The Economic Adjustment Process in Latin America: a Conceptual Evaluation

Abstract

Since the decade of the 1970s, most developing countries, and in particular Latin American economies, have adopted economic stabilisation programmes geared at the restoration of internal and external equilibrium. The causes and consequences of these disequilibria have varied from country to country and time to time; however, in most cases, the roots of these disadjustments seem to have been originated in an accelerated expansion of the money supply and of domestic credit induced by huge fiscal deficits. In the periods previous to the introduction of stabilisation programmes, in most countries, very high inflation rates, an unsustainable relation of fiscal deficit to output, serious external disequilibria as a consequence of the above, and an appreciation of the real exchange rate have been observed.