Will Prudence Prevail? Michael Reid
Waiting in the wings: leaders José Serra (Brazil), Dilma Roussef (Brazil) and Eduardo Frei (Chile). Future presidents?
AP Photo/Andre Penner; MAUrICIo LIMA/AFP/Getty IMAGes; AP Photo/roberto CAndIA
channel some stimulus measures. One finance minister who had previously hoped to privatize a state
development bank says that he has now changed his
mind, although that involves resigning himself to the
relative inefficiency of such instruments. For better
or worse, it is only a short step from this to the adoption of industrial policy (never abandoned by Brazil).
Conversely, those who were happy to proclaim the
irrelevance (or worse) of the IMF, the World Bank and
the Inter-American Development Bank
will find that these institutions have an
important role to play in the region in
the next few years.
A second challenge is to find practical approaches to preserve as many as
possible of the social gains of the golden years. Moderate reformists will only
retain credibility if they find ways to
strengthen anti-poverty programmes
such as conditional cash-transfer schemes, and develop innovative strategies to preserve jobs, especially
in the formal sector. They will also need to shield
spending on education and health.
A third threat is the most obvious one. The longer
and deeper the world recession, the greater are the
chances of radical and unpredictable political change
in Latin America. Latin American governments should
be able to finance a moderate dose of deficit spending this year. But thereafter they risk getting crowded out of international bond markets by the massive
borrowing of developed countries just when recession
drives down tax revenues in the region. By 2010, if the
United States and Europe haven’t managed to clean
up their banking systems, and if there are no signs of
economic recovery, then financial stability—the most
precious achievement of the current democratic period in Latin America—will be at risk.
In that case, much will depend on how the
region’s new lower-middle class, the chief beneficiaries of stability and globalization, will react. Populists might well be strengthened—and they could as
easily be of the right as the left. Mussolini has always
been more influential in Latin America than Marx.
But we are not there yet, fortunately. The golden
quinquennium of growth was underpinned by abundant world liquidity and high commodity prices, and
by better fiscal and monetary policies in many Latin
American countries. With the first two factors gone,
adhering to those policies has become even more
important. This is the main reason to believe that the
pragmatic, reformist center will emerge strengthened
by the travails of this difficult year. If that happens, it
will be a tribute to the resilience of the democracies
that Latin Americans have built.
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