Globalization and Austerity Politics in Latin America ‐ by Kaplan, Stephen B

Kaplan, Stephen B. (2013) Globalization and Austerity Politics in Latin America, Cambridge University Press ( New York, NY), xxi + 331 pp. £55.00 hbk. £19.99 pbk. This book examines economic policy-making and election cycles in Latin America. Its central contention is that changes in the structure of overseas lending and previous episodes of elevated inflation have fostered political consensuses around orthodox fiscal and monetary policies. Rather than provide economies with pre-election boosts to secure political support, as political business cycle theory predicts, governments maintain macroeconomic orthodoxy to appease international investors and contain inflation. Research for the book includes over 100 interviews with politicians and technocrats, as well as a wide range of economic and election data. Qualitative and quantitative methods are employed to undertake the analysis. The opening chapters of the book outline the theoretical framework which Kaplan develops to explain economic policy-making and election cycles in Latin America (Chapters 1 and 2). The framework, which he calls political austerity cycle theory, rests on two central pillars. The first relates to the structure of public overseas debt and the operation of international financial markets. Kaplan contends that the 1982 debt crisis triggered a structural shift in the overseas debt profiles of Latin American nations. The Brady Plan converted bank loans into bonds which enabled international financial markets to perform a prominent role in the provision of overseas loans in the 1990s and 2000s. Fearing sharp reversals of capital inflows (‘sudden stops’), heavily indebted regimes committed themselves to orthodox fiscal and monetary policies to appease overseas investors (p. 11). The second relates to the past inflation experiences of political elites. Kaplan claims that politicians who lived through episodes of elevated inflation followed conservative fiscal and monetary policies to contain price increases and secure political support from low-inflation constituencies (low and middle-income earners, as well as economic elites). The empirical investigation comprises two parts. The first section involves the quantitative analysis of 132 election campaigns across sixteen Latin American countries between 1961 and 2009 (Chapter 3). The analysis yields some interesting results. Kaplan notes, for example, that ‘bond market indebtedness tends to promote fiscal austerity generally and most intensely during election years’ (p. 87) and ‘left-leaning governments that hail from inflation-scarred countries tend to slam on the brakes more heavily than right and center governments before elections’ (p. 97). The second section involves the qualitative analysis of specific election campaigns in five nations: Argentina, Brazil, Chile, Ecuador and Venezuela (Chapters 4–7). The qualitative approach enables Kaplan to delve deeper into the machinations of economic policy-making and electoral politics. Evidence is provided to support the claim that governments prime the economic pump before elections when they are neither constrained by international bond markets nor traumatised by past experiences of inflation. The dynamics change, however, when regimes become heavily reliant on international bond markets. Under these conditions politicians have few options but to commit themselves to macroeconomic orthodoxy. The outcome is similar in inflation-scarred countries, where politicians from across the political spectrum converge on austerity policies to secure electoral support. The room for manoeuvre is even narrower for regimes caught in the ‘perfect neoliberal storm’ of high bond market dependence and elevated inflation sensitivity (p. 24). One interesting claim that Kaplan makes about politicians operating in these conditions is that they often use executive powers to allocate resources to secure political support while remaining within an orthodox macroeconomic framework. The strongest aspect of this book is the insight that it provides into the relationship between macroeconomic policies and financial markets. Kaplan's analysis shows the restrictions that international bond markets impose on Latin American governments and indicates why regimes committed to following heterodox economic policies should consider alternative forms of funding. The interview material and the information on the academic backgrounds of political elites and technocrats are also illuminating. The weakest feature is the analysis of inflation; the simple relationship that Kaplan posits between budget financing, monetary expansion and price increases fails to capture the complexity of inflation. The impact of inflation on the behaviour of political elites also requires further elaboration; one aspect undeveloped in the book is how the conflicting past experiences of political elites interact and shape political behaviour. For example, politicians who have experienced episodes of high inflation and intense opposition to neoliberal reforms may risk higher levels of inflation to avoid resistance to orthodox economic policies. The principal findings of the book are briefly summarised and developed in the conclusion (Chapter 8). However, the volume would have benefited from a fuller discussion of the implications and limits of political austerity cycle theory. Despite these limitations, the book is highly recommended to readers who wish to gain a better understanding of economic policy making and political behaviour in contemporary Latin America

Austerity · Bailout · Debt · Debt crisis · Economics · Economy · Financial crisis · Globalization · Keynesian economics · Latin Americans · Market economy · Political economy · Political science · Politics · Economic Theory and Policy · Finance