Independent central banks have cut interest rates as falling commodity prices have translated into falling inflation. [...] because of a rigorous fiscal rule which requires the government to save most of the windfall when the copper price rises above its longterm average, Chile was able to launch a fiscal stimulus worth 2.7 percent of GDP in January. [...] 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.
How will they respond? Presidents Lula of Brazil, Fernández de Kirchner of Argentina and Morales of Bolivia will all find difficult economic choices in the months ahead. Within two years of the Wall Street crash of cal consequences were even more profound and last- 1929 there were military coups in seven Latin Ameri- ing. In the decades between 1870 and 1930—the first can countries, including Brazil and Argentina. The great period of globalization—a liberal order that Great Depression that followed hit the region hard: combined export-led growth with civilian represen- ten countries saw the value of their exports fall by tative government, albeit of an oligarchic character, more than half between 1928 and 1932. (Chile’s total was gradually established in much of Latin America. trade fell by no less than 83 percent.) But the politi- The Depression swept this away. In its place came inward-looking, more statist economic policies and political volatility, with dictatorship punctuated by Michael Reid is Americas Editor of The Economist. brief democratic interludes. The paperback edition of his book Forgotten Will the new depression, as some economists are Continent: The Battle for Latin America’s Soul (Yale already calling it, have a similarly destabilizing effect University Press) was published in March 2009. on Latin American politics? 64 Americas Quarterly s p r i n g 2009 A m e r i c A s Q u A r t e r ly . o r g Can Latin American electorates hold back the populist temptation in the teeth of a recession? by Michael Reid Will Prudence Prevail? There is certainly cause for concern. For more than America enjoyed economic growth of more than 5.5 a year after problems first surfaced with sub-prime percent a year combined with financial stability, is mortgages in the United States, Latin America was well and truly over. There is a serious risk that many in the rare and happy position of being a bystander of the social gains of the past few years, including in a financial crisis. But after the collapse of Lehman the reduction in poverty and expanded and improved Brothers last September, along with the aggravation of provision of social services, will be reversed. That the credit crunch and its transformation into a glob- in turn could trigger unrest that would strain the al manufacturing recession of savage intensity, the democracies that in some cases have yet to command EFE/CÈzaro DE LuCa region suddenly ceased to be immune. universal consent. Normally these economic condi- Only a handful of countries can hope for any eco- tions would provide fuel for the populists who have nomic growth at all this year, and 2010 may be worse. always derived political strength from Latin Ameri- Unemployment is already rising. The golden half- ca’s deep inequalities of income and power. decade from mid-2003 to mid-2008, in which Latin Those on the left who argue that capitalism
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