The IMF and WB are partly to blame for the growing disillusionment with democracy in Latin America, according to analysis in Political Democracy and Unfulfilled Aspirations by Fernando Carvalho, Institute of Economics, University of Rio de Janeiro. Democracy is associated not just with basic freedoms but a better way of life, argues Carvalho, it has been the manifest inability of democratic regimes in Latin America to actually fulfil the aspirations of the population for better income and wealth distribution, to promote full employment, to recover the ability to grow, etc, that seems to be the main cause of dissatisfaction and disenfranchizement.” The central problem is that economic policy making has been gradually excluded from democratic political control, “the power to decide on economic matters that concern society as a whole has been sequestered in many countries by financial integration (or financial globalization) and, in some cases, by the consequent need to comply with adjustment programs prescribed by institutions such as the IMF or the World Bank.”
Both developed and developing countries are increasingly subscribing to the point of view that there should be as little political involvement in economic decision making as possible. Independent central banks, hand-tying mechanisms on fiscal policies and liberalization of goods and labour markets all limit the powers of the state to influence economic policy. Thus democracy can give voice but it does not empower people to influence the way the economy works.
The solution is not to redefine democracy but to recover control over economic policies for legitimate political powers. Among other actions, governments should re-impose capital controls to eliminate the veto power financial investors have over domestic policies, bring monetary policy back into democratic control, focus fiscal policy on creating full employment, and develop new instruments to support industrial policy.
Bretton Woods briefing, Go with the Flows ? Capital Account Liberalisation and Poverty
