9 - Inward-Looking Development in the Postwar Period

Summary

By the beginning of the 1950s, and even more so by the end of the Korean War, the Latin American republics were faced with a clear choice: to opt explicitly for an inward-looking model of development that would reduce their vulnerability to external shocks or to press ahead with export-led growth on the basis of some combination of export intensification and export diversification.

This choice was not made in a vacuum. Each option favored different groups within society, giving a political twist to most of the economic arguments. At the same time, international and regional institutions pressed hard to influence the outcome. Although the International Monetary Fund (IMF) favored outward-looking policies as a solution to balance-of-payments problems, the Economic Commission for Latin America (CEPAL), under the dynamic leadership of Raúl Prebisch, defended inward-looking policies. With the deterioration in the net barter terms of trade (NBTT) after the Korean War (a key feature in CEPAL's case for inward-looking development), the intellectual pendulum began to swing toward import-substituting industrialization (ISI). Yet many governments were still reluctant to abandon export-led growth altogether, in recognition of the key role still played by the export sector in economic, social, and political terms.