What Do Surveys Tell Us on How to Win Latin America’s Soul?

As The Economist noted in its feature “The Battle for Latin America’s Soul,” countries across the region were falling one by one into the hands of populists opposing market reforms. It thus became urgent to understand what could win back public support for economic liberalization.

Ugo Panizza and Monica Yanez from the Inter-American Development Bank tackled this question in their paper “Why Are Latin Americans So Unhappy About Reforms?” They examined the Latinobarómetro survey, conducted yearly across the region since 1996, exploring four sets of explanations for the discontent:

1. A general drift of the populace’s political views to the left
2. Increased political activism by those who oppose reforms
3. A decline in trust of political actors
4. The macroeconomic situation

Their finding is unambiguous: macroeconomic performance is the dominant factor. The others barely register.

To illustrate the magnitude, they ran a thought experiment: even if 100% of Latin Americans shifted from center-right to hard left between 1997 and 2002, support for reform would decline by only 9%. That ideological shift can account for at most one-third of the actual drop in support observed.

Political activism and declining trust in institutions also fail as explanations. The data simply do not support them.

But the economy explains it clearly. A one percentage-point drop in GDP growth reduces support for reforms by approximately 1.1 percentage points. In Argentina’s case, GDP growth fell by 21 percentage points between 1997 and 2002—predicting a 23-point drop in support for privatization. Which is approximately what happened.

In Latin America, countries experiencing crisis usually fall into a vicious cycle. When the economy performs badly, it becomes much easier for populists to gain power and halt reform. Without reform the country cannot gain real competitiveness, and political deterioration becomes self-reinforcing as the economy weakens further.

The lesson for reformers is direct: economic and employment growth is the primary criterion voters use to evaluate reforms, and they typically do not grant second chances. Reformists need to think far more carefully about the stability consequences of the measures they propose. Better to move slowly and safely than to trigger a backlash that sets the reform agenda back by a decade.