Latin America's Failed Macroeconomic Dictatorships

In the 1990's Latin Americans were patted on the back for ridding themselves, at long last, of the military dictators that had blighted the continent's history. But the dictatorship of generals, sadly, was replaced by the dictatorship of an idea: macroeconomic stabilization. Now that dictatorship, too, is beginning to crumble. May it be buried quickly.

In the wake of Argentina's full-scale collapse and the slowing of economic growth across the region, debates about economic policy have intensified. What, people ask, has Latin America really gained from the restrictive macroeconomic policies it has pursued, for the most part, since the debt crisis of the 1980's? Are people better off? Has the continent learned anything from this experience? Is it time for this dictator to go?

In the early 1980's, much of Latin America was in serious economic trouble--triple-digit inflation, huge fiscal deficits, and negative growth rates--after decades of following a macroeconomic policy that emphasized import substitution. Then a group of Latin American economists educated in American universities began to suggest an entirely different development strategy.

They argued that integration into world markets demanded macroeconomic stability. In country after country, production shifted toward exports. According to this vision of development, macroeconomic policy should choke off inflation and rein in fiscal deficits, with foreign private financing becoming the principal source of investment capital.