Holding Democracy Hostage: Central Bank Autonomy In the Transition From Authoritarian Rule

This article explores the conditions under which exiting authoritarian elites use institutions strategically to fend off the threat of democracy. One way that authoritarian elites can execute this "institutional insulation" is by making the central bank autonomous from the influence of elected officials before they leave power. Central bank autonomy not only removes a key aspect of economic decision-making from democratic control, but also constrains governments to pursue a set of neoliberal policy outcomes. I argue that where authoritarian elites fear a populist future and know that regime change is imminent, they can be expected to create an autonomous central bank in order to tie the hands of successor governments. The study applies this line of reasoning to the Chilean central bank reform of 1989 and the Mexican central bank reform of 1993.