developed left-nationalist platforms, while Venezuela, Bolivia and
Nicaragua are characterized by a radical left-populist approach
entailing a redistribution of assets both nationally and internationally.
Matters of social justice and economic development are at the core
of the new LOC parties’ identity. However, in the pursuit of such
objectives, the LOC parties avoided the ill-conceived approach to
budget deficits and inflation typical of the heterodox-populist
policies of the 1980s (Dornbusch and Edwards, 1991). In fact, the
LOC economic model incorporates into its paradigm some liberal
policies such as a sound fiscal policy and low inflation, an awareness
of the inefficiencies associated with some forms of state
intervention and protectionism, the primacy of the market in setting
prices, regional trade integration and openness to foreign
investment. At the same time, its concern for poverty and
inequality, recognition of market failures and the increasing
importance assigned to strengthening state institutions are in sharp
contrast with the neo-liberal emphasis on shrinking the state and
the self-sustained role of the markets (Panizza 2005).
LOC governments have thus developed a new economic paradigm
and social contract that binds together their traditional and
emergent constituencies through a combination of macroeconomic
stability, neo-corporatist and participatory institutions,
redistribution via taxation and targeted social programs (Panizza
2005a). There are, however, built-in tensions within the new social
contract. For instance, tension exists between the fiscal and
monetary constraints required to maintain macroeconomic stability,
and the demands for higher public investment and social spending.
In addition, in some cases (such as Brazil), macroeconomic stability
was achieved by means of high interest rates and primary surpluses,
which dampened economic growth and favored financial rents over
public investment. The main components of the new LOC model
are reviewed hereafter.
(i) Macroeconomic policies. With some country variation, the
measures introduced are broadly aligned with the ‘pro-poor
macroeconomics’ paradigm (Cornia 2006). Its key elements are: