Preemptive strike: Central bank reform in Chile's transition from authoritarian rule

Comparative Politics

Volumn 30, Issue 4, 1998, Pages 443-462

  Boylan, Delia M ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

EID: 0040061940     PISSN: 00104159     EISSN: None     Source Type: Journal    
DOI: 10.2307/422333     Document Type: Article

References (81)

1. Manuel Antonio Garretón, La Posibilidad Democrática en Chile (Santiago: Cuadernos de Diffusión, FLACSO, 1989).
2. Adam Pzreworksi, "Democracy as a Contingent Outcome of Conflict," in Jon Elster and Rune Slagsted, eds., Constitutionalism and Democracy (Cambridge: Cambridge University Press, 1988).
3. Terry Karl, "Dilemmas of Democratization," Comparative Politics, 23 (October 1991), 1-21.
4. J. Samuel Valenzuela, "Democratic Consolidation in a Post-Transitional Setting: Notion, Process, and Facilitating Conditions," in Scott Mainwaring, Guillermo O'Donnell, and J. Samuel Valenzuela, eds., Issues and Prospects of Democratic Consolidation: The New South American Democracies in Comparative Perspective (Notre Dame: University of Notre Dame Press, 1992).
5. Guillermo O'Donnell and Philippe C. Schmitter, "Tentative Conclusions about Uncertain Democracies," in Guillermo O'Donnell, Philippe C. Schmitter, and Laurence Whitehead, eds., Tentative Conclusions about Uncertain Democracies (Baltimore: The Johns Hopkins University Press, 1986), p. 4.
6. See Torsten Persson and Guido Tabellini, eds., Monetary and Fiscal Policy, Volume 1: Credibility (Cambridge, Mass.: MIT Press, 1994).
7. Finn Kydland and Edward Prescott, "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, 85 (1977), 473-492; Robert Barro and D. Gordon, "Rules, Discretion, and Reputation in a Model of Monetary Policy," Journal of Monetary Economics, 12 (July 1983), 101-22; Robert Barro and D. Gordon, "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, 91 (1983), 589-610.
8. Finn Kydland and Edward Prescott, "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, 85 (1977), 473-492; Robert Barro and D. Gordon, "Rules, Discretion, and Reputation in a Model of Monetary Policy," Journal of Monetary Economics, 12 (July 1983), 101-22; Robert Barro and D. Gordon, "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, 91 (1983), 589-610.
9. Finn Kydland and Edward Prescott, "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, 85 (1977), 473-492; Robert Barro and D. Gordon, "Rules, Discretion, and Reputation in a Model of Monetary Policy," Journal of Monetary Economics, 12 (July 1983), 101-22; Robert Barro and D. Gordon, "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, 91 (1983), 589-610.
10. John T. Woolley, Monetary Politics (New York: Cambridge University Press, 1984); Alex Cukierman, Central Bank Strategy, Credibility and Independence: Theory and Evidence (Cambridge, Mass.: MIT Press, 1992).
11. John T. Woolley, Monetary Politics (New York: Cambridge University Press, 1984); Alex Cukierman, Central Bank Strategy, Credibility and Independence: Theory and Evidence (Cambridge, Mass.: MIT Press, 1992).
12. Kenneth Rogoff, "The Optimal Degree of Commitment to an Intermediate Monetary Target," Quarterly Journal of Economics, 100 (1985), 1169-90.
13. Sylvia Maxfield, "Gatekeepers of Growth" (unpublished ms., 1995).
14. This conclusion is true whether one chooses to employ formal (legal) measures of central bank independence or informal (behavioral) ones. See Alex Cukierman, Steven B. Webb, and Bilin Neyapti, "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," The World Bank Economic Review, 6 (1993), 353-98.
15. Douglas A. Hibbs, Jr., "Political Parties and Macroeconomic Policy," American Political Science Review, 71 (December 1977), 1467-87.
16. Alberto Alesina, "Macroeconomics and Politics," NBER Macroeconomics Annual (Cambridge, Mass.: National Bureau of Economic Research, 1988).
17. Vittorio Grilli, Donato Masciandaro, and Guido Tabellini, "Political and Monetary Institutions and Public Financial Policies in the Industrial Countries," Economic Policy, 13 (October 1991), 341-92.
