NEW POPULISM IN LATIN AMERICA

ANTONIO SPILIMBERGO (JOINT WORK WITH NICOLAS MAGUD AND ALEJANDRO WERNER)

SUERF NOVEMBER 2019 – MILAN

The views expressed in this presentation are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

OUTLINE

• What is populism?

• Historical Perspective of Populism in Latin America

• Three waves:

• First wave (macroeconomic effects - Dornbusch Edwards)

• Second Wave

• Third wave (longer duration: institutional effects)

• General lessons

Populism in

Latin

America

▪ What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

WHAT IS POPULISM?

• Populism is a “thin-centered ideology that considers society to be divided into

two homogeneous and antagonistic groups, ‘the people’ and ‘the corrupt elite’

and which argues that politics should be an expression of the volonté générale of

‘the people’”

Cas Mudde, 2004, The Populist Zeitgeist, Government and Opposition

PopulismPopulism in

Latin

America

Populism in

Latin

America

▪ What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

WHY TO STUDY POPULISM IN LATIN AMERICA?

Interesting for many reasons:

• It came in different flavors good to understand the commonalities

• Lasted many years in power good to study long-term effects of populists in power

• It has been studied thoroughly good to see many perspectives

PopulismPopulism in

Latin

America

▪ What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

WHY POPULISM IN LATIN AMERICA?

• Polarized society (concentration of wealth/income distribution)

• Tradition of Elections

• Rhetoric: El Pueblo vs. Oligarquía

• Three waves of populism

• Different definition of conflict - Classical

• Different supporting ideologies - Neoliberal

• Different economic effects - Radical

PopulismPopulism in

Latin

America

Populism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

THREE WAVES OF LATIN AMERICAN POPULISM I - CLASSICAL

• First wave: in the 30s

• Started with fall in price of natural resources > Large masses urbanizing

• Definition of people: el Pueblo (caveat: excluded indigenous or people of African descend)

• Definition of elites: Colluded with foreign powers

• Ideology: Americanismo (rejection of right/left category)

• Issues: Fight against electoral fraud and to expand franchise (for instance extension of voting right to women in Argentina in 1951)

• Authoritarian appropriation of People’s will

• Turning stigmas against poor into virtues

• Some enduring political organization: APRA, Peronist Party, Bolivia’s Movimiento Nacionalista Revolucionaro

• Ended in the 60s with bureaucratic authoritarian regimes

• Examples: Vargas, Perón, Velasco Ibarra, Haya de la Torre

• Economic Implications

• Import substitution Industrialization

• State dirigisme (some inspiration from Italian corporativism)

PopulismPopulism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

THREE WAVES OF LATIN AMERICAN POPULISM II - NEOLIBERAL

• Second wave in the 90s

• Started with domestic economic chaos.

• Definition of people: citizens suffering because of economic mess

• Definition of elites: domestic incompetent leaders

• Ideology: “neo-liberalism”

• Ended at the beginning of 2000s.

• Examples: Menem, Collor de Mello, Fujimori

• Economic implications: market-friendly reforms

PopulismPopulism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

THREE WAVES OF LATIN AMERICAN POPULISM III - RADICAL

• Third wave in the late 90s

• Started as reaction to “neo-liberal policies”

• Definition of people: el Pueblo suffering from ‘neoliberal’ policies (ethno-populism)

• Definition of elites: Corrupt pollical class colluding with foreign powers

• Ideology: Americanismo, Socialism, Anti-imperialism

• Constitutional changes (constituent assemblies)

• Examples: Chávez/Maduro, Correa, Ortega

• Economic implications: bigger role of the states, nationalization

PopulismPopulism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

THREE WAVES OF LATIN AMERICAN POPULISM - TIMING

0

1

2

3

4

5

6

7

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Populist Gov. Left Gov.

0

1

2

3

4

5

6

7

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Populist Gov. Right Gov.

0

1

2

3

4

5

6

7

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

Populist Gov. Other Gov.

55%

10%

35%

Populist-year observations

Distribution of political orientation

Left Gov.

Right Gov.

Other Gov.

PopulismPopulism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

THE POPULIST PHASES IDENTIFIED BY DORNBUSCH AND EDWARDS

Populism

• Highly polarized society. Demand for better income distribution.

