The Politics of Economic Stabilization: IMF Standby Programs in Latin America, 1954-1984

Abstract

During the late 1970s authoritarian rule in Latin America began to give way to processes of political liberalization and democratization. The debt crisis of the early 1980s accelerated this trend. Under the weight of crippling external financial obligations, the region slid into its worst recession since the 1930s. Widespread unemployment, plummeting living standards, acute shortages of foreign exchange, declining investment, and severe inflation all magnified the vulnerabilities and contradictions of authoritarianism. By 1985 elected governments had displaced military regimes in Argentina, Bolivia, Brazil, Ecuador, Honduras, Peru, and Uruguay. Among those countries with some prior democratic experience, only Chile resisted the continentwide shift away from authoritarian rule. For participants and outside observers alike, the key question raised by these developments was the viability of liberal democracy under conditions of economic austerity. Circumstances that favor regime emergence are not necessarily conducive to regime consolidation, and in the case of Latin America it became immediately apparent that the economic crisis undermining authoritarianism also reduced prospects for the consolidation of democratic institutions. As a variety of analysts have suggested, economic growth creates conditions conducive to political compromise, but when the economic pie is shrinking, conflict and opposition tend to mount.' The problem confronting Latin American democracies during the 1980s, however, has not been simply that of survival in the face of economic decline. To retain access to international financial markets, governments throughout the region have been forced to adopt politically painful stabilization measures involving currency devaluations, wage and credit restrictions, and strict fiscal controls. Most observers have questioned the willingness and capacity of democratic leaders to implement such measures, despite the obvious costs of failure and the absence of viable policy alternatives. According to conventional wisdom, stabilization policies pose such unacceptably high political risks for democratic governments in Latin America that authoritarianism is virtually a prerequisite for successful adjustment.2 The purpose of this study is to reexamine this conventional wisdom regarding the politics of economic stabilization. Does the historical record sustain the view that Latin American democracies are singularly ill-equipped to manage programs designed to correct serious and persistent balance-of-payments deficits? Do conventional stabilization policies carry higher political risks for democratic governments than for authoritarian ones? How have the trade-offs between coercion and consent affected the relative capacity of military and democratic governments to impose stabilization measures? Under what conditions, if any, has democratic rule produced successful stabilization and authoritarianism resulted in failure? The answers to such questions are not only central to theoretical debates over the

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