.26 His article was intended to be read as a synthesis of perspectives and policies already being utilized throughout Latin America, but despite Williamson’s own insistence that the term “Washington Consensus” was not meant to imply a U.S.-based origin for this amalgamation of economic policies, the term quickly came to stand as a highly ideologically charged symbol of the foreign imposition of market fundamentalism and neoliberalism across Latin America.

As Consensus-style policies were implemented across Latin America, average tariff levels, maximum tariffs, and non-tariff restrictions declined by more than 50 percent during the height of neoliberal reforms from 1985 to 1995, largely offset by greater domestic collection of value-added tax (VAT) revenues. As a region, Latin America led the world in privatization efforts, the 669 transactions made from 1990 to 1994 amounting to more than half of the privatization sales among newly industrialized countries during this time period. 27 Within the private sector, the energy and financial industries were the most affected by privatization efforts, as utility companies and banking had the most potential for significant increases in efficiency and productivity. Mexico led the region in revenues generated from this privatization process, as the sale of more than a thousand formerly nationalized companies generated over $24 billion for the state by 1994, a sum that represented over 2 percent of Mexico’s GDP. A significant amount of the funds utilized for privatization came from foreign direct investment, as many multinational companies sought to provide capital to newly privatized companies and invest in complementary domestic industries.28 Foreign investment into the Latin American stock market rose from $77 billion in 1990 to over $576 billion by 1999, representing nearly 30 percent of the region’s GDP. In Argentina, Brazil, Costa Rica, Ecuador, Mexico, and Uruguay, domestic private industry was significantly consolidated by acquisitions and mergers by larger multinational corporations, resulting in rising costs for public services.29 Following neoliberal cuts to public spending and a decade of privatization efforts, even the poorest members of society could be expected to pay for their own education and health care.

As a result of the implementation of significant neoliberal reforms, Latin America’s GDP growth rate in the 1990s was double that of the lost decade of the 1980s at an average of 3.4 percent. Per capita income also saw modest gains at an average annual growth rate of almost 2 percent throughout the decade. Aided by high global demand for copper, Chile led the region in GDP growth during this period at an average rate of 7.2 percent, followed by Peru at 5.4 percent, and Argentina and El Salvador at 4.9 percent.30 Positive growth in the value added in agriculture was overshadowed by significant gains in services and industry during the 1990s in Latin America, while exports grew dramatically in Mexico at 14.3 percent, El Salvador at 11.7 percent, and Nicaragua at 10.3 percent. During this period, exports from Latin America were largely based on lightly processed commodities, low value-added manufactured goods, and raw materials from the forestry and mining sectors.31 With the exceptions of Mexico, Brazil, and Costa Rica, no other nations in the region maintained a manufacturing base that accounted for over 50 percent of their exports, the majority of Latin America compelled to import much of its technology-intensive manufactured goods. The narrow spectrum of raw materials traded by many Latin American nations, such as coffee, petroleum, aluminum, corn, timber, bananas, soy beans, cocoa, wheat, and iron, left them particularly vulnerable to fluctuations on the world market. By the mid-1990s, the gradual decline of global commodity prices had created a growing trade deficit gap of more than 53 percent between Latin America and more industrialized nations.32

The formation of free-trade blocs continued during the height of neoliberalism in the 1990s with the creation of the Southern Cone Common Market, or MERCOSUR, in 1991. Member nations Argentina, Brazil, Paraguay, Uruguay, Chile, and Bolivia sought to coordinate macroeconomic policymaking for the bloc through the establishment of free-trade zones, a common external tariff, and the reduction of tariffs among intragroup members. Proponents of neoliberalism encouraged such institutionalization of neoliberalism and free-trade policies in Latin America as a means of improving the region’s access to capital and technology and as a means of eliminating corruption, removing the inefficiencies of populist governments, and the promotion of individual entrepreneurship.33 Many neoliberal intellectuals also equated free markets with free, democratic societies, believing that the transfer of power from the state to civil society would create the necessary socioeconomic conditions for the maintenance of a liberal democracy. The incorporation of Latin American nations into the global marketplace via the signing of free-trade agreements would allow the international community to exert greater pressure on signatory nations that attempted to infringe on rights guaranteed by a constitutional government.34 Economic benefits would materialize for all of society once each country was able to fully utilize its domestic resources on the free market, rectifying the inefficiencies of previous populist policymaking. The neoliberal mind-set held that following the implementation of reforms, empowered individuals would benefit from consequent reductions in the costs of public services, cheaper consumer goods, and greater social mobility, capable of fully participating in society thanks to the external protection of democracy and the opening of the economy.

