The International Monetary Fund expects all 181 economies it tracks–except for the Seychelles, Zimbabwe and Equatorial Guinea–to grow in 2006. That expansion is unprecedented in its breadth. Similarly, the projected 5.2 percent average inflation in developing countries this year will be a record low. These powerful trends are good for governing parties.
Contrary to the frenzy over the radical left capturing the imagination of a disenchanted populace in many parts of Latin America, election results from Colombia to Mexico show a distinct voter preference for incumbent-party candidates. A buoyant economy is helping them top the polls. Leaders threatening to destabilize the prevailing economic order are fading fast from the political scene.
This amounts to a partial emancipation for investors. One continuing source of frustration for them is that the fortunes of developing countries remain closely tied to trends in the United States. But now, while Bush is no longer getting much lift from strong economic performance, emerging market leaders are.
Ecuador will be one of the next in a series of Latin American countries to hold elections this year. The current betting there is that the more conservative candidate, Alvaro Noboa, will beat the radical left-wing leader Rafael Correa later this month. Correa was ahead in the polls a few weeks ago but his threat to default on the country’s debt payments didn’t go down well with voters. Many Ecuadorians would rather not “rock the boat” at a time when the country is enjoying its best economic conditions in recent history, with GDP growth running at 4.5 percent and inflation settling at close to 3 percent.
While financial markets will not be thrilled if Correa pulls off an upset victory they are unlikely to be panicked by that outcome either. There is a growing realization among investors that in Ecuador–just as elsewhere–no political party that comes to power is likely to succumb to Robin Hood economics, no matter what it says during the rabble-rousing campaign phase.
Indeed, the pattern is now familiar: the so-called left-wing leaders make loud noises about deviating from the market path when out of power, but once in office stays the course by following responsible fiscal and monetary policies. As positive results flow in terms of higher growth and lower inflation, these erstwhile left-wing leaders reap the political benefits, and anti-market tirades completely disappear in their re-election campaigns.
Good economics is good politics, and many incumbents now appreciate that. In Brazil, Russia, South Africa and Turkey, this notion has become conventional wisdom. While oil has undoubtedly played a major role in Russia’s comeback story, macroeconomic management has been sound, with the government pursuing extremely responsible policies on the fiscal front. Foreign investment outside the oil sector has surged and consumer confidence is bubbling over, making President Vladimir Putin highly regarded at home.
The incumbents in South Africa and Turkey are also quite popular. Both those economies have enjoyed boomlike conditions over the past three years and the approval ratings of the respective governments are at record highs. These high ratings, in turn, create incentives for the governments to push further ahead with market reforms. The result is a virtuous cycle, which further debunks the myth that economic progress and democracy are incompatible.
It’s no surprise then that economic reforms currently top the agenda of the second-term administrations in Brazil and Mexico. Even in the few countries where governments are still skeptical of market logic, there is a belief that while the market-oriented system may not be ideal, the alternatives are far worse. So, gov-ernments in India and Poland may not be actively pursuing reforms, but they are largely keeping their hands off the economy and letting the private sector benefit from globalization.
As a result, in India–where there is a fair bit of cynicism regarding the connection between economics and politics–the latest opinion polls show the ruling government to be relatively popular. Historically, nothing has mattered to voters more than bread-and-butter issues: growth and inflation. With globalization delivering well on those fronts, the message from the voting class in emerging markets is to let the bums remain in office.
