422 Inflation and Stabilization
in authoritarian regimes, and may not be relevant for policy making in some arenas
even under democratic conditions. For example, monetary policy and the details
of budgeting may have more to do with internal bureaucratic politics or the
independence of the central bank, than with electoral or party constraints.
The absence of democratic processes in the developing world may help
explain the attraction of lobbying and rent-seeking models, which can
presumably be applied to both democratic and authoritarian regimes. Democracy
may not be ubiquitous, but lobbying is. Yet interest group pressures constrain
authoritarian rulers less than they do democratic rulers. It is thus plausible
that the political regime can be an important factor in explaining the ability to
impose stabilization costs.
These observations suggest the importance of combining interest group and
partisan explanations with an analysis of the overall institutional context: the nature
of the party system, the budget process, and the type of regime. This analysis can
be illustrated, though not definitively tested, by examining some hypotheses about
the variation in inflation and stabilization efforts among the middle-income countries.
POLITICS AND INFLATION IN MIDDLE-INCOME COUNTRIES
Although the debt crisis of the 1980s has had global implications, its effects have
been felt quite differently in various geographic regions. Among the middle-income
countries, Latin America has been the hardest hit. Twelve of the seventeen countries
designated by the World Bank as the most heavily indebted are in the Western
Hemisphere. The most severe problems with inflation are found in that region as
well. By contrast, the middle-income countries of East and Southeast Asia—South
Korea, Taiwan, Indonesia, Thailand, Malaysia, and the Philippines—have largely
been immune from devastating inflations.
... [Differences in inflation are not simply the result of recent events. Before
the onset of the debt crisis, Latin America consistently had higher levels of inflation
than other developing countries, though there are important contrasts within regions.
Brazil, Chile, and Uruguay all have histories of comparatively high inflation. The
current hyperinflations in Brazil and Argentina are outside the range of those
countries’ historical experience, but both have experienced severe inflations before.
Other Latin American countries, including Colombia, Venezuela, and Mexico,
have not had chronically high levels of inflation, though all have suffered increasing
inflationary pressures in recent times. Peru, historically a low-inflation country
compared with the Southern Cone nations (Argentina, Chile, and Uruguay), is
now veering toward hyperinflation.
In Asia, Thailand, Taiwan, and Malaysia have had histories of low inflation
and all largely escaped the debt crisis of the 1980s. Indonesia had a near
hyperinflation in the mid-1960s, but its fiscal and monetary policy have been
conservative since. South Korea has had high levels of debt and inflation by Asian
standards but adjusted relatively smoothly in the early 1980s. The Philippines, by
contrast, had painful problems of adjustment in 1984, though by comparison to
the Latin American debtors, that country’s difficulties appear relatively mild.