10 - New Trade Strategies and Debt-Led Growth

Summary

At the beginning of the 1960s it was widely believed that regional integration would restore the dynamism of the inward-looking model of development in the larger republics and provide a platform for industrialization in the smaller countries. Yet by the end of the decade the mood had changed. Regional integration – at least in South America – had not brought the expected gains, and the inward-looking model seemed to be subject to diminishing returns. The prestige of CEPAL, which had nailed its colors to both inward-looking development and regional integration, declined despite the regional organization's best efforts to revise its approach to industrialization, and the Latin American policymaking elite began to pay more attention to alternative ideas on trade and development.

The Achilles’ heel of inward-looking development remained the balance-of-payments constraint. After 1929, persistent balance-of-payments problems had persuaded more and more countries to abandon export-led growth based on primary products in favor of a new model that was expected to lower their vulnerability to external shocks. Yet balance-of-payments problems continued under inward-looking development as the policies adopted to favor industry undermined the export sector and shifted the composition of imports in the direction of complementary goods – the demand for which expanded rapidly in line with industrial growth.