Stephan Haggard 427appear particularly formidable, but these costs are compounded by the
uncertainties associated with the transition itself. New political leaders are
necessarily preoccupied with securing the transition, and thus have relatively
short time horizons. Those political forces that have been in opposition, or
simply suppressed, are eager to press new demands on the government. As
political leaders attempt to accommodate these strongly conflicting demands,
it becomes difficult to maintain macroeconomic stability.
It could be argued, however, that the transition process is less important in
explaining macroeconomic policy than the nature of the economic problems
these governments inherited from their authoritarian predecessors. First, in
countries with chronically high inflation, both authoritarian and democratic
governments have accommodated conflicts over income shares through indexing.
Indexing itself generates inertial inflation and complicates the conduct of
monetary and fiscal policy. Second, the severity and speed of external shocks,
particularly the withdrawal of external lending, severely narrowed the range
of economic policy choice. Economic legacies, rather than political constraints,
matter; Argentina simply inherited greater difficulties than the Philippines or
South Korea.
Yet in the transitional democracies that faced high inflations, political constraints
do appear to be significant in the making of macroeconomic policy. The three
experiments with heterodox adjustment strategies—Argentina, Brazil, and Peru—
occurred in systems with a high level of popular sector mobilization. Brazil under
José Sarney and Peru under Alán García responded to high inflation with heterodox
policies in the mid-1980s that included wage-price controls and currency reforms.
In contrast to Mexico, however, neither new democratic government placed a high
priority on containing wage pressures, reducing subsidies, or controlling spending,
and both experiments ran into difficulties. Raúl Alfonsín’s middle-class government
in Argentina also pursued a heterodox shock policy to manage high inflation, but
initially placed greater emphasis on negotiating wage restraint and bringing deficits
under control. Nonetheless, fiscal policy remained a source of inflationary pressure,
stabilization efforts faltered, and political competition with the Peronists and the
anticipation of a change of government ultimately undermined the coherence of
macroeconomic policy.
The interesting exception is Uruguay, one of the most economically successful
of the new Latin American democracies. The return to constitutionalism in Uruguay
restored the dominance of the two, broad-based centrist parties that had dominated
political life until the coup in 1973, providing a framework for elite negotiation
and accord much like that in more established democratic systems such as Colombia
and Venezuela. Negotiations between the Blanco and Colorado parties led to an
economic policy agreement in early 1985 that emphasized controlling budget deficits
and inflation, promoting exports, and undertaking structural reforms.
The transition to democracy has played a less important role in explaining
macroeconomic policy in countries with a lower level of popular sector mobilization
and a greater institutional continuity in political and decision-making structures.
Not coincidentally, these countries also faced less daunting economic problems,
and it can once again be argued that economic circumstance rather than political