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What Delayed Peru's Leftist Turn: Neoliberal Policy Stickiness and Sociopolitical Situation

What Delayed Peru's Leftist Turn: Neoliberal Policy Stickiness and Sociopolitical Situation

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The new millennium marked an era of major political change in Latin America. Beginning with Hugo Chávez’s 1998 electoral victory in Venezuela, the region has witnessed an unprecedented, yet lasting, turn toward the Left. Within a span of ten years, over two-thirds of the countries in the region elected leftist presidents, forcing the world to recognize the political ascendance of the Left as the new Latin American reality. This leftist surge, or “pink tide” as it is often referred to in the media, came as somewhat of a surprise after years of US hegemonic influence following the Cold War and decades of stringent economic and political liberalism throughout the region. Ultimately, leftist parties took advantage of the growing frustration that the neoliberal policies of the Washington Consensus, created through the influence of the United States and international financial institutions, had failed to bring about the social and economic change that citizens, frustrated by political instability and high levels of inequality, desired. The Left provided a legitimate alternative to the models of neoliberal democracy that had guided policymaking throughout the late 1980s and 1990s by promising redistribution and enhanced social policy to a disenchanted electorate. The surge of the Left thus ushered in an era of hope that the relatively new democracies in Latin America would finally bring about the social, economic, and political change that so many Latin Americans desired. What exactly does “Left” entail? Although there are many ways to conceptualize the political spectrum as it applies to government policies, I define the Left in terms of economic policies and size of government. While the Latin American Left was long characterized by its staunchly anti-capitalist stance and Marxist ideology, the twenty-first century Left in Latin America, in light of the collapse of the Soviet Union and authoritarian socialist regimes at the end of the 20th century, has focused on reducing socio-economic inequality through social programs and government participation in the economy rather than rejecting capitalism altogether. In my analysis, I conceptualize the Left in terms of its policies pertaining to international trade, land, taxes, social welfare, and spending.

Several basic explanations of the political ascendance of the Latin American Left emerge in the literature[i]: structural inequality, democratization and the institutionalization of electoral competition, the crisis of neoliberalism, and the commodity boom. The first two explanations are complementary in that historically high levels of inequality in Latin America has created a constituency favoring more redistributive policies, and democratization has extended more citizens the right to vote and translate their desire for redistribution into policy change by electing Leftist leaders. The final two explanations highlight the importance of timing in the leftist turn. After the economic orthodoxy of the 1990s, citizens were unhappy with the neoliberal experiment’s failure to bring about redistribution, thereby reinforcing the social cleavages engrained in Latin America’s political economy. This explanation understands the ascendance of the Left as a result of retrospective voting. Finally, the commodity boom of the 2000s provides another compelling explanation: the increased availability of capital for governments translated into governments’ being able to implement policies that did not necessarily mesh with the preferences of international financial institutions and foreign investors, due to a decreased need for their support.

In the midst of this era of change, Peru, which meets the above criteria for a Left turn, was notably absent from the “pink tide.” Like many other countries in Latin America, Peru was part of the neoliberalism boom of the 1990s, with President Alberto Fujimori (1990-2000) implementing a series of neoliberal policies. The backlash against the orthodoxy of the Fujimori regime was fiery and resulted in his resignation and self-imposed exile to Japan. Furthermore, in 2011, Peru elected a president – Ollanta Humala of the Partido Nacionalista Peruano (PNP) – who had run in the 2006 elections on a leftist platform and was expected to incorporate Peru into the “pink tide.” However, in his over three years as President, Humala has failed to radically change the political system and overhaul the economically orthodox policies as voters expected him to.

