Latin America on the Brink
By Mark Falcoff

Recent news from the nations to America's south is worrisome. Some major economies seem to be on the brink of collapse. Strongmen and left-wing radicals have taken the reins (or threaten to) in countries that have been important U.S. allies. Terrorism, the drug trade, and illegal immigration are on the rise; exports of vital resources like oil may be dangerously threatened. Will the coming years amount to a lost decade for South America--or, worse, a period when our hemisphere spirals into instability? Let's take a stroll down Latin American Way. The view is not pretty.

Brazil

Brazil--home to Latin America's largest economy--may be the greatest source of distress. The prospects of a leftist being elected president in late October are growing almost daily. At press time, Luiz Inácio Lula da Silva, presidential candidate of Brazil's Workers Party, was leading the polls with about a third of all votes in advance surveys. As usual, as the date of elections draws closer, Lula's competition begins to close the gap. Unfortunately, Ciro Gomes of the Popular Socialist Party, almost as left-wing as Lula, is running neck and neck with him. The main centrist candidate, José Serra of the Social Democratic Party, is trailing far behind.

It's possible that Brazil is too large and complex to precipitously veer off in a new and radical direction. Lula and Gomes, however, are both deeply convinced ideologues, and Brazil--a continent unto itself much like the United States--tends to overestimate its options in the international economic system. If either of these men carry out his most extreme economic proposals, billions of dollars will flow out of Brazil, as will a great many capable professionals.

In a best-case scenario, Lula and Gomes may back off and cover their retreats with atmospherics: Endless speeches against globalization, pilgrimages to gladhand with Fidel Castro in Cuba, perhaps a snub here and there to the American ambassador or to President Bush at some international meeting.

But it is also possible that either of these current frontrunners for president will try to impose their programs, root and branch, on Brazil. And for the world's ninth-largest economy--one whose performance strongly affects its South American neighbors, as well as the international financial system--this would be no small matter.

Argentina

Perhaps the most important of Brazil's neighbors is Argentina. Yet at this point Brazil's economic fortunes could be the least of Argentina's problems. The Latin American country with the largest and most powerful middle class is experiencing rapid pauperization. A country that for generations helped feed the world is now suffering genuine hunger.

The Argentines have two urgent needs. The first is for immediate economic relief--their gross national product is declining fast without prospect of immediate recovery. This threatens the nation's democratic political system and the health of its civil society. The second order of business in Argentina is a credible plan to reorganize the country's internal finances so that it will not end up in this situation again. As yet the government of President Eduardo Duhalde has been long on asking for help, and short on offering solutions.

The government has so far failed to coax fresh money out of the International Monetary Fund and other financial institutions. As a result, the ruling party has dropped drastically in the polls. The present regime describes itself as transitional--Duhalde replaced the previous president by an act of congress, and is filling out his term--and hemorrhaging public support for the government has forced it to advance scheduled elections by six months, to March 2003.

But in many ways, elections offer few solutions. Today, roughly 29 percent of all Argentine voters say they favor a left-of-center alternative, 23 percent lean right-of-center, and 10 percent seek a "centrist" option. The rest are scattered in categories not easily classified. In other words, current polls suggest that no political leader or particular economic program enjoys enough support to govern.

Venezuela

Venezuela is a country rich enough in oil to be America's most important supplier, which, in fact, it often has been. Meanwhile, Venezuela has purchased social peace for two generations by indiscriminately showering the population with earnings from its primary natural resource. Over time, corruption, mismanagement, and inefficiency have wasted much of the nation's oil wealth, leaving 80 percent of the population in poverty.

The political sector's answer? More of the same, prescribed this time not by conventional politicians but by a self-styled military savior: retired lieutenant colonel Hugo Chávez. After nearly three years of his presidency, Venezuela's social indicators have not improved, even though oil prices have been at their highest level in two decades. In April, Chávez was driven briefly from office in an abortive coup, partly inspired by concern over the impending destruction of Venezuela's oil-producing sector.

