Left Behind: The False Promise of Populism in Latin America

No other region in the world has elected and practiced populism more than Latin America. From Peron in Argentina to Castro in Cuba or Chavez in Venezuela, populist politics and policies have ruled the region for the past 80 years, with few exceptions: Chile, Costa Rica, Colombia (after Uribe).

Chilean economist Sebastian Edwards explains the four stages of populism: 

1. Euphoria and triumphalism: populist leaders campaign in popular "fixes" (such as subsidies to the poor, protectionism and price controls) and fanning voters anger towards internal and external "enemies" (such as "educated elites" or "IMF/Yankee imperialism") until economic crises make desperate voters (who under other circumstance would not fall for populist promises) put them in office. During the early "happy years" , freewheeling spending, printing money and issuing debt combined with currency controls and manipulation create an illusion of prosperity.
2. Problems: populist economics fuel rampant inflation (by subsidizing consumption) while punishing production with higher taxes on exports (the only source of hard, real currency) and printing either loose money or debt -or both- to get re-elected. During this stage populist governments give themselves special powers -such as ruling by executive fiat- and modify the Constitution to guarantee perpetual re-election. Migrants from poorer neighboring countries flood the country seeking a "free ride" on the benefits the populist regime distributes. The regime lets them in and gives them citizenship rights in exchange for votes.
3. Crisis: debt and inflation hit the poor and create food shortages, power outages and rising crime. Employment falls and the most skilled migrate. Pensions are sacked by the government to pay for debt and spend in re-election. Graft and corruption skyrocket and become systemic -as in the recent Odebrecht scandal  that spilled over almost all Latin American countries with populist governments.
4. Collapse and austerity: shut from international credit, unable to pay pensions and subsidies, hunger and riots erupt and the populist government falls. Enters IMF as a lender of last resort and demands a strict schedule of re-payments and strict control of public spending. Austerity is always unpopular, and countries with a history of populism fail to keep it long enough to recover. As soon as the economy starts to pick up, pressure for abandoning austerity become too strong and a new cycle begins.

In recent history, only Chile and Colombia were able to abandon populism and enjoy sustained growth and stability (both countries joined or applied to join OECD). Brazil made good progress under Fernando Henrique Cardoso and Lula's first term, but later abandoned the pro-business policies for others favoring clientelism and populism that ended in the Lava Jato (Car Wash) scandal, economic crisis and President Dilma Rousseff's impeachment.

Those interested in understanding how populism works will find extensive information looking at Latin America past 50 years and in Edwards's book Left Behind: The False Promises of Populism in Latin America.