Finance ministers have limited policymaking across Latin America since the region’s democratization in the 1980s and 1990s. Not anymore. This change has opened the door wider to debauchery populist economic policies. But it also creates a more sustainable political path for market democracy across the region. Through political engagement, business interests can show and convince voters that economic growth through open markets can and does bring greater prosperity.
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Mexican Pedro Aspe and Argentinian Domingo Cavallo illustrated the rise of the all-powerful finance minister in the 1990s. Abroad, they became rock stars on the Wall Street set, celebrated at conferences, in the media and in the snowy streets of Davos. At home, they ruled over other cabinet members, slashing the aspirations and budgets of the ministries of education, health and other social ministries. Sometimes they have even locked up their own presidents, pushing back politically popular political choices.
This concentration of power has produced real benefits. Along with increasingly independent central banks, these financial gurus have tamed hyperinflation, ended destructive boom and bust cycles, and brought macroeconomic stability. Many have pushed their economies to open up and diversify, creating thriving export sectors: Chilean and Argentinian wines and produce global groceries, Peruvian asparagus and artichokes are fueling healthier diets in the country. abroad, florists’ refrigerators filled with Colombian flowers and Mexican-built cars and parts have hit the road all over the hemisphere.
But there were costs. The scarcity of controls on these self-confident “technopols”, in the jargon of a 1990s academic book, precipitated the Mexican peso crisis, leading to the collapse of the currency and the economy. Argentina’s unwavering commitment to one-to-one convertibility between the dollar and the peso, even as underlying financial conditions evolved, precipitated a financial quagmire of 2001 from which the nation has yet to emerge.
The political veto power wielded by finance ministries has led to appeasement within the business establishment. Confident that they could ignore the whirlwind of politics and the frustrations of the population as a whole as the rules of the market and financial limits were firmly in hand, they left the Conservative parties to languish. In Argentina, the pro-market UCEDE collapsed during Carlos Menem’s presidency, as did FREDEMO in Peru under Alberto Fujimori. More recently, the right-wing Chilean UDI and RN parties have faltered, with their joint presidential candidate garnering fewer votes than a single campaigning economist from Alabama. Although the disappearance of these parties has many authors, the lack of commitment and systematic support from business has undoubtedly been a significant problem.
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The era of all-powerful finance ministers is now over. Academically trained Argentine finance minister Martin Guzman is making intellectual contortions to justify raising wages and freezing prices on hundreds of products as a way out of the country’s debt crisis. Former private equity partner and Milton Friedman follower Paulo Guedes broke Brazil’s constitutional spending limits at the behest of President Jair Bolsonaro, leading to the resignation of four members of his own team. In Mexico, President Andres Manuel Lopez Obrador has known three finance ministers in as many years, with the current economist publicly renouncing any role in the energy sector (which accounts for nearly a fifth of the federal budget). And in Chile, even under the watchful eye of right-wing President Sebastian Pinera, citizens have withdrawn billions of dollars from pension funds, threatening the legendary private system.
Certainly, this change risks a return to populist policies and policies that have distorted local economies and accumulated large debts. Brazil’s toxic mix has already tipped its economy into stagflation. Mexico also entered negative growth territory even before Covid-19 due to poor economic policies. And Argentina is still floundering without getting out of its financial difficulties.
But the decentralization of power also brings the democratic process back into some of the most important decisions governments can make that affect the lives of ordinary citizens. In this way, Latin America has become more democratic, because all kinds of policies (foolish or not) are on the table. Wider economic discussions benefit long-term stability and sustainability because this democratic overlay is important.
It also means that the business community in Latin America needs to get into retail politics. They need to create programmatic political parties that can convince voting majorities of why open economies, freer markets, and measured government spending are also good investments for them. Undertaken in a transparent and sustained manner, this kind of cutting-edge political work can broaden the scope of forward-looking economic policy and produce more stable and inclusive economic outcomes. As smooth or seasoned as future technology parks may be, pro-market policies are unlikely to endure without broad voter support.