Will Soviets Learn a Latin Lesson?

As era of Latin turmoil wanes, many say USSR must also take tough steps to a free market

AT Monday's first-and-last press conference held by the Soviet Union's Committee for the State of Emergency, Vice President Gennady Yanayev was asked if he had gotten advice from Gen. Augusto Pinochet Ugarte, former dictator of Chile.Mr. Yanayev, one of eight leaders of the short-lived coup that failed Wednesday to oust Soviet leader Mikhail Gorbachev, didn't answer the provocative question. But Latin America specialists say Mr. Pinochet and others in this region from across the political spectrum might well have some useful advice for the Soviet Union, coup or no coup. Latin America, with a long history of military takeovers, inflation, and instability, has spent the last decade coming to terms with the shortcomings of closed, debt-ridden, statist economies full of distortions and inefficiency. After years of recession, Latin countries such as Mexico, Chile, Bolivia, Venezuela, and Argentina are emerging from crisis. The Soviet Union has a different history and more complex ethnic makeup. But during the six years of perestroika, it too has been dealing with a tough move toward free-market economics.

Costs of transition In both places, the transformations have involved sacrifice and compromise, in a context where most people have little experience with political participation and democratic decision-making. "The costs of the transition, in terms of unemployment, bankruptcies, the sacrifice of vested interests, and temporary income loss, are extremely high," writes University of Sao Paulo economist Eduardo Giannetti da Fonseca in a recent article. "Worse," he writes, "they are costs which occur in the short term, while the benefits appear later on, at least two years later. Latin America and Eastern Europe face the opposite situation of that described by [economist John Maynard] Keynes when he said 'in the long term we are all dead'.... We face a situation in which in the short term we are dead, but in the long term, we'll be alive, if we're lucky." Mr. Fonseca added that in this situation, where the populace demands to be able to buy what they need to live, governments are tempted to abandon hard reforms midway, returning to populist policies that aim for short-term survival.

Economic backpedaling In Latin America, such policies have included price freezes, government subsidies, and indexed wages - one of the first steps announced by the coup leaders. "[The new regime] has no faith in, or interest in, the market economy," said Riordan Roett, professor of Latin American politics at Johns Hopkins University. "They will provide cheap cigarettes, and cheap vodka, try to buy off the masses by guaranteeing food and supplies, and see if they can't tough it out." Populist economic policy has been common enough in Latin America, but analysts say it has never solved the fundamental problems of government that has become too big, too corrupt, and too inefficient. The result is that officials have repeatedly been ousted, and their successors have announced economic plans promising miracles. Over and over again, Latin Americans experienced the cycle of short-term cure-alls followed by crisis. Such a cycle is a possible scenario for the Soviet Union. "My intuition is that they want to try to 'save the country' and ... what they will do is another currency reform, a major monetary contraction," said Norman Gall, executive director of the Sao Paulo-based Fernand Braudel Institute of World Economics. Such a plan, Mr. Gall says, would have given coup leaders - or Gorbachev now - survival time, as much as a year. But then, "The reaction will come, because then they will realize they can't handle the scale of the mess."

Pinochet's Chile Like much of Latin America, the Soviet Union became entangled in the difficulties of undertaking simultaneous political and economic reforms, Fonseca says. But he notes that one country in Latin America - Pinochet's Chile - took a different route. "What is different about Chile is that it made the economic transition first, and then the political transition," Fonseca says in an interview. Pinochet's ruthless dictatorship took more than a decade to mold the country into a model of free-market economics, and finally last year, permitted free elections. "If you make the political transition first, it's much harder to make the economic transition, because the political interest groups are less willing to [agree to the needed reforms]," Fonseca says.

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