Great Depression in Latin America

Latin America was heavily affected by the Great Depression of the 1930s that spread globally after the stock market crash of 1929 on Wall Street in the US.

The Great Depression period in Latin America saw the change in Government ruling, economic and government policies and the economic performance of nations within the continent. The Great Depression, characterised by the economic decline of the US and Britain economy, saw economic decline of economies within the Latin American region due to the reliance on Britain and the US for investment in their economy and demand for the region's exports.

The rise in fascist governments, was brought upon by a consensus of nationalist desire during the Great Depression of the 1930s, demonstrated in the ruling of the Vargas government in Brazil from 1930 to 1945. This period further sees a shift in economic and government policy within countries of Latin America, such as Argentina, in an effort to adjust their economy to recover from the conditions created by the Great depression. Latin American countries that were economically impacted by the Great depression include Brazil, Cuba, Chile, Mexico, and Peru.

Background

The Great Depression which followed the US stock market crash of 1929 badly affected the countries of Latin America.

Chile, Peru, and Bolivia were, according to a League of Nations report, the countries worst-hit by the Great Depression. The rise of fascism also became apparent in Latin American countries in the 1930s due to the Great Depression. Fascist governments were the result of a desire for nationalism, which rulers like Getúlio Vargas of Brazil played on through propaganda. Haiti, for its part, came out of the Great Depression as an independent country after the US pulled out their troops in 1936.

Brazil was hit hard by the great depression. Between 1929 and 1932, coffee exports fell 50%. Foreign investment in the country was reduced to zero. To keep coffee prices from falling even more, the government in 1931 ordered the dumping of thousands of coffee sacks into the ocean. Entire coffee plantations were set on fire to reduce production and keep prices from hitting rock bottom. Sugar production became so cheap that many sugar mills in Brazil just halted production for years. In other Latin American countries such as Mexico, responses to the Great Depression also led to a strengthening of the industrialization process (begun in the nineteenth century). Brazil needed an economic alternative to the highly devalued coffee, its main commodity at the time. The Vargas government started to purchase and burn coffee from the farmers, in order to avoid their complete bankruptcy.

Peru

Peru's economy, prior to the Great depression, specialized in exports and relied on US loans to fund public finance. As a result, during the economic depression Peru's economy was affected by a decrease in export revenue. Peru's exports decreased in the early onset of the depression, falling by 72% between 1929 and 1932. In dollar value, Peru's exports went from US$132 million in 1929 to US$38 million in 1932. Peru's imports also declined during this period, falling in dollar value from US$76 million in dollar value 1929 to US$16 million in 1932.

The Great Depression also saw a decrease in employment in the sugar sector and mining. Field labor in sugar industry was 20 000 in 1932, falling by 6000 from 1928. In the mining sector blue-collar employment went from 25000 in 1929 to 13000 in 1932, and white-collar employment from 3000 in 1929 to 1000 in 1932. The poor performance of exports and imports shown above, contributed to an unstable balance of payments, demonstrated by the Peruvian government's suspension of the payment of Peru's foreign debt in March 1931. However, the impact of the great depression felt by Peru's terms of trade, lasted less than 10 years, as Peru's export of Cotton, lead and zinc, exported at encouraging prices, lead to the regain of 1929 levels of terms of trade by 1937.

Mexico

Mexico's economy experienced a decline in the early onset of The Great Depression due to their close ties with the US who experienced an economic collapse following the Wall Street crash in 1929.

The early effects of The Great depression on Mexico were directly felt by the mining sector in which the overall export price index fell by 32% from 1929 to 1932. The real value of Mexican exports fell by 75%, output by 21%, and external terms of trade fell by 50% between 1928 and 1932. The value of Mexican exports fell more than Brazil where exports during this period declined by 44%, but less than Chile whose exports fell by 83% from 1928 to 1932. However, one could argue a decline in demand for exports, didn't have an as severe impact on Mexico as other countries whose exports made up a larger percentage of GDP, such as Chile. Exports only made up 12% of Mexico's GDP compared to that of Chile's where exports made up 30% of GDP and Argentina where exports made up 27% of GDP. Mexico's primary exports of commodities that include silver and oil, were less affected than other Latin American exports by the depression as they are not associated with the labour-intensive industry and as such, not affected by fall in foreign earnings culminated by the great depression. Mexico's primary export of silver further benefited from US funding of silver through the US Silver Purchase Act 1934 which lead to a rise in silver export value.

The Great depression also saw a gradual rise towards 1921 Mexican oil production levels in the 1930s, assisted by sustained oil prices and strong demand for oil during great depression. Between 1932 and 1935 oil output expanded from 33 million barrels to 40 million as a result of a new oil-field founded in Poza Rica. During the same period in which Mexican oil and silver exports increased, Mexico's exports overall almost doubled, increasing to a dollar value of US$208 million by 1935. In terms of Mexico's consumer industries, while they initially experienced a decreased demand from the early onset of the depression in 1929–1931, after 1931 a decrease in export earnings globally reduced Mexico imports. In turn this decline in imports encouraged domestic purchase and hence, led to the recovery of Mexico's domestic industry.

