Do economic crises contribute to economic reform? Argentina and Venezuela in the 1990s

Political Science Quarterly

Volumn 112, Issue 4, 1997, Pages 617-642

  Corrales, Javier ^a  

^a NONE

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EID: 0039562005     PISSN: 00323195     EISSN: None     Source Type: Journal    
DOI: 10.2307/2657694     Document Type: Article

References (83)

1. Allan Drazen and Vittorio Grilli, "The Benefit of Crises for Economic Reforms," The American Economic Review 83 (June 1993): 598.
2. Mariano Tommasi and Andrés Velasco, ́Where Are We in the Political Economy of Reform?" (paper presented at the Conference on Economic Reform in Developing and Transitional Economies, Columbia University, mimeo, May 1995), 13-14.
3. By the late 1960s, political scientists were beginning to invoke and systematize the crisis variable to explain change in political development. However, not all scholars were persuaded about the explanatory power of this variable. See, for example, Leonard Binder, ed., Crises and Sequences in Political Development (Princeton: Princeton University Press, 1971).
4. Peter Gourevitch, Politics in Hard Times: Comparative Responses to International Economic Crises (Ithaca, NY: Cornell University Press, 1989), 9.
5. See, for instance, Ruth Berins Collier and David Collier, Shaping the Political Arena (Princeton: Princeton University Press, 1991). For statistical proof that economic crises destabilize democracies (especially poor ones), see Adam Przeworski and Fernando Limongi, "Modernization: Theories and Facts," World Politics 49 (January 1997).
6. See, for instance, Ruth Berins Collier and David Collier, Shaping the Political Arena (Princeton: Princeton University Press, 1991). For statistical proof that economic crises destabilize democracies (especially poor ones), see Adam Przeworski and Fernando Limongi, "Modernization: Theories and Facts," World Politics 49 (January 1997).
7. Each of the three global crises studies by Gourevitch (1873-1896, 1929-1949, and 1970-1980) entailed similar shock features, yet dissimilar outcomes both across time and across cases within the same time period.
8. I. M. D. Little, Richard N. Cooper, W. Max Corden, and Sarath Rajapatirana, Boom, Crisis, and Adjustment: The Macroeconomic Experience of Developing Countries (New York: Oxford University Press for the World Bank, 1993).
9. John Williamson, ed., Latin American Adjustment: How Much Has Happened? (Washington, DC: Institute for International Economics, 1990).
10. Chile, Costa Rica, Bolivia, Mexico, Jamaica, Uruguay, and Trinidad and Tobago.
11. Barbara Stallings, "Political and Economic Crisis: A Comparative Study of Chile, Peru, and Colombia" in Joan Nelson, ed., Economic Crisis and Policy Choice: The Politics of Adjustment in the Third World (Princeton: Princeton University Press, 1990).
12. Jeff Frieden, "Classes, Sectors, and Foreign Debt in Latin America," Comparative Politics 21 (October 1988): 1-20.
13. Stephan Haggard and Robert R. Kaufman, The Political Economy of Democratic Transitions (Princeton: Princeton University Press, 1995).
14. For example, in a study of twenty-four cases of public-sector reform attempts in the developing world. José Edgardo Campos and Hadi Salehi Esfahani find that 80 percent of the cases were preceded by economic downturns. See "Why and When Do Governments Initiate Public Enterprise Reforms?" The World Bank Economic Review 10 (1996): 469.
15. Dani Rodrik. "Understanding Economic Policy Reform," The Journal of Economic Literature 34 (March 1996): 9-41.
16. John T. S. Keeler. "Opening the Window for Reform: Mandates, Crises and Extraordinary Policy-Making," Comparative Political Studies 25 (January 1993): 433-486. However, John Williamson and Stephan Haggard argue that crises-generated policy debates do not always engender successful adjustment efforts. See "The Political Conditions for Economic Reform" in John Williamson, ed., The Political Economy of Policy Reform (Washington, DC: Institute for International Economics, 1994).
17. John T. S. Keeler. "Opening the Window for Reform: Mandates, Crises and Extraordinary Policy-Making," Comparative Political Studies 25 (January 1993): 433-486. However, John Williamson and Stephan Haggard argue that crises-generated policy debates do not always engender successful adjustment efforts. See "The Political Conditions for Economic Reform" in John Williamson, ed., The Political Economy of Policy Reform (Washington, DC: Institute for International Economics, 1994).
18. Kurt Weyland, "Risk Taking in Latin American Economic Restructuring: Lessons from Prospect Theory," International Studies Quarterly 40 (June 1996): 191.
