The International Political Economy of Transformation in Argentina, Brazil, and Chile since 1960 Eul-Soo Pang The International Political Economy of Transformation in Argentina, Brazil, and Chile since 1960 The International Political Economy of Transformation in Argentina, Brazil, and Chile since 1960 Eul-Soo Pang Colorado School of Mines Golden, Colorado © Eul-Soo Pang 2002 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 0LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2002 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world. PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN 0-333-91972-6 hardback This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Pang, Eul-Soo The international political economy of transformation in Argentina, Brazil, and Chile since 1960 / Eul-Soo Pang. p. cm. – (International political economy series) Includes bibliographical references and index. ISBN 0-333-91972-6 1. Argentina – Economic policy. 2. Argentina – Economic conditions – 1945– 3. Argentina – Politics and government – 1955–1983. 4. Argentina – Politics and government – 1983– 5. Brazil – Economic policy. 6. Brazil – Economic conditions – 1945– 7. Brazil – Politics and government – 1964–1985. 8. Brazil – Politics and government – 1985– 9. Chile – Economic policy. 10. Chile – Economic conditions – 1970–1973. 11. Chile – Economic conditions – 1973–1988. 12. Chile – Economic conditions – 1988– 13. Chile – Politics and government – 1973– I.Title. II. International political economy series (Palgrave (Firm)) HC167.S67 P36 2002 338.9–dc21 2001036351 10 9 8 7 6 5 4 3 2 1 11 10 09 08 07 06 05 04 03 02 Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham and Eastbourne Contents List of Tables viii Acknowledgements ix Abbreviations xi Introduction xv Part I Latin America in a New Age 1 1 Latin America in the Age of Globalization 3 Globalization at work 3 The global economy 4 Latin America: then and now 7 The genesis of the Latin American state and IPE 8 A variety of authoritarian states and their offspring 10 Incompatibility of the B-A regime with the global economy 14 Core groups and actors in B-A regimes 15 Political economy of reform and adjustment 16 “Cosmopolitical” economy of Latin America 17 Latin America in the age of economic multipolarity 18 Part II From Populism to Military Rule and Democracy 21 2 Argentina: the Birth of Latin American Populism 23 The road to populism 23 The making of a populist Argentina 26 The early or sunrise phase: 1880–1930 27 The classical or golden phase: 1945–66 29 Argentina in the world economy 33 The final or sunset phase: 1976–89 35 3 Brazil: Building a Capitalism without Risk 45 The liberals of 1964 45 The state and the market 46 SOEs’ borrowing schemes 48 v vi Contents Allocation of and access to capital 50 “External savings and parallel dollars” 51 State-owned enterprises vs. foreign direct investment 54 National informatics policy 63 4 Chile: the Revolution That No One Desired 70 The end of the calm 70 The rise of Christian Democrats 73 Frei’s reforms 75 The presidential election of 1970 79 In retrospect 91 Part III Transition and Consolidation of Democracy and Market 93 5 Argentina’s Travails of Democracy and Market Economy 95 Populism’s last tango 95 Al-Mukhalisfrom La Rioja 96 The Cordobés from Harvard 106 Menem bets on a new horse 108 Argentina at a crossroads 118 6 “Brazil Is Not a Serious Country” 123 A new beginning 123 ‘Collor’ed reform 125 Opposing camp 135 Sex, corruption, and globalization 136 Itamar the President Pífio 140 Cardoso, the Savior of Brazil 142 7 Chile: Pinochet’s Not Too Silent Revolution 146 Consolidating market authoritarianism 146 The junta’s long-term development policy 155 Resurgent democracy 165 Chile goes global 169 The second civilian government since 1990 170 The 1998 economic woes 173 The beginning of the end? 173 Conclusion: Will the Past Overtake the Future in Latin America? 177 Globalization versus sovereignty 177 Contents vii Democracy or market, but not both 178 The supremacy of the state 179 SOE: an engine of growth or a breeder of corruption? 180 ISI: a double-edged sword? 181 Is democracy compatible with market? 182 Globalization: an elixir or a nadir? 183 Backlash to globalization 184 Contested globalization: state over market? 185 Notes 187 Bibliography 217 Index 241 List of Tables 1.1 Fifteen Latin American and Other Countries: GNPs and Per Capitas, 1970 and 1996 8 3.1 Foreign Direct Investment Inflows into Latin America, 1984–95 54 5.1 MERCOSUR Countries: Social Indicators, 1997 116 6.1 MERCOSUR Countries: Economic Indicators, 1997 133 7.1 State-Owned Enterprises: Their Shares in GDP and Investment as Percentage of GDP, 1985–95 172 7.2 Foreign Portfolio Investment: Argentina, Brazil, Chile, and Mexico, 1990 and 1999 174 viii Acknowledgements Every author owes intellectual debt to someone. Since 1986 when I moved from the University of Alabama at Birmingham to the Colorado School of Mines to establish the Latin American Center for Minerals and Energy Development, I have had numerous opportuni- ties to travel to Latin America and the Caribbean and learn from policy makers, business leaders, and academics of various countries. During these years, much of what I have learned about the ABC countries and observed first hand has gone into this book. In Latin America, many academics often take up positions as government officials; hence, their perspectives are invaluable, tested by time and enriched by public-sector experience. I envy their opportunities to combine intellectual pursuit with policy making and implementa- tion. As their friend, I would like to believe that when we discussed policy issues I played a role in policy making as well, however indi- rectly it might have been. I am grateful for those opportunities as their friend and consultant. I will not cite all of their names, but should mention that friends like Juan Antonio Zapata and Alejandro Bulgheroni (along with Juan Martin, Patricio, Mariana, and Alex Paz) of Argentina, Antônio Carlos Pojo do Rêgo, Ana Studart, João Paulo Machado de Peixoto, Augusto de Oliveira, Marquinho de Carvalho, Adonis de Carvalho, Ozires Silva, Breno Augusto dos Santos, Luciano Borges, and Roberto C. Villas Boâs of Brazil, and Mario Meza M., Alejandro Hales, and Mario Maturana of Chile are truly my teachers in helping me understand, unravel, and appreciate the history of the ABC countries, especially their cultures and their political economies. Dr. Carlos Bakota of the US Department of State has been a valuable mentor to this project through the years. And Peter Andrews at Palgrave Macmillan has done a superb job of turning Korean English into a readable prose. I thank them for their contri- butions; without them this book would not have been possible. Finally, I must mention that during the years of travel to Latin America, I have had the best sounding board to this book: my wife, Laura, who is an accomplished Latin Americanist, and the conversa- tions with her have helped me understand the nuances of the state, the behavior of the Latin elite and their culture, and the peculiar ix