privatization in latin America: the other side of the story

In line with the current global trends, most Latin American countries have adopted promarket reforms, including privatization, deregulation, and liberalization, under the auspices of various market-friendly regimes and international financial agencies. They carried out privatization exercises based on the rationales that privatization would enhance competitiveness and efficiency, overcome economic stagnation and fiscal crisis, eradicate poverty and unemployment, reduce external debt, and increase foreign investment. In opposition to these rationales, however, the actual socioeconomic conditions in most Latin American countries have hardly improved, and in many cases, the situation has worsened. This article attempts to offer a more critical account of the outcomes of privatization by evaluating the trends of economic realities in Latin American countries before and after privatization programs were adopted. It is found that except for a few cases, most Latin American economies have not performed well during the privatization period in terms of various economic criteria. The article then explores why privatization remains a favorite policy option in Latin America despite its dismal outcomes during the policy period.     

Monetary mismanagement and inadvertent democratization in technocratic Mexico

Conclusion The interplay between political and economic reform in Mexico has atken a path not fully predicted by neomodernization theorists or their critics. The Mexican events during these last few years demostrate that economic growth and market reform are not necessarily correlated neatly with the advance of democratic practices, During the Salinas and Zadillo administartions, political opening was not the “ultimate consequence of economic opening” as two analysts of Mexican economics and politics argued several years ago.⁵⁶ It was not the case that an expansion of individual initiative and greater economic choice accompanying market opening led to the accelaration of democratic reforms in Mexico. Rather, limited democratic reforms were offered as the price of public asquiescence to the economic pain associated with Mexico’s recent cycle of economic crisis and reform. The gradual expansion of democracy in Mexico was not the consequence of market reforms but instead was the mechanism enabled the implementation of these reforms. Earlier versions of this paper were presented at Southern Methodist University conference on the Economic and Political Challenges of Market Reform in Latin America, Dallas, TX, October 1997 and the XXI International Congress of the Latin American Studies Association, Chicago, IL, 24–26 September 1998. The author would like to thank the participants of the SMU conference and Philip Oxhom for their comments.     

Mexico and Argentina: Economic reform and technocratic decision making

This article examines the Mexican and Argentine cases of market reform and argues that despite important differences in regime type and in recent economic and political trajectories, the decision-making process in the two countries came to display important common features. In both cases, economic crises and debt negotiations played key roles in propelling technocratic reformers into positions of policy predominance; both exhibited exclusionary technocratic decision-making styles in which small technocratic elites insulated themselves from both extra and intra state pressures. While policy isolation was no doubt necessary for the successful implementation of market reforms, this style may be counter-productive to political stability over the long term. Judith Teichman is Professor of Political Science at the University of Toronto. Her articles have appeared in such journals asLatin American Research Review, Latin American Perspectives, Mexican Studies/Estudios Mexicanos, andThe Canadian Journal of Political Science and in edited volumes. She is the author ofPolicymaking in Mexico: From Boom to Crisis andPrivatization and Political Change in Mexico and is currently carrying out a comparative study of the structural adjustment policy process in Mexico, Argentina, and Chile.     

Liberalization and ethnic conflict in Latin America

Most contemporary analysts explain ethnic identity as a socially rooted phenomenon which can be catalyzed by changes in both economic and political conditions. Taking the 1982 debt crisis as a main triggering event, this article analyzes the relationship between economic adjustment and increasing levels of indigenous mobilization in Latin America. Through a comparison of the Bolivian, Peruvian, and Mexican cases,the analysis reveals wide variation in the types and levels of ethnic conflict in the region. Explanations for these differences center on the timing and content of economic adjustment policies, and on the institutional opportunities available for expressing and channeling economic and political demands. The article concludes that political and economic liberalization are likely to clash when shrinking the state also removes channels for popular participation; moreover, when those that bear most of the adjustment burden are also challengers to national identity, states ignore this challenge at their peril. Alison Brysk is assistant professor of politics at the University of California at Irvine. Her book,The Politics of Human Rights in Argentina, was published by Stanford University Press. Various aspects of her current research on Latin American indigenous rights movements have appeared inComparative Political Studies, Latin American Perspectives, andPolity. Carol Wise is assistant professor of political science at Johns Hopkins University's School of Advanced International Studies. She has published articles on Latin American political economy inInternational Organization, Latin American Research Review, and theJournal of Latin American Studies; she is the editor of a forthcoming collection entitledThe Post-NAFTA Political Economy: Mexico and the Western Hemisphere.     

