Political Stability and Economic Stagnation

The evolution of macroeconomic policies in Latin America since the early 1970s has been by any standard remarkable, even if in some countries observers are not entirely sanguine about the sustainability of the macroeconomic reforms. Only in a few countries, however, has growth matched the vigour with which governments have attacked macroeconomic distortions. Chile’s average annual per capita growth of 10.6 per cent per year between 1985 and 1993 stands in stark comparison to Bolivia’s growth rate of 0.9 per cent a year from 1989 to 1993.1 Although both countries adopted similar macroeconomic policies over the period, growth in each has clearly followed distinct patterns. Nor is Latin America the only continent where the puzzling persistence of macroeconomic stability and slow growth still has to be understood. Ghana, for example, has generally followed sound macroeconomic policies since 1985, but its average per capita growth rate was only 2.6 per cent from 1984 to 1993. This might seem reasonable at first glance, roughly the same as industrialized countries over the period. However, the problem is precisely that at such a rate of growth, Ghanaian per capita income will not converge with income levels in industrialized countries.