About 80 people turned up at a May 23 IMF Book Forum at IMF Headquarters in Washington, D.C., to listen to dispatches from the front lines in the “battle for Latin America’s soul” (as the cover of a recent issue of The Economist has it). The OECD’s Javier Santiso, author of Latin America’s Political Economy of the Possible, put forward the controversial hypothesis that the real story coming out of Latin America is the move to the “politics of pragmatism.”
In his opening remarks, IMF Deputy Managing Director Agustin Carstens called this “a fortunate phrase”—one that captures particularly well what has happened in the arena of monetary policies. He said that the low inflation in Latin America today compared with around 1990 is an “expression of a political consensus” that high inflation is not good for society, least of all the poor. The granting of independence to a number of central banks in the region was a reflection of that political consensus.
Pragmatism is taking hold…
Carstens hoped that people in Latin America would similarly say they were “sick and tired” of banking crises and grant greater independence to supervisory and regulatory agencies, thus enabling better financial sector policies. Periodic banking crises had set back growth in the region. Carstens called the move to pragmatism “an unfinished revolution.” It still had to take hold outside the sphere of monetary policies.
Santiso described the onset and spread of pragmatism in Brazil, Chile, and Mexico. By maintaining policy continuity through political transitions, these countries have offered other Latin American countries a model to follow. He predicted that the election in Brazil this year would result in a further “decoupling” of economic policies from political transitions.
Bolivia, Santiso acknowledged, offers the other end of the spectrum in the “menu of options” available to Latin America. The nationalization of that country’s energy sector, the Miami Herald’s Pablo Bachelet said, had introduced a schism within the left in Latin America and made it difficult to put players into “neat little boxes” such as “left versus right or pro-U.S. versus anti-U.S.” If anything, the box these days in Latin America seemed to be that of the “energy-haves versus the energy have-nots”.
IMF Western Hemisphere Department Deputy Director Charles Collyns said that Santiso’s assertion about the spread of pragmatism “matches my own personal experience” from travel in the region and meetings with policymakers over the past five years. He also cited as examples of pragmatism Brazilian President Luiz Inacio Lula da Silva’s maintenance of the fiscal framework he inherited from his predecessor and policymakers’ abstention thus far from the “spend and borrow” tendencies of the past, despite the present good times.
Picking up on Carstens’s theme, Collyns said that the realm of pragmatism “has to be expanded” into the fiscal and structural arenas. He cited Guatemala, where increased trust in the government’s ability to use taxes in the general interest is needed, so that the country’s low ratio of tax revenue to GDP can be raised, thereby providing much-needed public spending.
… or isn’t it?
The other two speakers expressed greater skepticism about Santiso’s assertion of the spread of pragmatism. The Independent Institute’s Alvaro Vargas Llosa worried that when the beneficial global waters recede, the move to pragmatism will be exposed as rather shallow because the region did not really undertake fundamental institutional reform during the 1990s shift to neoliberalism. Foreign Policy’s Moises Naim agreed. He lamented the region’s “profound intellectual bankruptcy” and said that the agenda for institutional reform had been turned into “platitudes” rather than into successful electoral platforms. Provocative as always, Naim asked why, if “Chileanismo” is such a grand success in its outcomes, so many people in Latin America continue to be drawn to “Chavezismo.”
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