Latin America’s Populist Cycles

LA PAZ ‒ Populism in Latin America is at a low point. But, though mounting economic problems facing Venezuela and Argentina might presage a return to market-based economic policies in the short term, this will not end the familiar cycle of populism, profligacy, pain, and pragmatism that has long characterized the region.

Populist parties’ rise to power in recent decades benefited from soaring commodity prices, which generated an export windfall that allowed political leaders to spend generously on the poor. However, with prices now softening, revenues can no longer cover the social subsidies that have underpinned populist rule. Furthermore, ineptitude and corruption in redistributing wealth have become more apparent as the region’s economies deteriorate, weakening governments’ legitimacy.

A populist regime can function over the long run only if there are sustainable funds on which to draw. (It also helps when the ruling party has a powerful enough mandate to run roughshod over the rule of law and minority rights.) Simply put, populists seldom build a healthy economy. Instead, they tend to plunder the productive sectors, and when the money is gone, they are either devoured by the crises they created or forced to change course to survive.

Argentina provides a valuable example. Periods of failed populism – featuring state controls over prices, exchange rates, and businesses to redistribute wealth – have been followed by economic reform and liberalization (often by the very same ruling Peronist party). But memories of easy money and frustrated expectations tend to leave voters susceptible to new spending promises. As soon as the economic crisis recedes, the populist cycle begins again.