Latin America Shifts Left: It's
by Mark Weisbrot
www.AlterNet.org, January 21,
Bolvia's Evo Morales is the sixth presidential
candidate in the last seven years to win an election while campaigning
against economic neoliberalism.
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
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"
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
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
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.