South America turns Left
The rise to power of several leftist governments in South America is the subject of the Gadfly’s latest column. He examines some factors behind the development and the policies adopted by these regimes to respond to the challenges of globalization and the present unipolar world order.
Subject: The Left Gains Control of Most of South America
Except when the World Cup is won by the national football teams of Brazil or Argentina or when a man-made or natural calamity strikes, South Amercia is seldom featured in the Philippine media.
It is time that the continent appeared on our radar screens because political, social and economic developments sweeping the land mass south of Central America give us a wider perspective of how a number of developing nations with a common historical and cultural background as well as similar problems of endemic poverty, governance and the rule of law as the Philippines, are responding to the challenges of globalization and the present unipolar world order.
Leftist or left-leaning political parties and personalities have risen to power through generally free and honest elections as a result of widespread discontent with numerous traditional conservative forces and leaders perceived as corrupt and ineffective. A few like the Pinochet dictatorship in Chile succeeded in laying the basis for economic progress but miserably failed to respect the most basic of human rights.
Brazil.
The largest ( 8.5 million square kilometers ) and most populous ( 183 million inhabitants with a per capita income of $3,090 ) country in South America, Brazil is run by the left off center Workers Party of President Ignacio “Lula” da Silva who came to power in 2003 amidst fears of the business community that he would adopt populist policies that would lead to widescale nationalization, increased public spending and inflation. Instead, the new chief executive kept a tight rein on public spending by setting a target of 4.25% of GDP as the public primary surplus, improved tax collection rather than imposing new taxes, and made the labor market more flexible. His business-friendly policies led to expanded profits that have generated 3.5 million new jobs in the formal sector and reduced the rate of poverty from 27% to 25%.
Mr. da Silva also established the Bolsa Familiar ( Family Fund ) program that provides a subsistence allowance to poor families provided the children in such families go to school and avail of public health facilities. Some 8.7 million families or almost one-fifth of the population are already covered by the program.
In foreign policy, Brazil has spurned the U.S. proposal to form a Free Trade Area of the Americas ( FTAA ) and has focused instead on strengthening Mercosur, the incipient common market composed of Brazil, Argentina, Paraguay, and Uruguay as full members, with Chile and Bolivia as associate members. Brazil likewise seeks a permanent seat in the UN Security Council but its larger neighbors like Argentina and Chile have objected to its representing Latin America in the Security Council on the sole basis of the country’s size and population. Brazil and Argentina, however, are at the forefront in the struggle within the World Trade Organization ( WTO ) to eliminate agricultural subsidies and other practices of developed economies that distort global trade to the detriment of developing nations.
Venezuela.
Oil- and natural gas-rich Venezuela with a population of 26.9 million, a per capita income of $4,020 and a land area of 881,000 square kilometers provides the continent with a leftist model marked by strong state intervention in the economy under its populist president, Hugo Chavez. High oil prices have allowed the former paratroop colonel to spread his “Bolivarian revolution” at home and abroad. The estimated $60 billion per annum in oil revenues provide Mr. Chavez with the funds needed to continue the expropriation of private assets, job-creation schemes and public works programs as well as pro-poor projects such as free health care, subsidized food and land reform that have become the hallmarks of his internal policies. The fiscal profligacy involved in funding such programs has resulted in an average annual inflation rate of 20% since he assumed office in 1998.
Described as “dangerous” by the Bush administration, the Venezuelan president is suspected by Colombian authorities of having provided material aid to the Fuerzas Armadas Revolucionarias de Colombia ( FARC ) guerrillas. Mr. Chavez has succeeded in winning more friends in the region be dispensing his oil largesse. He sends cheap oil to Cuba in exchange for the services of Cuban doctors and nurses. He sells oil at subsidized rates to selected Caribbean and South American countries and is reported to have financed the successful campaign of Mr. Evo Morales who was elected as Bolivia’s president last December.