The institutionalization of neoliberal policies continued with the signing of the North American Free Trade Agreement by Canada, the United States, and Mexico in 1992, forming the second-largest common market in the world, created with the intent of eliminating barriers to investment and trade across the continent. Unheeded domestic concerns inside Mexico concerning the treaty’s impact on the sovereignty of the nation and potential economic vulnerabilities were validated following NAFTA’s implementation in January 1994. Despite Mexico’s growing trade deficit of over $28 billion by the end of 1994, the value of the peso remained steady through the manipulation of the currency market by the administration of President Carlos Salinas de Gortari (1988–1994).35 External concerns about Mexico’s economic health were exacerbated following the neo-Zapatista uprising in the state of Chiapas, several high-profile political assassinations prior to national elections, and a rise in U.S. interest rates.

As Salinas’s currency manipulation policies backfired, resulting in a massive devaluation of the peso, the subsequent financial fallout became known as the “tequila crisis” in late 1994. By the end of 1995, the peso had devalued by 200 percent and Mexico’s GDP had shrunk by 6 percent, “the worst single-year drop since the Great Depression.”36 Mexico steadily recovered from the crisis during the latter half of the decade, but the nation’s agricultural sector was hit the hardest by the combination of the peso crisis and the lifting of tariff barriers on highly subsidized U.S. agricultural imports under the auspices of NAFTA.

Mexico was not alone in its agricultural decline during the mid-1990s. From 1995 to 2000, global corn prices plummeted by 30 percent, coffee 43 percent, soy beans 66 percent, sugar 16 percent, and wheat 30 percent, the resulting increase in rural unemployment intensifying the process of outmigration across Latin America.37

Pushback and the Pink Tide

Mexico’s economic struggles in the aftermath of the 1994 tequila crisis represented the beginning of the end for neoliberalism in Latin America, as stagnant growth and a decline in new foreign direct investment prompted concerns through the latter half of the decade about the sustainability of the neoliberal model in the region. Increased foreign direct investment in the mining, logging, and petrochemical industries to satisfy the raw materials needs of the growing economies of Eurasia had a profound environmental impact on Latin America. Lax enforcement of environmental regulations resulted in hazardous working conditions for laborers, widespread soil and water contamination, and millions of acres of rainforest destroyed.38 The domination of large-scale agribusinesses also had a profound impact on the environment in developing nations throughout Latin America. No better example could be found than in rural Brazil, which by the beginning of the 21st century was described as “a landscape of endless seas of soy plantations, massive cattle ranches, and poisonous industrial farms that displace poor Brazilian families and cut down ever-larger swaths of rainforest.”39

Decreases in agricultural subsidies as part of neoliberal reforms, coupled with the buyout of small- and medium-sized farmers by multinational agribusinesses, compelled millions of impoverished Latin Americans to seek new employment as part of a growing transnational labor force. Many attempted to make the expensive and dangerous journey to the United States, while many more sought work in the growing numbers of maquiladora factories located within export-processing zones stretching from the U.S.–Mexico border to as far south as Argentina.40 Through the neoliberal integration of domestic industries into globalized production chains, the cheap labor of immigrant workers proved to be one of Latin America’s most profitable exports. Monetary transfers, known as remittances, from transnational laborers to their home countries formed a growing source of revenue for the region, as the amount of funds generated by remittances increased rapidly from $1.9 billion in 1980 to a record high of over $65 billion by 2014.41 Mexico was by far the largest recipient of remittances in the region, receiving $23.6 billion in 2014, distantly followed by Guatemala at $5.5 billion, the Dominican Republic at $4.5 billion, El Salvador at $4.2 billion, and Colombia at over $4 billion. Remittances to Mexico, which on average represented a third of the total for the region, exceeded the value of all other domestic exports with the exception of petroleum. For Guyana, Jamaica, Guatemala, El Salvador, Haiti, Nicaragua, and Honduras, remittances during the period from 2002 to 2005 steadily averaged nearly 20 percent of GDP.42

