Left Behind Latin America and the False Promise of Populism Sebastian Edwards THE UNIVERSITY OF CHICAGO PRESS I CHICAGO AND LONDON Contents Preface xi 1 Latin America: The Eternal Land of the Future 1 • The Economic Future of Latin America and the United States • From the Washington Consensus to the Resurgence of Populism: A Brief Overview - The Main Argument: A Summary • A Conceptual Framework: The Economic Prosperity of -. Nations and the Mechanics of Successful Growth Transitions PART ONE A Long Decline: From Independence to the Washington Consensus 2 Latin America's Decline: A Long Historical View 21 • A Gradual and Persistent Decline j The Poverty of Institutions and Long-Term Mediocrity - Currency Crises, Instability, and Inflation - Inequality and Poverty - So Far from God, and So Close to the United States 3 From the Alliance for Progress to the Washington Consensus 47 • The Cuban Revolution and the Alliance for Progress • Protectionism and. Social Conditions ' Informality and Unemployment • Fiscal Profligacy, Monetary Largesse, Instability, and Currency Crises • - Oil Shocks and Debt Crisis • The Lost Decade, Market Reforms, and the Washington Consensus PART TWO The Washington Consensus and the Recurrence of Crises, 1989-2002 4 Fractured Liberalism: Latin Americas Incomplete Reforms 71 • Institutions and Economic Performance - Institutions Interrupted: A Latin American Scorecard - Economic Policy Reform: A Decalogue Manque * Summing Up: Mediocre Policies and Weak Institutions v __^ 5 Chile, Latin America's Brightest Star 101 * Chile under President Salvador Allende, 1970-73 • The Chicago Boys and Chile's Trip to the Market • The Chicago Boys, Politics, and Labor Unions - Chile: A Case of a Successful Growth Transition • Pragmatism, Markets, and Success • Restricting Speculative Capital Flows - The Key Role of Institutions and the Failure of Copycats • Chile's Legacy 6 So Far from God: Mexico's Tequila Crisis of 1994 122 • The Mexican Miracle: A Mirage? * The Exchange Rate, Capital Flows, and External Imbalances * 1994: A Recurrent Nightmare • The Aftermath of the Tequila Crisis • Lessons from the Mexican Crisis " Pegging the Currency: A Recurrent Latin American Mistake 7 The Mother of All Crises: Argentina, 2001-2002 143 • A Long History of Instability and High Inflation - Please, Tie My Hands! - The Mexican Crisis and the Weaknesses of the Convertibility Law - The Fixed Exchange Rate Becomes a Straitjacket • The Inability to Withstand External Shocks in 1999-2001 * Another Foretold Disaster ' Devaluation, Default, and Pesification • Social Costs, Recovery, and Populism PART THREE The Populist Reaction 8 Populism, Neopopulism, and Inequality in the New Century 165 ' Populism and Neopopulism ' The Populist Cycle: From Euphoria to Regret • The Policies of Neopopulism • Inequality and Neopopulism in Latin America • Openness, Globalization, Inequality, and Social Conditions • Income Disparities and Education 'K • Populism and Political Institutions ' Neopopulism and Neoconstitutionalism 9 Chavez's Challenge and Lula's Response 191 • Hugo Chavez and the Path to Bolivarian Populism • The Bolivarian Revolution and Its Disappointment * Chavez and Social Conditions • The Surprising Absence of Populism in Brazil • Stability and Social Programs in Lula's Brazil • Lula's Pragmatism and Chavez's Ideology * Brazil's Challenges in the Post-Lula Era PART FOUR -Challenges for the Future 10 A Three-Speed Latin America for the Twenty-first Century 223 • The Institutions of the State and the Narcotics Trade ' Three Latin American Clusters for the Twenty-first Century • A Final Word Notes \ 237 Bibliography 255 Index . 273.