[nasional_list] [ppiindia] Latin America Shifts Left: It's the Economy

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**http://www.venezuelanalysis.com/articles.php?artno=1654



Latin America Shifts Left: It's the Economy

By: Mark Weisbrot - AlterNet

Saturday, Jan 21, 2006
 

  
Evo Morales' election in Bolivia, with an unprecedented (for that country) 54 
percent of the vote, is seen and analyzed here mostly in political terms. He is 
a former head of the coca growers union and opposes the U.S.-sponsored attempts 
to eradicate the production of coca. He has talked about nationalizing the 
natural gas resources now owned by foreign corporations. "We're not just 
anti-neoliberal, we're anti-imperialist in our blood," he proclaimed at a 
recent campaign rally. These things will be more than enough to ensure that he 
does not get a fair hearing here in the United States.

But we would do well to step back from the politics for a moment and look at 
this election in economic terms. This explains a lot what is happening in 
Bolivia, and indeed across most of the region. Bolivia is the poorest country 
in South America -- its GDP (or annual income) per person is only $2,800, as 
compared to $8,200 for the Latin American region and $42,000 in the United 
States.

Bolivia has also been subject to IMF agreements almost continuously (except for 
eight months) since 1986. And it has done what the experts from Washington have 
wanted, including privatizing nearly everything that could be sold. Among the 
most notorious was the water system of Cochabamba, which led to the famous 
"water war" against Bechtel (the buyer) in 1999-2000 after many residents got 
priced out of the market. The country's Social Security system was also 
privatized.

But nearly 20 years of these structural reforms -- or "neoliberalism" as 
Morales and most Latin Americans call it -- have brought little in the way of 
economic benefits to the average Bolivian. Amazingly, the country's per capita 
income is actually lower today than it was 25 years ago. And 63 percent of 
Bolivians live below the poverty line.

So Morales' declarations cannot be dismissed as just populist campaign 
rhetoric. In fact, the economic failure of the last 25 years is both regional 
and unprecedented. For Latin America as a whole, income per person -- the most 
basic number that economists have to measure economic progress -- has grown by 
about 1 percent for the first five years of this decade. From 1980 to 2000, it 
grew by only 9 percent. Compare that to 82 percent for the 1960-1980 period -- 
before most of the neoliberal reforms began -- and it is easy to see that this 
is the worst long-term economic failure in modern Latin American history.

Here in Washington, most economists and policymakers have either ignored this 
profound regional economic failure or maintain that is has nothing to do with 
the structural reforms of the last 25 years. On the contrary, they argue that 
the reforms did not go far enough -- and that is the position of the Bush 
administration as well.

But most Latin Americans aren't buying it. This difference over economic policy 
-- much more than drug policy, the war in Iraq, immigration, or Cuba -- is the 
main thing that has set Washington on a collision course with most of Latin 
America. Evo Morales is now the sixth candidate in the last seven years to win 
a presidential race while campaigning explicitly against "neoliberalism." The 
others were in Argentina, Brazil, Venezuela, Ecuador and Uruguay. And there 
will likely be more in the near future, as there are 10 more presidential 
elections scheduled in Latin America over the next year.

The connection between a set of policy reforms -- implemented at different 
times in different countries -- and the economic failure of the last 25 years 
cannot be proven in a scientific sense. And each country's story is different. 
But there is considerable evidence that many of the policy changes since 1980 
that have been advocated by Washington have contributed to this economic 
disaster.

Fiscal discipline is a good idea, but when the economy is in recession, it may 
be better to run a budget deficit, as we do in the United States. Inflation is 
always something to watch out for, but central banks can get carried away and 
set interest rates too high, stifling economic growth. This is especially true 
if they are completely unaccountable to anyone outside the financial sector or 
foreign financial markets.

Foreign capital can be useful, but opening capital markets completely can wreak 
havoc with a country's currency. This can hurt the investment climate -- a 
manufacturer that imports parts, and produces for export, needs to have some 
idea of what the exchange rate will be. An overvalued currency can hurt 
domestic industry by making imports artificially cheap. So too, can 
indiscriminate opening to imports from all over the world. And there are times 
when a country is better off restructuring -- even unilaterally, if necessary 
-- an unsustainable debt burden, rather than sacrificing its economic future 
for many years or even decades just to pay off debt.

The economic landscape of Latin America is littered with the ruins of these and 
other policy mistakes that were supported, and sometimes implemented, under 
considerable economic and political pressure from Washington and the 
institutions that it controls: the IMF, World Bank and Inter-American 
Development Bank. Governments also abandoned most of the policies that have 
contributed to the development of nearly every country that has reached high 
income levels today -- for example certain industrial and development 
strategies -- in favor of "market-driven" development.

Last month both Argentina and Brazil decided to pay off their remaining debt to 
the International Monetary Fund. President Kirchner of Argentina made no bones 
about why his government was willing to shell out a huge sum right now -- $9.8 
billion -- to rid itself of the IMF forever. The IMF has "acted towards our 
country as a promoter and a vehicle of policies that caused poverty and pain 
among the Argentine people," he said in announcing the decision.