19. Adam Przeworski, Democracy and the Market: Political and Economic Reforms in Eastern Europe and Latin America (New York: Cambridge University Press, 1991), 166.
20. Weyland, "Risk Taking in Latin American Economic Restructuring."
21. However, Krueger still suggests that even under severe economic crises, reforms might still not be successfully implemented. See "Virtuous and Vicious Circles in Economic Development," American Economic Association Papers and Proceedings 83 (May 1993): 351-355.
22. Alberto Alesina and Allan Drazen, "Why are Stabilizations Delayed?" The American Economic Review 81 (December 1991): 1170-1188.
23. Aaron Tornell, "Are Economic Crises Necessary for Trade Liberalization and Fiscal Reform? The Mexican Experience" in Rudiger Dornbusch and Sebastian Edwards, eds., Reform, Recovery and Growth (Chicago: University of Chicago Press, 1995).
24. See, for example, Weyland, "Risk Taking in Latin American Economic Restructuring." In reference to Argentina only, see Mario Damill and Roberto Frenkel, "Restauración democrática y política económical Argentina, 1984-1991" in Juan Antonio Morales and Gary McMahon, eds., La política económica en la transition a la democracia: Lecciones de Argentina, Bolivia, Chile y Uruguay (Santiago: CIEPLAN, 1993). In reference to Venezuela, see M. I. Purroy, "Perspectiva económica 1994," El Diario de Caracas, 3 February 1994. Another example of a similar argument in reference to India, Mexico, Egypt, and Turkey is John Waterbury, "The Heart of the Matter? Public Enterprise and the Adjustment" in Stephan Haggard and Robert R. Kaufman, eds., The Politics of Economic Adjustment (Princeton: Princeton University Press, 1992).
25. See, for example, Weyland, "Risk Taking in Latin American Economic Restructuring." In reference to Argentina only, see Mario Damill and Roberto Frenkel, "Restauración democrática y política económical Argentina, 1984-1991" in Juan Antonio Morales and Gary McMahon, eds., La política económica en la transition a la democracia: Lecciones de Argentina, Bolivia, Chile y Uruguay (Santiago: CIEPLAN, 1993). In reference to Venezuela, see M. I. Purroy, "Perspectiva económica 1994," El Diario de Caracas, 3 February 1994. Another example of a similar argument in reference to India, Mexico, Egypt, and Turkey is John Waterbury, "The Heart of the Matter? Public Enterprise and the Adjustment" in Stephan Haggard and Robert R. Kaufman, eds., The Politics of Economic Adjustment (Princeton: Princeton University Press, 1992).
26. See, for example, Weyland, "Risk Taking in Latin American Economic Restructuring." In reference to Argentina only, see Mario Damill and Roberto Frenkel, "Restauración democrática y política económical Argentina, 1984-1991" in Juan Antonio Morales and Gary McMahon, eds., La política económica en la transition a la democracia: Lecciones de Argentina, Bolivia, Chile y Uruguay (Santiago: CIEPLAN, 1993). In reference to Venezuela, see M. I. Purroy, "Perspectiva económica 1994," El Diario de Caracas, 3 February 1994. Another example of a similar argument in reference to India, Mexico, Egypt, and Turkey is John Waterbury, "The Heart of the Matter? Public Enterprise and the Adjustment" in Stephan Haggard and Robert R. Kaufman, eds., The Politics of Economic Adjustment (Princeton: Princeton University Press, 1992).
27. See, for example, Weyland, "Risk Taking in Latin American Economic Restructuring." In reference to Argentina only, see Mario Damill and Roberto Frenkel, "Restauración democrática y política económical Argentina, 1984-1991" in Juan Antonio Morales and Gary McMahon, eds., La política económica en la transition a la democracia: Lecciones de Argentina, Bolivia, Chile y Uruguay (Santiago: CIEPLAN, 1993). In reference to Venezuela, see M. I. Purroy, "Perspectiva económica 1994," El Diario de Caracas, 3 February 1994. Another example of a similar argument in reference to India, Mexico, Egypt, and Turkey is John Waterbury, "The Heart of the Matter? Public Enterprise and the Adjustment" in Stephan Haggard and Robert R. Kaufman, eds., The Politics of Economic Adjustment (Princeton: Princeton University Press, 1992).
28. Based on declarations by Cavallo in interviews and several public fora.
29. Pérez's two ministers of Cordiplan, Miguel Rodríguez and Ricardo Hausmann, expressed that they often heard and seriously considered these recommendations. (Interviews by author.)