18. Patricia S. Pollard, "Central Bank Independence and Economic Performance," Federal Reserve of Saint Louis Monthly Review (July-August 1994), 21-36. An important exception to this claim is Alberto Alesina and Lawrence H. Summers, "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money and Banking, 25 (May 1993), 151-62, which argues that central bank autonomy has no adverse employment or growth effects. However, their evidence, based solely on correlations among a handful of industrialized nations, is statistically quite rudimentary.
19. Patricia S. Pollard, "Central Bank Independence and Economic Performance," Federal Reserve of Saint Louis Monthly Review (July-August 1994), 21-36. An important exception to this claim is Alberto Alesina and Lawrence H. Summers, "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money and Banking, 25 (May 1993), 151-62, which argues that central bank autonomy has no adverse employment or growth effects. However, their evidence, based solely on correlations among a handful of industrialized nations, is statistically quite rudimentary.
20. Carl E. Walsh, "Central Bank Independence and the Short-Run Output-Inflation Tradeoff in the European Community," in Barry Eichengreen, Jeffry Frieden, and Jurgen von Hagen, eds., Monetary and Fiscal Policy in an Integrated Europe (New York: Springer-Verlag, 1995).
21. For a similar argument to explain policy choices over government debt, see Alberto Alesina and Guido Tabellini, "A Positive Theory of Fiscal Deficits and Government Debt," The Review of Economic Studies, 57 (1991), 403-14.
22. Alex Cukierman, "Commitment through Delegation, Political Influence, and Central Bank Independence," in J. A. H. de Beaufort Wijnholds, S. C. W. Eiffinger, and L. H. Hoogdin, eds., A Framework for Monetary Stability (Boston: Kluwer Academic Publishers, 1993); John B. Goodman, Monetary Sovereignty: The Politics of Central Banking in Western Europe (Ithaca: Cornell University Press, 1992).
23. Alex Cukierman, "Commitment through Delegation, Political Influence, and Central Bank Independence," in J. A. H. de Beaufort Wijnholds, S. C. W. Eiffinger, and L. H. Hoogdin, eds., A Framework for Monetary Stability (Boston: Kluwer Academic Publishers, 1993); John B. Goodman, Monetary Sovereignty: The Politics of Central Banking in Western Europe (Ithaca: Cornell University Press, 1992).
24. See Jacub Zielinsky, "Political Parties and Central Bank Autonomy," paper prepared for the Annual Meeting of the Midwest Political Science Association, Chicago, April 6-8, 1995.
25. Cukierman, Central Bank Strategy, pp. 47-82.
26. In contrast, Alex Cukierman and Stephen Webb, "Political Influence on the Central Bank: International Evidence," The World Bank Economic Review, 9 (1995), 397-423, claim to find a positive relationship between shortened time horizons and the political manipulation of the central bank in developing countries, especially during moments of regime change. But their data examine changes in central bank independence exclusively in the posttransition setting and leave open to question how much manipulation actually takes place before elites leave power.
27. One might be inclined to ask why authoritarian rulers should care about the future at all, particularly since they know that they may never regain power. Short of the rare case of violent revolution, exiting elites do not disappear; they will therefore retain an interest in the system and be vulnerable to how it affects them.
28. Michael C. Jensen, "Organization Theory and Methodology," Accounting Review, 8 (April 1983) 319-87.
29. Paul R. Milgrom, Douglass C. North, and Barry R. Weingast, "The Role of Institutions in the Revival of Trade: The Law Merchant, Private Judges, and the Champagne Fairs," Economics and Politics, 2 (March 1990), 1-22.
30. O'Donnell and Schmitter, ch. 6.
31. Alberto Alesina, "Political Models of Macroeconomic Policy and Fiscal Reforms," in Stephan Haggard and Steven B. Webb, eds., Voting for Reform: Democracy, Political Liberalization, and Economic Adjustment (Washington, D.C.: The World Bank, 1994), p. 46.
32. Stephan Haggard and Robert R. Kaufman, "Economic Adjustment in New Democracies," in Joan M. Nelson, ed., Fragile Coalitions: The Politics of Economic Adjustment (Washington, D.C.: The Overseas Development Council, 1989).
