2
Two rival images of domestic economic policy making contend in the
international political literature. In one image, financial mobility and/or
globalization have eroded the capacity of governments to formulate independent
domestic economic policy. The threat of rapid flight of capital disciplines
governments and forces them to adhere to a strict set of orthodox economic
policies (Susan Strange, 1996, 1997; Benjamin Cohen, 1998; Garrett, 1998).
Another literature, however, argues that electoral politics plays out in domestic
political arenas and therefore governments have to tailor both campaigns and
actual policy outputs to important electoral constituencies even if it runs against
the preferences of international financial actors. The dynamics of global financial
markets may constrain governments, but it does not remove all discretion from
how governments design economic policy to suit their own partisan or
ideological concerns (Boix, 1998; Garrett, 1998, Armijo, 1999).
In Latin America, the expectation that international financial markets will
constrain governments is even stronger given the much greater vulnerability of
developing countries to financial shocks. Furthermore, the risks of investing in a
region with a long history of debt crises and defaults make investors that much
warier, watchful and ready to withdraw if government policies do not follow the
narrowly circumscribed set of economic policies typically labeled
“neoliberalism.” But, Latin American governments still need to compete in
elections where they must satisfy key constituencies in order to get elected or re-
elected regardless of the preferences of international financial markets.
Convention