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Thursday, Apr 20, 2006

Opinion

Opinion - Leader Page Articles

Which way is Latin America headed?

Jorge Heine

A majority of Latin Americans are now ruled by Left-led governments. Their leaders are applying new, imaginative solutions tailored to their country's specific needs, rather than the "one-size-fits-all" approach that has wrought havoc in the region in the past.

A UNITED Nations University-sponsored conference on human rights in the Americas in Mexico City I attended a few weeks ago coincided with another on "close elections" put together by the Federal Elections Institute and Oxford University (Yogendra Yadav, India's leading pollster, presented the paper on India's 2004 vote). Apparently, the idea of the organisers was to throw light on the July 2 Mexican presidential elections, which a year ago were considered by some "too close to call." That may still turn out to be the case, but today Andrés Manuel López Obrador (or AMLO, as the former Mayor of Mexico City is known) is four points ahead of his closest rival, and the man to beat.

AMLO represents the Democratic Revolutionary party (PRD), a party on the Left, which until now has never won a presidential election. If we add to that the results of the Peruvian elections held on April 9, in which the two candidates on the Left, Ollanta Humala and Alan García, came out on top and will now face a run-off, the pattern of the recent electoral results in Latin America is straightforward.

The Left has won, in some cases with a significant majority, in Brazil (with President Inacio Lula da Silva in 2002), Argentina (with President Néstor Kirchner in 2003), Uruguay — another first (with President Tabaré Vásquez in 2004), the Dominican Republic (with President Leonel Fernández in 2004), Bolivia (with President Evo Morales in 2005) and Chile (with President Michelle Bachelet in 2006). President Hugo Chávez of Venezuela has been in power for quite some time now, and keeps winning elections.

Yet there is a paradox. One would expect a protest vote such as the one leading to first-time wins by the Left in periods of great economic turmoil and/or recession. Yet today Latin America is undergoing a "boom." In 2005 the region grew at 4.3 per cent, its third consecutive year of growth, unemployment fell from 10.3 per cent in 2004 to 9.3, and the poverty rate from 44 per cent in 2002 to 40.6. Thanks to the uptrend in commodity prices (with oil at $70 a barrel and copper approaching $3 a pound), exports are thriving and the region has benefited the most in the current business cycle.

After its 2001 crisis, Argentina grew at between 8 and 9 per cent a year for three years in a row; despite the misgivings in international financial markets in the months leading to his election, President Lula has stabilised the Brazilian economy, and the same markets now look with quiet nonchalance at his likely re-election next November; Mexico has become Latin America's biggest economy (as large as Brazil and Argentina's put together) and Chile's major "problem" is what to do with its burgeoning fiscal surplus, which threatens to reach $7 billion, or 6 per cent of GDP this year, leading to a considerable appreciation of the peso (a classic case of "Dutch disease"). FDI in the region in 2005 was $60 billion, only slightly less than in 2004 (at $61 billion), and international financial investors are smiling all the way to the bank. Mutual funds focussed on Latin American stocks have been the best performing Morningstar fund category for three years in a row.

So, what is going on? What we are seeing is a "third wave" of sorts. Much as from the mid-1960s to the mid-1980s, military dictatorships (or bureaucratic-authoritarian regimes, as they were typecast in the Southern Cone) ruled the roost, and after that, democracy, hand in hand with the Washington consensus, became the only game in town, today the pendulum has swung back again. This is a reaction against the dogmatic ramming through of economic reforms "for reforms' sake," as cycle after cycle of them promises heaven on earth, yet is unable to deliver. Once economists start talking about "third generation reforms" as the ones that will really work, there will be a problem.

Latin America is the region with the highest income inequality, and these successive (and seemingly never-ending) reform cycles, whatever their other virtues, have not been able to make a dent in these huge gaps between social classes. One may debate endlessly whether it is the reforms themselves (privatisation, deregulation, opening up) or the manner in which they were applied (too fast or too slow, half-way or too comprehensively, etc.), which is at fault, but despite the considerable economic growth and palpable progress across the region, vast sectors of the population feel that their lives are not improving and demand change.

Of what sort? An acquaintance, who looks at this with sympathy, told me he was delighted because "the ideas of the sixties were once again gaining ground in the region." Yet, that is precisely what is not happening.

These changes are an expression of cultural rather than ideological shifts. What we are witnessing is the replacement, at the highest levels of government, of a certain Europeanised elite that, although representing only a small share of the population, managed to secure the monopoly of not just social status and the means of production but also the top positions in politics. To have a metal worker who lost one of his fingers on the factory floor as President of Brazil, an aboriginal leader (another first) as President of Bolivia, and an agnostic, single mother as President of Chile, all of them elected with more than 50 per cent of the popular vote, entails a major shift from long-standing patterns of social and political behaviour, in which deference and submission to established elites seemed fully entrenched.

The second point is that far from harking back to the heterodox policies of the 1960s, the Latin American Left in government now has been, as a rule, remarkably orthodox in its fiscal and economic management. If there is something the electorates in our countries will not put up with is the inflation as well as economic instability we went through then.

I already referred to how Argentina and Brazil have stabilised their economies, as well as to Chile's stellar performance. Peru has had (ruled by left-of centre President Alejandro Toledo) five years of high economic growth and has attracted much FDI. It has just signed an FTA with the United States, something which Uruguay has also been considering. Most observers think that a PRD-led Mexican government would stick to the economic policies that have led to that country's increased imbrication with the U.S. and the NAFTA project.

Where Left differs with Right

Where the Left does part ways with the Right is on the issue of public policies in general and on social policies in particular.

On the first, the key notion has been that, much as in today's world it is the private sector that drives the economic engine, the government plays a key role in devising tools to leverage the statutory powers of the state with the material resources and managerial capabilities of business. The provision of public infrastructure, a fundamental need in a huge continent such as Latin America, is a classic example.

The notion that the free market by itself will provide the highways, bridges, tunnels and airports that are needed is just as mistaken as the one that hopes against hope that the public sector will come up with the enormous resources to pay for them, willy-nilly. Public-private partnerships are, of course, the answer here, something which India is actively pursuing, as we have seen recently with the adjudication of the bids to upgrade the Delhi and Mumbai airports but the same goes for other areas. Chile managed to generate $6 billion in private investment (mostly foreign) in public infrastructure from 1995 to 2003, and its highways and airports are today ranked among the best in the region.

On social inequalities the Right's standard approach has been "trickle down," that is, to allow economic growth per se to take care of the disadvantaged, on the theory that "a rising tide lifts all boats." And while there is little doubt that without growth there won't be much to distribute, the evidence shows than unless carefully calibrated social policies are also put in place, poverty and huge inequalities will persist. Once again the case of Chile, where poverty was almost halved, from 39 per cent of the population in 1990 to 18 per cent in a decade, is a good example of how the imaginative public policies implemented by a responsible Left have made much headway.

Yes, the Left has won quite a few elections, a majority of Latin Americans are now ruled by Left-led governments, and by leaders who are more representative of their peoples. But, far from being determined to turn the clock backwards towards the failed, statist economic policies of yesteryear, these leaders, by and large, are keen on applying new, imaginative solutions tailored to their country's specific needs, rather than the "one-size-fits-all" approach that has wrought such havoc in the region in the recent past.

(Jorge Heine is the Ambassador of Chile to India.)

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