Hardly. Despite recent setbacks, it has led the region’s “second independence,” benefiting hundreds of millions.
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Supporters of Bolivia’s President Evo Morales cheer during the closing campaign rally in El Alto, Bolivia on Wednesday, October 8, 2014. (AP Photo / Juan Karita) |
There is a popular narrative here in Washington and media circles that
Latin America’s left-populist turn has finally run its course. It goes
something like this: A commodities boom, led by demand from China for
Latin American raw materials exports, fueled regional economic growth in
the 2000s. This happened to coincide with the election of left
governments that were reelected after spending lavishly on handouts to
the poor. They alienated foreign investors and their economic policies
were unsustainable. Now Chinese growth has slowed, commodity prices have
gone south, and with them the fortunes of Latin America’s nationalist,
populist left. November’s election
of right-wing challenger Mauricio Macri as president of Argentina, the
Venezuelan opposition’s landslide congressional win in December, and
economic and political crisis in Brazil—including
the current effort to remove President Dilma Rousseff—herald the
beginning of the end of an era. In this view, the region will continue
to elect more right-wing—or, in business-press parlance, “moderate” (and
pro-US)—governments that will return to some of the more sensible
economic policies of their predecessors.
Is this true? The short answer is no. It is true that Latin America has
been affected by the ups and downs of the global economy: The regional
economy was basically flat in 2015, and is projected to shrink by 0.5
percent this year. But this is not the main story. To understand what
has happened in the 21st century, we must first try to grasp why the
left won so many elections that it went from governing no one to
governing a majority of the region in less than a decade. The main cause
of the “pink tide” was a long-term economic policy failure, not seen
for at least a century in the region, in the last two decades of the
20th century. Regional real income per person grew by just 5.7 percent from 1980 to
2000, as compared with more than 90 percent in the previous two decades.
The region’s long-term growth failure was also a period in which
Washington exercised a strong influence over economic policy. As late as
2002, when Luiz Inácio Lula da Silva of Brazil’s Workers’ Party was
running for president, the International Monetary Fund sat down with him
and his opponents to decide what the post-election macroeconomic policy
would be for the next couple of years, regardless of who would win the
election. But despite being held back at the starting gate, Brazil was able
to triple its economic growth per person as compared to the prior
government; and reduce poverty by 55 percent, and extreme poverty by 65
percent, by 2014. The real minimum wage was doubled, unemployment hit a
record low of 4.8 percent in 2014, and real wages grew substantially for
the first time in years.
Bolivia was operating under IMF agreements for nearly 20 consecutive
years, until its first indigenous president (in a majority indigenous
country), Evo Morales, was elected and took office in 2006. At the time,
the country’s per-capita income was less than it had been 27 years
earlier. One of the government’s first moves was to renationalize the
hydrocarbons industry, which—even more than price increases—helped boost
the government’s take nearly sevenfold, from $731 million to $5
billion, over the next eight years. This move, which was impossible when
the government did not have economic sovereignty, was the foundation
for the remarkable economic and social progress of the past decade.
Politically, the government had to overcome a violent right-wing
secessionist movement. It kicked the US ambassador out of the country in
2008, with President Morales accusing him of aiding the violent
opposition. At that time, the US State Department was pouring large
amounts of money into Bolivia and refusing to disclose where it was
going (the United States and Bolivia still do not have ambassadorial
relations today). But once stability was achieved in 2009, the economy
did very well even during the world recession, boosted by a large
increase in public investment.
Changes in economic policy were also key
to Argentina’s success after its default and devaluation at the end of
2001. The remarkable economic growth and poverty reduction that followed
over the ensuing decade—real GDP increased by about 78 percent, and
poverty was reduced by more than 70 percent (these numbers are based on
independent estimates, as the government’s estimates of inflation are
disputed; see here —had relatively little to do with commodities. It was not even export-led growth.
