Who’s Afraid of Reversing Neoliberal Reforms? Financial Statecraft in Argentina and Venezuela

Abstract

Early in the first decade of the 21st-first century, leftist governments in both Argentina and Venezuela reversed neoliberal economic reforms that were implemented in the 1990s. Shortly thereafter, both countries reduced their dependence on private international capital markets and ceased borrowing from the international financial institutions (IFIs). Popular political leaders argued that these steps were necessary to defend their domestic economies. Contrary to the dire predictions of the political opposition in both countries as well as academic theorists, however, their national economies did not collapse during the subsequent decade, nor did voters repudiate political incumbents. If their policies prove sustainable, Argentina and Venezuela will have reinvigorated the option of the blunt and confrontational forms of defensive bilateral financial statecraft (FS), similar to tactics employed by distressed sovereign borrowers prior to the 1980s in an attempt to create national financial autonomy. Furthermore, the Chávez government in Venezuela began to employ systemic FS to criticize the existing global financial governance structure and establish regional alternatives. The success of their strategies, even if it proves temporary, has been surprising. Most scholars and analysts had expected that, after the dramatic neoliberal reforms in the late 1990s and early 2000s, greater financial integration and economic liberalization had made it too costly, both economically and politically, for Latin American governments to reverse such reforms.