426 Inflation and Stabilization
was severely limited. Both countries showed a continuity in government unparalleled
in any of the Latin American governments except Chile.
This discussion suggests that the middle-income countries of Latin America
and East and Southeast Asia can be arrayed on a continuum from very high to
low levels of group and party conflict. Argentina, Chile, Brazil, Uruguay, and
Peru appear at one extreme, with relatively large popular sectors and with political
movements and party structures that historically tended to reinforce sectoral and
class conflicts; these countries have historically also had higher levels of inflation.
At the other pole are Indonesia, Taiwan, and Thailand, where the popular sectors
were smaller and both political alliances and party structures less conducive to
the emergence of populist movements; these countries have also generally had
lower levels of inflation. The other Latin American and Asian countries fall between
these two polar types, with varying degrees of urban and working-class mobilization
and organization.
THE POLITICS OF STABILIZATION
These stylized patterns of political conflict also help explain variations in the
political management of stabilization over time. Stabilization efforts have
encountered the greatest difficulties in those countries where intense group conflicts
and persistently high levels of inflation have fed on each other over long periods
of time. In these circumstances, the capacity to impose stabilization has in the
past been linked to the nature of the political regime, suggesting once again the
importance of institutional variables in explaining policy outcomes.
There are examples of populist military governments: Bolivia in 1970–1971,
the Peruvian experiment in the early 1970s, and the first year of South Korea’s
military rule in 1961–1962. Typically, however, militaries have seized power
in the midst of political-economic crises characteristic of the later stages of
the populist cycle outlined above. They have initially pursued policies designed
to impose discipline and rationalize the economic system, in part by limiting
the demands of leftist, populist, and labor groups. This general pattern was
followed, with varying constraints, in Brazil (1964), Argentina (1966, 1976),
Indonesia (1965), Chile (1973), Uruguay (1973), and arguably South Korea
(1980–1981).
As the initial crisis is brought under control, military regimes begin to face
new problems of consolidation or transition. Old political forces resurface, and
regimes face pressure to build support and moderate the militancy of the opposition.
Brazil provides an example. The government’s decision to pursue high-growth
policies during the oil shocks coincided closely with the military’s decisions
concerning the opening of the political system.
The transition to democratic rule in such systems is likely to pose particular
problems for stabilization efforts. The transition opens the way for well-
organized and long-standing popular sector groups to reenter politics, groups
that had been controlled or repressed under military rule. High inflation and
erratic growth make the distributional and political costs of fiscal restraint