Latin American Economic Dependence

In the vast land that makes up Latin America, where there is so much opportunity for greatness, and a wide source of natural resources available to its people, it is a wonder to find the crisis of economic underdevelopment and dependancy that plagues this area. The subject of Latin America’s economic dependence and poor structure is a highly controversial and debatable topic that is today being studied by researchers from countries all throughout the world. While many suggestions have come about over the years to help free Latin America from its economic slump, no thorough plan has been developed or used as of yet. The fact of the matter is, researchers are just truly beginning to understand why in fact it is that this part of the world has landed itself in this position of economic dependence to begin with.

It is difficult to try and pinpoint a specific time period or event that would explain the downfall of Latin America’s economy. Researchers do agree, however, that the general world recession which took place in 1974-1975 had a lasting effect in Latin America. While other countries were able to get back into their imports and exports, to produce as they were before the world recession, Latin America faced many problems with their trades. By not taking the initiative to pay close attention to this matter as it was taking place, other countries either became self-sufficient or began finding alternative sources for import for goods which Latin America once exported to them. Some people have suggested that the officials in Latin America were lost in the areas of financial tariffs and interest rates at the time, and did not make an effort towards understanding what was happening in their economic system quickly enough. The result of this incompetence in action was a huge loss in Latin America’s exports to other countries – a main source of income to the area. Latin America’s economy was greatly dependent on the supply and demand system, and when this collapsed for them it set the system into a point of turmoil. Once the realization of how deeply this was beginning to effect the economy set in, and officials began to try and take action, it was very difficult to find sources to send out these exports. When there were offers made, they came along with extremely high taxes and other financial costs that were becoming increasingly difficult to pay.

Shortly after the world recession, in the early 1980’s, another international affair which deeply effected the exports of Latin America, particularly the areas surrounding and including , took place. This was the collapse on the price of oil – the main export to which these countries were involved with supplying. They were forced to find other sources of income on a very short notice, which was extremely difficult as their economy was almost entirely based around the export of this product. Combining the effects of an overall world recession with the drop in price of the main product exported at the time in these countries was extremely detrimental to the economies. It was this that now headed Latin America into a point of economic crisis.

A mistake on the part of officials in Latin America was to begin accepting financial loans from other countries to help them out of the economic crisis that they were now facing. Instead of building up the economy through their natural resources, and putting their foot down on this industry, these financial loans simply put Latin America into foreign debt. As with any country who’s economy is in a time of trouble, a depreciation in money value comes along, which in turn caused the debts owed to foreign countries to increase in value. Also, the loaners of this money were aware of the critical condition in which Latin America’s economy was going and therefore only gave out these loans along with a list of conditions which undoubtedly were meant to benefit them in the long run. Because of this, Latin America put themselves into a situation where their credit began to look unstable and their economy was being sent, at a quick pace, towards a period of extreme crisis.

Other contributing factors that have been suggested by researchers include the actions and policies of the government who at times have been slow with their decisions and in return has effected the economy. It seems as if Latin America struggles to come to a consensus about what to do with their situation, and the arguing also delays decision making. The political divisions between countries makes it very hard to agree on a specific plan of action, and this has been a contributing factor as to why the economic crisis has been able to last for so long. Their has been a division between the countries in Latin America since the onset of the economic slump, as everyone seems to believe the government should have behaved in a different way, or has their own ideas about what went wrong. A government that is able to unify its countries and come to a consensus on issues that are plaguing the entire area despite disagreements in opinion is the definition of success. Until Latin America’s political system is able to do this, or at least come to some type of compromise, it will remain nearly impossible to decide on a plan of action towards a solution for their wounded economic status.

Of course it is true that Latin America is a widespread area and events did not occur in exactly the same way throughout the region. Some countries in this area are undoubtedly doing better off now then others, and separate events have occurred throughout history to make this so. For this reason, researchers have divided their studies of Latin America’s economy into 3 groups: the first are countries whose economies are most progressing out of their economic recession, the second are those who have made little change, and the third are those who seem to be continuing the downward spiral. By grouping the countries in this manner, researchers are able to look closely at those who are making improvements and hopefully set them out as an example towards those who are struggling. It is always easier to make progress by the view of an example.

One case in point of a specific event that greatly effected the economies of Latin American countries is The Tequila Crisis, also known as the Mexican Peso Crisis. This individualized problem set in does seem to set apart countries, but in fact it explains how the economic crisis has developed as well. It also proves that a crisis taking place in one country that is connected to a larger region will most definitely effect the countries surrounding regardless of how they are linked.

The Mexican Peso Crisis was extremely detrimental to the economy of Latin America, because it was the third negative event to take place in a short amount of time. The events leading up to this crisis occurred very shortly after the world recession and the drop in oil prices. The Mexican Peso Crisis was, in short, a devaluation of the Mexican peso due to the countries people investing their money into US funds rather than into their own country because of the history and little trust in the value of their peso. This loss of funds happened at such a large rate in 1994 that the value of the peso began decreasing rapidly.

