The Macroeconomic Environment of Competitiveness

Abstract

Looking back at the economic history of Latin America in the last quarter century, it is possible to identify a number of troublesome features: low average economic growth; high inflation relative to other parts of the world; high volatility regarding terms of trade, capital flows, and economic performance; fluctuating exchange rates; balance of payments crises; high unemployment; and widespread poverty and income inequality. If these were all that characterized the performance of the region, there would be little hope for it. But the picture is different as the interested observer looks at more recent years and at more detailed numbers. Inflation has been declining; exchange rates in real terms have stabilized; macroeconomic indicators have improved with regard to the fiscal accounts and monetary policy; international trade has boomed; poverty has been on the decline; and the external accounts are much stronger than they have been in many years. Is this attributable to good luck, favorable world conditions, or hard work? The answer, typically, is a combination of the three. And to avoid simplistic generalizations, not all countries have done equally well, or have acted in a similarly prudent fashion. This chapter seeks to fulfill a complex task. Under the basic premise that macroeconomic stability is a precondition for competitiveness, it will review some of the key principles that determine the basis for good macroeconomic performance, the recent experience of the region in this regard, and some lessons for the future.

This chapter has benefited enormously from the author’s association with the following institutions: Centennial Group—Latin America, the Inter-American Dialogue, George Washington University, and the International Monetary Fund, particularly Inter-American Dialogue. Extremely useful comments were provided by different colleagues, particularly P. R. Narvekar and Graciana del Castillo, colleagues at the Centennial Group.