One necessary condition for Argentina’s robust recovery (real GDP grew by more than 60 percent from 2002 to 2008) was
the government’s default on the foreign debt and its taking a hard line
in the renegotiation. Right away, this achieved a sustainable debt
burden—rather than getting Argentina stuck in a series of recurring
crises due to too much debt, as with Greece, for example. And again in contrast to
Greece, Argentina freed itself from the demands of its creditors for
continuing austerity. The government was also able to tax exporters to
capture the windfall from the devaluation, use the central bank to
manage the exchange rate, implement a financial-transactions tax, and
pursue other policies that enabled the country to emerge from
depression.
Where revenue from commodities helped, in Argentina and elsewhere,
was not in driving growth itself but in allowing these countries to
avoid balance-of-payments problems as they grew more rapidly. When an
economy picks up steam, demand for imports tends to grow faster than
exports, and so there is a risk of running short of hard-currency
international reserves.
So in countries that were vulnerable to these problems—Argentina, because it could not borrow
internationally, and Venezuela, because of a dysfunctional
exchange-rate system and its dependence on oil revenue—the commodities
bust was damaging.
But overall in the region, during the upswing Latin America’s
economic and social progress in the 21st century was driven by
economic-policy changes: counter-cyclical changes in fiscal and monetary
policy, increased public investment, increases in minimum wages, public pensions, healthcare, and
conditional cash-transfer programs for the poor. From 2002 to 2013, the
regional poverty rate fell from 44 to 28 percent—after actually rising over the previous two decades.
Just as positive policy changes, many enabled by Latin America’s “second
independence,” were behind the region’s big rebound in the 21st
century, much of the current slump is driven by policy mistakes.
Beginning at the end of 2010, with some interruptions, and then doubling
down after Dilma Rousseff was reelected at the end of 2014, Brazil’s PT
government began to implement
a series of policies that pushed Latin America’s largest economy into a
deep recession. These included large cuts in public investment, budget
tightening at the wrong times, two cycles of interest-rate increases,
and credit tightening.
The saddest part about Brazil’s austerity is that it was so
unnecessary: The country still has more than $350 billion in reserves,
and therefore could stimulate its economy without any worries about
running into balance-of-payments crises.
Dilma’s political opponents have taken advantage of the
recession, and of the Brazilian media’s all-out war against the
government, to launch what she has labeled a “coup” against her. She has a strong case: Unlike most of the members of Congress leading the impeachment, she is not charged with
any corruption, but rather with an accounting abuse that previous
presidents engaged in, which is hardly an impeachable offense.
Each country has a different story in the downturn: Ecuador’s
current recession is largely due to the collapse in the price of oil,
which accounts for the majority of the government’s revenue. Venezuela
has of course also been hit hard by the oil-price collapse, but its
recession began when oil was still at $98 a barrel. In its case, the
economy got caught in an “inflation-depreciation” spiral,
which brought inflation to 180 percent last year, while the
black-market rate for the dollar rose to more than 100 times the
official rate. As in Brazil, this was mainly a result of policy
mistakes; most importantly in Venezuela, the unsustainable effort to
maintain a fixed, overvalued exchange rate.
But don’t expect the current downturn in the region to repeat the
lost decades of the late 20th century. That kind of long-term disaster
generally happens when countries do not have sovereign control over
their most important economic policies (as in the troubled eurozone
countries today). For the past 15 years, Washington has sought
to get rid of Latin America’s left governments; but its efforts have
really succeeded, so far, only in the poorest and weakest countries:
Haiti (2004 and 2011), Honduras (2009), and Paraguay (2012).
The Latin American left has led the region’s “second
independence” in the 21st century, altering hemispheric economic and
political relations, and—even including the economic losses of the
recent downturn—presiding over historic economic and social changes that
benefited hundreds of millions, especially the poor. Despite the
electoral setback in Argentina and the current threat to democracy in
Brazil, they are likely to remain the dominant force in the region for a
long time to come.
Source: The Nation
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