Two pet projects of Mr. Chavez are the setting up of the Caracas-based Telesur television network to rival the BBC and CNN in Latin America and the projected 8,000 kilometer-long natural gas pipeline connecting Venezuela with Brazil, Paraguay and Argentina. It is estimated that the project would cost $20 billion and take between five to ten years to build. Some energy experts believe that the proposed pipeline is a pipedream because it is cheaper to liquefy and ship natural gas when the distance involved is more than 3,000 kilometers.
Bolivia.
Evo Morales, the former trade union leader, was sworn in last January as the first Indian president of landlocked Bolivia whose population of 9 million inhabitants with a per capita income of $960 is 2/3 indigenous. He declares that he intends to “bury the neo-liberal state,” and to insure that the country’s natural resources, particularly natural gas, do not remain in the hands of predatory multinational energy companies. The new president hopes to convert the state into the “fundamental axis” of development by providing financing to small firms, promoting techology and selectively supporting large private companies. He plans to nationalize the natural gas industry, the country’s principal economic asset, despite the fact that the government has already more than doubled the royalties collected from Petrobras, British Gas, Total and Repsol. These energy giants have paid under protest and have warned the government of possible law suits for breach of contract.
Foreign aid accounts for roughly 10% of Bolivia’s GDP. The U.S. has offered $593 million in additional assistance to finance infrastructure projects but such amount will not be forthcoming if Mr. Morales fulfills his campaign pldege of de-criminalizing coca leaf cultivation.
Brazilian President da Silva has dismissed Mr. Morales’ talk of burying the neo-liberal state with the comment that “between theory and practice there is a gulf bigger than the Atlantic Ocean.”
Argentina.
Argentine President Nestor Kirchner is another left-leaning, populist politician whose hardline stance vis-a-vis the IMF is a case study of a developing nation which has succeeded in resisting the one-size-fits-all conditions of the Fund and maintaining a large degree of freedom in fiscal and monetary matters despite being heavily indebted to the IMF and other multilateral lending institutions. Last January, he paid off close to $10 billion due the IMF during the 2006-2007 period, thereby exiting from the IMF program.
He claimed that Argentina ( land area: 2.8 million sq. km.; population: 39.3 million; and per capita income: $3,720 ) would save $900 million in interest payments by doing so. While this is true, the more important reason is that he faces reelection next year and wishes to have a free hand in public spending in the runup to the elections. Argentina has almost fully recovered from the December 2001 financial crisis, thanks largely to improved world prices for its commodity exports, but Mr. Kirchner risks throwing away the gains so far achieved if he does not control public spending and inflation which is expected to hit 12% this year.
The Argentine president is a firm believer in state intervention in the economy and foreign investors point to his obstinate refusal to allow privatized utilities, mostly foreign owned, to raise their rates which have been frozen since 2001, as proof that politics, rather than economics, drives such intervention often carried out in disregard of the rule of law. Following the Peronist tradition of appealing to the masses despite facts that dictate otherwise, the government of Mr. Kirchner has forced supermarkets and other distributors to keep prices of certain basic products at specific levels under the threat of the imposition of higher taxes if such prices are allowed to exceed prescribed levels.
Chile and Uruguay.
The other left-leaning governments in South America are Chile ( population: 16.2 million; land area:756,000 sq. km., per capita income: $4,910 ) and Uruguay ( 3.5 million inhabitants, 176,000 sq. km., and $3,950 ). President Michelle Bachelet of Chile and President Tabare Vasquez of Uruguay are firm believers of the free market and do not adopt the populist policies of some of their colleagues. They have their own pro-poor progams, the notable one being that of Mr. Vasquez which is called the Emergency Plan and is similar to Brazil’s Family Fund program. The political institutions in these countries are strong and generally untainted by corruption. Chile has signed free trade accords with the U.S. and Singapore, among others, while Uruguay has joined Brazil and Argentina in rejecting the FTAA and focusing instead on building Mercosur.
From the discussion above, it will be observed that two paradigms of socialist governments have emerged in South America: (1) that embodied by Mr. da Silva’s Brazil which embraces free market principles while allowing limited state intervention to correct socio-economic imbalances, and (2) that represented by Venezuela under President Chavez which downplays the role of private enterprise while emphasizing the interventionist role of the state. Placed in a continuum with Venezuela on the extreme left and Brazil on the right, Chile and Uruguay would be situated close to the right, Argentina would be smack in the middle, while Bolivia under Mr. Morales would be close to the extreme left.
