The effects of the Asian crisis in South America: Chile, Argentina and Brazil

Several Latin American countries managed to introduce comprehensive structural adjustment programs after the debt crisis of the 1980s, which resulted in macroeconomic stability and relatively high growth rates during most of the 1990s. In recent years, these achievements have been challenged by the Asian crisis. However, there are significant differences in how tie crisis has affected individual Latin American countries. The purpose of this article is to describe the effects of the Asian crisis in Chile, Argentina, and Brazil against th backdrop of the various national reform programs of the past decade. The Chilean structural adjustment program was the most successful, and the country has the largest freedom to choose adjustment policies today. The challenge is to find the right combination of policies to maintain growth without generating inflation and macroeconomic instability. Argentina's scope for adjustment policy is limited by the country's currency board and the convertibility between the peso and the US dollar. The main problem is the risk for widespread unemployment in a situation where exchange rate adjustments cannot be used as a policy instrument. The Brazilian adjustment programs of the past years were not as strict as those in the neighboring countries, and the persistent public budget deficit constitutes a major problem. in the short run, there is a need for tight monetary policy, and it may therefore be difficult to combine price stability with reasonable growth rates.