The formation of this new transnational labor force was accompanied by the establishment of new transnational coalitions determined to resist or reform the neoliberal economic model. In late 1997, debt crises in East Asia triggered an international chain reaction of dramatic interest-rate hikes and currency devaluations, negatively impacting several prominent economies in Latin America. This economic depression, which lasted from 1998 to 2002, resulted in a regional political movement that rejected neoliberalism and embroiled many Latin American nations in widespread social unrest and political turmoil. South America was especially affected by this antineoliberal turn, as mismanagement of the banking system in Ecuador led to the removal of President Abdala Bucaram (1996–1997) after having been declared mentally unfit by the National Congress. Ecuador’s economic and political problems continued for several years, as mass demonstrations by the indigenous Pachacutik Movement for Plurinational Unity (Movimiento de Unidad Plurinacional Pachacutik) and extensive cuts to the defense budget led to a coup in 2000 against President Jamil Mahuad (1998–2000), while the unpopular implementation of neoliberal policies led to the removal of President Lúcio Gutiérrez (2003–2005) by the National Congress in 2005.43

Argentina experienced a significant debt crisis in 2001 that mobilized thousands of cacerolazos, a form of popular protest involving the banging together of pots and pans, whose outrage against further austerity measures imposed by the IMF eventually brought about the resignation of President Fernando de la Rúa (1999–2001). During this period, despite state intervention via increased interest rates, tax increases, and social-spending cuts, Brazil’s currency lost 35 percent of its value by 1998, ultimately resulting in further austerity measures and $41.5 billion in emergency bailout funds from the IMF, World Bank, and Inter-American Development Bank.44 Bolivia also served as a prominent example of the limits of the neoliberal model in Latin America, as the privatization of the nation’s water system and natural gas industry led to a hike in prices and subsequent mass demonstrations in 2000 and 2003, respectively. These “water wars” and “gas wars” resulted in deadly clashes between protestors and police, the eventual resignation of President Carlos Mesa (2003–2005), and a landslide election victory for indigenous President Evo Morales in 2006.45

Morales’s election and Bolivia’s subsequent return to populist policymaking were not anomalies during this time period, as the rising “pink tide” of leftist political leadership in Latin America included the election of Hugo Chávez (1999–2013) in Venezuela, Ricardo Lagos (2000–2006) in Chile, Nestor Kirchner (2003–2007) in Argentina, Luiz Inácio Lula da Silva in Brazil (2003–2011), Tabaré Vásquez (2005–2010) in Uruguay, Manuel Zelaya (2006–2009) in Honduras, and Mauricio Funes (2009–2014) in El Salvador, as well as Rafael Correa of Ecuador and Daniel Ortega of Nicaragua in 2007, and Fernando Lugo of Paraguay in 2008.46 The resulting multinational coalition among the Latin American Left created an effective counterbalance to the United States on issues of military intervention, trade, debt negotiations, and global terrorism, yet there was less uniformity on the nature of state redistributive projects and populist policymaking. The diverse set of agendas among the Latin American Left included many that did not completely break with the market-driven, neoliberal model of development, and instead sought to create a more evenhanded model for state intervention through income redistribution and stricter financial regulation.

Whether or not the Latin American Left can continue to sustain its new vision for the region has yet to be seen, inasmuch as the failed 2008 “civic coup” against the government of Bolivian President Morales, the 2009 coup against Honduran President Zelaya, and the death of Venezuelan President Chávez in 2013, as well as the impeachment proceedings against Brazilian President Dilma Rousseff,, mass protests in Venezuela against the government of President Nicolas Maduro, and protests against President Ortega’s government in Nicaragua—all in 2015—leave many questions for the future of postneoliberal policymaking in the region. The Chinese-driven commodities boom in wheat, iron ore, soybeans, cement, and aluminum experienced by Latin America from 2003 to 2009 assisted the ability of pink-tide nations to maintain economic and political independence from the international financial community and the United States, but as China’s economy slowed since the economic crisis of 2008–2009, the ability of leftist politicians to finance their populist visions has waned.47

