Can Latin America resist a return to its populist past?
The interventionist role of the military has mostly disappeared in Latin America. But the temptation of populist politics is greater than ever in some countries, while others are resisting the short-term demands of voters in favor of the long-term sustainability of society. Here's a look at six countries.
In the center of Buenos Aires, along the city’s main boulevard, stands a tall building that houses the ministries of Health and Social Development. A huge visage of Eva Peron appears on both sides. The one facing the poor districts of the south is smiling and compassionate. The other, facing the rich districts to the north, is angry, agitated, and defiant. Just as her image towers over the Argentine capital, so too her legacy looms over Latin America’s future.Skip to next paragraph
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Shortly before her death in 1952, “Evita” was named “Spiritual Leader of the Nation” by the Argentine Congress for her work on behalf of the poor descamisados (shirtless ones) through the Sociedad de Beneficencia charity she founded as first lady during Juan Peron’s first presidential term.
In popular culture and the collective memory of Latin America, she and her husband are associated with a particular brand of populism – protected national industries and social programs for the poor majority dispensed by a caudillo, or strongman, financed by unsustainable debt and ending up in wild inflation, corruption, and military coups to restore order out of the enveloping social chaos and discontent.
Though the interventionist role of the military has mostly disappeared across Latin America today, the temptation of populist politics remains. Indeed, today, the temptation is greater than ever as democracy joins with a politically active middle class rising largely on the boom of exporting soya beans, corn, copper, oil, and other commodities to a voracious China.
Democratic elections always favor the short-term demands of the voting public over the long-term sustainability of society. By definition, the future has no political constituency today. Whether the demand is subsidies for the poor, middle-class aid for home ownership, generous pensions for organized labor, or the expansion of a social safety net for all, the pressure is immense to spend and consume all the newfound riches now. Macroeconomic stability, investment in infrastructure, quality public education, and research and development that will generate future wealth inevitably take a back seat.
Part and parcel of the populist temptation is the protection of national industries from competition beyond their initial gestation stage.
Whoever promises the moon today, no matter the long-term costs, will be the most assured of getting elected to power.
As the historical record clearly demonstrates, however, populism that ignores the laws of economics is not affordable in the long run, and then the old cycle of debt, inflation, and authoritarianism will return. Fiscal responsibility and open competition are the predicates of sustainable democratic governance, not its enemy.
VENEZUELA. The closest example of traditional populism has been Chavismo in Venezuela. Hugo Chávez justly set out to eradicate woeful inequality by spending oil revenues on massive new social programs for the poor. Without doubt, their lives improved during his tenure. But by the time Chávez died last month, Venezuela had the highest inflation rate in the world at nearly 23 percent and was forced to borrow $46 billion from China just to keep going. It has devalued its currency twice in recent weeks.
Chavismo’s hostility to foreign investment and the related failure to modernize the oil industry, which accounts for 95 percent of its exports, has led to a reduction of exports by one quarter since 1999.
ARGENTINA. Argentina, once among the wealthiest nations in the world, relies on its exports of soya, wheat, beef, and a host of minerals to Brazil, China, and elsewhere but has spent so freely that, famously, it defaulted on its unsustainable foreign debts in 2001.
Though it initially recovered as its falling currency value stimulated exports, its growth has once again stagnated, and the old specter of inflation has returned. This is reflected in the wide gap between the official exchange rate for the US dollar – around 5 pesos – and the “parallel rate” of over 8 pesos to the dollar. If you shop at the Sunday flea market in San Telmo, the merchants will happily give you the parallel rate if you have dollars. Everyone today has a terrifying sense of déjà vu that their savings will once again evaporate into thin air.
BRAZIL. For several years now Brazil has been the considered the “miracle” of Latin America, in no small part due to the Chinese demand for its oil and soya. Thanks to rapid economic growth accompanied by programs like Bolsa Familia, in which welfare for poor parents is tied to making sure their kids attend school, 22 million people have been lifted from poverty since 2003 while literacy has improved.
As part of her goal of creating greater domestic economic strength and more employment opportunities for the poor, Brazilian President Dilma Rousseff is increasingly turning toward statist solutions rejected by both of her predecessors, Lula da Silva and Fernando Henrique Cardoso.
Aside from enhancing already rampant bureaucratic corruption, this approach has also created bottlenecks that are slowing Brazil’s economic miracle. Infrastructure investment has lagged behind growth so badly that trucks filled with soybeans line up by the hundreds at ports. This inefficiency led China to recently cancel a contract worth 5 percent of Brazil’s total soya crop because it considered on-time delivery “unreliable.”
To revive Brazil’s shipbuilding industry, the state-controlled Petrobras oil giant was ordered to buy tankers made in Brazil. Cost overruns and delayed delivery schedules are now disrupting oil shipments. Meanwhile, the discovery of shale oil around the world is threatening to undermine Brazil’s overreliance on oil exports.
High tariffs on goods make many consumer items expensive and retard diversification of the economy. While countries like Mexico and Chile thrive under free trade agreements, Brazil only has three: with the Palestinian Authority, Egypt, and Israel.