Stabilization Crises and the Breakdown of Military Authoritarianism in Latin America

Abstract

Over the last five years, military authoritarian regimes broke down consistently throughout Latin America. The return to democratic government has had less to do with the internal political situation in these countries than with the economic crises faced by the military regimes. The military regimes collapsed primarily because of the external debt crisis that emerged in the early 1980s. There were two characteristic patterns in the macroeconomic policy of the military authoritarian systems. According to one pattern, the regimes attempted to maintain growth rates through reflation, which led to chronic trade deficits that had to be covered through continuous reserve inflows. Alternatively, particularly in the Southern Cone, the regimes attempted disinflation through the heterodox strategy of underdevaluation of exchange rates. Although this slowed inflation, this was achieved only at the cost of serious balance of payments disequilibrium and a decrease in external competitiveness, which limited the ability to service foreign debt. The net result was that at the time of the global recession of the early 1980, the regimes were forced to apply restrictive policies that were associated with substantial output losses. The domestic recessions in turn largely destroyed the military's claims to political legitimacy.