33. Geoffrey Garrett and Peter Lange, "Internationalization, Institutions, and Political Change," International Organization, 49 (Autumn 1995), 633-36.
34. As Juan J. Linz, "Totalitarian and Authoritarian Regimes," in Fred Greenstein and Nelson Polsby, eds., Handbook of Political Science, vol. 3 (Reading: Addison-Wesley, 1975), notes, authoritarian regimes must accommodate the interests of some constituency in order to survive. In positing that this constituency is capital, I am adapting Lindblom's argument about the "privileged position of business" in capitalist democracies. See Charles Lindblom, Politics and Markets (New York: Basic Books, 1977). Under democratic rule the power of business is sometimes mitigated by voters' needs and interests; under authoritarian rule capital in effect becomes the government's constituency.
35. As Juan J. Linz, "Totalitarian and Authoritarian Regimes," in Fred Greenstein and Nelson Polsby, eds., Handbook of Political Science, vol. 3 (Reading: Addison-Wesley, 1975), notes, authoritarian regimes must accommodate the interests of some constituency in order to survive. In positing that this constituency is capital, I am adapting Lindblom's argument about the "privileged position of business" in capitalist democracies. See Charles Lindblom, Politics and Markets (New York: Basic Books, 1977). Under democratic rule the power of business is sometimes mitigated by voters' needs and interests; under authoritarian rule capital in effect becomes the government's constituency.
36. One might argue that, because of their tendency to privilege electoral and constituency considerations over low inflation, left-leaning governments stand to benefit most from the credibility supplied by an autonomous central bank. See Beth A. Simmons, "Rulers of the Game: Central Bank Independence during the Interwar Years," International Organization, 50 (Summer 1996), 407-43. Despite the potential long-term positive externalities that central bank autonomy may establish, this article emphasizes its short-term costs.
37. The "proximity of threat" variable is conceptually clear but difficult to measure. I use the strength of the democratic opposition to measure it on the assumption that it should reveal something about the relative imminence of democratization.
38. Cukierman, Central Bank Strategy.
39. David Kreps, "Corporate Culture and Economic Theory," in James Alt and Kenneth Shepsle, eds., Positive Perspectives on Political Economy (New York: Cambridge University Press, 1991).
40. Latin American Weekly Report, May 12, 1994.
41. Lloyd Gerard Gruber, "Ruling the World: Power Politics and the Rise of Supranational Institutions" (unpublished ms., 1997).
42. Brian Loveman, "Misión Cumplida? Civil Military Relations and the Chilean Political Transition," Journal of Interamerican Studies and World Affairs, 33 (1991), 35-74.
43. Juan Andrés Fontaine, "Banco Central: Autonomía Para Cautelar la Estabilidad," Cuadernos de Economia, 26 (April 1989), 66.
44. Political Constitution of the Republic of Chile, Article 97.
45. The "Chicago boys" were a group of U.S.-trained Chilean economists whose monetarist prescriptions shaped economic policy under early military rule in Chile.
46. Ramón Briones Espinosa, "Informe Sobre El Proyecto de Ley Sobre El Banco Central en Trámite en la Junta del Gobierno" (Santiago, Chile: Comité de Reformas Políticas de la Concertación ms., 1989), p. 37.
47. Jeffry Frieden, Debt, Development, and Democracy: Modern Political Economy and Latin America:1965-85 (Princeton: Princeton University Press, 1991), ch. 5.
48. See "Autonomía del Banco Central es Mandato Constitucional," El Mercurio, Nov. 25, 1988.
49. Rodrigo Valdés, "Cuantificación de la Reestructuración Sectorial Generada por la Liberalización Comercial Chilena," Colección Estudios Cieplan, 35 (September 1992), 55-83.
50. Eduardo Silva, "The Political Economy of Chile's Regime Transition: From Radical to 'Pragmatic' Neo-Liberal Policies," in Paul W. Drake and Iván Jaksic, eds., The Struggle for Democracy in Chile: 1982-1990 (Lincoln: University of Nebraska Press, 1991), pp. 110-14.
51. Guillermo Campero, "Entrepreneurs under the Military Regime," in Drake and Jaksic, eds., pp. 143-46.
52. Based on interviews of several of the key figures involved in drafting the reform, Santiago, Chile, April-June, 1995.