• Increase in real wages. Expansion of the (inflation-financed) fiscal deficit. Price controls. Fixed exchange rate. Increasing imports

• Some shortage. Problems in financing the K account

• Pervasive shortage and accelerating inflation. K flights.

• Orthodox stabilization under a new government.

Populism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

INFLATION-FINANCED FISCAL EXPANSION - FIRST WAVE

0

100

200

300

400

500

-4

-3

-2

-1

0

1

2

-3 -2 -1 0 1 2 3

Perón (ARG), 73-76

Fiscal Balance CPI Inflation (RHS)

0

5

10

15

20

25

30

-2

-1

0

1

-3 -2 -1 0 1 2 3

Vargas (BRA), 51-54

Fiscal Balance CPI Inflation (RHS)

30

40

50

60

70

80

90

-10

-5

0

-3 -2 -1 0 1 2 3

Goulart (BRA), 61-64

Fiscal Balance CPI Inflation (RHS)

0

500

1000

1500

2000

2500

3000

-4

-3

-2

-1

0

1

2

-3 -2 -1 0 1 2 3 4 5

Sarney (BRA), 85-90

Fiscal Balance CPI Inflation (RHS)

0

100

200

300

400

500

600

-15

-10

-5

0

5

-3 -2 -1 0 1 2 3

Al lende (CHL), 70-73

Fiscal Balance CPI Inflation (RHS)

0

5

10

15

20

25

-4

-3

-2

-1

0

-3 -2 -1 0 1 2 3 4 5 6

Echeverría (MEX), 70-76

Fiscal Balance CPI Inflation (RHS)

5

10

15

20

25

-8

-7

-6

-5

-4

-3

-2

-1

0

-3 -2 -1 0 1 2 3 4 5 6 7

Velasco (PER), 68-75

Fiscal Balance CPI Inflation (RHS)

5

7

9

11

13

15

17

19

21

-6

-4

-2

0

2

4

-3 -2 -1 0 1 2 3 4 5

Belaúnde (PER), 63-68

Fiscal Balance CPI Inflation (RHS)

0

1000

2000

3000

4000

5000

6000

7000

8000

-10

-8

-6

-4

-2

0

-3 -2 -1 0 1 2 3 4 5

García (PER), 85-90

Fiscal Balance CPI Inflation (RHS)

2

3

4

5

6

7

8

9

10

11

-6

-4

-2

0

2

4

-3 -2 -1 0 1 2 3 4

Pérez (VEN), 74-78

Fiscal Balance CPI Inflation (RHS)

PopulismPopulism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

DORNBUSCH AND EDWARDS’S POPULIST PHASES

Populism

Political scientists do not like the definition of populism but …

The key results hold using a ‘modern’ definition

Key underlying issue is the demand for income redistribution and ignoring the budget constraint

Challenge: focused exclusively on immediate economic consequences but the main damage could be on institutions

Lessons for today. Mechanisms are similar but the context is different

Bretton Woods system with fixed exchange rate

K markets are different (much bigger and lending to the private sector)

Duration of the commodity cycle

Populism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

THIRD WAVE OF POPULISMPopulismPopulism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

• End of 90s / 2000s. Examples: Chávez/Maduro, Correa, Ortega

• Favorable external conditions (commodity supercycle)

• So, more time in power

• Macroeconomic mismanagement

• And, crucially, more damage to institutions

POPULISM AND EXTERNAL CONDITIONS

Source: Magud, Spilimbergo, Werner (forthcoming) based on Hawkins (2009) and WEO

40

60

80

100

120

140

160

180

200

220

240

0

1

2

3

4

5

6

71

97

0

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

Populist Gov. Metals Price

70

90

110

130

150

170

190

0

1

2

3

4

5

6

7

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

Populist Gov. Food Price

20

40

60

80

100

120

140

160

180

200

220

0

1

2

3

4

5

6

7

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

Populist Gov. Fuel Price

PopulismPopulism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

POPULISM AND EXTERNAL CONDITIONSPopulismPopulism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

(1) (2) (3)

VARIABLES Populist Populist Populist

Terms of trade 0.00174***

(0.000212)

Windfall income 0.471***

(0.170)

Change in terms of trade 0.000820**

(0.000417)

Constant -0.0633 -0.269 0.120***

(0.0469) (0.242) (0.0419)

