Region - Fiscal responsibility and the ideology spectrum

Nobody should assume the alternatives to Petro and Lula are going to be more fiscally responsible than the leading candidates.

One common topic from my calls in recent weeks: What are the economic prospects for a potential Petro government in Colombia or Lula in Brazil? There are a lot of details that go into answering those questions (including whether they’ll even win), but I did want to briefly write out a comment that has come up generically in those calls and others.

In terms of economic discipline, you should be just as suspicious of the center and right of the political spectrum as the left.

One of the analytical cliches in Latin American politics is that left wing politicians are bad for the economy and right wing politicians are good for the economy. There is an assumption among many analysts that both Petro and Lula will be worse for their country’s economic and fiscal situations than alternatives who are further to the right. I think that the concerns people have about the “left” have caused them to give too much of a free pass to the other parts of the ideological spectrum.

We’re painfully far away from Latin America’s right being austere, fiscally responsible and economically successful. Whether we’re in a new moment of rising left wing parties or voters are in an anti-establishment mood is a debate I addressed previously. Either way, recent election results reflect a level of frustration, anger and disappointment with the mostly centrist and rightwing governments that have ruled in recent years. And market results in most countries for the past decade suggest that those governments were neither good for economies nor capable of reining in deficit spending.

Duque lost Colombia’s investment grade rating. Bolsonaro has driven his country into a stagflation recession. Neither president successfully passed the fiscal reforms they promised as candidates to get deficits under control. 

Bolsonaro perhaps best illustrates this illusion of rightwing austerity. He brought in a Chicago boy economist as finance minister whose rhetoric on fiscal responsibility made markets gleeful. He then rolled over Guedes in every internal debate and engaged in levels of deficit spending that defy Brazil’s own fiscal controls.

Notice that my point above is not: “Don’t worry about the left.” Absolutely be concerned about the potential spending and deficit plans of Petro and Lula. The leftist candidates want more social spending. They don’t have a plan to pay for it. And while I’ve lumped them together throughout this post, the two differ on a number of issues including how they’d treat the extractives industry and that will impact government finances.

However, when asking if Petro or Lula will be fiscally irresponsible, you have to ask “compared to what alternative?” Recognize that the past decade has shown there are many reasons to not give their alternatives the benefit of the doubt. Any conversation about where those two frontrunners may take their countries’ economies should include a discussion of whether their opponents in the election would do any better or differently.