Six of the twelve countries in South America have elected leftist or left-leaning governments in recent years. Their number does not adequately represent their individual and collective weight in relative terms. Whether these governments will continue in power in the immediate and medium term ( Messers. Chavez, da Silva and Kirchner face elections this or next year ) will depend largely on their ability to promote economic growth and reduce the gap between the rich and the poor in their respective countries.
on March 12th, 2006 at 12:26 pm
Chavez sold heating oil at very low prices to several poor communities along the US eastern seaboard. This reaaly pissed off Bush. Ot embarrassed him that a third world country was sending foreign aid to his country. It was a brilliant PR move by Chavez.
on March 12th, 2006 at 12:36 pm
Great PR gimmick but not a very smart business decision. Multiply that several times over and you get an idea of the financial imprudence of Chavez. He’s spending Venezuela’s oil revenues as if there were no tomorrow.
on March 12th, 2006 at 12:39 pm
Gadfly,
There is a disconnect between the title of your column, “Latin America turns left,” and the piece itself that makes reference only to South America.
on March 12th, 2006 at 12:48 pm
That’s right. I’m glad you noticed. The title should read “South America turns left.”
I limited my assessment to South America basically because countries like Mexico have already chosen to be part of North America, at least in the strictly economic sense, by joining the North American Free Trade Area ( NAFTA ), while Central American countries have formed their own CAFTA. There are no similar groupings that cover all of South America.
Besides, there are more than 30 countries and territories in Latin America and it would have been difficult to write on the entire region in less than 20 paragraphs.
on March 12th, 2006 at 1:02 pm
Gadfly,
It’s been corrected
on March 12th, 2006 at 3:52 pm
The left has gained power in South America through “generally free and honest elections.” Is there a way that honest polls can be made the object of technology transfer?
on March 12th, 2006 at 4:06 pm
Gadfly,
Don’t belittle Chavez’s plan to build a gas pipeline stretching from Venezuela to Argentina. The idea of connecting separate energy grids makes economic sense because it would ultimately involve economies of larger scale and connect suppliers to consumers.
on March 12th, 2006 at 6:23 pm
Rudy,
Some energy experts believe that an 8,000-km. gas pipeline is not a viable proposition. Assuming that it were, however, there would be the political angle to examine more closely. It is very likely that Chavez proposed the project to strengthen his political influence in the region in the guise of economic integration. I think that for countries like Brazil and Argentina, banking on Venezuela for a stable, long-term supply of natural gas would be a risky business for the simple reason that these countries cannot afford the luxury of depending on a supplier that can turn off the tap at source when it is politically convenient to do so.
on March 12th, 2006 at 6:24 pm
The Ukrainians and Poles have learned this lesson only recently with respect to the Russian gas pipeline.
on March 12th, 2006 at 6:29 pm
Luke,
The technology transfer should be reversed. We should send Garci to South America instead so they will learn the art of rigging presidential elections.
Levity aside though, the South Americans have probably realized that it is vital to have clean and honest polls because electoral fraud can only destabilize their recently regained democratic institutions. Remember that a string of military regimes ruled many nations in the region in the 70s and 80s, with Pinochet of Chile relinquishing power only in 1990.
on March 12th, 2006 at 6:36 pm
I was just thinking of Bolivia, a large, landlocked country with poor communications and deficient infrastructure. I imagine it would have been rather easy for the elite of European descent to rig the elections to prevent Morales’ ascent to power. They did not dare to engage in fraud probably because they knew that doing so would have provoked a political and social catastrophe.
on March 12th, 2006 at 6:38 pm
I fully agree. Compared to Bolivia, the Philippines is a political basket case.
on March 12th, 2006 at 8:33 pm
Had the presidency been stolen from him, Morales would have called on his supporters to set up barricades on the main highways of the country and this would have brought Bolivia to a grinding halt. He had done it before on two occasions which forced two presidents out of office.