Observations 1,478 438 1,446

R-squared 0.094 0.178 0.053

Number of countries 32 22 32

F 3.023 1.664 1.636

Country-FE Yes Yes Yes

Time-FE Yes Yes Yes

Standard errors in parentheses

*** p<0.01, ** p<0.05, * p<0.1

THIRD WAVE OF POPULISM: DIFFERENT CONDITIONS

• External conditions:

• Longer commodity cycle

• More developed capital markets

• Flexible exchange rates

• Favorable global financial conditions

• No cold war

• Internal conditions

• Some fiscal discipline: Evo Morales

• Military more restrained

PopulismPopulism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

THIRD WAVE OF POPULISM: MORE TIME IN POWERPopulismPopulism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

WHAT POPULISTS IN POWER DO ?

• Populists need conflicts to legitimize their power

• … disable check-and-balances (conflicts with judiciary and press)

• … ‘occupy’ the state

• … need continuous contact with the ‘people’ (Aló Presidente)

• … like referenda

• … promote mass clientelism (Boliburguesía)

• … (for a while) seem to be immune to corruption allegation

• … blame the ‘elites’ for failure (conspiracy theories)

• … are harsh against NGOs and intermediate bodies

PopulismPopulism in

Latin

America

▪What is populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

POPULISM AND PROPERTY RIGHTS

5

10

15

20

25

30

-3 -2 -1 0 1 2 3 4 5 6 7 8

Fernández de Kirchner (ARG), 07-15

5

10

15

20

25

30

-3 -2 -1 0 1 2 3 4 5 6 7 8 9 10

Morales (BOL), 06-17

10

15

20

25

30

-3 -2 -1 0 1 2 3 4 5 6 7 8 9

Correa (ECU), 07-17

35

40

45

50

55

-3 -2 -1 0 1 2 3 4 5 6 7

Saca-Funes (SLV), 04-13

10

15

20

25

30

-3 -2 -1 0 1 2 3 4 5 6

Ortega (NIC), 07-13

05

101520253035404550

-3 -1 1 3 5 7 9 11 13 15 17

Chávez-Maduro (VEN), 99-17

PopulismPopulism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

POPULISM AND BUSINESS FREEDOM

50

55

60

65

70

-3 -2 -1 0 1 2 3 4 5 6 7 8

Fernández de Kirchner (ARG), 07-15

50

55

60

65

-3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11

Morales (BOL), 06-17

50

55

60

-3 -2 -1 0 1 2 3 4 5 6 7 8 9 10

Correa (ECU), 07-17

50

55

60

65

70

75

80

85

-3 -2 -1 0 1 2 3 4 5 6 7 8 9

Saca-Funes (SLV), 04-13

50

55

60

-3 -2 -1 0 1 2 3 4 5 6

Ortega (NIC), 07-13

35

40

45

50

55

60

65

70

-3 -1 1 3 5 7 9 11 13 15 17

Chávez-Maduro (VEN), 99-17

PopulismPopulism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

DEMOCRATIC ACCOUNTABILITY

3

4

5

-3 -2 -1 0 1 2 3 4 5 6 7 8

Fernández de Kirchner (ARG),

07-15

3

-3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11

Morales (BOL), 06-17

3

-3 -2 -1 0 1 2 3 4 5 6 7 8 9 10

Correa (ECU), 07-17

3

-3 -2 -1 0 1 2 3 4 5 6

Ortega (NIC), 07-13

3

-3 -1 1 3 5 7 9 11 13 15 17

Chávez-Maduro (VEN), 99-17

PopulismPopulism in

Latin

America

▪What is

populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons

POPULISM AND ECONOMICS: A LONG-TERM VIEW

• Before 70s. Dominant view: Macroeconomic finetuning

• After 70s. Problems: Limits of short-term macro finetuning

• Lucas critique

• Time inconsistency

• Electoral cycle

• Trade policy captive of special interest

• After the 80s. Response: Delegate to independent institutions / agencies

• Central bank independence

• Fiscal rules

• EU rules

• WTO

• In the 2000s. Populists: Independent Institutions not accountable to citizens

• Populists do not believe in check-and-balances

PopulismPopulism in

Latin

America

▪What is populism?

▪ Historical

perspective

▪ First wave

▪Third wave

▪General lessons