The Politics of Financial Booms and Crises: Evidence from Latin America

Abstract

The persistence of policy switches --- whereby presidents renege on campaign promises shortly after winning elections --- thirty years after Latin America's re-democratization defies established notions of democratic representation and poses a puzzle to analysts and voters alike. In this paper, I advance current explanations for switches, by arguing they can only be understood in the context of currency booms and crises, typical of Latin American economies after their reintegration into world finance in the 1970s. In order to test my propositions empirically, I examine elections held in the region between 1978 and 2006 and find evidence consistent with the claim that switches are strongly associated with periods of dollar scarcity, when the need to play creditors' "confidence game" pushes leftist presidents toward adopting policies opposed to the programs that guaranteed their election.

Keywords: Latin America, elections, accountability, policy switch, currency crisis