53. Maxfield.
54. Genaro Arriagada, La Política Militar de Pinochet (Santiago: Salesianos, 1985).
55. Pamela Constable and Arturo Valenzuela, A Nation of Enemies (New York: W. W. Norton, 1991), p. 297.
56. Roberto Méndez, Oscar Godoy, Enrique Barros, and Arturo Fontaine Talavera, "Por Qué Ganó el No?," Estudios Públicos, 33 (Summer 1989), 96.
57. Manuel Antonio Garretón, "La Redemocratización Política en Chile: Transición, Inauguración, y Evolución," Estudios Públicos, 42 (Fall 1991), 101-33.
58. Genaro Arriagada and Carol Graham, "Chile: Sustaining Adjustment during Transition," in Haggard and Webb, eds., Voting For Reform, pp. 264-65.
59. See comments by Fernando Canitrot in "El Futuro de la Política Económica," Industria (October 1988), 7.
60. Ascanio Cavallo, Los Hombres de la Transición (Santiago: Editorial Andrés Bello, 1992), pp. 150-52.
61. Patricio Aylwin, Programa de Gobierno de la Concertación (Santiago: Fundación Aylwin, 1990).
62. Alfredo Rehren, "Empresarios, Transitión y Consolidación Democrática en Chile" (unpublished ms., 1995), pp. 44-47.
63. Cecilia Montero, "El Actor Empresarial en Transición," Colección Estudios Cieplan, 37 (June 1993), 54.
64. In fact, in the year before the plebiscite the government introduced a series of measures designed to stimulate the economy. See Ricardo Ffrench-Davis and Oscar Muñoz, "Desarrollo Económico, Inestabilidad y Desequilibrios Políticos en Chile: 1950-1989," Colección Estudios Cieplan, 28 (June 1990), 142.
65. A clause impeding central bank loans to the executive was also in the 1980 constitution, although it had not carried much weight under authoritarian rule.
66. Roberto Zahler, "La Inserción Institucional del Banco Central de Chile," Cuadernos de Economía, 26 (April 1989), 101.
67. Comment by Ernesto Edwards in "Se Busca Instalar Equipo Económico Paralelo en el Banco Central," El Diario, Nov. 28, 1989; Zahler, p. 102.
68. Comment by Ernesto Edwards in "Se Busca Instalar Equipo Económico Paralelo en el Banco Central," El Diario, Nov. 28, 1989; Zahler, p. 102.
69. Interview of Carlos Cáceres, former minister of the interior, May 16, 1995, Santiago, Chile.
70. Interview of Ricardo Ffrench-Davis, monetary policy coordinator for the Concertación, April 18, 1995, Santiago, Chile.
71. David Hojman, "Chile after Pinochet: Aylwin's Christian Democrat Economic Policies for the 1990s," Bulletin of Latin American Research, 9 (1990), 33.
72. Interview of José Pablo Arrellano, director of the budget under Eduardo Frei, May 2, 1995, Santiago, Chile.
73. Zahler, pp. 106-07.
74. José Pablo Arrellano, "Comentarios al Proyecto de Ley del Banco Central," Cuadernos de Economía, 26 (April 1989), 91-96; Carlos Massad, "La Función Técnica y La Función Politica del Banco Central: Anatomía Prenatal," Cuadernos de Economía, 26 (April 1989), 75-90.
75. José Pablo Arrellano, "Comentarios al Proyecto de Ley del Banco Central," Cuadernos de Economía, 26 (April 1989), 91-96; Carlos Massad, "La Función Técnica y La Función Politica del Banco Central: Anatomía Prenatal," Cuadernos de Economía, 26 (April 1989), 75-90.
76. Confidential interviews of high-ranking central bank officials, April-June 1995, Santiago, Chile.
77. Interview of Ricardo Ffrench-Davis.
78. Rehren, p. 36.
79. Silva, "The Political Economy of Chile's Regime Transition," p. 119.
80. Alvaro Calderón and Stephany Griffith-Jones, "Los Flujos de Capital Extranjero en la Economía Chilena: Renovado Acceso y Nuevos Usos," Working Paper No. 37 (Santiago, Chile: CEPAL, 1994), p. 6.
81. Hojman, p. 35.