Chapter 9 Latin America
Chapter 9 Latin America
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
Decree 21060 • 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
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
Decree 21060 • 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