Even in isolation, the case of Peru’s failure to turn to the Left is enigmatic. When examining Peru in the context of its regional counterparts, the question of why Peru has failed to reverse its neoliberal policies becomes more puzzling. Two of its neighbors, Bolivia and Ecuador, did experience turns to the Left in the 2000s. In 2005, Bolivians elected Evo Morales of the Movimiento al Socialismo (MAS) as their president, and, in 2006, Ecuadorians elected Rafael Correa of the Alianza Patria Altiva I Soberana (Alianza PAIS), marking a dramatic shift in economic and social policy in both countries. Often grouped together due to their location in the heart of the Andes Mountains, these three countries share several key factors (geographic conditions, sizeable indigenous populations, export-based economies, and histories of political instability) that would suggest a similar trajectory toward the Left. While Peru did elect a leftist president like its Andean neighbors, Peru has not experienced drastic policy change.

What could account for Peru’s delay in electing a leftist president, and that president’s subsequent failure to implement leftist policy? Peru, despite appearing to fit all the criteria for a Left turn, faces limitations on both economic and political fronts that have weakened Left parties and inhibited the ability of a ruling government to change policy. With respect to economic limitations, I argue that Peru has become trapped in a cycle of dependence on foreign markets and investors, while Bolivia and Ecuador have been able to break out of this cycle. I attribute this to the fact that Peru was more neoliberal when the “pink tide” began and to the fact that Peru experienced economic growth in the commodity boom under a right-wing government. With respect to political limitations, I argue that Peru is unusual in that its leftist parties have not formed a strong coalition, as leftist parties in Bolivia and Ecuador have. In sum, I argue that this political limitation has made it difficult for Peru to change its economic policy path, thus preventing a turn to the Left.

The first part of my analysis is region-wide and focuses on the “stickiness” of neoliberal institutions. I test several hypotheses regarding the path dependence of neoliberalism in Latin American countries, examining how neoliberal policies become self-reinforcing due to the ties they create with international actors. Using an index of government policies pertaining to the role of government in a country’s economy and society[ii], I evaluate the relationship between government policy and foreign direct investment (FDI), sovereign credit ratings, and export growth. Daniela Campello (2015) argues that “market discipline” informs government policy because market forces constrain political actors as international investors informally “vote” on government policy by choosing to invest or not invest in a particular country. Although she posits that “market discipline” carries most explanatory power in times of economic crisis, I find that market forces constrain government policy outside of harsh economic times. Increased levels of FDI, a proxy for the extent of international investment in a country’s economy, correspond to more neoliberal government policy, and the effect is strongest in the 21st century. This suggests that Peru’s high levels of FDI throughout the 1990s and into the 2000s represented a constraining factor for Peruvian governments, while Bolivia and Ecuador were less reliant on FDI before electing leftist leaders. Examining sovereign credit ratings from Moody’s (1993-2015) in Latin American countries, which serve as a proxy for international investor confidence, my analysis finds that more Left government policies correspond to lower credit ratings, and this effect is more pronounced after 2000. This suggests that governments may have an incentive to refrain from implementing Left policies if they want to maintain high credit ratings. Thus, Peru appears caught in a cycle of neoliberal policy that even a leftist president may not be able to overcome.

I look at another facet of the “economic constraints” hypothesis by evaluating the role of timing in policy shifts to the Left, positing that economic growth and commodity booms reinforce government policy: If a country enters an export boom with a Leftist government, forces of inertia are likely to keep Leftist government policies intact following the boom, while if a country enters an export boom with a more neoliberal government, forces of inertia are likely to reinforce neoliberal policies. I find support for these hypotheses when empirically testing them. Countries that enter a commodity boom with more Leftist government policies are likely to turn even more to the Left, while countries that enter a commodity boom with neoliberal policies are likely to experience little to no policy shift. These findings indicate that timing is a crucial aspect of turns to the Left in Latin America, and I conclude that Peru’s path may have differed if it had elected a leftist leader in 2006, in the early stages of the commodity boom. Thus, the mid-2000s emerge as critical junctures, in terms of turns to the Left, for Latin American countries that experienced high levels of export growth. 329175-alexfas01The second part of my analysis focuses on the unique political situation in Peru that has prevented the formation of a strong Leftist coalition. Why did Peru not elect a leftist leader in the mid 2000s, as Bolivia and Ecuador did, and how did Ollanta Humala achieve electoral success in 2011? It seems that there are much deeper political issues that have prevented the formation of a strong Left party and have made the electorate skeptical of governments on either extreme of the political spectrum. Raúl Madrid, in his book The Rise of Ethnic Politics in Latin America (2012), posits that multiethnic coalitions are an important prerequisite for a turn to the Left in terms of the party of the president elected, along with the party’s accompanying policy implementation, because they represent a coalescence of indigenous, non-indigenous, rural, and urban voters alike. I argue that Peru’s lack of multiethnic coalitions and unique political history prevented a Leftist victory in the 2006 elections and forced Humala to campaign as a more politically moderate candidate.

