Economic Reforms in Latin America in the 80's

In the year leading to the early 90's, Latin America countries were frequently subjected to currency crises, banking failures, hyperinflation and many other monetary problem.

The problem has become some well known that even to this day, when economists tells about the different ways in which money can go bad by applying "macroeconomics populism" policy, the default currency referred in the statement is often talking about "peso"

But toward the late 80's, Latin America seems to have learnt the lesson.
With Chile leading the pack and implement economic reforms, State-owned companies were privatized, restriction on imports abolished and budget deficit trimmed.

Chile and the rest of the Latin America countries begain to enjoy attractive growth rate.

With such impressive growth, Latin America is once again attracting investors to the region.

At this point of time, with the in flux of foreign money and growth, the main priority of these countries is to control inflation rather than be concerned with the economic growth.

Economic Reforms Happening in Mexico

With the ongoing economic reform happening in Chile, a new generation of reformers are becoming more involved within Mexico's government and political system.

This new generation believe that growth can be achived via sound budgets, low inflation, deregulated markets and free trade.

The Mexico President then put this policy into effect by freeing up Mexico's trade dramatically through slashing of tariffs and imports that requires government license, priviatization of state-owned enterprise and loosening rules on foreign owned enterprise.

Though the economy is growing with the steps in place, there is still a investors' confidence problem to be addressed, where Mexico had been known for debt default till then.

The Mexico government worked out a plan to replace much of it's outstanding debt with a smaller face value.
The step is more of a psychological step than it's actual economical value, it marked as the end of the era when foreign investors putting funds in Mexico and would be stuck there for years.

With this, fresh money flows into Mexico, and high interest rate that was required to keep money from flowing out of the country can be lowered and thus, greatly reduced the amount of interest the government has to pay for it's debt.

With all this in place, the budget deficit in Mexico was overturned quickly .

A couple of years later in 1990, the Mexico government proposed free trade with the United States and Canada through NAFTA.
This is another act of confidence in actual fact than it's real economical value. It is more of an announcement that Mexico has abandon the old inward-looking economic policy and join the free trade bandwagon.

Economic Reforms Happening in Argentina

Argentina's reform is in some way more radical than Mexico.

Because of Argentina's tendency to print too much money and then get into difficulties servicing its foreign debt plus the heterodox inward looking policy that it constantly used, Argentina's economic condition was considered to be worse than Mexico in the early days of the reform that take place in the 80's.

And thus, Argentina reform need a bigger reform movement than Mexico.
It open up its market to the entire world and privatization of also took place at a much more intense degree.

Argentina also negotiated a plan to replace much of it's outstanding debt with a smaller face value just like Mexico.

However, the most important policy of all is the implementation of a currency board.
A currency board is in actual fact an exchange rate that is pegged to another currency but guaranteed by law that it is back by a hard currency reserves.

In Argentina case, they announced the new peso was set at a permanently fixed rate of one peso to be back by a dollar of reserves.

With all these policy in place, Argentina inflation dropped dramatically to near zero, foreign investment returns and GDP increased by 25% in 3 years.