30. In fact, Argentina's GDP per capita reached its highest level of the decade in 1988. Like Venezuela, Argentina's GDP per capita experienced a dramatic decline right around the time that the reforms were launched - a 20.6 percent decline from 1988 to 1989. It is unclear whether this occurred before or after the launch of the reforms in July 1989, but rough estimates suggest that possibly one-third of the decline occurred in July. However, even if the 1989 figures are used, the performance of Argentina's GDP per capita is 5.6 percent higher than in 1982, which is still far superior than the performance of Venezuela's GDP per capita. After 1982, Venezuela experienced dramatic declines in GDP per capita both before and after the launch of the reforms.
31. Moisés Naim, Paper Tigers and Minotaurs: The Politics of Venezuela's Economic Reforms (Washington, DC: Carnegie Endowment for International Peace, 1993), 44.
32. Interview with Joaquín Marta Sosa in Cambio 16, 20 June 1994. For a fuller account of societal turmoil in Venezuela in the 1980s, see Richard S. Hillman, Democracy for the Privileged: Crisis and Transition in Venezuela (Boulder, CO: Lynne Rienner, 1994).
33. Interview with Joaquín Marta Sosa in Cambio 16, 20 June 1994. For a fuller account of societal turmoil in Venezuela in the 1980s, see Richard S. Hillman, Democracy for the Privileged: Crisis and Transition in Venezuela (Boulder, CO: Lynne Rienner, 1994).
34. Kornblith also mentions two additional factors that contributed to the Caracazo: the government's poor handling of the reform announcement and the situation of "speculation, hoarding and shortages" prevailing during the second half of 1988, which provoked "collective ire," including assaults against retailers during this period. See "Deuda y democracia en Venezuela: los sucesos del 27 y 28 de febrero," Cuadernos del CENDES 10 (1989): 17-34.
35. For example, Victor Fajardo Cortéz, "El colapso del paquete económico: causas, efectos y perspectivas, Venezuela 1989-1992," Cuadernos del CENDES 13 (1992): 27-52; and Naim, Paper Tigers and Minotaurs.
36. For example, Victor Fajardo Cortéz, "El colapso del paquete económico: causas, efectos y perspectivas, Venezuela 1989-1992," Cuadernos del CENDES 13 (1992): 27-52; and Naim, Paper Tigers and Minotaurs.
37. See, for example, Campos and Esfahani, "Why and When Do Governments?"
38. William C. Smith, "Hyperinflation, Macroeconomic Instability, and Neoliberal Restructuring in Democratic Argentina" in Edward C. Epstein, ed., The New Argentine Democracy: The Search for A Successful Formula (Westport, CT: Praeger, 1992).
39. Guillermo O'Donnell, "The State, Democratization, and Some Conceptual Problems" in William C. Smith, Carlos H. Acuña, and Eduardo A. Gamarra, eds., Latin American Political Economy in the Age of Neoliberal Reforms: Theoretical and Comparative Perspectives for the 1990s (New Brunswick, NJ: Transaction Books, 1994), 175.
40. William Glade, ed., State Shrinking: A Comparative Inquiry into Privatization (Austin: Institute of Latin American Studies, University of Texas at Austin, 1986), 143.
41. Javier Corrales, "Coalitions and Corporate Choices in Argentina, 1976-1994: The Recent Private Sector Support for Privatization," Studies in Comparative International Development (forthcoming).
42. Some adhere to a stricter definition of hyperinflation - a monthly inflation rate above 50 percent. However, according to David W. Pearce, The MIT Dictionary of Modern Economics, 3rd ed. (Cambridge, MA: The MIT Press, 1991 ), 186: "Under conditions of hyperinflation prices rise 10 or even 100-fold in a single month.... The exact boundary between inflation and hyperinflation is difficult to define."
43. Michael Bruno and William Easterly, "Inflation's Children: Tales of Crises that Beget Reforms," American Economic Association Papers and Proceedings 86 (May 1996): 214.
44. See Dani Rodrik, "The Positive Economics of Policy Reform," American Economic Association Papers and Proceedings of the 105th Annual Meeting, Anaheim, CA, 5-7 January 1993, 83 (May 1993): 358.
45. Pamela Starr, for instance, argues that hyperinflation in Argentina gave rise to a coalition of "strange bedfellows" - internationally-oriented business interests, some sectors of organized labor, and consumers - whose only common interest was to preserve low inflation. This coalition, she argues, constituted Menem's political base until 1996. See "Government Coalitions and the Viability of Currency Boards: Argentina Under the Cavallo Plan," Journal of Interamerican Studies and World Affairs 39 (Summer 1997): 83-133.