While U.S. interests would be advanced if a different kind of government came to power in Venezuela, the forcible removal of Chávez before the end of his term (he has more than three years to serve) would be politically and diplomatically counterproductive, as well as morally questionable. A successor government would be unable to assume power--or to hold it--without a violent response from the hard-core chavistas among Venezuela's urban poor. Even if all the pieces fell into place perfectly, the new government would lack international legitimacy. We will likely be stuck with Chávez's economic incompetence and anti-American rhetoric for some time.

Colombia

Then there is deeply troubled Colombia. This country should be the natural leader of South America: It has the most dynamic business community, the most cultured elite, and a wide range of valuable resources. But it is also a very easy place to produce illicit drugs, and it suffers severely from the entrenched presence of narco-terrorists. Among other things, the drug trade allows Colombia's large Marxist guerrilla movement, the FARC, to be self-financing and comparatively wealthy. Decent and lawabiding citizens, meanwhile, are at extraordinary risk of being kidnapped, or, if they are politically active, assassinated.

It seems incredible that a guerrilla movement of 17,000 misfits should be able to immobilize a country of more than 40 million. Of course it doesn't help that the United Nations, the European Union, various human rights organizations, and other pious agencies, place the armed guerrillas and the elected government on the same level of legitimacy. Some human rights groups even wish to deny the elected government in Colombia the right to combat the nation's domestic insurgency.

But it is also the case that Colombia's civilian leaders--particularly former president Andrés Pastrana--have proven utterly feckless. During Pastrana's term, the guerrillas were permitted to control almost 40 percent of the national territory. Meanwhile, the so-called "peace process" went nowhere. Since then, the election of Alvaro Uribe, whom American news media have been quick to label a "hard-liner," represents a strong popular reaction to the nation's chaos and drift.

Peru

After ten years of authoritarian rule by Alberto Fujimori and his corrupt henchmen, Peru held competitive elections in which Alejandro Toledo--the nation's first democratically elected president of Indian heritage--emerged triumphant. Sadly, the Toledo administration, in office less than a year, has already been disgraced by scandals involving payoffs to key presidential aides, and the president himself has yet to offer his people an economic program behind which they can rally.

If the president cannot coax Peruvians to move beyond today's stagnant economic situation, there will be no positive effect even from a doubling of the amount of U.S. development assistance--which President Bush offered during his lightning visit to the country in late March. Worse still, if Toledo falters, the alternative is likely to be former president Alan García, who fled the country more than a decade ago after plunging it into bankruptcy. The fact that García now speaks the language of markets and efficiency should fool no one; he is still the same man who possesses a chilling knack for touching the most sensitive nerve-endings of the average Peruvian while wreaking his economic mischief.

Most South American countries finally embraced democracy about 20 years ago. A decade of vibrant economic growth followed their dissolution of dictatorships and moves toward freer markets. Since then, however, all major countries in South America except Chile have entered into economic stagnation and political decay.

The main problem is a deficient democratic political culture, blame for which must be shared equally by leaders and citizens. Riots and peremptory demands for food and jobs cannot produce either.

For its part, the international press like to blame South America's ills on the United States. Somewhat more subtly they criticize the free-market reforms prescribed during the 1990s by the International Monetary Fund. But many good things happened in Latin America as a result of the pressure for balanced budgets, stable currencies, lower tariffs, and privatization of large public companies. National currencies were strengthened, saving was encouraged, inflation came to an end, and in some nations long-term home mortgages and other personal lending became available for the first time. Meanwhile, billions of dollars were repatriated from foreign banks.

What did not occur was a lasting change in the way most Latin American governments do business. Primary and secondary education remained starved for funds; state enterprises were sold to insiders in transactions blackened by personal payoffs; judicial systems have generally lacked independence; essential ministries like public works, health, and law enforcement have been padded with loafers and political cronies.

It had long been the fashion to blame Latin America's problems on the military caste. But it is worth keeping in mind that all of the governments of the 1990s were freely elected, often by large popular majorities. Clearly democracy alone is not the solution to the problems of our southern neighbors. Latin Americans must tackle basic issues like economic discipline, property rights protection, transparency and honesty in public institutions, the work ethic, judicial independence, and economic freedom. Without these things, no outside forces, no matter how well intentioned, can solve their problems for them.

—Mark Falcoff is a resident scholar at the American Enterprise Institute and author of its monthly Latin American Outlook.