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The macroeconomics of populism in Latin America

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Author Info
Dornbusch, Rudiger
Edwards, Sebastian

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Abstract

By populism, this paper refers to an economic approach that emphasizes growth and income redistribution and deemphasizes the risks of inflation and deficit finance, external constraints and the reaction of economic agents to aggressive nonmarket policies. It analyzes two instances of populism - Chile under Allende and Peru under Garcia. These experiences are described in detail, not as a righteous assertion of conservative economics, but as a warning that populist policies ultimately fail, and always at a frightening cost to the groups they were supposed to benefit. This paper explores the question of whether some variant of populist policies could succeed. It suggests that populist policies could succeed if they stayed clear of foreign exchange constraints, emphasized reactivation for a brief initial period, and then shifted to growth policies. Most important, expansionary policies must reflect awareness of capacity constraints and must rely for financing on an extremely orthodox fiscal policy and rigorous tax adminsitration. The paper concludes by warning that IMF-style policies, unconcerned with growth of social progress, may establish financial stability in the short run, but inevitably open the door to yet another round of destructive reaction in the form of populist policies.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 316.

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Date of creation: 31 Dec 1989
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Handle: RePEc:wbk:wbrwps:316

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Related research
Keywords: Environmental Economics&Policies; Economic Theory&Research; Economic Stabilization; National Governance; Banks&Banking Reform;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Dornbusch, Rudiger, 1982. "Stabilization policies in developing countries: What have we learned?," World Development, Elsevier, vol. 10(9), pages 701-708, September. [Downloadable!] (restricted)
  2. Thorp, Rosemary, 1987. "Trends and cycles in the Peruvian economy," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 355-374, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. P. Ruben Mercado, 2001. "Macroeconomic Volatility during Argentina’s Import Substitution Stage," International Review of Applied Economics, Taylor and Francis Journals, vol. 15(2), pages 151-161, April. [Downloadable!] (restricted)
  2. Alan M. Taylor, 1999. "Latin America and Foreign Capital in the Twentieth Century: Economics, Politics, and Institutional Change," NBER Working Papers 7394, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Sebastian Edwards, 1996. "Public Sector Deficits and Macroeconomic Stability in Developing Countries," NBER Working Papers 5407, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Sebastian Edwards, 1991. "Stabilization and Liberalization Policies in Central and Eastern Europe: Lessons From Latin America," NBER Working Papers 3816, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Alberto Alesina & George-Marios Angeletos, 2005. "Corruption, Inequality and Fairness," NBER Working Papers 11399, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Claudio Lucinda & Paulo Arvate, 2007. "Ideological Changes and Tax Structure: Latin American Countries During the Nineties," Textos para discussão 168, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil). [Downloadable!]
  7. Pablo Astorga, Ame R. Berges and Valpy FitzGerald, . "The Standard of Living in Latin America During the Twentieth Century," QEH Working Papers qehwps103, Queen Elizabeth House, University of Oxford. [Downloadable!]
  8. Pablo Astorga & Ame R. Bergés & Valpy Fitzgerald, 2003. "Productivity Growth in Latin America during the Twentieth Century," Oxford University Economic and Social History Series _052, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
  9. Michael Bruno, 1993. "Inflation and Growth in an Integrated Approach," NBER Working Papers 4422, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Pablo Astorga & Ame E. Bergés & Valpy Fitzgerald, 2004. "The Standard of Living in Latin America During the Twentieth Century," Oxford University Economic and Social History Series _054, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
  11. Sebastian Edwards, 1999. "How Effective Are Capital Controls?," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 65-84, Fall. [Downloadable!] (restricted)
    Other versions:
  12. José Antonio Ocampo, 2006. "Market, Social Cohesion, and Democracy," Working Papers 9, United Nations, Department of Economics and Social Affairs. [Downloadable!]
  13. Dani Rodrik, 1989. "Policy Uncertainty and Private Investment in Developing Countries," NBER Working Papers 2999, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Pedro Cezar Dutra Fonseca, 2003. "Legitimidade e Credibilidade: Impasses da Política Econômica do Governo Goulart," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] a09, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  15. Jess Benhabib & Andres Velasco, 1995. "On the economics of fiscal populism in an open economy," Discussion Paper / Institute for Empirical Macroeconomics 97, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  16. John Pencavel, 1996. "The Legal Framework for Collective Bargaining in Developing Economies," Working Papers 97008, Stanford University, Department of Economics. [Downloadable!]
  17. Daniel Mejía & Carlos Esteban Posada, . "Populist Policies in the Transition to Democracy," Borradores de Economia 349, Banco de la Republica de Colombia. [Downloadable!]
    Other versions:
  18. Edward L. Glaeser & Andrei Shleifer, 2002. "The Injustice of Inequality," NBER Working Papers 9150, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  19. Mark Aguiar & Gita Gopinath, 2004. "Defaultable debt, interest rates and the current account," Pacific Basin Working Paper Series 2004-31, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
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