History of Latin America - Modern Period

History of Latin America - Modern Period

Answer 1

Application of ISI in practice began in Latin America in the 1930s, during the Great Depression. The global market for primary goods from Latin America plummeted as a result of the Depression, and later, as a result of the outbreak of World War II. Without a market for their primary goods, Latin American countries were unable to import manufactured goods and realized that they would need to develop their own industries to satisfy local demand.

They began to build their industries by focusing on domestic markets and regional trading rather than on the volatile world market. Evidence of increasing state involvement in industry at this time can be seen, for example, in the nationalization of foreign-owned railways and oil companies in Mexico. Further development and support of the ISI approach came from the structuralist ideas underlying the United Nations Economic Commission for Latin America (ECLA). Some of the key proponents and theorists for this approach included ECLA Executive Secretary Raúl Prebisch and the Brazilian economist Celso Furtado.

ISI-based policies enjoyed their greatest popularity in Latin America during the 1960s and 1970s in spite of already obvious problems related to balance of payments deficits from the heavy borrowing involved in ISI policies. Evidence of these policies include the popularity of trading blocs in Latin America to protect and promote regional trade on more favorable terms than trade on the world market. These trading blocs were thought to be necessary for many of the smaller Latin American countries to have access to sufficiently large markets for their goods.

In 1960, Costa Rica, Guatemala, and Nicaragua created the Central American Common Market (CACM) to promote development of industries in Central America. Under this agreement, consumer goods were the most highly taxed because these goods were the focus of ISI policies for promoting domestic production in these countries. All goods entering the CACM zone were taxed at the same rate on entry under a common tariff barrier, and some goods, including many industrial ones, were traded tariff-free within the CACM zone. The Latin American Free Trade Association, founded in the 1960s and now known as the Latin American Integration Association, is another example of these trading blocs.

Other evidence of ISI at work in Latin America at this time includes massive state-funded infrastructure projects in Brazil, Argentina, and Mexico, meant to catapult these countries into ...