Is Latin America Going Radical?

With Hugo Chavez as an increasingly vocal critic of the United States, the electoral victory of Evo Morales in Bolivia, continued political instability in Ecuador; and the recent emergence of Ollanta Humala, an anti-market, extreme nationalist dark-horse political candidate in the electoral race in Peru, there is much discussion of Latin America’s looming lurch to the radical left, with a host of negative implications for democracy, trade, and foreign investment in the region.

Is this really Latin America’s future? An Humala victory in Peru’s April elections would certainly support those who predict that such a shift is in store. Such a change in the direction of the region’s leadership would indeed be a chilling scenario, particularly after years of failed experiments with populist governments and the time and effort that much of the region’s leadership and citizens have spent investing in democracy and markets in the past two decades. Yet a broader view of economic and political trends in the region—as well as my own research—suggest that these predictions of a region-wide shift to the radical left are far too pessimistic.

First of all, there are clearly radicals on the horizon—Chavez, Morales, and, in the worst instance, a victorious Humala. Yet the broader regional picture does not fit this pattern. None of the representatives of the established “left” in the region, who for the most part are also in command of the economic powerhouses of the region—Lula in Brazil, Lagos and now Bachelet in Chile, and even Kirschner in Argentina—are anti-market. Instead they more closely resemble the “new left” of Tony Blair in England and Felipe Gonzales in Spain. The political dominance of this “new left”, coupled with Mexico’s structured integration into the US market, Colombia’s long-term record of conservative fiscal policies, and Peru’s ability to maintain prudent macroeconomic management for over a decade, despite major political swings, all suggest that the region will continue to embrace markets and democratic governments.

Secondly, over-time trends in public opinion, as gauged by my analysis of the region-wide Latinobarometro poll, suggest that support for markets and democracy remains solid. Just over a year ago I published an article in the Financial Times highlighting that preference for democracy as a system of government and for market policies had actually increased during the 2001-2002 economic crisis in the region, even though satisfaction with how the systems were working had gone down. Most recently, roughly 60 percent of the region’s respondents reported that democracy is preferable to any other system of government in the 2005 poll, a significant increase over previous years.

Thirdly, no doubt the US has been laggard indeed in meeting its promises on free trade agreements. Yet in the meantime, many countries—and certainly the key economic players—have wisely developed new trade ties with China, Europe, and a host of other countries. Those ties—and their continued increase—are unlikely to be reversed, even in the unlikely event that the Bush administration wakes up and begins to deliver on free trade in a serious way.

So what is in store? Bolivia and Venezuela are both a mess, no doubt. Short of a miracle, Bolivia may implode politically, at high costs to that country’s already impoverished population. Meanwhile, Venezuela—and Chavez—can afford to stumble on with irresponsible macroeconomic management and political rhetoric (at a cost of a gradually increasing poverty rate) because it has oil. Neither country provides a credible or attractive model for others to follow. None of the major leaders of the region’s new left have gone out of their way to endorse Chavez, despite numerous opportunities.

Are these “new left” leaders worried about the region’s deep and unresolved poverty and inequality problems? (Roughly 40 percent of the region’s population is below the poverty line and it boasts some of the highest inequality rates in the world). Yes, and they should be. Many of them have implemented innovative new programs to reduce poverty, linking financial support to poor people’s investments in health and education, such as Progresa in Mexico and the Bolsa Familiar in Brazil. Such efforts deserve support, deepening, and expansion. So too do nascent efforts to address the quality as well as the availability of jobs.

The most open question is the outcome of the April elections in Peru. The country survived a beleaguered Toledo administration due to a top economic team and an independent Central Bank. What will happen if the radical, Chavez-embracing Humala wins? While far from a desirable or probable outcome, an elected Humala would very soon face a number of reality checks. Peru is not Venezuela and does not sit on a strategic oil reserve. Peru needs its trading partners and foreign investment, as well as the support of the international financial institutions. Humala might take some radical measures at first, but he would buck up against these trends very quickly. He would also find that, in the end, neither Chavez nor Morales have little to offer in terms of positive lessons for reducing poverty.

While the model of the socially conscious market enthusiast making incremental progress in addressing the region’s pressing social needs is hardly an attention grabbing one, it is the most likely scenario for most countries in the region. And it is decidedly the one that is preferred by the majority of the region’s citizens.