Fighting Past Economic Wars: Crisis and Austerity in Latin America

Abstract

Political economy theory expects that changes in macroeconomic governance are often catalyzed by institutional factors, such as partisanship, elections, or International Monetary Fund (IMF) conditionality. I challenge and contextualize this view by incorporating the role of technocratic advisors into a domestic policy-making framework. I contend that presidents from countries with crisis legacies are more likely to appoint mainstream economists that pursue budget discipline. Employing an originally constructed dataset, the Index of Economic Advisors, I conduct an econometric test of sixteen Latin American countries from 1961 to 2011. I find that politicians are most likely to appoint mainstream economists who embrace fiscal rectitude in countries with inflation-crisis legacies. Furthermore, these crisis legacies are enduring given the severity of inflationary trauma relative to other types of domestic economic volatility in Latin America. In fact, these effects hold when controlling for both historical and contemporaneous shocks to unemployment.

When Technocratic Appointments Signal Credibility

“…Ultimately we show that whom prime ministers appoint as their finance ministers matters to economic actors. Despite convincing evidence that the background of finance ministers has policy effects (Chwieroth, 2007; Christensen, 2017; Jochimsen & Thomasius, 2014; Kaplan, 2018), the dominant view within political science is that politicians’ personal background is not consequential. In this article, we contribute to this important debate by providing unique new evidence on the immediate effects of the appointments of finance ministers on financial markets.…”

Populists and Technocrats in Latin America: Conflict, Cohabitation, and Cooperation

“…Other domestic and, to some extent, idiosyncratic factors can play a role as well. Beyond Morales' personal trust in his finance minister, recent memory of an economic collapse, such as a hyperinflation crisis, will make elites and voters aware that profligate spending can open the door to new crises (Kaplan, 2013(Kaplan, , 2018. Economic experts can be perceived as a signal to elites and citizens of responsible economic policy, thus increasing the cost of firing them (Dargent, 2015).…”

“…To conclude, we discuss the case of leftist populist Evo Morales (2006Morales ( -2019 In this case, we believe, cohabitation is rooted in two factors: hyperinflationary taboos and personal linkages. First, Kaplan (2018) highlights how previous crises in the 1980s increased the perceived political costs of hyperinflation and prevented the personalization and deprofessionalization of management at the Ministry of Finance. Arce's presence signalled economic prudence towards elites and citizens.…”

Beyond the diffusion of neoliberalism: Embedded reasoning and policy innovation in the origins of Argentinian currency board

“…As Menem's ideological shift left his original allies in shock, he recruited traditional liberal and neoliberal economists as his main advisors and promoters of his agenda. Two factors are fundamental to understand the final success of neoliberal reforms in Argentina: first, the fact that they were implemented by a Peronist leader, using his internal influence and clout over unions (Weyland, 2002) and, second, the context of inflationary trauma facilitated the appointment of mainstream economic advisors (Kaplan, 2018).…”