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The Danger of Populism

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The Danger of Populism Prolegómenos - Derechos y Valores THE DANGER OF POPULISM. monetary and credit expansive policies and MACROECONOMIC POPULISM overvaluation of the currency to accelerate IN LATIN AMERICA, IS COLOMBIA growth and redistribute income. When applied THE EXCEPTION?* there are concerns about fiscal and exchange restrictions. Rosalvina Otálora Cortés** The result is an uncontrollable inflation and an economic crisis, which may explain the instabi- Fecha de Recepción: 11 de Octubre de 2010 lity and hyperinflation that Latin America has Fecha de Aceptación: 30 de noviembre de 2010 experienced. Colombia, curiously, throughout its history, is an exception to this rule, due to the Artículo Resultado de Proyecto de independence of the institutions that manage Investigación. monetary policy and the barriers that implies for the executive. Abstract In recent decades, populism has regained Key words prominence in Latin America. It is expressed Populism, populist macroeconomic, fiscal in forms of government from left or right as it policy, monetary policy, economic policy, happens in Venezuela with Hugo Chávez and hyperinflation, classic hyperinflation, inflation, Alvaro Uribe in Colombia, as well as in mobili- macroeconomic populism phases, stability, zation of some sectors of the population. Latin America, Argentina, Chile, Peru, Vene- zuela, Colombia. This ambiguous concept takes on different meanings. From the economic point of view, macroeconomic populism emphasizes growth EL PELIGRO DEL POPULISMO. through redistributive policies in the short POPULISMO MACROECONÓMICO term to increase consumption, neglecting EN AMÉRICA LATINA ¿COLOMBIA macroeconomic balance, especially with regard ES LA EXCEPCIÓN? to inflation and fiscal deficit. Resumen This paper argues that macroeconomic popu- lism is not new and has been applied in Latin En las últimas décadas, el populismo ha recu- America repeatedly. With some differences perado prominencia en América Latina. Se and at different times of economic history, the expresa en formas de gobierno de izquierda o governments of Argentina, Chile, Peru and derecha como sucede en Venezuela con Hugo Venezuela, have resorted to the use of fiscal, Chávez y Álvaro Uribe en Colombia, así como en la movilización de algunos sectores de la población. * This topic has been reflected on line Economy and Conflict and in the Social Protection and Conflict Este concepto ambiguo toma sobre diferentes researching Group in Universidad Libre. The author is grateful for the contributions realized by Claudia significados. Desde el punto de vista econó- Yineth Hernández Bocanegra, student of the mico, el populismo macroeconómico destaca Universidad Santo Tomás. el crecimiento mediante políticas de redistribu- ** The author is Magíster in Political Studies of the ción a corto plazo para aumentar el consumo, Universidad Nacional of Colombia. She is Economist and Lawyer. Actually, she is the Director of Economy descuidando equilibrio macroeconómico, espe- and Conflict and Researcher of the Universidad Libre. cialmente con respecto a la inflación y déficit [email protected] fiscal. Bogotá, D.C. Colombia - Volumen XIII - No. 26 - Julio - Diciembre 2010 - ISSN 0121-182X 99 THE DANGER OF POPULISM Prolegómenos - Derechos y Valores Este artículo sostiene que el populismo When we talk about populism we are faced with macroeconómico no es nuevo y se ha aplicado a very “ambiguous concept” which can be wide en América Latina en varias ocasiones. Con and inclusive2. It depends on what we want to algunas diferencias y en distintos momentos de emphasize. Then, from the point of view of the la historia económica, los gobiernos de Argen- economy of a country- which is the subject of tina, Chile, Perú y Venezuela, han recurrido a this article- populism males emphasis on the la utilización de políticas fiscales, monetarias y growth by short term public policies of redis- crediticias expansivas y la sobrevaloración de la tribution in order to growth the consumption. moneda para acelerar el crecimiento y redistri- These impact the macroeconomics equilibrium, buir el ingreso. especially inflation and fiscal deficit. In this case we talk about macroeconomic populism3. El resultado es una incontrolable inflación y una crisis económica, que pueden explicar la There are some cases where the classic popu- inestabilidad y la hiperinflación que América lism regime can apply economic decisions Latina ha experimentado. Colombia, curiosa- which benefit some people. There is a kind of mente, en toda su historia, es una excepción a “distributive microeconomic” which can be esta regla, debido a la independencia de las ins- compatible with a “stable macroeconomic”. tituciones que conducen la política monetaria