Democratisation and Reform in Latin America

The 1980s became known as ‘the lost decade’ in Latin America. For the region as a whole, GDP grew little more than 1 per cent per year compared with 6 per cent in the previous decade. As a result, per capita GDP fell by more than 10 per cent in the 1980s. There were few exceptions — Chile and Colombia among them — to this declining trend in real income. The recession of 1981–2 in the industrial countries and the debt crisis that erupted in the summer of 1982 had much to do with the sharp turnaround in the economic well-being of Latin America in the 1980s. But the 1990s saw substantial improvement as economic reforms were adopted, some debt relief was obtained and capital inflows increased greatly. The Mexican crisis of 1994–5 had a ‘tequila effect’ on a number of countries in the hemisphere. In 1997 and 1998, some nations in Latin America felt the effects of the ‘Asian flu’ — the financial and economic crisis in the East Asian countries — as capital inflows slackened. They tightened their monetary policies, thereby slowing their economies somewhat. Nevertheless, 1997 and the first half of 1998 saw the most favourable combination of relatively high growth and low inflation in many years.