In the 1980s and 1990s, nations throughout Latin America experienced the dual transformations of market liberalizing reforms and democratization. Since then, perhaps no issue has been more controversial among those who study the region than the exact nature of the relationship between these two processes. Bringing a much-needed comparative perspective to the discussion, Judith Teichman examines the politics of market reform in Chile, Argentina, and Mexico, analyzing its implications for democratic practices in each case.Teichman considers both internal and external influences on the process of Latin American market reform, anchoring her investigation in the historical, political, and cultural contexts unique to each country, while also highlighting the important role played by such international actors as the World Bank and the International Monetary Fund (IMF). Informed by interviews with more than one hundred senior officials involved in the reform process, her analysis reveals that while the initial stage of market reform is associated with authoritarian political practices, later phases witness a rise in the importance of electoral democracy. She concludes, however, that the legacy of authoritarian decision making represents a significant obstacle to substantive democratization.
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About the Author
Judith A. Teichman is professor of political science at the University of Toronto. She is author of Policymaking in Mexico: From Boom to Crisis and Privatization and Political Change in Mexico.
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Politics and Market Reform in Latin America
Globalization, Ideas, and Policy Change
The energy crisis of 1973-74 initiated important changes in the world economic order: an increase in trade competition, the decline in U.S. economic dominance, and the struggle by multinationals to lower costs through reorganizing production. These changes, involving the elimination of economic borders and an increase in international exchange, are at the core of what has become known as globalization. The energy crisis and its attendant economic difficulties also triggered a reassessment of the role of the state in the economy. Ideas that had germinated in the academic community for years now began to reach policy makers. With the elections of Ronald Reagan in the United States and Margaret Thatcher in Great Britain policies geared to bring about a greater reliance on market forces (trade liberalization, privatization, and deregulation) gained increasing recognition worldwide. Indeed, policy prescriptions calling for a greater reliance on market forces and the withdrawal of the state came to represent a new "international policy culture" (Ikenberry 1990, 103-4; Kahler 1992, 124).
Latin America, with the notable exception of Chile, proved stubbornly resistant to this new international policy culture, however. Indeed, the opportunities for foreign borrowing made possible by the increase in price and demand for petroleum probably prolonged the resistance to change in many countries of the region. With the 1973-74 energy crisis, OPEC (Organization of Petroleum Exporting Countries) petrodollars channeled through the commercial banks aggressively sought borrowers in Latin American. Confronted with a variety of needs, both real and perceived (high oil bills, pressures for state spending, industrial needs for inputs, public demand for consumer goods), the largest Latin American states embarked on a binge of borrowing that culminated in the 1981-82 international debt crisis. That crisis forced highly indebted countries into negotiations with the International Monetary Fund (IMF) and produced agreements putting in place stabilization programs, which involved a variety of short-term austerity measures (devaluation, reduction in government spending, restriction of wage and salary increases) seen as necessary to rectify trade imbalances, reduce inflation, and initiate economic recovery to ensure the repayment of debt. When, by the mid-1980s, recovery eluded highly indebted countries, attention turned to the institution of longer-term market reform measures (structural adjustment) such as trade liberalization and privatization, while austere stabilization programs continued to be negotiated and implemented simultaneously. Latin American policy reform, therefore, has been marked by the important contextual feature of economic crisis and, oftentimes, harshly austere government policies.
While the multilateral lending institutions encouraged policy reform, the debt crisis also provided an opportunity for domestic critics of statism, whose voices had been subdued during the binge years of proliferative borrowing, to press for policy change. By the second half of the 1980s, the persistence of economic difficulties in the region gave growing legitimacy to the viewpoints of market reformers and propelled the new policy ideas rapidly forward among high-level state bureaucrats and politicians. At the same time, debt negotiations offered an important forum for the transfer of market reform ideas because these reforms were part of structural adjustment (market reform) packages negotiated with the International Monetary Fund and the World Bank. Country after country carried out trade liberalization, the privatization of public companies, and deregulation. By the mid- to late 1990s, countries began to undertake what has become known as "second stage reform" (Pastor and Wise 1999; Naim 1994; Torres 1997), a phase whose features, although far from uniform, include the privatization of companies remaining in state hands, regulatory reforms, changes in labor legislation, measures to combat poverty, and improvements in governance.