The lessons of privatization

Privatization policies have swept the world and helped restructure economic activity. Although there are clear benefits to privatization initiatives, many attempts have been rejected. Unfortunately, most policy research has ignored this fact. Research on privatization has mostly focused on programs that have been accepted, and not those that have been rejected. This study, however, breaks new ground by examining the microeconomic, macroeconomic, and political factors that shaped both types of privatization outcomes. This work, based on the book, The Logic of Privatization: The Case of Telecommunications in the Southern Cone of Latin America, suggests that the implementation of privatization policies hinges on the ability and capacity of the political leadership to control the bargaining process during the divestiture of state-owned companies. Failure to control the process may expand the conflict beyond the scope of the original participants and result in its rejection. This study statistically examines the economic and political data of sixteen attempts to privatize telephone companies around the world between 1981 and 1993. The findings suggested that microeconomic factors were not very significant in determining the privatization outcomes: however, macroeconomic factors were found to be slightly more important. The political factors, nonetheless, proved to be the most important variables in explaining the different outcomes. These findings were supported by the statistical results.     

Privatization of state-owned enterprises in mexico

The privatization of state-owned enterprises in Mexico, signifies a reversal of its long tradition of state-led economic development. Motivated by the financial crisis of the early 80's, Mexico has reduced the size and significance of its public sector through the process of privatization. The paper outlines the progress of the program since 1982 and discusses the impact of privatization and the lessons learned from the case studies of Mexicana Airlines, Aeromexico and Telmex. The concluding section evaluates the accomplishments and discusses the limitations of the Mexican privatization strategies.     

An analysis of mergers and acquisitions in Mexico: 1985-1996

The recent devaluation of the Mexican peso and the resulting “Mexican syndrome” has opened up a world of opportunities for foreign investors. Mexico with all of its economic problems is still seen by many investors as a sound economy with the necessary ingredients to stage a strong comeback. Economic crises often lead to an escalation of corporate restructuring such as mergers, acquisitions and joint-ventures, both, domestic as well as cross-border. This paper examines the M&A trends in Mexico over the period 1985-1996.

The results indicate that cross-border M&A deals have increased during the nineties, with Europe being a major participant since 1995. As far as the industrial sectors are concerned, the study shows that very few M&A deals have been completed in the construction, transportation, and petroleum industries. The managers of multinational firms should take note of this and public administrators should attempt to attract foreign capital towards these sectors. A sound distribution infrastructure is very essential in order to attract much needed foreign capital to the country.

The study also finds that relatively few cross-border M&As have been completed with state-owned enterprises. With the aggressive reforms of the Zedillo government and the privatization of the transportation, electricity, and petroleum sectors, there is bound to be an increase in competition and opportunities for investments in these sectors.

Finally, managers of multinational corporations who are targeting Mexico, should be fully aware of the differences in culture and ownership status of target firms. This study shows that a large number of the deals have been done with privately-owned firms, and would therefore need good negotiation skills.     

Recent narcotics and mafia research

Abstract

Research into narcotics‐related issues is underway all over the world. No country can afford to ignore the social and economic consequences of drug production, distribution, consumption, or the laundering of the profits thereof. The article examines recent and ongoing research in Latin America, the United States, the United Kingdom, and within the context of the European Community. Latin American studies relate drug production to wider problems of economic development, whereas typical “consumer country” studies are more concerned with criminological aspects and demand reduction policies. The drugs/crime link is seen to be closely bound up with the illegal context of the drugs market, thus the option for legalization is considered. The economic growth of the Italian mafia is explained. The author describes recent international agreements on money laundering and precursor chemicals, and concludes by stressing the value of international cooperation on all aspects of narcotics research.     

Automotive global value chains in Mexico: a mirage of development?

