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Trade policy reform in Latin America and the Caribbean in the 1980s

  • Alam, Asad
  • Rajapatirana, Sarath

The authors examine the wide-ranging and fundamental trade reforms undertaken in 16 Latin American and Caribbean countries in the 1980s. These reforms have dramatically altered the nature of the trade regimes in these countries and are particularly significant because they were undertaken during severe economic crisis and uncertainty. The authors show that the average levels and the growth rates of imports and exports were substantially higher during the reform period. But imports did not show the surge many had expected, possibly because of low domestic demand. Domestic demand was low because of stabilization and structural adjustment policies, real exchange rate devaluations, and limited access to foreign loans. All the trade reforms were preceded or accompanied by restrictive fiscal and monetary policies and by devaluations of the real exchange rate. The reform period also moved toward the unification and floating of exchange rates. The trade reforms were associated with changes in the political regimes. In most countries, the reforms began under the auspices of democratically elected governments, despite resistance - belying the conventional wisdom that democratic leaders are particularly vulnerable to powerful special-interest groups and are thus less able to sustain reforms. Crucial to the success in implementing these reforms was the boldness with which the governments pursued them. The authors point out that the success of the trade reforms lies in ensuring their domestic viability through macroeconomic stability and growth. A successful conclusion of the Uruguay Round of multilateral trade negotiations would also enable the countries to realize greater benefits from their trade reforms, making them more sustainable.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1104.

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Date of creation: 28 Feb 1993
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Handle: RePEc:wbk:wbrwps:1104
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