Interest Groups and Exchange Rate Policy Choice in Brazil and Venezuela: Incorporating the Workers
Why did Brazil and Venezuela choose different exchange rate policies in 2003? Brazilian President Luiz Inácio “Lula” da Silva chose to maintain the managed float established by his predecessor; Venezuelan President Hugo Chávez chose to switch to a fixed exchange rate. Economic explanations typically consider structural factors drawn from Optimum Currency Area (OCA) theory as well as macroeconomic indicators such as level of reserves and inflation. Political explanations examine regime type, parliamentary structure, and interest groups. This study further explores the role of interest groups in determining exchange rate policy choice. Existing research on interest groups focuses primarily on major economic sectors such as agriculture, manufacturing, finance, and multi-national corporations while downplaying the average worker. This study proposes a theory of exchange rate policy preferences that takes into account the average person’s dual role as employee and consumer. It tests the hypothesis that the balance of interest groups reflected the governments’ actual exchange rate policy choices in 2003. It tests this hypothesis first without taking into account the workers and second after taking them into account. It finds that the hypothesis is rejected in the case of Brazil and confirmed in the case of Venezuela, and in neither case did the inclusion of the workers change the result. This implies that the proposed theory about the exchange rate preference of the workers could be flawed. It also implies that interest-group theories of exchange rate policy choice, in light of being applied to the most recent era of the rise of the New Left in Latin America, need more revision and clarification.
Interest groups, exchange rate, Latin America, International Relations
City University of New York - City College
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