But if the wrong policies are put in place, and if needed reforms are delayed, it can be a very bumpy ride indeed. At first glance, some countries appear to be losing ground when in fact they are preparing the foundation for major improvements. Venezuela's very high inflation in 1996 was caused by an economic stabilization and reform package that included a sharp devaluation and elimination of domestic price and exchange controls. The IDB report points to Venezuela as a case study of how failing to carefully manage the ripple effects of a major reform can bring about the need for yet another stabilization program. The country's adjustment program, which began in 1989, ended in 1994 with recession, bank crises, and re-imposition of exchange controls.
Chile stands out as a country that has conquered the cycles.
It began its reforms more than 20 years ago, and its growth rate, which last year reached 7 percent, is the highest in Latin America. In 1996, inflation fell, real wages rose 4.5 percent, and the country's savings rate now stands at 30 percent. Today, Chile is much less vulnerable to economic shocks, such as when the price of copper, the country's chief export, fell last year. The economy shrugged off the reversal and continued its pace-setting growth. Bolivia and Uruguay are also at a relatively advanced stage in the reform cycle, and both are growing at rates of 4 percent annually.