The political actors behind successful disinflation in Brazil and Argentina, by Yonca Ozdemir

Chronic inflation has been one of the most distinguishing macroeconomic characteristics of Latin American countries since the end of the Second World War. This study, published in Revista Brasileira de Politica Internacional (RBPI, vol. 58, 1/2015), looks at two chronic inflation cases in Latin America–Argentina and Brazil – to examine how stabilization of prices was finally accomplished in early 1990s after decades of repeated failures by looking at the underlying political factors.

Most studies on Latin American inflation focus on the economic features of the stabilization programs and try to link the success or failure of stabilization to these technical specifics. This study presumes that economic strategies that reduce inflation are widely known and recently have become quite standardized. Yet, similar programs may produce different outcomes under different political conditions. Thus, political factors are quite critical for successful price stabilization. However, there is no consensus in the literature regarding the political conditions necessary for successful stabilization. Some political economy theories, such as the “war of attrition model,” (Alesina and Drazen 1991; Drazen and Grilli 1993) try to explain the political impediments to stabilization through rational choice theory. There are also many comparative political studies on the issue. Some argue that autonomous decision-making is necessary for stabilization (Geddes 1994; Haggard and Kaufman 1992, 1995; Gasiorowski 2000), while others emphasize political unity (Shugart and Haggard 2001). This study rests on the studies which highlight the importance of political negotiation and coalition-building efforts that accompany stabilization (e.g. Waterbury 1989; Haggard and Webb 1993; Etchemendy 2001; Armijo and Faucher 2002) and refuses the argument that state autonomy or political unity is necessary for successful stabilization. Instead, it suggests that, although these factors may contribute to successful price stabilization, reconciling the interests of different stakeholders and thereby raising widespread political support is more important for successful stabilization. Yet, how governments raise political support may differ from case to case.

If there is already an adequately designed disinflationary program at hand, political support from broad sections of the society is the most important factor for successful stabilization. Thus, this paper agrees with Nelson (1994, 61) that “fuller consultation and coordination between state and society” is much more preferable to an authoritarian, executive-dominated style of economic stabilization for the sake of lasting disinflation. However, the more political unity is weak and the more politics is fragmented and fragile, the more there is need for a skillful leader and compensatory policies to reconcile the interests of different stakeholders in order to build a wide political coalition for stabilization. Therefore, the difficulty of establishing such a coalition differs depending on the political context of each country.

In the case of Brazil, the need for a wide political support was most crucial as the other political conditions were quite unfavorable because of highly fragmented politics. Yet, President Cardoso’s political skills helped overcome the political barriers to stabilization, reconcile different interests, and thus, achieve wide political support for stabilization. This case shows that a strong and unified government is not a necessary condition for successful stabilization. Yet, even in Argentina where the two-party system created a more unified government, the government had to work to reconcile the interests of different stakeholders and secure a wide political support to implement stabilization successfully. The political skills of President Menem and his Peronist credentials were critical in raising political support. Therefore, neither in Brazil nor in Argentina stabilization was simply a top-down process where autonomous policymakers implemented the disinflationary programs without any or much political consultation.

In both Brazil and Argentina stabilization policies were also accompanied by some social policies to raise political support. This was necessary at least for the working class support. This contradicts with the assumption that successful disinflationary programs are strictly orthodox in nature. Actually both in Brazil and Argentina, contradicting with the general neoliberal prescriptions, lots of public spending had to be done to create a pro-stabilization political coalition. Also, business circles and political elites had to be coopted to the process.

For both cases, continuity of political support was essential for a lasting stabilization and this was enhanced by rapid improvements in the economy with stabilization. In that respect using an exchange rate-based disinflationary plan was critical, since such plans create an immediate economic boom. Therefore, the immediate positive economic results of stabilization is also critical for maintaining political support that is essential for sustainable stabilization.


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Yonca Özdemir, Middle East Technical University-Northern Cyprus Campus, Cyprus, Turkey,

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OZDEMIR, Yonca. Political conditions for successful inflation stabilization: comparing Brazil and Argentina. Rev. bras. polít. int. [online]. 2015, vol.58, n.1 [cited  2015-10-02], pp. 63-83 . Available from: <>. ISSN 1983-3121.

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