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Unformatted text preview: U.S. Economic Policy toward Latin America Gov 312L Spring 2006 Week 13
The Lending Boom 0. 1. 2. 3. 4. The rise in the price of oil in the 1970s made oil exporters wealthy They deposited much of their wealth in international banks The banks lent the money to oil importers in Latin America This became known as recycling The lending boom continued through the early 1980s 5. The Fed raised interest rates which increased LA debt payments 6. The interest rate increase caused worldwide economic recession 7. The price of oil rose again after the Iranian revolution 8. Then in 1982 nervous banks cut back on loans A Changing International Economic Environment Latin American Policy Errors 9. Latin American economic policies also contributed to the debt crisis: 10. Some of the loans were poorly invested 11. Overvalued exchange rates reduced exports and boosted imports 12. Overvaluation also encouraged capital flight 13.The crisis broke out when Mexico could no longer service its debts 14.This led banks to halt loans to other Latin American countries 15.As a result, other countries too encountered debt servicing problems 16.The crisis threatened to bankrupt the major U.S. banks 17. The U.S. organized massive rescue packages that included: 18. New loans from private and official lenders 19. The restructuring of existing loans 20. Agreements with the IMF to enact stabilization measures The Outbreak of the Crisis The U.S. Response to the Crisis The Impact of the Policies 21.The debt strategy saved the international financial system 22.Banks made large profits from the loan restructurings 23.Latin American countries fell into economic recessions 24.This prompted growing protest throughout Latin America 25. To address these problems, the U.S. announced Baker Plan in 1985 26.It called for Latin American countries to enact structural economic reforms 27.It also envisioned increased lending to Latin America to restore growth 28.But many private banks did not want to lend to Latin America 29.And growth continued to be slow The Failure of the Baker Plan 30. In 1989 the U.S. announced a new strategy called the Brady Plan 31. It focused on debt reduction 32. It gave banks three options: 33. Make new loans 34. Cut the face value of their loans 35. Cut the interest rates on their loans The Brady Plan 36. The Brady Plan was more successful 37. The U.S. pushed Latin America to enact neoliberal reforms including: 38. Stabilization policies: devaluation, budget cuts, interest rate increases 39. Structural reforms: privatization, trade liberalization, financial liberalization, and deregulation. 40. Initially, Latin American countries resisted, but this changed in 1990s 41. The reformers included: 42. Salinas in Mexico 43. Menem in Argentina 44. Cardoso in Brazil 45. Fujimori in Peru Neoliberal Reforms A Wave of Neoliberal Reforms 0. 1. 2. 3. 4. 5. 6. The debt crisis of the 1980s devastated Latin America: Poverty rose Inequality grew Wages decline Inflation rose Economic growth stagnated The 1980s is known as the lost decade in Latin America What were the effects of the debt crisis? 46. 47. 48. 49. 50. 51. What were the effects of the neoliberal reforms?
Marketoriented reforms have brought mixed results: They have cut inflation They have restored financial flows But growth has been volatile Poverty and inequality remain high And unemployment has risen A Talk by Bill Barreda, former Deputy Assistant Secretary of the Treasury for Trade and Investment Policy He was the chief U.S. negotiator of the investment rules for NAFTA NAFTA: A Negotiator's Version 52.NAFTA is a radical, watershed event 53.An historic change in Latin American economic policies 54.An amazing victory for U.S. economic policy Main Thesis 55.Import Substitution Industrialization 56.Nonreciprocity 57.Tariff preferences for developing country exports Developing Country Trade Practices Mexican foreign trade and investment practices
58.Imports by permit only in 1980s 59.Products of Mexican border factories not allowed in Mexico 60.Not a member of GATT 61.Free rides on U.S. tariff concessions 62.Foreign investment only in limited sectors under strict conditions Changes in Mexican Foreign Trade and Investment Policy 63.In the late 1980s, Mexico embraces more free market policies 64.Mexico joins GATT and liberalizes trade and investment policies 65.Then Mexico asks U.S. to negotiate a free trade agreement
7. Salinas' trip to Europe 8. Top officials believed in free markets 9. They were worried that the U.S. might turn protectionist 10. Better to liberalize through an agreement than unilaterally 11. A free trade agreement would bring foreign investment to Mexico 12. A free trade treaty would be difficult to reverse Reasons for Mexico's Request 66.Canada wanted to join NAFTA as well The Inclusion of Canada 67.U.S. bureaucrats object, but are overruled 68.We fear that Canada and Mexico will gang up on us 69.Mexico turns out to be on our side on investment issues 70. 71. 72. 73. 74. 75. A comprehensive treaty. It covers: Trade in goods Foreign investment Services Intellectual property Overarching principle is nondiscrimination or national treatment NAFTA: A Radical and Historic Treaty 76.No trade barriers at the border 77.Tariffs to be removed on all products--no quotas allowed 78.Tariffs phased out--half immediately some up to 15 years later Three sets of investment rules: 79. U.S. investors be treated the same as Mexican (and vice versa) NAFTA's Provisions on Trade NAFTA's Provisions on Investment 80. Governments can't require companies to export, buy local products or limit what they make 81. U.S. investors will have rights in Mexico that Mexicans don't have NAFTA's Provisions on Intellectual Property 82.Protection of intellectual property is similar to the U.S. 83.This means that Mexico will have to pay significant royalties to the U.S. 84.NAFTA was negotiated with difficulty during first Bush administration 85.However, Clinton was elected before it was approved by Congress 86.In the campaign, Clinton decides to support NAFTA Implementation Problems 87. Negotiations are reopened and 3 main changes are made: 88. Labor rights provisions 89. Environmental rules 90. Safeguards--rules permitting temporary import restrictions Changes to NAFTA 91. Creates fines for failure to enforce labor and environmental laws
13. Congressional approval required for U.S. to implement NAFTA 14. Many in U.S. have been uncomfortable with steady trade liberalization since WWII 15. Opponents, including labor, nationalists and environmentalists, go all out to stop it 16. Clinton goes all out to pass it: gets congressional votes one by one 17. Result: rhetoric on both sides gets carried away and NAFTA is oversold Major Political Battle over NAFTA 18. NAFTA has paved the way for more free trade agreements in region: 19. Mexico signed pacts with Chile, Central America, Venezuela 20. U.S. wanted to create a FTAA, but negotiations stall over agriculture 21. U.S. then opts for bilateral agreements 22. Signs pacts with Chile, C. America, DR, Peru, Colombia Results of NAFTA 92.Disappointing on growth 93.Good on trade and investment 94.Even better on consumer choice and freedom 95.But too much was expected o f NAFTA 96.Mexico needs other reforms too Consequences for Mexico 97.Economic effects have been positive but minor 98.It has worsened inequality 99.It did not solve immigration problems 100. It has had a positive effect on the environment 101. It has polarized politics Consequences for the U.S. ...
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This note was uploaded on 03/01/2008 for the course GOV 312L taught by Professor Madrid during the Spring '07 term at University of Texas at Austin.
- Spring '07