Economically and politically, Latin America’s chances for stability and prosperity are tempered by the damage done by decades of neoliberal reform in the region. As a result of neoliberalism in Latin America, a reverse redistribution of wealth occurred, whereby the poorest members of society saw their land and labor privatized and commoditized for the financial benefit of the richest members of society, while at the same time multinational lending institutions, such as the IMF, continued to expand their dominance over state policymaking at the expense of liberal democracy.48 For the future, the potential creation of even larger common markets, such as the Free Trade Area of the Americas, designed to link the economies of every nation in the Western Hemisphere, or the Trans-Pacific Partnership, which seeks to link the economies of Chile, Mexico, and Peru to those of East Asia, is unlikely to diminish the negative effects of economic rivalries among Latin American nations or lessen the dominance of external, nonstate actors in the region. The task of creating real economic and political independence for Latin America continues, a dream still unrealized.

Discussion of the Literature

With the end of significant free-market reforms in the mid-2000s more than a decade in the past, a deeper understanding of the consequences of neoliberalism in Latin America can be seen across a wide array of historical scholarship on the subject. The majority of the secondary literature on this subject matter has been created by economists, political scientists, and even journalists, providing a wide array of perspectives due to the variety of methodologies and disciplinary lenses of analysis. The themes of various historical works on the subject of Latin American neoliberalism tend to track chronologically, as scholars sought to understand the causation of, consequences of, and resistance to neoliberalism in almost distinct phases during the end of the 20th and beginning of the 21st centuries. Causes for the advent of neoliberal reforms in the 1970s and 1980s and the subsequent means for implementing market fundamentalism into the region dominated the majority of the early literature, with scholars tending to focus on the extreme winners and losers regarding socioeconomic and political outcomes.49 Additionally, the larger economies of the region, such as Argentina, Brazil, Chile, Colombia, Peru, and Mexico, received a significantly larger amount of attention from the financial and academic communities when it came to the analysis of neoliberal implementation.

More recent attention by scholars focused on the consequences of neoliberal reforms following a sufficient “cooling” period after the reorientation of the region’s market. Once hyperinflation and foreign debt were at manageable levels, allowing Latin America to regain relative economic stability, a clearer snapshot of the region’s socioeconomic health could be ascertained. The hopes for neoliberal socioeconomic empowerment of the region’s populace could not be realized overnight, and only after more than a decade following initial neoliberal policy implementation has significant insight into these outcomes emerged. An extensive amount of research and publications were produced at the turn of the century by scholarly communities like the Latin American Research Review, the North American Congress on Latin America, the United Nations Economic Commission for Latin America and the Caribbean, and The International Political Economy Series edited by Timothy M. Shaw and produced by Palgrave Macmillan Publishers.50

The Latin American Research Review sought to deliberately broaden the study of neoliberalism through the hosting of a roundtable session on “Neoliberalism in Latin America–Successes and Failures” at the 2003 Latin American Studies Association Conference. Results of the roundtable provoked further publications concerning the impact of neoliberalism on the rise of the Latin American Left, the safeguarding of liberal democracy, and the influence of multilateral actors like the IMF on governmental policymaking.51 Neoliberalism’s impact on the environment, the formation and function of indigenous social movements, and the renegotiation of gender identity under neoliberalism all form a growing body of more recent scholarship that continues to broaden the spectrum of topics under study.52 The myriad long-term consequences of neoliberalism in Latin America have yet to be fully explored, leaving much potential for future investigation into the impact of financial austerity measures on the stability of liberal democracies in the region, the new macroeconomic models of governance utilized by the Latin American Left, and the intersection of transnational economies on the trafficking of humans and narcotics.

Primary Sources

For locating primary sources on the history of neoliberal economic practices in Latin America, the most diverse and consolidated bodies of data come from digital repositories produced by international political and financial communities, rather than from traditional, physical archives or even online databases created by specific nations. As an example of digital databases maintained by the international lending community, the World Bank maintains a Latin America–specific database of interactive maps, data visualizations, and raw data tables of “microdata” stemming from housing, agricultural, and population surveys, all of which are available for bulk download. The Inter-American Development Bank, as the largest financer of development projects in the world, maintains an extensive digital database for use in the classroom and in scholarly research. Annual socioeconomic indicator reports, scholarly publications, policy briefs, working papers, and raw data sets dating back to the 1970s are all accessible via its website. The International Monetary Fund maintains a digital database of regional economic reports for the Western Hemisphere, annual reports on a wide array of socioeconomic indicators, policy papers produced by IMF partners, and a searchable library of publications related to the history and operation of the organization.

