Understanding Economic Policy Reform

Abstract

One of the eventual consequences of the global debt crisis that erupted in 1982 was a wave of market-oriented economic reforms, the likes of which have never been seen. The reforms were strongest and most sustained in Latin America, where countries like Bolivia, Mexico, Argentina, Peru, Colombia, and Brazil joined Chile in orthodoxy. Stabilization and structural adjustment became the primary preoccupation of government leaders in Asia and Africa as well, even though the commitment to economic orthodoxy varied across countries and over time. The distinction between microeconomic distortions and macroeconomic stability is one that economists have long recognized. Yet it is also one that has made little impression on the development profession. It became commonplace to view the debt crisis as the consequence of import-substitution ("inward-oriented") policies. Most economists have now come to the realization that good economic advice requires an understanding of the political economy of the situation.