In an age of financial globalization, are markets and democracy compatible? For developing countries, the dramatic internationalization of financial markets over the last two decades deepens tensions between politics and markets. Notwithstanding the rise of left-leaning governments in regions like Latin America, macroeconomic policies often have a neoliberal appearance. When is austerity imposed externally and when is it a domestic political choice? By combining statistical tests with extensive field research across Latin America, this book examines the effect of financial globalization on economic policymaking. Kaplan argues that a country's structural composition of international borrowing and its individual technocratic understanding of past economic crises combine to produce dramatically different outcomes in national policy choices. Incorporating these factors into an electoral politics framework, the book then challenges the conventional wisdom that political business cycles are prevalent in newly democratizing regions. This book is accessible to a broad audience and scholars with an interest in the political economy of finance, development and democracy, and Latin American politics.

A Choice Outstanding Academic Title, 2013

‘Today’s integrated capital markets provide great opportunities for, and impose tight constraints on, governments in the developing world. In Globalization and Austerity Politics in Latin America, Stephen Kaplan provides a careful analysis of how and why Latin American governments have responded to the contemporary international economic environment. He shows, with cross-national statistical analysis and careful case studies, that governments respond to both international financial and domestic political pressures. Globalization can constrain national policies, but it does so within a domestic political context. This is a careful, thoughtful study that will be of great interest to scholars and students of Latin America, and of the political economy of development more generally.’

Jeffry Frieden - Harvard University

‘Why have governments on the left in Latin America adopted surprisingly conservative macroeconomic policies? Kaplan offers a sophisticated explanation of when and why we have seen this shift. By focusing on the internal political dynamics of financial market actors, he makes a convincing - yet nuanced - argument about the power of bond markets to shape government policies in a globalized world.’

Kathleen McNamara - Georgetown University

‘In an era of financial openness, some developing countries enjoy more autonomy vis-à-vis capital markets than others. Why? Stephen Kaplan convincingly suggests that the ways in which governments finance their debt and the ways in which political elites view their country’s economic history both play a role. In nations that have experienced inflationary crises and that borrow via bonds (rather than from banks), conditions are ripe for a ‘political austerity cycle’. Kaplan’s analysis points to the importance of both ideational and material factors, and of both domestic and international forces, on elites’ behavior in contemporary Latin America.’

Layna Mosley - University of North Carolina, Chapel Hill

‘In this deeply insightful and original book, Stephen Kaplan not only offers a fresh interpretation of how global financial markets constrain domestic policy makers in developing countries, but he explains the conditions under which these constraints are more or less confining. This is a first-rate contribution to the study of the political economy of democracy and development, and it breaks new ground in understanding how domestic policy choices are conditioned by international financial dependence.’

Kenneth M. Roberts - Cornell University