1 1, Briefly Discuss Your Country's Recent Economic Performance In

ECON 3235 Some economics, some Politics what is driving Social unrest Latin America today? Fall 2019

This Thursday November 15th lets discuss what we know about the present political unrest starting at 4pm I hope but not in our class (via webex, you will get an invitation, I will be in Puebla Mexico. Sorry to miss class, but you can be wherever it is convenient if you need help with Webex ask we can arrange for a tutor, there are also very too videos to guide (will email them.0 .

Is the turmoil we are seeing in Latin America during the last few months driven by economics (broadly defined to include happiness) or is it political? What is the connection between politics and economics? Have we/you ever seen anything like this before?

1, Briefly discuss your country’s recent economic performance in terms of GDP growth and inflation. For an October update see AS/COA Holly Sonneland 11/6/2019 LatAm Economic & Business Outlook and Shiter and Binetti on the never ending cycle of accelerated growth followed by a slowdown as we are witnessing now. Is this the pattern in your country.

2. Discuss your country’s history of populism (if any) and social unrest if any in the context of current unrest and sudden transitions in Bolivia, Chile, Ecuador and Haiti. Why has the DR never had a populist regime, or perhaps they have? A right populist in the 1950s?

3. Why did Evo Morales seek asylum in Mexico? Has Mexico provided asylum before? Amlo’s government leans left, and adds credibility to claims of a coup (will they help Morales return at some point, take a position against the OAS and the U.S.? On immigration and NAFTA (so far) they have avoided confrontation with U.S. so perhaps asylum will be the extent of Mexico’s intervention. The U.S. frequently intervene s, and many countries have border conflicts, but LatAm countries rarely intervene directly (in Panama, or was that just in U.S.?)

4. As sources/readings for these questions check chapter 6 of the text and Table 1 from Birdsall, Lustig and McLeod (2012), check the model answers below and the updated Table 1D also available in this spreadsheet.

Any episode of popular unrest (rioting) experienced by your country (for example the 2009 Coup Honduras or the 1973 coup in Chile, see Commanding Heights on our web page,

Historical parallels to Chile Ecuador and Bolivia? Ecuador Under Rafael Correa; Ecuador under Lenin Moreno; Chile under Sebastian Piñera The top 1% are the problem, OpEd Chile ; Chile under Pinochet 1973 (see Edwards 2019) Chile under Michelle Bachelet (student uprising led by Camil Vallejo). Brazil: Lula passes torch to Dilma, Dilma appears in Hans Rosling’s Washing machine video, Bolivia nationalized gas industry on May 1st 2006 (it was Brazil’s) when did Mexico nationalize standard oil? Hint: 1938. Mexico nationalized Standard oil Brazil: Right wing populism: Dilma’s victory is denied by opposition The current administration’s attitude toward Mexico and Central America (Honduras) Fidel Castro became President of Cuba in 1960 Cuban leader Che Guevera killed at 39, where? why in 1967 did he feel safe in La Higuera, Bolivia who/what is there now?

Christopher Sabatini, Anar Bata (2019) Latin America’s Protests Are Likely to Fail The popular uprisings in Bolivia, Chile, Ecuador, and Haiti have many different causes and one thing in common: If history is any indicator, the outlook for genuine, lasting change is grim. BY, Foreign Policy Magazine, Nove 8th 2019.

Nancy Birdsall, Nora Lustig, and Darryl McLeod (2012) Declining Inequaity in Latin Americs, Some Economics Some Politics, Routledge Handbook of Latin American Politics Chapter 11, the CGD working paper version has better graphics (color)

1 Edwards. Sebastian (2019) Edwards, S. (2019). On Latin American Populism, and Its Echoes around the World. Journal of Economic Perspectives, 33(4), 76-99. Do we need an Ibrahim leadership prize? Even in the U.S. we could find ourselves in a situation where one party does not accept the results or an election…

Acemoglu, Daron, Georgy Egorov, and Konstantin Sonin. "A political theory of populism." The Quarterly Journal of Economics 128, no. 2 (2013): 771-805.

Notes from Acemoglu et. al. “Populist regimes have historically tried to deal with income inequality problems through the use of overly expansive macroeconomic policies. These policies, which have relied on deficit financing, generalized controls, and a disregard for basic economic equilibria, have almost unavoidably resulted in major macroeconomic crises that have ended up hurting the poorer segments of society.” Dornbusch and Edwards (1991) quoted by Acemogly et. al (2013 p772) on the same page they discuss right wing populism in footnote 2: We focus on left-wing populism, which has been particularly prevalent in twentieth-century Latin America. In the United States, in addition to left-wing populism of the Democratic presidential candidate William Jennings Bryan or the Louisiana Senator Huey ‘‘Kingfish’’ Long, a distinctive right-wing populism has been prevalent (e.g., Norris 2005). Right-wing populism typically combines anti-elitism with some right-wing agenda (e.g., anticommunism in the case of Wisconsin Senator Joseph McCarthy or the states rights agenda of the Alabama governor and presidential candidate George Wallace, or small-government conservatism in the case of the Tea Party these days). A model combining left- and right-wing extremists and different types of populist policies is presented in Section V.A.