This book is the story of the market reform process in three Latin American countries: Chile, Argentina, and Mexico. It is a story that involves a consideration of the impact of sweeping historical forces and the acumen of individual actors; it accords an important role to both domestic and international forces. Indeed, domestic and international factors have become intertwined in new and intriguing ways in the era of globalization. By the mid-1990s, all three countries had carried out extensive market reforms under distinct regime types. Chile was the region's earliest and for many years most radical market reform case, carrying out the socially costly aspects of its reform process under highly repressive military rule (1973-89). Under the elected Concertaci¢n government (1990-present), an alliance of Christian Democrats and socialists, Chile not only maintained the reforms carried out by the military regime but moved into the privatization of sacrosanct public companies while struggling to alleviate poverty and inequality. Chile is the region's clearest case of domestically driven reform, having begun the process a decade before the full impact of the debt crisis and the new international policy environment were felt in the region. Although taking some initial steps during the 1976-82 period of military rule, Argentina implemented extensive market reform at the federal level under the elected Peronist government of Carlos Menem, in power between 1989 and 1999. Carried out in the wake of the traumatic hyperinflationary episode of the late 1980s, Argentina's reforms, which included the privatization of important public companies in such areas as petroleum and railways, were completed in a very brief time period. Post-1994 reform efforts focused on labor flexibilization and privatization at the provincial level. Mexico's market reform program, led by a liberalizing authoritarian one-party-dominant regime, began slowly in 1983 and accelerated as the economic crisis renewed in 1985-86. The political fallout of the 1994-95 peso crisis, including the loss of control of Congress, stalled a number of proposed market reforms and brought increased attention to corruption and poverty issues.
Table of ContentsPreface
Acronyms and Abbreviations
1. Politics and Market Reform in Latin America
2. Setting the Stage: Historical Legacies
3. The International Context: Policy-Based Lending, Policy Dialogue, and International Policy Networks
4. Market Reform in Chile: From Military Rule to Concertaci¢n
5. Market Reform and Political Transition in Argentina: From Military Rule to Menemismo
6. Mexico: Market Reform in an Authoritarian Liberalizing Regime
7. Managing the Politics of Market Reform
8. Freeing Markets and Facing the Challenges of Second-Stage Reform
Appendix 1. Breakdown of Interviews
Appendix 2. Economic Indicators
Appendix 3. World Bank Officials Working on Chile, Argentina, and Mexico, 1985-1995
What People are Saying About This
An excellent book for teaching purposes, with a good balance between background, historical review, and analytical discussion. Overall, this is a valuable contribution to the study of economic reform in Latin America.American Political Science Review
A welcome contribution to understanding the political dimension of market reforms that have been made throughout the region of Latin America in the past three decades.Political Studies
This superbly crafted book offers a fascinating and accessible account of the politics of market reforms in Latin America. Using extensive interviews and careful comparative analysis, it reveals the policy networks through which international financial institutions influence reformsand the dire implications for democracy when discretionary presidential powers are abused.Maxwell A. Cameron, University of British Columbia
A very interesting and insightful account of the involvement of multilateral lenders. . . . The book also offers a much needed comparison of three very different processes of liberalizing markets.International Affairs
Judith Teichman has once again applied her deep insights into Latin American political economy to understand a crucial problem: how governments can take the next, very difficult steps to consolidate the liberalization reforms that have stalled in many countries of the region. Her use of the comparative case method allows the reader to appreciate both the commonality of Latin America's economic and political predicaments and the variety of specific countries' experiences. This book is a beautiful synthesis of politics and economics, without letting either dominate the other.William Ascher, Claremont McKenna College
Clearly written. . . . Teichman's conclusions are especially pertinent now.Foreign Affairs