Editor's Summary

Nearly two decades after a wave of policy changes swept through Latin America, economic reforms continue to be the focus of much discussion. Critics claim that the promarket reforms have failed to deliver economic growth, and that the time has come to try something else. Advocates claim that the reforms were never given a fair chance—too little was done, often too late. Complete the reform process, they claim, and growth will come.

Both sides do agree on one point: Latin America seems to be suffering from reform fatigue, and another wave of reforms is unlikely to happen any time soon. Certainly not in countries led by left-leaning populists, such as Argentina's Néstor Kirchner or Venezuela's Hugo Chávez. The reform momentum has even stalled in countries led by promarket conservatives—Mexico under Vicente Fox and Colombia under Alvaro Uribe are two examples. If such reforms are now unpopular in many quarters, did the politicians who initially adopted them bear a political cost? Was the Washington Consensus electorally bad for friends of Washington? That is the question studied by Eduardo Lora and Mauricio Olivera in the lead article of this, the tenth issue of Economía.

Lora and Olivera analyze the outcome of sixty-six presidential elections and eighty-one parliamentary elections in seventeen Latin American countries from 1985 to 2002. Their general conclusion is striking: reforming parties and politicians were rewarded electorally only when reforms involved macroeconomic stabilization and a sharp reduction in inflation; otherwise, their reforming zeal cost them dearly at the polls. Economic outcomes do matter for electoral outcomes. Lora and Olivera find that the incumbent's party is rewarded in presidential elections for reductions in the inflation rate and in legislative elections for increases in the growth rate. Changes in unemployment and income distribution, however, do not appear to influence voters' behavior.

What is even more surprising is that, at the polls, policies matter irrespective of their results—that is, their effects on growth or inflation. Electorates seem not to like reform policies of the kind applied in Latin America in the 1990s. In a regression with electoral outcomes on the right hand side, reform indexes have a negative and significant effect, even when the authors control for changes in inflation and growth. The point estimate of the effect of policies on electoral results implies that the incumbent's party typically lost 15 percent of its vote in presidential elections on account of the average amount of promarket reforms introduced during its term. More aggressive reformers (say, those reforming one standard deviation above the mean) sacrificed 27 percent of their vote on account of promarket reforms. Statistically, this seems to be a very robust result for presidential elections.¹

Moreover, lying about one's true intentions does not seem to be a good electoral strategy. Several Latin American politicians—including Fujimori in Peru, Menem in Argentina, and more recently Gutiérrez in Ecuador—first ran as opponents of the Washington Consensus, then followed orthodox policies. The paper shows that a candidate that said one thing on tax policy and then did another was, on average, punished more severely at the polls. Campaign promises do not seem to matter for the effect of other policies on voting behavior.

These results raise two kinds of questions. For academics, the issue is why inputs (policies) matter and not just outputs. Is it ideology, pure and simple? Or is it that because outcomes represent an extremely noisy signal of politicians' competence, the choice of policies conveys some information that voters find useful? For policymakers, the question is political: what has to change in Latin America before ambitious reforms become feasible again? Are all large-scale reforms out of the question, or only those that carry the Washington Consensus label? Both sets of questions remain very much open.

The unpopularity of the reforms does not mean, however, that policy is frozen everywhere. Trade is one area in which reform has not stopped dead on its tracks. Liberalization agreements, of both the bilateral and regional kind, continue to be signed, though at a less frenzied pace...