Lessons from La Paz

I am glad to come back to the blog after more than a year without writing.  Latin America is in a rather interesting and contradictory moment (e.g. Mexico elects the first leftist candidate in decades while Colombia opts for an Uribista) so it is a great opportunity to write again.  I am also beginning a sabbatical at the Kellogg Institute in Notre Dame soon and will try to write about the region and about my research projects more often.

I had the opportunity to spend last seven days in La Paz, a unique city in Latin America.  As part of the CAF-LAC final agreement (which is finishing in its currently incarnation after six successful years), we organised a conference with the Universidad Católica San Pablo on Social and Economic Development in the Andean countries.

I could reflect on many components issues discussed during the last few days, but let me emphasise two that may require further research:

a. The political economy of structural change in mining/oil economies.  In conversations with John Crabtree, we agreed that finding the right time to promote structural change (for example, through active industrial policies) is rather complicated.  Commodity booms are periods of Dutch disease: rents are high, the exchange rate strong and it is just easier to benefit from mining exports and cheap imports.  There are just not enough political incentives to promote new sectors of the economy (including through a weaker exchange rate).  These are often periods of active state intervention... but not active industrial policy (at least this has been the case in most of Latin America during the 2000s).  In contrast, period of crises (which often take place after commodity booms) lead to the adoption of neoliberal policies and the reduction of state intervention.

Do you know of any cases within Latin America or beyond of active industrial policies in commodity exporters?

b. There is an intense debate in Bolivia about the macroeconomic sustainability of current policies.  Is the government truly committed to stability?  Will it continue reducing reserves at the current (high) speed)?  Will it maintain its high public deficit?  Answering these questions is not only about economics but about politics and about policy learning.   We need to understand the extent to which the current government has LEARNT the dangers of deviating from macroeconomic rigour.  Everyone recognises that the government  was rather careful in recent years--partly because it still remember the hyperinflation of the 1980s.  But, if this is the case, won't it remember those lessons in the near future?  Shouldn't policy learning result in a more careful policy stand after the elections next year?

In discussing these questions with a few friends like Jose Peres Cajías, I realised that we may not have enough research on policy learning and its implications on macroeconomic policy both in good and bad times.