The political left, the export boom, and the populist temptation

Chapter · January 2011with 179 Reads
Abstract
In the late 1980s, influential articles by Jeff rey Sachs (1989) and Rudiger Dornbusch and Sebastian Edwards (1990) traced strong parallels between populist responses to the debt crisis of the 1980s under Alan García in Peru and earlier experiences with redistributive macroeconomic policies pursued under Juan Perón in the late 1940s and Salvador Allende in the 1970s. Each study showed that, despite important ideological and political diff erences, these governments adopted approaches that followed remarkably similar trajectories. Eschewing orthodox strictures pushed by the International Monetary Fund (IMF), each engaged in fiscal and monetary expansion and exchange rate appreciation intended to shift income to "popular" groups in the service sector and the import substitution industrialization (ISI) sector. All discounted the risks of inflation posed by such policies and relied instead on extensive price controls and foreign exchange rationing to maintain stability and subsidize ISI industries. Most important, as foreign exchange reserves were depleted and fiscal pressures mounted, the policies in each of these cases ended in inflationary disasters and economic collapse. © 2011 The Johns Hopkins University Press. All rights reserved.
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