The Politics of Market Discipline in Latin America: Globalization and Democracy

256 Pages·2015·1.401 MB·English

by  Daniela Campello

ThePoliticsofMarketDisciplineinLatinAmerica
ThePoliticsofMarketDisciplineinLatinAmericausesamultimethod
approachtochallengetheconventionalwisdomthatfinancialmarkets
impose broad and severe constraints over leftist economic policies in
emergingmarketcountries.Itshows,rather,thatinLatinAmericathis
influence varies markedly among countries and over time, depending
on cycles of currency booms and crises exogenous to policy making.
Market discipline is strongest during periods of dollar scarcity that,
inthelow-savings,commodity-exportingcountriesoftheregion,hap-
pen when commodity prices are high and international interest rates
are low. In periods of dollar abundance, when the opposite occurs,
markets’ capacity to constrain leftist governments becomes very lim-
ited. Ultimately, Daniela Campello argues that financial integration
should force a long-term moderation of the Left in economies less
subjecttothesecycles,butnotinthosemostvulnerabletothem.
Daniela Campello is an assistant professor of politics and inter-
national affairs at the Getu´lio Vargas Foundation (FGV), Brazil.
Before joining the FGV in July 2013, Campello was an assistant
professorinthedepartmentofpoliticsandattheWoodrowWilson
School of Public and International Affairs at Princeton University.
Her work has been published in Comparative Political Studies,
ReviewofInternationalPoliticalEconomy,andTheOxfordHand-
bookofLatinAmericanPoliticalEconomy,andineditedvolumes
publishedintheUnitedStates,Spain,Uruguay,andBrazil.

The Politics of Market Discipline in
Latin America
Globalization and Democracy
DANIELA CAMPELLO
Getu´lioVargasFoundation(FGV),Brazil
32AvenueoftheAmericas,NewYork,NY10013-2473,USA
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Firstpublished2015
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AcatalogrecordforthispublicationisavailablefromtheBritishLibrary.
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Campello,Daniela,1970–
ThepoliticsofmarketdisciplineinLatinAmerica:globalizationand
democracy/DanielaCampello.
pages cm
Includesbibliographicalreferencesandindex.
ISBN978-1-107-03925-4(hardback)
1. Capitalmarket–Politicalaspects–LatinAmerica. 2. Finance–Politicalaspects–Latin
America. 3. Rightandleft(Politicalscience)–Economicaspects–LatinAmerica.
4. Elections–Economicaspects–LatinAmerica. 5. LatinAmerica–Politicsand
government. 6. LatinAmerica–Economicpolicy. I. Title.
HG5160.5.A3C35 2014
(cid:2)
332.0415098–dc23 2014032392
ISBN978-1-107-03925-4Hardback
CambridgeUniversityPresshasnoresponsibilityforthepersistenceoraccuracyof
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ToGeorgetteandManoel

Contents
ListofIllustrations page viii
ListofTables x
Acknowledgments xi
1 Globalization,Democracy,andMarketDiscipline 1
2 BetweenVotesandCapital:Redistributionand
UncertaintyinUnequalDemocracies 26
3 Investors’“Vote”inPresidentialElections 45
4 ThePoliticsofCurrencyBoomsandCrises:Explaining
theInfluenceofInvestors’“Vote” 64
5 CurrencyCrisis,PolicySwitch,andIdeological
ConvergenceinBrazil 87
6 ExogenousShocksandInvestors’PoliticalClout
inEcuador 118
7 OnePresident,DifferentScenarios:Crisis,Boom,and
MarketDisciplineinVenezuela 136
8 “VivirconLoNuestro”:DefaultandMarket
DisciplineinArgentina 159
9 WhoGoverns?MarketDisciplineintheDeveloped
World 188
10 Conclusion:Markets’VoteandDemocraticPolitics 214
References 221
Index 233
vii
Illustrations
1.1 CapitalAccountLiberalizationinLatinAmerica page 7
1.2 TheEvolutionofFinancialMarkets 8
1.3 CommodityExports 14
1.4 Commodity,InterestRates,andGDPinLatinAmerica 15
1.5 GovernmentRevenuesbetweenGoodandBadTimes 17
1.6 CommodityPricesandInterestRates 18
1.7 Vulnerability,InternationalScenario,andMarket
Discipline 21
1.8 Vulnerability,InternationalScenario,andEconomicPolicy
Making 22
2.1 CapitalFlightandIncomeofthePoorasFunctionof
Taxation 32
2.2 FinancialGlobalizationandOptimalTaxation 33
2.3 Left–RightPolicyDistanceasaFunctionofIncomeInequality 34
2.4 StateoftheEconomyandOptimalTaxation 38
2.5 ExogenousShocksandPolicySwitches 41
3.1 CausalModel 53
3.2 InternationalScenario:The“GoodEconomicTimes”Index
andItsComponents 56
4.1 PolicySwitchesandCurrencyCrisesinLatinAmerica 66
4.2 ImpactofCrisesandBoomsonPolicySwitches 77
4.3 ImpactofPoliticalFactorsonPolicySwitches 78
4.4 RobustnessCheck–Case-wiseDeletion 79
5.1 StockMarketBehavior:1994and2002Presidential
Elections 96
5.2 CurrencyPressuresintheBrazilian2002Election 101
viii