on March 12th, 2006 at 8:36 pm
Aside from being rich in oil and natural gas, doesn’t Venezuela also have a lot of beauty queens?
on March 12th, 2006 at 8:39 pm
The beauty queens from Venezuela are a product of those schools that teach students how to walk, make themselves up, say smart things, etc. It’s like a cottage industry. I think the genuine natural beauties come from other parts of South America like Colombia, Brazil and Argentina.
on March 12th, 2006 at 11:02 pm
I saw pictures of Evo Morales paying calls on the King of Spain and President Chirac of France dressed in an alpaca sweater and a leather jacket respectively. This was after his electoral victory. What is behind this new fashion of refusing to put on a suit and necktie?
on March 12th, 2006 at 11:06 pm
Maybe the fellow simply does not have a proper coat and tie. Or he does not feel comfortable in a suit, who knows?
on March 12th, 2006 at 11:13 pm
I think the fashion statement is directed towards his fellow indigenous Bolivians as well as to foreigners. To the former, Morales is saying I am one of you and I don’t wear the attire of our former white masters. To the latter, he is emphasizing he is different from the traditional politicians who used to govern the country.
He is trying to imitate his idol, Fidel Castro, who still wears combat fatigues on most occasions. But to be fair to the comandante, he puts on well-cut suits when he goes to the UN in New York or on other important state occasions abroad.
on March 13th, 2006 at 12:09 am
I like what’s happeming in South America, Their leaders are finally realizing that theie constituency is what matters most. They know that what other outries have to say is secondary. That’s the lesson we have to learn from the West. Do you think the leaders of America, France, England, Germany etc give a shit about anything except their national interest? These new South American leaders represent their national interest, the interest of the majority of their people. That’s what they are telling the world and the West and that’s why the West hates them.
on March 13th, 2006 at 12:50 am
Leaders like Evo Morales honestly believe that what they are doing promote the interests of their respective nations. But in this globalized world where countries compete for investments and services, they sometimes price themselves out of the market with their talk of nationalization and keeping full sovereignty over natural resources.
It is not really something between the West and these leaders. It’s between good and bad business.
For the large multinationals that can exploit Bolivia’s natural gas and export it to nearby markets, it is becoming bad business to continue operating in that country.
But I think that Morales will eventually realize this and get down from his high horse. Trouble is that it will take several trials and errors before he does.
on March 13th, 2006 at 7:58 am
I admire the way Argentina successfully resisted pressure from the IMF to adopt harsh austerity measures and commit to a large public surplus. Now the country has exited from its program with the Fund. Maybe the Philippines can learn some lessons from the Argentines in its dealings with the IMF and other international financial bodies.
on March 13th, 2006 at 8:04 am
During the negotiations between the Fund and Argentina, I was impressed by President Kirchner’s breathtakingly simple argument that his country could pay its creditors only what it could afford. If I am not mistaken, he tried to persuade the IMF to link debt payments both to public and private creditors to Argentina’s GDP growth during a particular year. I wonder if the Philippines could use this line in the future.
on March 13th, 2006 at 8:37 pm
Ana,
The Philippines could use the same argument. The only problem is that the IMF has not yet said whether it buys this line of reasoning or not.
If our country resorted to this line, it should be prepared to:
1. Present a formula on just how GDP growth will be linked to debt payment. In other words, how much of GDP increase will justify a particular increase in debt payment;
2. Be prepared to counter the argument that such a linkage would also mean that if GDP decreases, i.e. there is no growth, then there will also be no debt payment during a specific period. This would cause chaos in the international debt market.
on March 13th, 2006 at 8:51 pm
Charo,
Argentina was able to play hardball with the IMF because its huge debt to the Fund covered something like 30-35% of the IMF’s outstanding loan portfolio. The Fund’s board of directors was simply too scared to declare Argentina in default because if it did, its annual statement would have been in the red. It was a case of the debtor practically intimidating the creditor.
The other side of the coin is that Argentina is self sufficient in food and can obtain the oil and natural gas it cannot produce from its neighbors through simple barter. The government of Mr. Kirchner was prepared to be cut off from the international financial system, if worse came to worst, because it knew it could survive.