At the same time, an influx of imports began coming into Mexican ports forcing the Mexican people to pay much higher rates then they were used to. Their resource for money was to take out loans from foreign countries, which, as discussed previously, eventually turned to foreign debt because they were unable to repay the money. The peso became set at a value of 3.051 Mexican pesos per American dollar, and later valued at a 5 to 1 ratio towards the US dollar. This crisis did not only effect the people of . First off, it effected the companies who were involved with shipping products into . Due to the fact that the Mexican peso became worth so much less than the US dollar, the people were now unable to pay for products being shipping from the . Also, a linkage between and its surrounding countries created a negative effect on their working economies through what is known as “contagion” – a negative change in one economy will lead to the same happening in those nearby.

The economy and banks of this country could not seem to bounce back, and interest rates began to soar. Just as in the loss of faith by the Mexican people in their peso, the Argentinian people quickly began to withdraw their money from the banks and shifted ‘s economy into a detrimental position. It is most interesting to find how deeply effected Argentina was by the peso crisis in Mexico because the two countries were not very closely related in its affairs, but it does show the true meaning of what contagion is said to be – one negatively effected economy will distribute its negativity on to the neighboring countries.

The effects of a poor economy is a poor state of living. Unemployment rates are extremely high in Latin America, and those with jobs aren’t doing too much better as wages are very low and offer little room for growth. Over the years, much of Latin America has become urbanized due to the deconstruction of agricultural land, leaving people to live in overpopulated cities with few jobs. Furthermore, there is a lack of education and many people in these countries are unfortunately illiterate or unable to attend school because of the cost. It is a common thing for people to save up the little money they have in hopes to leave the countries they live in. The economic state is a driving force in the huge amount of illegal immigrants traveling from Latin American countries into the United Sates, and other countries where the economy is flourishing and able to offer any opportunities for wealth.

Furthermore, Latin America’s government has also been weakened because of the economic crisis. It is hard to come up with methods of improving the countries they govern when there remains a burden of past debts. This has angered the people of Latin America, and rightfully so, as they are forced to deal with poor living conditions because of past decisions that the people working in the government now did not even make. One country in Latin America alone is indebted BILLIONS of dollars – this is a situation that is not going away and needs to be dealt with by a government that is already confused and cannot seem to come to any type of consensus amongst one another.

The question now is – what is Latin America trying to do to solve their foreign debts and economic crisis? There has been talk of many different methods of freeing themselves from their troubles. Unfortunately, while a successful plan of action is being talked out, something still needs to be done to give back something to the economy in the meantime. Therefore, the current plan that is in action happens to be one that is also devastating to Latin America’s land, which is the exploit of it’s natural resources. This is truly an exploit because Latin America is most definitely not getting what they deserve in return for the resources they are providing. Due to the fact that they are in such an overwhelming situation, however, it is becoming accepted as the only thing that they are able to do. What is happening now is called a nature-debt swap, to which Latin American countries export their natural resources in exchange for the removal of their foreign debts. These resources are not being replenished quickly enough, and is a major cause of deforestation which is now occurring in various regions of Latin America.

The authors of the book Beyond the Crisis, who are also professional researchers on the topic of Latin America’s economy, have come up with 3 suggestions towards an improved economy for the countries of Latin America. These so-called solutions do not offer ideas as to how to put them into action, of course, which seems to be the main issue with Latin American countries. Nevertheless, their 3 arguments are as follows; first, Latin American officials need to re-negotiate the foreign debts that are plaguing them. These debts have lasted for decades, and even when deals have been made to remove some of these debts the people of Latin America are seeing little benefits from it. If they can somehow be re-negotiated into a plan that would allow Latin America to work towards a flourishing economy and give something else back once their system is running this would be ideal. Secondly, Latin America should try to expand their exporting business as they once had it before all the economic problems began. Production of goods that other countries can’t get will equal an economic payout for Latin America. And, lastly, the researchers suggest that although it may seem rough, there needs to be a decrease in domestic spending.

In the long run, the question of whether these swaps will even benefit Latin America is also at hand. The cost of trying to rebuild their forests may in the end be a bigger burden then they started out with. Countries who are involved in these trades are still benefitting much more by reaping Latin America of its natural resources, and saving themselves from having to destroy their own lands. All Latin America is getting in exchange for this is the removal of debts that have been around for hundreds of years, and really gives nothing back to Latin America’s people or economy.

Another controversial issue that comes along while researching the topic of the economic status in Latin America is why foreign countries continue to lend out money when they know that it is nearly impossible that they will be receiving anything in return for sometime. This issue has created anti-American feelings in some who believe that it is not right for the to continually be “meddlers” in the affairs of other countries. Then again, some see countries that are still helping third world civilizations despite the fact that they receive little in return as a blessing. Either way, Latin America is simply digging themselves into a bigger hole by continuing to accept any monetary funding from countries like the . The countries are beginning to deplete their forests and agriculture in trying to find a way to repay these foreign debts. Although it may seem like the and other countries that loan money this way are good guys, it is understandable to find that some people question the motives as well.

It is a shame to see an area like Latin America that has such potential for greatness to be in the economic shape that they are in. The fact that the countries of Latin America are unable to offer opportunities to the people due to the fact that they possess debts that have been around for years, is entirely unfair to those who live and work there. It is necessary at this point for the officials in Latin America to find a way to get their countries to at least come to a compromise so that they can begin working towards a flourishing economy and to once again become a place where people are confident in those who are governing them.

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