Taking Root

December 1, 2005 Topic: Great Powers Regions: Americas Tags: InflationSuperpowerReichsbank

Taking Root

Mini Teaser: It's premature to proclaim the death of Latin American democracy--but the United States still needs to pay more attention to what happens there.

by Author(s): Russell Crandall

THESE DAYS, news reports from Latin America suggest that citizens throughout the hemisphere are fuming with anti-capitalist and anti-American rage. The recent elections of leftist presidents in Chile, Brazil and Uruguay, as well as the fulminations of Venezuela's Hugo Chavez, are cited as evidence that the region has turned against Washington's "hegemony", including its despised and failed free market policies.

Are these impressions correct? Did the economic and political reforms undertaken during the 1990s impoverish Latin Americans, and is there a rising tide of anti-Americanism that jeopardizes the U.S. relationship with Latin America?

Assessing the Washington Consensus

WHILE THE term "Washington Consensus" has been misused and co-opted to the point of meaninglessness, it is important to recall that in its initial incarnation it represented the understanding that newly democratized governments needed to pursue economic reform to secure hard-won freedoms. In Latin America, this meant, in part, the privatization of state-owned enterprises, macroeconomic reform with an eye to controlling inflation, and trade and price liberalization.

We forget that by the end of the 1980s, Latin America was dangerously close to economic implosion from hyperinflation, negative growth, high unemployment and crushing foreign debt payments. In contrast, today's Latin America is much healthier without rampant inflation, uncontrolled fiscal profligacy and the other economic ailments that plagued the region during the "lost decade" of the 1980s.

No one should have expected the Washington Consensus would act as a magic pill that Latin America could swallow to alleviate centuries of economic instability; wrenching poverty and inequality still beset the region. But the frustrating persistence of poverty does not negate the success of these reforms.

Perhaps no country in Latin America is more closely associated with the alleged failures of the Washington Consensus than Bolivia. Indeed, Bolivia has become the poster child for everything wrong with "U.S.-backed" economic reforms. The international press zooms in on colorful anti-globalization protests and riots, ignoring the fact that before liberalization began Bolivia's average real GDP growth rate was negative. During the height of the reforms, the GDP growth rate was 4 percent, and hyperinflation was eliminated. In the past five years, Bolivia's growth has averaged about 2.5 percent--a growth rate certainly inadequate to meet the country's pressing socio-economic needs but nevertheless a vast improvement. Bolivia's "much improved, much improvement needed" situation echoes the regional reality, too.

Latin America's economic growth has not been nearly adequate to keep up with the region's pressing social agenda. Weak government institutions and weak rule of law hinder sustained economic development. Citizens often have little faith in their elected leaders. As a result, the region is stymied at times by a vicious cycle of voter apathy, poor public institutions, anemic economic activity and continued social unease.

But the most encouraging sign is that Latin Americans seem predisposed to solve social and economic problems via the ballot box. Popular dissatisfaction with the pace or outcome of reforms has not lead to revolutions or coups d'etat. Increasingly, democracy has become the only game in town in Latin America. Over the past several years, there have been several instances where threats to democratic rule have been resolved (some more effectively and permanently than others) through constitutional means. Guatemala in 1993, Paraguay in 1997, and, more recently, Bolivia and Ecuador (repeatedly) are but some examples.

One major step toward the maturation of democracy is the electoral success of the democratic Left. In the immediate aftermath of the democratic opening, conservatives won presidential elections in most countries. More recently, leaders such as Argentina's Nestor Kirchner, Uruguay's TabarŽ V‡squez, Chile's Ricardo Lagos and Brazil's Luis Inacio Lula da Silva (or Lula, as he is known) have come to power, ending the conservative monopoly.

Yet, while these leftist leaders hold unquestionably different ideological perspectives from their more conservative predecessors, their performance in office has usually been far from radical. Many observers expected them to govern in a radical manner, but these left-leaning governments of the region have, even with their social agendas, continued on the general path of economic reform set out during the 1990s. This is the "pothole" theory, whereby utopians or revolutionaries often become more pragmatic when faced with practical governing challenges. It's telling that the current leftist presidents have dyed-in-the-wool, pro-liberalization ministers running their finance ministries. Were Lula to shave his beard, he and his economic policies would be almost indistinguishable from his more neo-liberal predecessor, Fernando Henrique Cardoso.

