The Political Economy of Macroeconomic Policy Reform in Latin America

The Political Economy of Macroeconomic Policy Reform in Latin America

The Distributive and Institutional Context

Eduardo Wiesner

Eduardo Wiesner’s book makes an important contribution to the understanding of development by blending together the interdependent issues of (i) macroeconomic performance and volatility, (ii) equity and distributive justice, (iii) fiscal deficits and the redistributive effectiveness of social public expenditures, and (iv) the demand for the ‘right’ institutions and for policy reform in Latin America. It does this by examining recent macroeconomic crises from a political economy perspective, and finds that information is the critical algorithm that links together the demand for macroeconomic stability, macroeconomic performance and, ultimately, distributive justice.

Chapter 8: Peru: From Macroeconomic Volatility to Credibility Building

Eduardo Wiesner

Subjects: development studies, development economics, economics and finance, development economics, political economy, politics and public policy, political economy

Extract

Fairness perception impacts aggregate outcomes and individual attitudes. Alesina and Angeletos (2005, p. 963) I. PERU’S POLITICAL ECONOMY PREDICAMENT Why did it take a Fujimori to adopt a Vargas Llosa reform program in 1991 to bring Peru back from the depths of a Ϫ20 per cent GDP collapse in 1988–1989? Why did the Peruvian voters shun Vargas Llosa’s proposed economic orthodoxy and elect an obscure Fujimori as their new president in 1991? What may explain Fujimori’s volte face in adopting a rigorous stabilization program that engendered fast rates of growth in the mid-1990s and brought Peru back from the cold? And, finally, why was Alan García able to get elected again in June 2006? These questions seek to identify the conditions under which policy shifts come about from the most improbable sources. Cukierman and Tommasi (1998, p. 180) point out that The history of public policy contains several episodes in which structural reforms or important economic or foreign policy shifts were implemented by parties or policy makers whose traditional position was to oppose such policies. Argentina under (Peronist) Menem, Peru under Fujimori, and Bolivia under (populist) Paz Estenssoreo underwent profound market-oriented economic reforms. The reasons why apparently only Fujimori could have adopted Vargas Llosa’s program may have been because a large segment of Peruvians, particularly the low income groups, felt that they could trust Fujimori to protect their interests against what they largely perceived as an ‘unfair’1 system. In May 2006 the voters preferred Alan García in...

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