Economic Policy and the Transition to Democracy

The 1980s brought enormous changes, both political and economic, to almost all the countries of Latin America. In the political sphere the most important change was the transition to democracy after many years of military dictatorship in a large number of countries. In the economic field we saw — after a severe crisis — reduced inflation, liberalised markets, the start of privatisation and, more generally, measures aimed at radically reducing the participation of the state in the economy. These large economic reforms were accompanied by stabilisation programmes that, superficially, appeared to have more limited objectives.

The main purpose of this chapter is to examine the difficulties involved in the democratic transition in Bolivia and to point out the circumstances that led to the implementation of the liberal economic policy that forms part of the so-called New Economic Policy (NEP). The development and prospects of this policy are also discussed. The return to democracy and its institutions took place in October 1982, whereas the NEP began to be applied almost three years later, after the enactment of Supreme Decree 21060 in August 1985. The chapter covers the administrations of Hernan Siles Zuazo, President of the democratic transition, and Víctor Paz Estenssoro and Jaime Paz Zamora, who carried the NEP forward.

This chapter describes and analyses the complex problems, restrictions and challenges that Argentinean economic policy had to face from the end of 1983. At that time the military government installed by Videla seven years earlier gave way to the democratic government led by Raúl Alfonsín. The study ends in 1992, when under the administration of Carlos Menem, and within the framework of a new stabilisation programme, the Convertibility Plan, the country reached a credit agreement with the commercial banking system, framed within the Brady Plan. The following analysis is based on several earlier studies, the formal details and econometric developments of which have been omitted here. Thus, though this history of the economy and economic policy of Argentina has been developed for the most part on models, the formal structure of these remains concealed behind the curtains, as it were, in order to make this chapter more accessible to the lay reader.

The current economic and social crisis in Brazil cannot be dissociated from the legacies of the military period (1964–84). The ‘miraculous’ economic performance of the late 1960s and early 1970s and the debtcum-growth strategy of the late 1970s did have trickle-down effects. In these two decades, and especially in the 1970s, the level of poverty fell and all income groups benefited from economic growth. However, the military governments showed little regard for distributive policies. This is true not only of income distribution, which was strongly affected by the wage policies of the period, but also of the structure of social expenditure, subsidies and transfers, which were quite regressive.

In March 1985, after more than a decade of military rule, Uruguay returned to democracy. It did so determined to restore and consolidate the full functioning of the democratic institutions that had been such a distinctive feature of its history.

Paraguay’s transition to democracy began abruptly, and inauspiciously, with a military coup in February 1989, ending the 35-year rule of General Alfredo Stroessner. Like his predecessor, General Andres Rodriguez came to power by force, sought to validate his violent rise to power with hastily held presidential elections, and, after winning the elections, proceeded to rule with the support of the Colorado Party, one of two traditional political parties in Paraguay. Unlike his predecessor, however, General Rodriguez announced that he would not seek a second term of office and set a calendar for future elections, including those for delegates to a constitutional convention.

The purpose of this chapter is to discuss Chile’s experience during the transition to democracy from 1990 to 1992. The discussion will focus primarily on the economic policies implemented, the results of which support the premise that the Chilean economy is one of the most successful in recent history. The analysis would be incomplete, however, without also examining the political situation in Chile, which helped to make this economic performance possible.