ABSTRACT

International monetary organisations argue the ‘developing countries’ should foster linkages to the world economy as a means to overcome backwardness. In this article we refute the narrative that Mexico has experienced industrial upgrading. Rather, industrial growth in Mexico over the last 40 years has been shaped by neoliberal economic policies which have turned the Mexican economy into an export-led manufacturing platform designed to supply the North American market, sustained by a precarious labour market. As a result, Mexico occupies the most labour-intensive and low value-added segments of regional production chains. To make this argument, we perform an in-depth analysis of the Mexican automotive industry, demonstrating that instead of being an engine for domestic industrial development, the auto industry has become a dominant economic sector through productive hyper-specialisation concentrated in the northern Mexican border states, a reliance on transnational capital, particularly from the United States, a disconnect with domestic markets, and the super-exploitation of labour.     

Social inequalities without class cleavages in Latin America’s neoliberal era

Social inequalities have deepened in Latin America over the past several decades, yet an erosion of class cleavages has occurred in the political arena. During the era of import-substitution industrialization (ISI), “stratified” cleavage structures based on class distinctions emerged in a subset of Latin American countries where party systems were reconfigured by the rise of a mass-based, labor-mobilizing party. These nations typically experienced more severe economic crises during the transition from ISI to neoliberalism than nations that retained elitist party systems with “segmented,” cross-class cleavage structures. They also experienced greater political upheaval, as neoliberal critical junctures produced an erosion of stratified cleavages along their structural, organizational, and cultural dimensions in the labor-mobilizing cases, while leaving the segmented cleavages of elitist systems relatively unscathed. The Latin American experience differs from that of Europe, where strong labor movements and labor-backed parties were associated with superior economic performance during periods of economic adjustment. It also challenges Duverger's notion of an organizational “contagion from the Left,” as the dramatic weakening of labor movements and the shift away from mass-based party organizations have caused party systems to converge on elitist organizational models during the neoliberal era.     

A diplomatic failure: the Mexican role in the demise of the 1940 Reglamento Federal de Toxicomanías

Abstract

In 1940 Mexico implemented a new revolutionary strategy in its fight against drug trafficking and addiction with a policy that legalized the sale of morphine to opiate addicts. While this approach to drug addiction was not entirely new or unique, it was strongly opposed by the United States, which responded by declaring an embargo on narcotic shipments to Mexico. As a result, Mexico was forced to abandon the plan just a few months after it was implemented. Often seen as a moment when Mexico might have gone in a different, less prohibitionist drug-policy direction, this episode has been overwhelmingly interpreted as an early and striking example of U.S. drug-control imperialism in Latin America. While such interpretations are not incorrect, they have missed an equally critical element of the story—a series of catastrophic diplomatic failures on the Mexican side which undermined various opportunities Mexico had to salvage the policy in some form. The episode thus stands in contrast to more well-known diplomatic challenges during the period in which Mexico’s diplomats have been lauded for outmaneuvering their U.S. and European counterparts.     

Prediction and management of currency crises in latin America

In recent decades, currency crises in Latin America have often marked the beginning of prolonged periods of inflation, economic recession, and depressed foreign investment. Attempts to anticipate such financial breakdowns have met with relatively little success. As the survey of existing models indicates, there seems to be little hope for the development of a forecasting framework able to predict exchange rate movements with a sufficient degree of accuracy and anticipation that would allow policy makers to mount a timely intervention in currency markets. The analysis of past currency crises, however, shows some common elements which might help formulate benchmarks that could be used as predictive parameters in the future. This paper provides a survey of the models and tools currently used to predict exchange rate movements. It analyzes the origin and evolution of the 1994 Mexican Peso crisis, its contagion effects on other Latin American economies, and the measures taken by the affected countries to manage the crisis. We summarize some of the market solutions, economic policy measures and institutional arrangements adopted in the wake of the December 1994 events as well as some of the lessons that seem to have transpired from this experience.     