Political organizations such as the United Nations Economic Commission for Latin America and the Caribbean maintain extensive databases of publications on socioeconomic issues in the region, including gender affairs, trade and integration, economic development, natural resources and infrastructure, and population and development, among many other topics. Additionally, via CEPALSTAT, REDATAM, SIGCI, and TRADECAN, specialized information systems pertaining to statistical data gathered across Latin America since the 1990s, governmental and educational users can gain access to thematic maps, graphed data on the trade activity of thirty-three Latin Americans and Caribbean countries, as well as local, regional, and national census analyses from around the region. The site hosts videos promoting projects and policy implementation, as well as data visualizations of macroeconomic data on a wide array of topics, including poverty, education, labor policy, agricultural and rural development, science and technology, internal and external migration, indigenous and Afro-Latino descendants, womens’ political participation, energy and communication infrastructure, and sustainable economic and social development.

The Latin American Integration Association maintains a searchable database of all official documentation of the secretary general and all official documents related to the Secretariat of LAFTA, as well as documentation of international organizations; publications related to the economic integration of treaty members are available online. The Organization of American States’ Foreign Trade Information System maintains an extensive database of political resolutions related to the formation of free-trade agreements between OAS member states, customs unions, and links to tariff and trade data, as well as the most extensive database of studies on trade and gender available online. The OAS, with the assistance of the Canadian International Development Agency (and the Foreign Trade Information System, also created and maintains the Caribbean Trade Reference Centre, a digital database containing the full text of every official trade policy document signed by OAS member states.

Further Reading

Bresser Pereira, Luiz Carlos, Jose María Maravall, and Adam Przeworski. Economic Reform in New Democracies: A Social-Democratic Approach. Cambridge, U.K.: Cambridge University Press, 1993.Find this resource:

Conaghan, Catherine, and James Malloy. Unsettling Statecraft: Democracy and Neoliberalism in the Central Andes. Pittsburgh, PA: University of Pittsburgh Press, 1994.Find this resource:

Dangl, Benjamin. Dancing with Dynamite: Social Movements and States in Latin America. Oakland, CA: AK Press, 2010.Find this resource:

Fischer, Edward R., ed. Indigenous Peoples, Civil Society, and the Neo-liberal State in Latin America New York: Berghahn Books, 2009.Find this resource:

Grandin, Greg. Empire’s Workshop: Latin America, the United States, and the Rise of the New Imperialism. New York: Holt Paperbacks, 2007.Find this resource:

Green, Duncan. Silent Revolution: The Rise and Crisis of Market Economics in Latin America. New York: Monthly Review Press, 2003.Find this resource:

Haggard, Stephan, and Steven Webb, eds. Voting for Reform: Democracy, Political Liberalization and Economic Adjustment. New York: Oxford University Press, 1994.Find this resource:

Handelman, Howard, and Werner Baer, eds. Paying the Costs of Austerity in Latin America. Boulder, CO: Westview, 1989.Find this resource:

López-Maya, Margarita, ed. Lucha popular, democracia y neoliberalismo: Protesta popular en América Latina en los años de ajuste. Caracas: Editorial Nueva Sociedad, 1999.Find this resource:

Madrid, Raul. Retiring the State: The Politics of Pension Privatization in Latin America and Beyond. Stanford, CA: Stanford University Press, 2003.Find this resource:

Nelson, Joan, ed. Economic Crisis and Policy Choice, Princeton, NJ: Princeton University Press, 1990.Find this resource:

Peck, Jamie. “Geography and Public Policy: Constructions of Neoliberalism” Progress in Human Geography 28.3 (2004): 392–405.Find this resource:

Portes, Alejandro, and Kelly Hoffman. “Latin American Class Structures: Their Composition and Change during the Neoliberal Era” Latin American Research Review 38.1 (2003): 41–82.Find this resource:

