The Hidden Logic of “Irrational” Economic Policies in Ecuador

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Abstract
Mainstream economists blame the poor 1980s economic performance of most Latin American and Caribbean (LAC) countries on the poor economic policies followed by the region for the past several decades and recommend drastic policy changes including (a) elimination of many subsidies, (b) lowering tariffs and other obstacles to international trade, (c) privatization of many state enterprises, (d) liberalization of capital markets and interest rates, and so on — a policy package designed to lower greatly the government's intervention in the economy. This policy advice has been inspired, at least in part, by the generally accepted failure of the LAC governments to promote stable and fair growth through intervention. However, in spite of pressures by multilateral and bilateral agencies, most governments find it very difficult to implement these policies, even when policymakers and their advisers fully understand the logic behind the policy recommendations and agree with them.

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