He might have added that the IMF didn't give Argentina a dime after its 
economic collapse at the end of 2001, and in fact drained $4 billion (4 percent 
of GDP) out of the country in the calamitous year of 2002. And Argentina had to 
fight the Fund every inch of the way to adopt the polices that enabled its 
economic recovery, among them a stable and competitive exchange rate, 
relatively low interest rates and a tax on exported goods.

Keeping the currency stable and from becoming overvalued was essential for the 
export-led part of the recovery, and also to encourage domestic investment. 
Kirchner's government had to intervene many times in currency markets, and use 
the Central Bank for something other than fighting inflation, in order to 
accomplish this. The IMF remains opposed to these policies. The Fund also 
opposed the export tax, which was important in boosting government revenues. 
Instead, the IMF advocated a number of politically unpalatable and economically 
dubious policies including raising utility rates, running bigger budget 
surpluses and paying more money to foreign creditors.

Argentina's economic policy choices were decisive and successful. The economy 
has grown at about 9 percent for three years now, a nearly unprecedented growth 
streak in Latin America over the last 25 years. And it was done without any 
outside help and despite the net drain of money to the IMF and other lending 
institutions. This explains much of Kircher's political success, and the 
country's attitude toward the IMF and the Bush administration -- recall the 
not-so-royal welcome that President Bush received in Mar del Plata, Argentina, 
last month.

Even in the case of Venezuela, much can be understood by looking at the 
situation in economic rather than just political terms. Of course President 
Hugo Chavez is locked in a bitter political struggle with the Bush 
administration, and much of this is due to the latter's support for a military 
coup against his democratically elected government in 2002 and for an 
unsuccessful recall effort last year. But Chavez' popularity at home is 
primarily based on the country's recent economic performance.

The first four and half years of his government were marked by enormous 
political instability, including capital flight, several oil strikes -- one 
economically devastating in 2002-2003 -- and a military coup. But since 
political stability was established, the economic recovery has been remarkably 
rapid.

The Venezuelan economy grew by nearly 18 percent in 2004 and about 9 percent 
this year. Furthermore, the government more than doubled social spending and is 
providing free health care to a huge number of the poor population, as well as 
subsidized food for 40 percent of the country. It is common to attribute all of 
this to high oil prices, but oil prices increased faster and reached even 
higher levels in the 1970s -- and Venezuela's per capita income actually fell 
during that decade. In fact, from 1970-1998, Venezuela suffered one of the 
worst declines in per capita income in the world: It actually fell by 35 
percent. The Chavez government's most lasting legacy may well turn out to be 
not his defiance of the United States, but the reversal of his country's 
remarkably long economic decline.

The tangible improvements for those living in Caracas' poor barrios have been 
noticed in the rest of Latin America, a region with the most outrageously 
unequal income distribution in the world. But Venezuela has changed the 
economic equation in Latin America in another very important way: by using its 
oil revenues to provide an alternative source of funds. Venezuela has loaned 
about a billion dollars to Argentina, and Chavez pledged last month to do more 
if necessary.

Which brings us back to Bolivia. Bolivia is in debt up to its neck, mainly to 
the international financial institutions. These include the Inter-American 
Development Bank, World Bank and the IMF -- but the IMF, and that means U.S. 
Treasury, calls the shots for the group.

It is likely that their recommendations for economic policy will be the same as 
they have been for the last 25 years and contrary to what Morales will need to 
do in order to deliver on his promises. Assuming he can get enough support from 
within his own government, will he be able to stand up to these powerful 
creditors?

Five or six years ago, the answer would have been probably not. If he tried, 
Bolivia would have been economically strangled. But today it is a new world. 
This is partly because the IMF has lost so much power. After the Asian economic 
crisis of the late '90s, in which the affected countries had a very bad 
experience with the Fund, the middle-income countries in the region piled up 
reserves so as to never have to borrow from the IMF again. And Argentina has 
shown that a country that was flat on its back could say no to the Fund and 
launch a solid economic recovery on its own.

The other big factor is Venezuela. The $950 million that Venezuela loaned 
Argentina is more than 10 percent of Bolivia's GDP. And Hugo Chavez is a very 
good friend of Evo Morales. Thus Morales will be the first president of a 
small, dirt-poor, heavily indebted country to arrive in office in an excellent 
bargaining position with the official international creditors. In fact, they 
may well discover that, just as in Argentina in 2003, they need him more than 
he needs them.

Of course, Morales will still face many challenges. The majority of Bolivia -- 
like him -- is indigenous, and they are poorer, discriminated against, and 
heretofore excluded from political power. There will be demands for political 
autonomy from them as well as from the some of the richer areas. Compromises 
will be made, and some of his supporters on the left will be disappointed. And 
the challenges of implementing any economic development strategy for a country 
of this size and level of development are considerable in any case.

But these are internal problems. At least he will have a chance to resist 
outside pressures to derail any reform program.

At some point Washington policymakers and economists will revisit the economic 
evidence and decide that perhaps some of their policy prescriptions have been 
wrong. But by that time, Latin America will have long passed them by. 

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in 
Washington, D.C.

Original source / relevant link: 
Alternet.org


[Non-text portions of this message have been removed]



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