Last but not least, world prices for Argentine commodity exports were high during the post- December 2001 period and export earnings allowed the country to triple its foreign currency reserves from December 2001 to the present.
Absent a huge debt that could intimidate the IMF, an administration ready to go all out in the negotiations with the Fund because it is confident it could survive a declaration of default and booming exports, a country like the Philippines would have to think twice before taking a negotiating tack similar to that of Argentina.
Another consideration is the long-range effect of getting away with such an approach. A country may escape the clutches of the IMF but long-term investors and bank depositors will remember the games played by such a country and will hesitate to put their money there.
on March 13th, 2006 at 8:54 pm
It’s very tempting to believe that the solution to other countries’ problems can also be applied to ours, isn’t it?
on March 13th, 2006 at 9:21 pm
bad business vs good business. Bad business being… ?
Good business being… ?
Evo Morales and Chavez are resisting neo-liberal trade-determined-exclusively-by-market-forces economics. Is the neo-liberal model a proven fact ? Isn’t it still a theory that must compete in the marketplace of ideas? Or have we bought in to it?
on March 13th, 2006 at 10:03 pm
Let’s set aside the debate on neo-liberalism for a while and limit ourselves to the business side of the natural gas problem in Bolivia, to use a concrete example.
Brazil’s Petrobras, Spain’s Repsol, France’s Total and British Gas invested $4.9 billion in Bolivia between 1997 and 2004. A large part was allocated for the expansion of facilities, including the laying out of a new pipeline to Argentina. The plans were based on the 18% royalties charged these energy companies when their contracts were concluded in 1997.
Bolivia exports about 30 million cubic meters of natural gas a day to Brazil and Argentina and could double these exports as well as supply Chile if these firms’ facilities could be expanded. With royalties increased by legislative fiat to almost 40% last year as a result of political turmoil and Mr. Morales’ threat of nationalization, the four energy giants have put their expansion plans on hold while they pay the higher royalties under protest and prepare to file cases in international courts for breach of contract.
The rule of law and a predictable business environment are the issues here. Their lack is what I call bad business, whether a country follows the neo-liberal, socialist or even communist model.
on March 13th, 2006 at 10:35 pm
Is it true that Chavez has changed the Venezuelan national flag? Could he have done it just like that?
on March 13th, 2006 at 10:55 pm
He didn’t do it just like that. He went through the motions of having parliament approve the changes. Since the legislature is packed with his followers as a result of the political opposition’s boycott of last January’s legislative elections, his proposal was approved unanimously.
The changes are minor: the white horse on the coat of arms faces left instead of right and an extra star is added to the seven stars representing the country’s provinces.
More important than the changes in the flag is the fact that Mr. Chavez’s power is now virtually unchecked. The opposition is fragmented. The courts do his bidding. His stamp pad legislature will approve anything that he wants to be endorsed.
on March 14th, 2006 at 7:09 am
That is ironic because Mr. Chavez was democratically elected seven years ago and it seems that he is taking the authoritarian route now that whatever he wishes can and will become the law of the land.
on March 14th, 2006 at 5:05 pm
Maybe Evo wants to finance the building of that pipeline through the invreased royalties or maybe from the 17 percent royalties he gets. I’m sure he find someone to build it if he has the finances. Then he will own the pipeline.
on March 14th, 2006 at 9:33 pm
Maybe. But Mr. Morales must settle his problem with the four energy giants first. They are within their rights to insist on the implementation of the contracts they entered into with the Bolivian government in the late 90s.
My guess is that his talk of nationalization is the product of his days as a trade union leader and street campaigner. Now that he is in office a good reality check would lead him to the conclusion that it is the best interest of everybody - his government, the public and the energy multinationals - that he reaches some kind of compromise with the big boys who can take him to international courts and make life for him and his administration miserable.
on March 16th, 2006 at 12:31 am
I sympathize with the Moraleses and the Chavezes because they are tryinng to get out from under the big boys.
I don’t fault them for trying various approaches. If they fail in one approach, I hope they don’t give up. I hope they never stop trying.
We have evolved from colonies to neo-colonies. I hope our evolution does not end there.
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