Also please read Shifter and Binetti, 2019 on the OAS (crucial to Morales’ resignation) The Organization of American States, the world’s oldest regional organization, has been incapable of reaching a consensus to apply its Democratic Charter to cases such as Nicaragua or Venezuela, despite the vocal activism of its sec-retary general. Latin America’s growing political fragmentation, including the electoral victories of the ultra-rightist Bolsonaro in Brazil and the nationalist Andrés Manuel López Obrador in Mexico, suggests this distrust and lack of coordination will only become worse in the years to come. Page 148

Economics matters too, “Latin American countries remain trapped in a cycle where years of accelerated growth are followed inexorably by times of crisis and stagnation.” Page 146.

Corruption may also be a factor in some countries (Bolivia, no, Chile yes…) see Botero, 2019 page 20 as is the strength of the Presidential elections (Botero page 22).

Here are the A&L 2017 Text’s “Model Answers to Chapter 6” which is available here and in the text of course.

1. Briefly describe the distinguishing features of populist cycles in twentieth – century Latin America. Why did Peru under Alan García experience high growth rates initially, and why was such a growth spell short lived? Populist cycle: 1) expansionary fiscal and monetary policies often complemented with generalized price controls in order to prioritize redistribution over economic growth; 2) the share of GDP accruing to labor increases; 3) stagflation – low growth with high inflation, and 4) real wages revert to lower than those prevailing prior to the populist cycle. Alan García’s experience in Peru in 1995: restriction of foreign debt repayment to ten percent of exports, expansionary fiscal and monetary policies alongside the introduction of a new currency – the inti – for controlling hyperinflation. The combination of these three measures triggered an unprecedented growth rate of 9.5 percent in 1996. Lack of foreign reserves and speculation fueled by nationalization announcements triggered capital outflows, a consequential drying out of foreign reserves, and an unstoppable inflation hike to more than three digits, lowering real wages to levels prior to the García’s 1995 plan. The hike in inflation following recurrent devaluations of the inti led to a new currency swap known as the “Nuevo Sol”. In short, the García plan was short-lived because expansionary policies, monetized fiscal deficits, and a devaluation – inflation vicious circle resulting from foreign exchange shortages and capital flight, with hyperinflation lowering considerably workers’ real wages. Despite his failed experiment, Alan García was reelected President of Peru in 2005 and remained in 2 office until 2011 [dlm note: caught up in the Odebrecht scandal, President Garcia committed suicide the day before he was to be arrested…}

2. Why is price stabilization key to standard explanations to the downfall of populist regimes in the late twentieth century? Inflation and hyperinflation in the late 20th century were associated with high fiscal deficits, which were brought down considerably. Fiscal restraint in turn created unemployment and political unrest. Growth rates remained low. In an attempt to grow without suffering the perils of high inflation, late twentieth century governments relaxed fiscal and monetary constraints and engaged themselves in exchange rate stabilization policies. These price stabilization policies failed because domestic currencies eventually became overvalued leading to sharp depreciations and the return of high inflation, which lower the purchasing power of the workers whose rights the populist leaders had pledged to defend.

3. Briefly describe the upsurge of populism in Venezuela under Hugo Chávez. Is it possible to explain its roots and why such a populist regime has been maintained for over fifteen years now? Roots: • Frustrated expectations following a series of structural reforms in the 1980s, which did not yield expected returns in terms of growth rates is part of the explanation. • Social unrest triggered by a hike in domestic petrol prices in 1992 which lowered the purchasing power of urbanites leading to political turmoil in 1993 – 1998.

Left-wing Hugo Chávez was democratically elected in 1998. His election is often interpreted as a sign of protest against the technocratic regimes that launched the structural reforms.

Chávez ruled Venezuela from 1999 until his dead in 2013. His 14-year ruling and popularity can only be explained by redistributive policies – known as the Bolivarian Revolution - which were supported by windfall oil export revenues during the prolonged commodity boom triggered by high rates of industrialization in China.

After Chávez’s death, his appointed successor, Nicolás Maduro – who was supposed to continue Chávez’s Bolivarian Revolution - has been driving the Venezuelan economy through a chaotic path. Nonetheless, the dictatorial Chávez-Maduro regime has been maintained despite the fall in oil prices because the regime has the support of the military. Social unrest is on the rise.

4. Can the Bolivarian Revolution under Evo Morales’ regime be characterized as a populist regime? Briefly explain your answer.