Smith, William, Carlos Acufa, and Eduardo Gamarra, eds. Democracy, Markets, and Structural Reform in Latin America. New Brunswick, NJ: Transition, 1994.Find this resource:

Teichman, Judith A. The Politics of Freeing Markets in Latin America: Chile, Argentina, and Mexico. Chapel Hill: University of North Carolina Press, 2001.Find this resource:

Walton, John K., and David Seddon. Free Markets and Food Riots: The Politics of Global Adjustments. Oxford: Blackwell, 1994.Find this resource:

Walton, Michael. “Neoliberalism in Latin America: Good, Bad, or Incomplete?” Latin American Research Review 39.3 (2004): 166–183.Find this resource:

Webber, Jeffrey R. “Indigenous Struggle in Latin America: The Perilous Invisibility of Capital and Class” Latin American Politics and Society 49.3 (2007): 191–206.Find this resource:

Weyland, Kurt. “Assessing Latin American Neoliberalism: Introduction to a Debate.” Latin American Research Review 39.3 (2004): 143–149.Find this resource:

Weyland, Kurt. The Politics of Market Reform in Fragile Democracies: Argentina, Brazil, Peru, and Venezuela. Princeton, NJ: Princeton University Press, 2002.Find this resource:

Williamson, John, ed. The Political Economy of Policy Reform. Washington, DC: Institute for International Economics, 1994.Find this resource:


(1.) United Nations, “The Economic Development of Latin America and Its Principal Problems,” Lake Success, NY, 1950, and Albert O. Hirschmann, The Strategy of Economic Development (New Haven, CT: Yale University Press, 1958).

(2.) Robert W. Cox, Production, Power, and World Order (New York: Colombia University Press, 1987), 274.

(3.) Thomas Perreault and Patricia Martin, “Geographies of Neoliberalism in Latin America,” Environment and Planning A, 37 (2005): 195.

(4.) Suranjit Kumar Saha, “Latin America: A Socioeconomic Profile,” in Globalisation and Sustainable Development in Latin America: Perspectives on the New Economic Order, eds. Suranjit Kumar Saha and David Parker (Northampton, MA: Edward Elgar, 2002), 84.

(5.) Ibid., p. 120.

(6.) Peter Winn, “The Pinochet Era,” in Victims of the Chilean Miracle: Workers and Neoliberalism in the Pinochet Era, 1973–2002, ed. Peter Winn (Durham, NC: Duke University Press, 2004), 26.

(7.) David E. Lindsey, Athanasios Orphanides, and Robert H. Rasche, “The Reform of October 1979: How It Happened and Why,” prepared for the Conference on Reflections on Monetary Policy 25 Years after October 1979, Federal Reserve Bank of St. Louis, 2004.

(8.) Dietrich Reuschemeyer, Evelyne H. Stephens, and John D. Stephens, Capitalist Development and Democracy (Chicago: University of Chicago Press, 1992), 212.

(9.) Pedro Aspe Armella, El camino mexicano de la transformación económica (México, D.F.: Fondo de Cultura Económica, 1993), 76.

(10.) Tom Chodor, Neoliberal Hegemony and the Pink Tide in Latin America: Breaking Up with TINA? (London: Palgrave Macmillan, 2015), 75.

(11.) Jackie Roddick, The Dance of the Millions: Latin America and the Debt Crisis (London: Latin America Bureau, 1988), 174.

(12.) Sue Branford and Bernardo Kucinski, The Debt Squads: The U.S., the Banks and Latin America (London: Zed Books, 1988), 119.

(13.) James Ferguson and Akhil Gupta, “Spatializing States: Toward an Ethnography of Neoliberal Governmentality,” American Ethnologist 29.4 (2002): 990.

(14.) Jamie Peck and Adam Tickell, “Neoliberalizing Space,” Antipode 34.3 (2002): 386.

(15.) Catherine M. Conaghan, James M. Malloy, and Luis A. Abugattas, “Business and the ‘Boys’: The Politics of Neoliberalism in the Central Andes,” Latin American Research Review 25.2 (1990): 7.

