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Key considerations
To understand the present condition of the Latin American-Caribbean region we need to look back and bear certain key considerations in mind. First, it may surprise many to learn that the region has enjoyed long-lasting exceptional economic growth in the past. For the first three-quarters of the 20th century Latin America led the world in terms of economic growth. Indeed, in terms of human development its record was among the best for any developing region. Thus, in 1960 the average index of human development for the region stood at 0.465 and three decades later it had doubled to 0.824 - a truly impressive outcome.
Secondly, it was unfortunate for the Latin American-Caribbean region that the decade of the 1980s came to be immortalised as the 'lost decade,' because of economic decline, political reverses, the loss of global competitiveness in important sectors, and the explosion of social problems and crime. To the unwary, it is easy to underestimate the severity of the reversal of the 1980s, but the data shows that the economic decline in several countries of the region was deeper and more sustained than that of the industrialised countries during the Great Depression of the 1930s. It was so deep that today its adverse effect is still exemplified in the massive overhang of social and economic deficits, which the region carries. Guyana, along with Haiti and Jamaica, has the unfortunate distinction of being among the Caribbean countries sharing most of the misfortunes of the lost decade.
Thirdly, the 1980s represented a period of massive external indebtedness, huge public sector deficits, high inflation (reaching four digit levels in several countries), slow growth, and increasingly burdensome state restrictions and interventions in the economy, which ended with IMF/World Bank structural adjustment programmes. These were invariably based on the brutal repressive economic logic dogmatically and rigorously practised by these institutions at that time. The cost of these programmes was therefore high, and was reflected in growing unemployment, a rapid reduction in social expenditure, a worsening income distribution, and a growing despair among the population. In many countries these led to several brutal extremist political interventions.
New consensus: five principles
By the early 1990s a new more responsible consensus about development policy seemed to have emerged in the region. This was centred on five main guiding principles. One is that the state cannot do everything. It certainly came to be accepted that the state could not secure economic development on its own. As a consequence it was advanced that public policy should be more sharply focused on creating jobs, superintending external trade and economic relations, and in particular, securing macroeconomic stability.
In regard to the last item, the focus should be on reducing inflation, stabilising the exchange rate, and building confidence for domestic and foreign investors along with local consumers.
The second principle was the more or less explicit recognition of the fact that the region could not continue to rely exclusively on external inflows of capital to finance its investment and technological requirements. The contribution of domestic savings to the financing of domestic investment had to be increased at all costs.
Thus, for the period after World War II and up to the 1980s, Latin America saved only 20 per cent of its GDP. But, in order to achieve a rate of growth of 6 per cent per annum on a continuous and sustainable basis (which was essential to seriously deal with poverty), it was determined that savings of the order of 25 per cent of GDP per year was required.
The third principle is based on the consideration that the Latin American-Caribbean region had reached a point where it had the most unequal distribution of income and wealth for any region in the world. The evidence showed that there was, during the lost decade, a dramatic widening in the gap between rich and poor. Scholars are divided, however, as to whether the inequality was due to the economic collapse of the 1980s, or whether the inequality was a principal cause of the decline in the 1980s. If it was the latter, then backward public policy is to be blamed for the growing inequality in the region. There was agreement, however, in both instances, about the need to confront inequality in the region and target poverty reductions and job creation as the central focus of economic policy.
Fourthly, it came to be admitted that globalisation had already advanced beyond the point where countries could, based on the import substitution policies the region had pioneered, develop on their own internal momentum to the stage where they would be able to 're-enter' the global economy on more equitable terms. Those who shared the consensus were also guarded about the realism of 'all' developing countries successfully promoting export-led development simultaneously. It was recommended, therefore, that the focus should be on what has been described as an 'export-adequate' growth rate. This has been roughly estimated to be in the vicinity of 1 to 2 per cent above the rate of growth of GDP. Such an export growth rate, it is believed, would ensure adequate productivity growth in the export sector and its continuous dynamic adaptation.
Finally, the new consensus favoured an integrated holistic approach to development. That is, one which combines economic, social, and cultural components and is also driven by a democratic and participatory, political process.