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Neoliberalism provided Latin American states with opportunities but also major problems. Discuss with reference to one state, a group of states, or the region as a whole.

Neoliberalism provided Latin American states with opportunities but also major problems. Discuss with reference to one state, a group of states, or the region as a whole.

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An essay for the 2011 Undergraduate Awards (Ireland) Competition by Jennifer O'Connor. Originally submitted for BA in International Relations at Dublin City University, with lecturer David Doyle in the category of International Relations & Politics
An essay for the 2011 Undergraduate Awards (Ireland) Competition by Jennifer O'Connor. Originally submitted for BA in International Relations at Dublin City University, with lecturer David Doyle in the category of International Relations & Politics

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Published by: Undergraduate Awards on Aug 31, 2012
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11/04/2013

 
Neoliberalism provided Latin American states with opportunities, but also majorproblems. Discuss, with reference to one state, a group of states, or the region asa whole.
 Introduction
In order to address this question we have chosen to examine Chile as our case study.Our reason for this choice is twofold; firstly, as neoliberal reforms were implementedin Chile under dictatorship and before any other country in the region, she has thelongest and most intense experience of an open and unregulated market in LatinAmerica. Secondly, for reasons we will now mention, Chile constitutes the best casefor demonstrating
both
sides of this argument.In terms of opportunities provided by the neoliberal model Chile, more than mostLatin American countries, appears to have benefited. Widely accepted as one of themost economically successful countries in the region, the Chilean model becameknown to the international financial community as; the “Latin American Jaguar” or the Chilean miracle (Santos 2005). Chile is also hailed by many as a “true model for the region” due to her liberal democracy and incorporation of social programs withinan orthodox market framework thus tackling inequality and poverty while alsoachieving macroeconomic stability (Castaneda 2006; Cordoso2006).In terms of major problems stemming from neoliberalism, however, Chile can also beused as an example. After Chile’s return to democracy the level to which her markethad been unregulated greatly constrained the first Concertación government in whatthey could achieve and poverty reduction strategies were operated
within
the
 
neoliberal framework, a model that the Concertación had gravely criticied beforetaking power. Inequality, however, is still a major issue and while poverty reductionoccurs at a slower rate than economic growth the continuation of the neoliberal modelhas lead to further concentration of economic power (Santos 2005). TheConcertación’s inability to change Pinochet’s economic model has been one of thekey factors in the gradual erosion of the legitimacy of Chilean political parties (longconsidered to be the backbone of her democracy) (Olavarría 2003). It is argued thatwhile neoliberalism has aided the consolidation of Chilean democracy in minimal procedural terms, the depth and quality of that democracy has been simultaneouslyeroded due to the continued imposition of the market model by the political elite(Weyland 2004; Olavarría 2003).
The Pinochet Years: Chile’s transition to a free market economy
From the 1930’s, until Allende’s government was overthrown following their attempted implementation of a socialist economy, Chile’s economic model was that of state-centred import substitution industrialization (ISI). When Pinochet came to power in the coup of 1973 the stated intention of the Junta was not to install permanentmilitary rule but to restore order [particularly the reassurance of private propertyrights (Murillo 2002)] and then to hand the running of government back to civilianauthorities (Heiss and Navia 2007). This objective, although the reason for which itwas possible to restore democracy by constitutional means 17 years later, was also themotivation behind the radical project of transformation that the junta embarked upon(ibid). From 1973 to 1975 Pinochet, with the help of his US educated, technocratadvisors (who became known as the ‘Chicago boys’) put in place a radical neoliberalmarket orientated strategy years before any other Latin American country. The
 
‘Chicago Boys’ took control of the Chilean economy in 1975 providing Pinochet withhis economic program (Silva 1996). The so called “shock treatment” wasimplemented gradually at first, and while somewhat interrupted during the crisis inthe early 1980’s, was consolidated with full force thereafter.Edwards identifies at least five main areas which neoliberal reforms focussed on;1.the liberalization of trade; 2.the liberalization of financial markets; 3.fiscal reform;4.Privatization and 5.the deregulation of labour markets (1995).We will now addresseach of these areas individually, we look at the way in which they were implementedunder Pinochet and we will assess the ramifications of these reforms in modern Chile.
 Liberalization of Trade and financial markets
Trade liberalization reduces the tariffs on imports and creates a more export orientatedeconomy with the intention of enhancing international competitiveness of firms thusencouraging them to raise their scope beyond domestic markets to internationalmarkets. Industrial policy is abandoned in favour of encouraging foreign directinvestment (FDI) as a means of bringing capital into the country through investment by multinationals (Gwynne and Kay 2000). The reform of financial markets is aimedtoward the removal of restrictions on capital and government intervention in the freemarket. This makes national markets more heavily influenced by global investors andspeculators thus creating an increased inflow of capital (ibid).The military junta liberalized trade restrictions by reducing tariffs to an average of 10%, abolishing nontariff barriers and cutting tariff dispersion (Murillo 2002). In1974 Law 818 and Decree Law 600 created liberal, non-discriminatory conditions for 

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