(16.) Bela Balassa, The Process of Industrial Development and Alternative Development Strategies, (Washington, DC: The World Bank, 1980), 33.

(17.) Victor Bulmer-Thomas, The Economic History of Latin American Since Independence (Cambridge, U.K.: Cambridge University Press, 2003), 363.

(18.) International Monetary Fund, International Financial Statistics,” vol. 46, no. 10, (Washington, DC, International Monetary Fund, 1992).

(19.) Rosemary Thorp, Progress, Poverty and Exclusion (Washington, DC: American Development Bank, 1998), 221.

(20.) Margarita López Maya, “The Venezuelan ‘Caracazo’ of 1989: Popular Protest and Institutional Weakness,” Journal of Latin American Studies 35.1 (2003): 130.

(21.) Haluk Unal, Asli Demirguc-Kunt, and Kwok-Wai Leung, “The Brady Plan, the 1989 Mexican Debt Reduction Agreement, and Bank Stock Returns in the United States and Japan,” Journal of Money, Credit and Banking 25.3 (1993): 415.

(22.) International Monetary Fund, World Economic Outlook: Crisis and Recovery (Washington, DC: International Monetary Fund, 2009), 30.

(23.) Eduardo Lora, Structural Reforms in Latin America: What Has Been Reformed and How to Measure It, (Washington, DC: Inter-American Development Bank, 2001). As much as Cuba was shielded from the implementation of neoliberal reforms due to its economic isolation, the nation did go through a “special period” of financial austerity following the dissolution of the Soviet Union in the 1990s.

(24.) World Bank, Human Development Report 1991 (New York: Oxford University Press, 1991).

(25.) John Williamson, “What Washington Means by Policy Reform,” in Latin American Adjustment: How Much Has Happened? (Washington, DC: Institute for International Economics, 1990.

(26.) Joseph Stiglitz, Globalization and Its Discontents (New York: W. W. Norton, 2003), 53.

(27.) Lora, Structural Reforms in Latin America.

(28.) Frank Sadler, “Privatizing Public Enterprises and Foreign Investment in Developing Countries, 1988–1993,” Foreign Investment Advisory Service Occasional Paper, World Bank, Washington, DC, 1993.

(29.) World Bank, Human Development Report 2000 (New York: Oxford University Press, 2000), 210–214.

(30.) United Nations Development Programme, Human Development Report (Oxford: Oxford University Press, 2000), 202–205.

(31.) Ibid., p. 207.

(32.) International Monetary Fund, International Financial Statistics, vol. 55, no. 10 (Washington, DC: International Monetary Fund, 2001).

(33.) Paul Drake, “The Hegemony of U.S. Economic Doctrines in Latin America,” in Latin America After Neoliberalism: Turning the Tide in the 21st Century? eds. Eric Hershberg and Fred Rosen (New York: The New Press, 2006), 39.

(34.) Jorge I. Domínguez, “Free Politics and Free Markets in Latin America,” Journal of Democracy 9.4 (1998): 72.

(35.) Miguel Angel Centeno, Democracy Within Reason: Technocratic Revolution in Mexico (University Park: Pennsylvania State University Press, 1994), 4.

(36.) Alexander Dawson, First World Dreams: Mexico Since 1989 (New York: Zed Books, 2006), 68.

(37.) International Monetary Fund, International Financial Statistics (2001).

(38.) Robert N. Gwynne and Cristóbal Kay, eds., Latin America Transformed: Globalization and Modernity (London: Hodder Education, 2004), 120.

(39.) Benjamin Dangl, Dancing with Dynamite: Social Movements and States in Latin America (Oakland, CA: AK Press, 2010), 134.

(40.) Devon Gerardo Peña, The Terror of the Machine: Technology, Work, Gender, and Ecology on the U.S.–Mexico Border (Austin: University of Texas Press, 1997), 7.

(41.) René Maldonado and Maria R. Hayem, Remittances to Latin America and the Caribbean Set a New Record High in 2014 (Washington, DC: Inter-American Development Bank, 2015), 7.

(42.) Pablo Fajnzylber and J. Humberto López, eds., Remittances and Development: Lessons from Latin America (Washington, DC: The World Bank, 2008), 27.

