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On occasion, during the second half of the 19th century and the early years of the 20th century, the U.S. government itself actively intervened in Latin American affairs. Based on the theory that the United States, as the most powerful nation of the Western Hemisphere, possessed a “manifest right” to regulate the destinies of the turbulent southern republics, U.S. policy during this period aroused considerable antagonism in South and Central America. Various opprobrious epithets, including “dollar diplomacy” and “big-stick policy,” were applied to that phase of U.S. diplomacy. In 1933, after President Franklin D. Roosevelt announced that the United States wished to be a “good neighbor” of the other American countries, the U.S. policy of friendship and cooperation became known as the “good-neighbor policy.” In both world wars most South American nations cooperated fully with the United States. During World War II (1939-1945), military as well as economic cooperation developed.
In 1960 six South American nations and Mexico signed a treaty setting up the Latin American Free Trade Association (LAFTA, later renamed the Latin American Integration Association). The following year President John F. Kennedy introduced a new approach to U.S. economic aid for Latin America. His Alliance for Progress program was aimed at encouraging economic and social reforms in the American republics. In April 1967 member nations of the alliance met in Punta del Este, Uruguay, to measure progress and reaffirm their commitment to the alliance. The most significant item agreed on was the goal of establishing a Latin American Common Market, which would supersede LAFTA.
By the 1970s it was clear that these efforts were being stymied by problems ranging from unanticipated population growth, to increased unemployment, to continued inequitable distribution of income and land. In the early 1980s these problems were complicated for most South American nations by a general, international economic recession. A mounting burden of foreign debt continued to sap the economic vitality of the region for the remainder of the 1980s.
Several internal economic measures characterized South America during the 1980s. The privatization of major nationalized industries proceeded rapidly in Venezuela, Brazil, Chile, and Argentina, resulting in a rise in unemployment. Another key problem was the rapid rise of external debt during the decade. Many countries were forced to spend up to 30 percent of their net income to pay the interest of their foreign debt. Some, such as Peru, refused to pay, or demanded rescheduling of payments. Others, such as Brazil, were able to pay off their debt by “swapping” natural resources. Another problem that resulted from poor economic management and the international recession of the 1980s was the rampant inflation that has plagued several countries. The solution included harsh fiscal austerity measures imposed by international donor agencies such as the World Bank (the International Bank for Reconstruction and Development). Although they eased the inflationary crisis, these measures also generated unemployment and a higher cost of living, resulting in increased numbers of poor people.
The 1990s brought new and more positive trends to the continent. Military, dictatorial regimes were replaced by democratically elected governments, although there remained concern over human rights violations. With external debt crisis behind them, some countries' privatization programs have helped to improve industrial efficiency and other countries have initiated major infrastructural expansions in their underdeveloped interiors.
Improving trade among South American nations remains an important regional issue. The trade group Mercosur was formed in 1991 to increase such economic cooperation. Mercosur consists of four member countries (Argentina, Brazil, Paraguay, and Uruguay) and four associate members (Bolivia, Chile, Peru, and Venezuela). After years of negotiations an even larger trade alliance, the South American Community of Nations, was created in 2004. This organization added Ecuador and Colombia to the eight countries already affiliated with Mercosur.