These new leftist governments recognize that supporters voted for them to lead their governments toward more responsible and humane policies, not down a previously traveled path to the dark past. They understand that, while imperfect, the Washington Consensus path is part of the solution to, not the cause of, Latin America's ills.

In Brazil, Lula does not blindly follow in the footsteps of his predecessor as he navigates the tightrope between his social agenda and the austere financial measures needed for macroeconomic stability. His balancing act has no doubt angered former supporters who accuse him of selling out Brazil's poor for the favors of Washington and Wall Street. Yet Brazil is currently enjoying a much more sustainable period of economic expansion than experienced under Cardoso, which should allow Lula more flexibility for progress on the social front in the future. While it is unbelievably difficult, Lula's efforts demonstrate that a social agenda and economic reform are not incompatible.

There is a consensus between the Right and the Left about the success of the Chilean model as a fascinating example of a surprisingly stable and lasting combination of economic reform, deepened democracy and gains in the social arena. In the 1970s and 1980s, Augusto Pinochet's military government imposed the liberal economic model that remains the foundation for Chile's current economic stability and dynamism. Yet, since the transition to democracy in the late 1980s, a series of governments have worked to "humanize" Chile's economic model in order to address what is still a glaring deficiency on the social side.

This "social liberalism" has continued under President Lagos, someone who well knows that returning to the quixotic policies of the Marxist former President Salvador Allende is neither practical nor appealing. For Lagos, old-school populism is not a painless way to utopia. Instead, social and institutional gains must be made within the framework of an economy marked by fiscal and monetary stability. Lagos's policies model how liberal economics and an aggressive social agenda can help deepen democracy's roots and give citizens a stake in their society. Chileans now talk with justifiable pride about virtually eliminating severe poverty within the next few decades; given the way that its socio-economic indicators are tracking, the country may be the first in Latin America to be considered a fully developed economy.

The Chavez Factor

STILL, THERE are other developments in the region that are of serious concern. Hugo Chavez's "Bolivarian Revolution" is often cited as the most effective and popular counterweight to a "U.S.-imposed" order in Latin America. Chavez's rhetorical flair and focus on social issues is thus welcomed as a long overdue contrast to the orthodox policies peddled by Washington and its "surrogates" in the international financial community.

Elected in 1998 at a time when the price of oil was barely into double digits, Chavez has subsequently used his swollen oil revenues to support his "revolutionary" political agenda at home and in the region. Similar to its first cousin, "Fidelismo", "Chavismo" represents both rhetorical panache and active policies fashioned as an aggressive alternative to the alleged Yankee-imposed neo-liberal model.

In April 2002 the Bush Administration severely damaged its credibility on the democracy question when it failed to immediately condemn the coup attempt against Chavez. Since this time, Washington tried a policy of "watch what he does, not what he says", but this approach has been abandoned over concerns about Chavez's increasing efforts to tighten his grip domestically and promote regional instability.

There is no question that Chavez has tapped into latent public frustration with ineffective and unresponsive governments and chronic unemployment and inequality--mostly inside Venezuela but also regionally. In April a faction of Argentine piqueteros (protestors) announced that it was joining as "volunteers of the civil force that in Venezuela is defending the Bolivarian Revolution."

But Chavez's bark is much stronger than his bite in terms of fomenting any sort of viable region-wide Bolivarian movement. Witness the vituperative reaction of many Bolivian citizens in June of this year to his verbal support for groups calling for the removal of their then-President Mesa. Protestors were ultimately able to pressure Mesa to resign, but if anything, some of the more radical elements in Bolivia were weakened by the suspicion that they were doing Chavez's bidding. Many Bolivian citizens are visibly frustrated with their political and economic situation, but few see Hugo Chavez or his revolution as a viable alternative to democracy, however weak or unresponsive democracy may be.

Examining Chavez's rhetoric and actions illustrates why he has garnered so little regional support. His rhetoric on his weekly television show, Hello, Mr. President, tends to echo Marxist guerrillas in Colombia and Fidel Castro in Cuba. While Chavez's policies are not identical to those held by Colombian guerrillas or Castro, the ideological cohesion is undeniable. Chavez increasingly governs with the Castro playbook, supporting undemocratic movements throughout the region, while clamping down on civil liberties and promoting a zero-sum populist agenda at home.

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