y It could be the case of Menem in Argentina las barreras que implica para el ejecutivo. or Fujimori in Perú4. But macroeconomic populism is not a new situation; it has been Palabras clave applied in Latin America in different periods5. Populismo, populismo macroeconómico, Macroeconomic populism uses fiscal, mone- política fiscal, política monetaria, política eco- tary and credit expansive policies and strong nómica, hiperinflación, hiperinflación clásica, valuation of the currency in order to accelerate inflación, fases del populismo macroeconó- the growth of the economic and redistribute the mico, estabilidad, América Latina, Argentina, income. These policies applied without fiscal Chile, Perú, Venezuela, Colombia. and monetary restrictions and the result is high inflation and economic crises as has occurred INTRODUCTION in the next cases we are going to analyze in this article (Argentina, Chile and Peru). These During the last decade populism has once again cases prove that the populism is the cause of come to the center of the political scene in Latin America. It is expressed in two different ways. The first, is the traditional style expressed Movements and New Conflicts in Latin America by the government, as in Venezuela with presi- and the Caribbean. Regional Scholarship Program dent Hugo Chávez. The second way has origin CLACSO. 2004. Available at: http://bibliotecavirtual. in mobilization of the population where might clacso.org.ar/ar/libros/becas/2002/mov/pinto.pdf 2 be a “latent populism” which could become Ibídem. 3 evident when this population reach power. Two DOORNBUSH, Rudiger. The Macroeconomics of Populism. Fondo de Cultura Económica. Mexico City. examples of this type of populism are the cases 1997. of “Piqueteros” in Argentina and “Cocaleros” 4 DEGREGORI, Carlos Iván. The Decade of Anti- in Bolivia1. politics: the Rise and Flight of Alberto Fujimori and Vladimiro Montesinos / Carlos Ivan Degregori. Instituto de Estudios Peruanos. Lima. 2001. 1 PINTO OCAMPO, Maria Teresa. Between 5 EDWARDS, S. (Ed.). Populism and Markets: The Repression and Conciliation: the Growers in Chapare Dilemma of Latin America. Grupo Editorial Norma. and Putumayo. Final Report of the Contest: Social Bogotá. 2009. p. 33 y ss). 100 Bogotá, D.C. Colombia - Volumen XIII - No. 26 - Julio - Diciembre 2010 - ISSN 0121-182X Rosalvina Otálora CortÉS Prolegómenos - Derechos y Valores the hyperinflation rule and it can be seen as a However, there was a divergence between poli- cause of the hyperinflation and the macroeco- tical discourse, the position on globalization nomic instability in Latin America6. Colombia, and the interpretation of democratic reforms curiously some years ago was the exception to and the role of institutions11. The only coin- this rule. cidence is the emphasis on social policy and the pursuit of a focused economic model, not 1. THE RESEARCH PROBLEM only in growth, but social outcomes, which has slowly degenerated into populism. The term populism was originally used in the United States in the mid-1890s, referring to the 2. METHODOLOGY People’s Party, but since almost no movement or leader has acknowledged being “populist.” For this article, there will be a comparative In current political language, the term has a exercise of economic policy management, negative connotation, being closely associa- fiscal and monetary policy by the various ted with terms like “demagogia”, economic governments in Latin America in order to bounty, which indicate economic or political identify the use of economic tools for populist irresponsibility7. purposes. The selection of countries is done arbitrarily and corresponds to the accessibility Populism is a controversial concept, and agree- of information on economic variables on ments about what it means and who qualifies as the behavior of fiscal and monetary policy. a populist is difficult because politicians don’t Similarly, we use simple graphic variables such 8 want to identify with this analytical category . as inflation, unemployment, gross domestic With the economic crisis of the late twentieth product, credit, etc, when available and at century, characterized by external shocks, different times depending on the country for among which are included the effects of the analysis. Asian crisis and the Swiss bankruptcy9, the dynamism that characterized the economies of The idea is to study at the end the Colombian Latin America in the early years of the nineties case and draw lessons that allow us to explain, (except for Mexico, Argentina and Uruguay in first, the dangers of macroeconomic populism; 1995) led to a stalemate. This period was called second, the relative economic stability the “five years lost” by ECLAC. experienced by Colombia in recent decades, in relation to neighboring countries. Therefore, it rediscovered
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