46. See O'Donnell, "The State, Democratization, and Some Conceptual Problems."
47. Vicente Palermo and Marcos Novaro, Político y poder en el gobieṙno de Menem (Buenos Aires: Grupo Editorial Norma, 1996), 244.
48. Ibid.; and Guillermo O'Donnell, "Delegative Democracy?" (Working Paper no. 172, Kellogg Institute, University of Notre Dame, 1992).
49. Bunge & Born (B&B) had always been seen as the nemesis of Peronism. In the early 1970s, Peronist guerrillas kidnapped top B&B executives in what became one of the most notorious and folkloric episodes in Peronist-business animosity ever. Likewise, the Ucedé comprised the most anti-Peronist sectors of Argentina, including military-sympathizers. Thus, most Argentines were shocked to learn that Menem invited B&B executives Jorge Roig and then Néstor Rapanelli and Ucedé president Álvaro Alsogaray to join the government (the first two as minister of the Economy, the latter as main adviser on foreign debt issues).
50. The new Congress was not scheduled to start until December 1989. Between July and December 1989, the PJ was the largest minority in the Senate, two seats short of a majority and the second minority in the Chamber of Deputies. This Congress granted Menem the Law of State Reform, which mandated the privatizations of several hundred SOEs, and the Law of Economic Emergency, which froze all state subsidies and grants for a period of 180 days. The UCR showed its good will by providing the necessary quorum for these sweeping reforms.
51. Ministerio de Economía y Obras y Servicios Públicos, Informe Económico Trimestral (Buenos Aires: Ministerio de Economía, various issues).
52. See Centro de Estudios Unión para la Nueva Mayoría. "Conflictos Laborales," (Buenos Aires, various years, mimeographed).
53. See Delia Ferreira Rubio and Matteo Goretti, "Gobierno por decreto en Argentina (1989-1993)," El Derecho, Universidad Católica Argentina 32 (June 1994): 1-8.
54. Palermo and Novaro, Política y poder en el gobierno de Menem, 165.
55. Menem's initial reaction to the ambassador's accusation revealed how close he was to changing course. He lambasted the U.S. government for meddling in the internal affairs of Argentina instead of worrying about the legal troubles of George Bush's son. The Argentine press credits Domingo Cavallo for persuading Menem, against the advice of many other advisers, to moderate his remarks and persevere in the reforms. (See Clarín, 12 January 1991.)
56. Clarín, 19 January 1991, 14-15.
57. Carta Económica, February 1991.
58. Ibid.
59. Miguel A. Kiguel and Nissan Liviatan, "Stopping Three Big Inflations: Argentina, Brazil, and Peru" in Rudiger Dornbusch and Sebastian Edwards, eds., Reform, Recovery and Growth (Chicago: The University of Chicago Press, 1995).
60. International Monetary Fund, World Economic Outlook October 1996 (Washington, DC: International Monetary Fund, 1996), 114.
61. A summary table of this data is available from the author.
62. Luiz Carlos Bresser Pereira, "Economic Reforms and Economic Growth: Efficiency and Politics in Latin America" in Luis Carlos Bresser Pereira, José María Maravall, and Adam Przeworski, eds., Economic Reforms in New Democracies: A Social-Democratic Approach (Cambridge, UK: Cambridge University Press, 1993).
63. Eduardo Quintero, "The Venezuelan Case" in Rapporteur's report by Karissa Price, Credible Signals of Reforming Governments: What to Believe? Conference sponsored by Baring Asset Management Inc. and the Center for International Affairs, Harvard University, Cambridge, MA, 6 February 1995, 12.
64. Poll conducted in the last week of January 1989, shortly before Pérez's inauguration and one month before the Caracazo, in David Myers, "Problemas y agenda para la gobernabilidad democrática" in Andrés Serbín, Andrés Stambouli, Jennifer McCoy, and William C. Smith, eds., Venezuela: la democracia bajo presión (Caracas: Instituto Venezolano de Estudios Sociales y Políticos y Editorial Nueva Sociedad, 1993).
65. William Schulz, "Opinión pública, comportamiento electoral y la crisis política de los años noventa" (paper prepared for Consultores 21, Caracas, mimeographed, 1994). Like many other pollsters, Schulz finds it inexplicable that this widespread perception of hardship did not translate into widespread rejection of the president in office, Jaime Lusinchi. In fact, Lusinchi concluded his mandate with extraordinarily high approval ratings. This situation contrasts sharply with that of Argentina, where citizen perception of personal and national hardship translated into very low approval ratings for the incumbent, Raúl Alfonsín.