Evo Morales led his own version of the Bolivarian Revolution known as Movimiento al Socialismo. His policies - which prioritize income distribution over economic growth –accord with Dornbusch-Edwards’ definition of macroeconomic populism.

Moreover, Morales’s policies and anti-imperialist rhetoric bear a striking resemblance to those of his predecessor, Hugo Chávez in Venezuela. And extreme state intervention and nationalizations have not contributed to create a business environment which is conducive to attracting foreign direct investment and consequential transfer of technology which would have potentially helped to increase productivity – especially in mineral gas extraction.

However, the Morales’s administration has specificities of its own. First, he is one of the few presidents from indigenous descent. And- relative to his neighbors in Ecuador and Venezuela- he appears to identify himself more genuinely with the poor. Second, also unlike Ecuador and Venezuela large inflows from the commodity boom (2004 – 2013) have taken the form of international reserves. As a result, Bolivia remains one of the least affected countries from the relatively recent fall in commodity prices.

5. In what way has the populist regime in Ecuador under the Correa administration has benefitted the poor? High inflows from oil revenues during the commodity boom, default on foreign debt, and new loans contracted with China have enabled the Rafael Correa administration to increase social expenditures from approximately 21 to 41 percent of GDP in 2001 – 2012. The World Bank estimates that poverty has declined by approximately 12 percent, and extreme poverty has declined by 8 percentage points. However, the numbers have to be taken with caution as no rigorous empirical analysis on the casual effects of Correa’s redistributive policies on poverty reduction have been carried out to date.

3 6. Briefly explain the merits of the following statement: “A sharp fall in world commodity prices may trigger the downfall of the new wave of populist regimes in Latin America’s southern cone”.

This is highly uncertain. In countries such as Venezuela, the populist regime has turned repressive and as long as the current Maduro government manages to maintain the military by his side, the populist regime is likely to continue. In Bolivia and Ecuador, the situation is less fragile, and this might be due to dollarization in the case of Ecuador and high levels of international reserves in Bolivia because in both instances high inflation and stagflation have been avoided. This is yet one more example of Latin American diversity.

7. Can slowdown in China trigger a “third wave” o populism in Latin America? Explain your answer. Unlike previous populist cycles in Latin America which have started off with low growth and GDP levels, a considerable growth loss in Latin America due to slowdown growth in China in the 21st century would now hit a (mostly) middle-income region with a growing and more vocal middle class relative to the one in the early 21st century. More importantly, most regions in Latin America are now endowed with stronger democratic, fiscal and monetary institutions, which can potentially deter growing fiscal deficits and consequential inflationary spirals. It is not impossible that the opposite might happen, that is, that a prolonged recession in China forces remaining populist governments to step down as a result of continued political upheavals.

8. Mexico is the only country in Latin America that has managed to diversify its export revenues. Is this a necessary and sufficient condition for Mexico to avoid future upsurges of populism? [DLM: Perhaps not, AMLO was just elected…forming his own Moreno party, he consults “the people” with informal referendums and is struggling to deal violence in cities and states with a history drug related violence] Mexico has a long populist history dating back to the 1930s – when natural resources were nationalized. Export diversification since 1994 under the North American Free Trade Agreement (NAFTA) has made the Mexican economy increasingly dependent on its northern neighbor. While production and export of manufactures to the north is key to Mexico’s sustained growth, the US-Mexican relations are not the only about manufacturing and non-primary commodity exports. Continued access to the US market of these commodities might be a necessary condition, but not a sufficient condition for there are multidimensional US – Mexican issues in the two countries’ historical relationship. The post-1994 ground remains more fertile than ever for the emergence of Mexican populist governments, particularly during the current US administration which holds a strong anti-Mexican rhetoric. [my highlights, text author’s answers]

9. Under the structural reforms in the 1980s and 1990s, the role of the state in Latin America has gone from larger to wiser, yet regulatory capture threatens Latin America’s young democracies. Explain. Following mass privatizations in the 1980s and 1990s – one of the key pillars of the structural reforms – a small elite of private sector monopolies have been lobbying for continued government protection at the expense of the Latin American average consumer who faces higher prices and low-quality products. Lack of effective regulation of private monopolies often manipulate government agencies to the benefit of the very few and at the expense of the majority, therefore threatening democracy.

10. Would you expect the legacy of populism in Venezuela, Argentina, Bolivia and Ecuador to be the same as that of populist predecessors in the 20th century? The only country where stagflation seems to be the legacy of the populist cycle – as it was the case in the 20th century - thus far is Venezuela. All other countries seem to have learned from past mistakes, and young democracies are showing astute ways of fighting against high budget deficits and consequential inflation (e.g., high foreign reserves in Bolivia, and dollarization in Ecuador).