Mexico's economic growth after 1931 was driven by import substitution and income produced by the manufacturing industry due to the opportunities of demand for g/s of domestic industries in Mexico as a result of the global decline of export-led growth, afforded by the great depression. Alongside the benefits stipulated by import substitution driven economic growth, the lack of foreign exchange benefited the recovery of Mexico's aggregate supply. However, although imports were half in comparison to prior depression levels, these characteristics of the Mexican economy, adjusted latter to the early onset of the great depression, provided circumstances in which declining growth shifted to a gradual incline by 1935.

Chile

The Chilean economy, based upon the perspective presented by the calculations of the League of Nations, was most severely impacted by the economic collapse characterised by the Great Depression of 1929. Such economic devastation worsened Chile's economic prosperity, highlighted particularly in 1932 that exemplifies a rapid fall in exports, imports, GDP and the value of industrialisation production from pre-depression levels. Chiles exports dropped from US$279m in 1929 to US$35m in 1932, which in real terms corresponds to 1/6 of export level in 1929. In accordance to this time period, Chile's imports fell from US$197m in 1929 to US$26m in 1932. Similarly, real GDP dropped from 100 in 1929 to 67 in 1932, contributed by the fall of the value of production from 100 in 1929 to 77 in 1932 alongside a rapid decrease in the average annual production that reached the equivalent to one quarter of 1929 levels in December 1932.

Chile's economic struggles during the Depression were further compounded by a decrease of foreign loans. This contributed to an increase in Chile's budget deficit and reduced government revenue, resultant of their heavy reliance on Foreign financial support, in particular US support, to drive Economic growth pre-depression. Whilst Chile in 1929 received a total of US$338 million of foreign loans, in 1932 they only received US 23 million. In this same period, Chile's budget deficit rose from 31% of total expenditure in 1931 to 37% in 1932.

During this period of the Great depression, Chile's sluggish economic growth throughout 1929-1932 is further representative of the rising unemployment and decrease in the production of nitrate. A decrease in employment in Chile's mining sector is exemplified from 1929 to 1932, in which the number of workers in 1932 stood at less than one third of 1929 figures of 91000. More specifically, in the nitrate sector alone 50,000 workers were unemployed by 1932. Alongside a decrease in employment in the mining sector, in terms of GDP and productive activity, mining dropped to 26.3 in 1932 from 1929 levels of 100.

High rates of unemployment, caused by a fragile export economy saw an increase in geographical mobility of the working class, exemplified between September 1930 to February in 1931 where 46,459 people left nitrate fields to the main cities of Chile, such as Santiago and other provincial cities. Thus, the working class was primarily subject to the social consequences, such as poverty, created by this rise in unemployment and deterioration of mining exports, in particular nitrate, during the Depression. Working class struggle combined with economic decline lead to the printing of more money by Chile's president Juan Antonio Montero in April 1932. This allowed the government to pay $152 million pesos towards government expenses, public works and public aid for the unemployed.

Cuba

The onset of the Great Depression in Cuba, triggered by the US economic crisis of 1929, compounded political instability, political opposition to Machado's dictatorship, societal unrest, poverty and economic decline.

Cuba's economic decline during the Great depression is demonstrated by the fall in Cuban sugar prices and revenue in which the sugar industry accounted for 80-90% of national agricultural production. During Machado's regime (1925-1933), Cuba's sugar was heavily reliant on US investment and loans. Thus, the US stock market crash and economic crisis of 1929 contributed to a fall in export revenue and employment largely contributed by Cuba's sugar industry. Prior to the onset of the 1929 wall street crash, Cuban sugar prices in 1929 stood at an average of 2.96 cents, however after this, sugar prices dropped to nearly half of 1927 prices, at 1.47 cents per pound of sugar industry.

This fall in Cuban sugar prices not only impacted national revenue but further contributed to an increase in unemployment as sugar Mills began to close down. By 1933 there were only 125 active mills, dropping from 163 mills active in 1929. The decline of Cuban sugar production, prices and export revenue further stipulated low wages and poor conditions as affirmed by the British Embassy in Havana in 1933 that presented the average Cuban sugar worker wage to be 25 cents for each 10-11-hour day of labouring.

In addition to Cuba's sugar industry, Cuba's economy further suffered from a decline in tourism revenue during the Depression in which tourist dollars fell from 26 million in 1928–1929 to below $5 million in 1933–34. These features of the Great depression in Cuba of low wages, increased unemployment, low sugar prices, decreased export revenue, and a fall in tourism revenue, are reflected in the fall of national income from 708 million pesos in 1925 to just 294 million in 1933. Furthermore, alongside this economic decline was political instability and a shift in political power, highlighted in Machado's resignation on 12 August 1933.

References

Further reading

*
*
*
*
*
*
* Keen, B. & Haynes, K. (2004). A History of Latin America (Seventh ed.). ''New York: Houghton Mifflin.''
*
*
* Skidmore, T., Smith, P., & Green, J. (2005). Modern Latin America (6th edition). ''New York: Oxford University Press''.
*
*

Latin America
Latin American history

{{econ-hist-stub