Populism wiped out the once powerful “technopolists” in Latin America

Por Shannon K O’Neil

Finance ministers have limited policymaking in Latin America since the democratization of the region in the 1980s and 1990s. Not anymore. This shift has further opened the door to wasteful populist economic policies. But it also creates a more sustainable political path for market-based 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.

Pedro Aspe of Mexico and Domingo Cavallo of Argentina exemplified the rise of the all-powerful finance ministers of the 1990s. Abroad, they became rock stars on Wall Street, were flattered at conferences, in the media, and on the snowy streets of Davos.

At home, they reigned above other cabinet members, slashing the aspirations and budgets of education, health, and other social ministries. At times, they even embarrassed their own presidents by rejecting highly popular political decisions.

This concentration of power produced real benefits. Together with increasingly independent central banks, these financial gurus tamed hyperinflation, ended destructive boom-bust cycles, and brought macroeconomic stability.

Many spurred their economies to open up and diversify, creating thriving export sectors: Chilean and Argentine wines and agricultural products were showcasing on the shelves of global supermarkets, while Peruvian artichokes and asparagus drove healthier diets abroad, flowers de Colombia filled the refrigerators of florists and cars built in Mexico and their parts traveled highways throughout the hemisphere.

But there were costs. The scarcity of controls over these “technopolists”, According to the jargon used in an academic book from the 1990s, precipitated the Mexican peso crisis, causing the currency and the economy to collapse. The stubbornness to maintain a one-to-one parity between the dollar and the peso in Argentina, even as underlying financial conditions changed, precipitated a financial crisis in 2001 from which the nation has yet to emerge.

The policy veto power exercised by the Finance Ministries led to complacency among the traditional business sector. Confident that they could ignore the political turmoil and the frustrations of the general population, as market rules and financial limits were well controlled, they allowed the conservative parties to languish.

In Argentina, the Union of the Democratic Center, with a pro-market tendency, vanished during the presidency of Carlos Menem, as did the Democratic Front of Peru under the government of Alberto Fujimori.

More recently, the right-wing Independent Democratic Union and National Renovation of Chile parties have faltered and their joint presidential candidate garnered fewer votes than an independent economist who campaigned from Alabama. Although the disappearance of these parties has many causes, the systematic lack of commitment and support from companies has undoubtedly been an important factor.

That era of almighty finance ministers is over. The highly educated Argentine economy minister, Martín Guzmán, is making intellectual contortions to justify raising wages and freezing the prices of hundreds of products as a way out of the nation’s debt crisis.

Former private equity sector partner and disciple of Milton Friedman, Paulo Guedes, crossed Brazil’s constitutional spending limits at the request of President Jair Bolsonaro, leading to the resignation of four members of his own team. In Mexico, President Andrés Manuel López Obrador has gone through three Finance Secretaries in the same number of years. And in Chile, even under the supervision of right-wing President Sebastián Piñera, citizens have withdrawn billions of dollars from pension funds, putting the historic private system at risk.

Undoubtedly, this shift presents the risk of reverting to populist policies and the political environment that distorted local economies and racked up large debts. Brazil’s toxic mix has already tipped its economy toward stagflation. Mexico also entered negative growth territory even before COVID-19 due to poor economic policies. And Argentina is still reeling without getting out of its financial straits.

But the decentralization of power also returns the democratic process to some of the most important decisions that affect the lives of ordinary citizens that governments can make. In this way, Latin America has become more democratic, since all kinds of policies (crazy or not) are on the table. Broader economic discussions favor longer-term stability and sustainability, as this democratic overlap is important.

This also means that Latin American business communities must appeal directly to the people. They need to build programmatic political parties that can convince majorities of voters why open economies, freer markets, and measured public spending are good investments for them too.

If carried out in a transparent and sustained manner, this type of political work can expand the electorate towards forward-looking economic policy and produce more stable and inclusive economic outcomes. No matter how friendly or seasoned future technopolists may be, market-friendly policies are unlikely to sustain themselves without broad voter support.