66. Aníbal Romero, "Rearranging the Deck Chairs on the Titanic: The Agony of Democracy in Venezuela," Latin American Research Review 32 (1997): 12.
67. Quintero, "The Venezuelan Case." See also Naim, Paper Tigers and Minotaurs; and Serbín, Stambouli, McCoy, and Smith, eds., Venezuela: la democracia bajo presión.
68. Quintero, "The Venezuelan Case." See also Naim, Paper Tigers and Minotaurs; and Serbín, Stambouli, McCoy, and Smith, eds., Venezuela: la democracia bajo presión.
69. Quintero, "The Venezuelan Case." See also Naim, Paper Tigers and Minotaurs; and Serbín, Stambouli, McCoy, and Smith, eds., Venezuela: la democracia bajo presión.
70. For instance, the administration held regular meetings (more than twice a month) with the ruling party, the opposition, labor and business leaders, etc. In addition, massive TV campaigns were launched in support of CANTV's privatization and tax reform.
71. In reality, only a small portion of the electorate in 1989 truly believed that the solution was a more intense type of market-oriented reforms such as Menem implemented, and these were mostly found in the small conservative party, the Ucedé. This party, however, was the least likely to expect that Menem would strike the right chord.
72. See Eduardo Catterberg, Los argentinos frente a la política: Cultura política y opinión pública en la transición argentina a la democracia (Buenos Aires: Editorial Planeta, 1989). Another poll even revealed that only 25.5 percent of Argentines had a positive image of privatization policies compared to 38.6 percent who expressed having a negative image. Carta Económica, February 1994.
73. See Eduardo Catterberg, Los argentinos frente a la política: Cultura política y opinión pública en la transición argentina a la democracia (Buenos Aires: Editorial Planeta, 1989). Another poll even revealed that only 25.5 percent of Argentines had a positive image of privatization policies compared to 38.6 percent who expressed having a negative image. Carta Económica, February 1994.
74. Dani Rodrik, "Promises, Promises: Credible Policy Reform Via Signalling," The Economic Journal 99 (September 1989): 756-772.
75. See Javier Corrales, "Why Argentines Followed Cavallo: A Technopol Between Democracy and Economic Reforms" in Jorge I. Domínguez, ed., Technopols: Ideas and Leaders in Freeing Politics and Markets in Latin America in the 1990s (University Park: Penn State Press, 1997).
76. For a more detailed account, see Javier Corrales, "From Market-Correctors to Market-Creators: Executive-Ruling Party Relations in the Economic Reforms of Argentina and Venzuela, 1989-1993" (unpublished Ph.D. dissertation, Harvard University, May 1996).
77. Michael Coopedge, Strong Parties and Lame Ducks: Presidential Partyarchy and Factionalism in Venezuela (Stanford: Stanford University Press, 1994).
78. Even the IMF disliked this program. See Domingo F. Cavallo and Joaquín A. Cottani. "Argentina's Convertibility Plan and the IMF," American Economic Association Papers and Proceedings 87 (May 1997): 18-19.
79. Richard Stahler-Sholk, "The Dog that Didn't Bark: Labor Autonomy and Economic Adjustment in Nicaragua under the Sandinista and UNO Governments," Comparative Politics 28 (October 1995): 86; Luiz Carlos Bresser Pereira, "Brazil" in John Williamson, ed., The Political Economy of Policy Reform (Washington, DC: Institute for International Economics, 1994).
80. Richard Stahler-Sholk, "The Dog that Didn't Bark: Labor Autonomy and Economic Adjustment in Nicaragua under the Sandinista and UNO Governments," Comparative Politics 28 (October 1995): 86; Luiz Carlos Bresser Pereira, "Brazil" in John Williamson, ed., The Political Economy of Policy Reform (Washington, DC: Institute for International Economics, 1994).
81. Jeffrey Sachs, "Life in the Economic Emergency Room" in Williamson, ed.. The Political Economy of Policy Reform, 507.
82. William Nylen, "Liberalismo para todo mundo, menos eu: Brazil and the Neoliberal Solution" in Ezra N. Suleiman and John Waterbury, eds., The Political Economy of Public Sector Reform and Privatization (Boulder, CO: Westview Press, 1990).
83. Przeworski, Democracy and the Market.