Why do presidents fail? Political leadership and the Argentine crisis (1999–2001)

This article explores why Argentine president Fernando de la Rúa (1999–2001) failed to govern and the factors that prevented him from compelting his constitutional mandate. This study draw on current literature about leadership. We argue that President De la Rúa’s ineffective performance was characteristic of an inflexible tendency towards unilateralism, isolationism, and an inability to compromise and persuade. Moreover, we examine how de la Rúas performance, in the context of severe political and economic constraints, discouraged cooperative practices among political actors, led to decision-making paralysis, and ultimately to a crisis of governance This work seeks to make four contributions. First, it conceptualizes political leadership by providing an analytical framework that integrates individual action, institutional resources and constraints, and policy context, thus filling a gap in the literature. Second, it explains the importance of effective leadership in building up and maintaining multiparty coalitions in presidential systems. Third, it complements existing institutional approaches to improve our understanding of a new type of instability in Latin America: the failure of more than a dozen of presidents to complete their constitutional mandates. Fourth, it analyzes the way political and economic variables interact in times of crisis. Mariana Llanos is a researcher at the Institut für Iberoamerika-Kunde (IIK) in Hamburg, Germany, and teaches Latin American politics at the University of Hamburg. Her research focuses on Latin American political institutions particularly to the president-congress relations and the legislatures of the Southern Cone. She is the author ofPrivatization and Democracy in Argentina (Palgrave, 2002), co-author ofBicameralismo, Senados y senadores en el Cono Sur latinoamericano (ICPS, Barcelona, 2005, together with Francisco Sánchez and Detlef Nolte) and co-editor ofControle Parlamentar na Alemanha, na Argentina e no Brasil (KAS, Rio de Janeiro, 2005, with Ana María Mustapic), among other works. Ana Margheritis is assistant professor of international relations and Latin American politics at University of Florida. Her research interests are in international political economy, foreign policy, regional cooperation, and inter-American relations. She is the editor ofLatin American Democracies in the New Global Economy (2003); author ofAjuste y Reforma en Argentina, 1989–1995 (1999); and co-author ofHistoria de las relaciones exteriores de la República Argentina (with Carlos Escudé et al., 1998) andMalvinas: Los motivos económicos de un conflicto (with Laura Tedesco, 1991), as well as of several articles in academic journals and book chapters. The authors are grateful to Vicente Palermo and three anonymous reviewers for their helpful comments.     

From current-day Russia to Porfirio’s Mexico

Good economic institutions promote prosperity. Yet bad institutions can persist because they induce patterns of distribution that benefit certain groups, which accordingly have a vested interest in the status quo. InWithout a Map: Political Tactics and Economic Reform in Russia, Andrei Shleifer and Daniel Treisman show how politicians in Russia used a specific kind of deal, a mixture of expropriation and co-optation, to destroy these vested interests in the transition to a market economy. In this essay I show that there are close analogies between institutional change in contemporary Russia, and that which occurred in nineteenth-century Latin America, particularly in Mexico during thePorfiriato. After developing the analogy I draw some conclusions from the Mexican experience for the long-run implications of Shleifer-Treisman deals. The good news is that sustained economic growth is possible with the institutions that Russia seems to have developed. The bad news is that these may lead to extreme social conflict and ultimately revolution. I argue that there are two mitigating factors in Russia that provide grounds for optimism that revolution may be avoided. First, Russia is a democracy; second, the role of foreign investment is limited. Recent publications include the co-authored articles “Reversal of Fourtune: Geography and Institutions in the Making of the Modern World Income Distribution”,Quarterly Journal of Economics 118; “A Theory of Political Transitions”, American Economic Review 91; and “Inefficient Redistribution”,American Political Science Review 95.     

The Presidentialist Tradition in Latin America

Abstract

The diffusion of presidentialism to Latin America has led to its distortion. The North American constitutional pattern, termed presidentialism under separation of powers and its most distinguishing feature, presidential leadership, while modeled in Latin America, has rarely led to democratic–constitutional government a la the United States. The institution of the presidency in Latin America is also typical for nondemocratic regimes in the region. One of the most widely accepted and widely professed facts in Latin American politics is the dominant role of the president but, curiously, most discussions of presidentialism are limited to the US and comparisons with Great Britain. Few studies of Latin American chief executives lend shape to the corpus of scholarly literature, despite the region's long experience and ejecutivismo. The gap, and this article, should be taken as a stimulus for more systematic explication, analysis, and research.     

