Shock therapy in economics
• Economic shift from a government-dominated economy to a market economy. What are the policies?
• Privatize state owned businesses
• Eliminated Price Controls
• “Liberalize” Trade to introduce competitive pricing into the economy (Remove Tariff Barriers) • Privatization from 500 to 25 business from 1973 to 1980 • Drastic Budget Reductions
• Radical restricting of the public sector and reduction in its spending • Government spending slashed
• Import tariffs were cut
• Government budgets were balanced
• Allowing the peso to float against the dollar
• Cutting 2/3 of the employees of the state oil and tin companies and implementing a freeze on • Ending price controls and eliminating subsidies to the public sector • Liberalizing import tariffs by imposing a uniform 20% tariff • Stopping the payment of foreign debt under a deal negotiated with the IMF Why did the leaders think these policies were necessary?
• Leaders felt that this would be the best way to stop hyperinflation What were the impacts in the short-run and the long-run?
• Short-run: collapse into a serious recession and high unemployment. Prices skyrocketed • Long-run: Economic boom, Kick starting reform
Were they equally effective in Chile and Argentina? What caused the difference? • Yes since Bolivia was such a small economy as compared to Chile and Argentina.
Hyperinflation and its impact on the economy and society
• What is it? - occurs when a country experiences very high, accelerating, and perceptibly "unstoppable" rates of inflation. • Why was hyperinflation a problem in Latin America? - Many Latin American countries borrowed heavily during the 1970s and agreed to repay their debts in dollars. As interest rates rose, all of these countries found it increasingly difficult to meet their debt service obligations. The high-inflation countries were those that responded to these higher costs by printing money. • Common problem in Latin America or rare? – It was very common for countries in Latin America since most borrowed money they were unable to repay. • Were all the countries of interest equally successful in quelling it? – Most economies were successful in stabilizing their economy however some failed. • How was it stopped? - The adoption of Shock Therapy and its implementation
Deficits and National Debt
• Foreign debt
• Common problem or rare? – Common
• What is a debt crisis, and what is its cause? – When a country borrows a massive public debt relative to tax revenues especially when Latin America’s foreign debt exceeded their earning power and they were unable to repay it. Latin America began to borrow huge sums of money from international creditors for industrialization.
What do the following concepts mean in our chapter’s context?
• Militarism - the belief or desire of a government or people that a country should maintain a strong military capability and be prepared to use it aggressively to defend or promote national interests. • Populism - A political philosophy supporting the rights and power of the people in their struggle against the privileged elite. • Marxism - The political and economic philosophy of Karl Marx and Friedrich Engels in which the concept of class struggle plays a central role in understanding society's allegedly inevitable development from bourgeois oppression under capitalism to a socialist and ultimately classless society. • Neo-Fascism -
• How the above are interrelated?
Dependencia – Dependency Theory
• Explain the theory - It rationalized state dominance • What economic policies would a proponent of the theory recommend? - High import barriers, a closed economy, and a general demotion of the market.
How widespread was it? – Very widespread
Impact of the Great Depression on...