(43.) Ana Margheritis and Anthony W. Pereira, “The Neoliberal Turn in Latin America: The Cycle of Ideas and the Search for an Alternative,” Latin American Perspectives 34.3 (2007): 26.

(44.) International Monetary Fund, IMF Survey, vol. 27, no. 22 (Washington, DC: International Monetary Fund, 1998), 374.

(45.) Havard Haarstad and Vibeke Andersson, “Backlash Reconsidered: Neoliberalism and Popular Mobilization in Bolivia,” Latin American Politics and Society 51.4 (2009): 5.

(46.) Steven Levitsky and Kenneth M. Roberts, eds., The Resurgence of the Latin American Left (Baltimore: Johns Hopkins University Press, 2011), 1.

(47.) Kevin P. Gallagher and Roberto Porzecanski, “China and the Latin America Commodities Boom: A Critical Assessment,” Political Economy Research Institute Working Papers, no. 192, 2009, p. 4.

(48.) David Harvey, A Brief History of Neoliberalism (New York: Oxford University Press, 2005), 19.

(49.) For this first generation of scholarship on the causes and implementation of Latin American neoliberal reforms, see Joan Nelson, ed. Economic Crisis and Policy Choice (Princeton, NJ: Princeton University Press, 1990); Stephan Haggard and Robert Kaufman, eds., The Politics of Economic Adjustment (Princeton, NJ: Princeton University Press, 1992); Luiz Carlos Bresser Pereira, Jose María Maravall, and Adam Przeworski, Economic Reform in New Democracies: A Social-Democratic Approach (Cambridge, U.K.: Cambridge University Press, 1993); Catherine Conaghan and James Malloy, Unsettling Statecraft: Democracy and Neoliberalism in the Central Andes (Pittsburgh, PA: University of Pittsburgh Press, 1994); John Williamson, ed., The Political Economy of Policy Reform (Washington, DC: Institute for International Economics, 1994); and William Smith, Carlos Acufa, and Eduardo Gamarra, eds., Democracy, Markets, and Structural Reform in Latin America (New Brunswick, NJ: Transition, 1994).

(50.) Of note in The International Political Economy Series, see Juan Antonio Morales and Gary McMahon, eds., Economic Policy and the Transition to Democracy: The Latin American Experience (London: Palgrave Macmillan, 1996); Henry Veltmeyer, James Petras, and Steve Vieux, Neoliberalism and Class Conflict in Latin America: A Comparative Perspective on the Political Economy of Structural Adjustment (London: Palgrave Macmillan, 1997); and Christopher Wylde, Latin America After Neoliberalism: Development Regimes in Post-Crisis States (London: Palgrave Macmillan, 2012).

(51.) See Kurt Weyland, “Assessing Latin American Neoliberalism: Introduction to a Debate,” Latin American Research Review 39.3 (2004): 143–149; Marcus Kurtz, Free Market Democracy and the Chilean and Mexican Countryside (Cambridge, U.K.: Cambridge University Press, 2004); Evelyne Huber and Fred Solt, “Successes and Failures of Neoliberalism,” Latin American Research Review 39.3 (2004): 150–164; William Robinson, Latin America and Global Capitalism: A Critical Globalization Perspective (Baltimore: Johns Hopkins University Press, 2008); Andy Baker, The Market and the Masses in Latin America: Policy Reform and Consumption in Liberalizing Economies (New York: Cambridge University Press, 2009); and Jon Beasley-Murray, Posthegemony: Political Theory and Latin America (Minneapolis: University of Minnesota Press, 2010).

(52.) See Thomas Perreault and Patricia Martin, “Geographies of Neoliberalism in Latin America,” Environment and Planning A, 37 (2005): 191–201; Julie Cupples, “Rural Development in El Hatillo, Nicaragua: Gender, Neoliberalism and Environmental Risk,” The Introductory Reader in Human Geography: Contemporary Debates and Classic Writings, eds. William Moseley, David A. Lanegran, and Kavita Pandit (Malden, MA: Wiley-Blackwell, 2007), 319–330; and Benedicte Bull and Mariel Aguilar-Stoen, eds., Environmental Politics in Latin America: Elite Dynamics, the Left Tide and Sustainable Development (New York: Routledge, 2015).