Financial investment via ADRs in Mexico and South America

American depository receipts (ADRs) are dollar-denominated, negotiable instruments issued by a depository bank to represent ownership of a foreign security in the bank's possession. They are the primary method employed by Latin American corporations to raise equity capital in the United States. One flequently overlooked aspect about ADRs is that their investment performance provides a gauge not only on management's performance but also a measure of the foreign government's ability to provide a political, legal, economic and social climate that is conducive to international investment. This paper investigates the returns and risks associated with foreign investment in Mexico and South America. First, we show that the weekly returns to Latin American stocks are weakly correlated with the U.S. stock market which suggests that they can reduce the risk of a portfolio that is fully diversified within the U.S. market. Second, we find that ADRs from this region are more risky than U.S. common stocks. However, we find little evidence that foreign exchange rate risk should be a major factor in the investment decision. Third, we examine the effects of the devaluation of the Mexican peso and show that political factors can significantly increase the risk and reduce the return to foreign investment. Finally, the results show that investors do not pay a significantly larger relative transaction cost premium for investing in Mexican and South American equity vis-à-vis U.S. common stock. We conclude that ADRs provide the ability for the U.S. investor to realize potentially superior gains from companies located in these emerging economies. However, the willingness by the U.S. investor to disinvest means that politicians and managers have a powerful incentive to continue reforms that lead to improved standards of living for their citizens and employees.     

Cultural aspects in the integration of the Americas

This paper discusses cultural issues that may contribute to the success or failure of trade agreements in the Americas. We use the case of Mexico and the USA to illustrate the point, though the cultural issues are also an important factor in agreements between Latin American nations. The main contention of the paper is that the more there is a push for economic and financial integration the more there is a risk of cultural fragmentation unless the cultural misunderstandings between nations are worked out properly. Managing cultural integration successfully requires a process of “intercultural learning”.     

Current challenges of the mexican state and of mexican public administration

This article deals with the problems that the Mexican government will need to face in order to go on with the reform of the state. The cycle of such a reform (privatization, liberalization and democratization) is already closing down. While ending this process, however, Mexico also started to see an increasing number of demands calling for administrative reform and, above all, the federalization of government and public administration. This is what the author calls the strategic agenda of the Mexican government.

In order to implement the administrative reform, the author favors enhancing the accountability of the Mexican government, by increasing public participation in the policy and decision making processes. With regard to the federalization of government and public administration, Aguilar proposes the implementation of policy tools never used in Mexico, such as fiscal federalism (categorical and block grants, for instance), together with new constitutional, political and administrative arrangements.     

Privatization in developing countries: ideal and reality

In both developed and developing countries, governments finance, produce, and distribute various goods and services. In recent years, the range of goods provided by government has extended widely, covering many goods which do not meet the purist's definition of “public” goods. As the size of the public sector has increased steadily there has been a growing concern about the effectiveness of the public sector's performance as producer. Critics of this rapid growth argue that the public provision of certain goods is inefficient and have proposed that the private sector replace many current public sector activities, that is, that services be privatized. Since Ronald Reagan took office greater privatization efforts have been pursued in the United States. Paralleling this trend has been a strong endorsement by international and bilateral donor agencies for heavier reliance on the private sector in developing countries.

However, the political, institutional, and economic environments of developing nations are markedly different from those of developed countries. It is not clear that the theories and empirical evidence purported to justify privatization in developed countries are applicable to developing countries.

In this paper we present a study of privatization using the case of Honduras. We examine the policy shift from “direct administration” to “contracting out” for three construction activities: urban upgrading for housing projects, rural primary schools, and rural roads. The purpose of our study is threefold. First, we test key hypotheses pertaining to the effectiveness of privatization, focusing on three aspects: cost, time, and quality. Second, we identify major factors which affect the performance of this privatization approach. Third, we document the impact of privatization as it influences the political and institutional settings of Honduras. Our main finding is that contracting out in Honduras has not led to the common expectations of its proponents because of institutional barriers and limited competitiveness in the market. These findings suggest that privatization can not produce goods and services efficiently without substantial reform in the market and regulatory procedures. Policy makers also need to consider carefully multiple objectives at the national level in making decisions about privatization.