In Bolivia, there was a successful multiethnic coalition that began with social movements from disaffected indigenous populations in the 1970s and 1980s. It expanded to also include non-indigenous actors and groups after Bolivia’s transition to democracy in 1982. In Ecuador, the multiethnic coalition, though not as strong as Bolivia’s, was inclusive and representative of actors from indigenous and non-indigenous backgrounds, and Rafael Correa won the 2006 election with support from a coalition of voters from many demographics. In Peru, however, such a coalition never really emerged, even in Ollanta Humala’s 2011 election. Peru’s unique political history—with a violent extremist Left movement in the 1980s and 1990s, an exceptionally neoliberal presidential regime in the 1990s, and a legacy of party fragmentation—contributed to the country’s failure to elect a Left president in the early 2000s, and it established Peru’s preference for politically moderate candidates. With respect to the first of these factors, the Shining Path (Sendero Luminoso) movement launched a guerrilla insurgency in Peru and throughout the 1980s and early 1990s. Over 60,000 civilian deaths have been linked to the conflict, and it unfortunately serves as one of the most prominent representations of the Leftist politics in Peru. In the 1990s, President Alberto Fujimori implemented harsh measures of economic orthodoxy, which set Peru on the aforementioned path of neoliberalism and weakened Leftist parties. These two factors have contributed to Peru’s high levels of party fractionalization, which came to a head in the 2006 presidential elections, where 20 candidates competed in first round elections and Peru elected a moderate-right leader, Alan García. No single, multiethnic coalition of leftist parties has emerged to date in Peru, and Ollanta Humala won the 2011 election by espousing more politically moderate views than he did in his 2006 election. Thus, the lack of strong multiethnic, or even leftist, coalitions in Peru appears to stem from its unique and tragic political history.

The findings of my thesis indicate that, given Peru’s violent and extreme political history at the end of the 20th century, its failure to fully turn to the Left in the 2000s makes sense. With neoliberal policies becoming more “sticky” over time, especially as economies continue to globalize in the 21st century, I find that Peru became “stuck” in its neoliberal policy, and the election of a leftist leader was not enough to change this. These results show that both endogenous and exogenous factors can influence government policy and, ultimately, policy change takes time. Upon closer inspection of the constraints Peru faces from international markets and investors, as well as its unique political history, its failure to turn Left becomes less enigmatic. What does this mean for Peru in the long term? Ultimately, only time will tell whether Peru will experience a turn to the Left in terms of policy change, and whether the broader Left turn in Latin America will be a long-term phenomenon. However, my analysis suggests that through strong coalitions—specifically, those that represent a broad cross-section of a country’s demographics—Latin American countries can change their policy trajectory and escape the cycle of neoliberal policy that is no longer the preference of many Latin American voters.

 

Citations:

[i] Steven Levitsky and Kenneth Roberts discuss these explanations in greater detail in their book The Resurgence of the Latin American Left (2011).

[ii] Factors: government final consumption expenditure as a percentage of GDP (World Development Indicators), Freedom to Trade Internationally (Fraser Institute), Freedom from Government (Heritage Foundation), government revenue as a percentage of GDP (International Monetary Fund)

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