Is Latin America Doomed to Failure?

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Is Latin America Doomed to Failure?Author(s): Peter HakimSource: Foreign Policy, No. 117 (Winter, 1999-2000), pp. 104-113+116-119Published by: Washingtonpost.Newsweek Interactive, LLCStable URL: http://www.jstor.org/stable/1149566 .

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Is Latin America

Doomed to Failure? by Peter Hakim

In Peru, an autocratic president has curbed the power of the congress and the courts and muffled the press. Voters in Venezuela last

year elected the leader of a failed military coup d'6tat as president and now overwhelmingly support his campaign to radically transform the nation's political institutions. Guerrillas in Colombia have the free run of half the country. Brazil was forced to devalue its currency in January 1999, provoking an open rift with Argentina and threatening the survival of MERCOSUR, Latin America's most successful trade pact. In the region's worst performance in more than a decade, nearly every major Latin American economy has fallen into a deep slump this year.

Repressive military regimes, Cuban-style revolutionaries, and boom- and-bust economies were supposed to be Latin America's past, not its future. Earlier in the decade, sustained economic growth, social progress, decent government, and genuine hemispheric partnerships all seemed within reach-and with good reason.

Consider the remarkable political transition Latin America had undergone. The military juntas and dictators who had ruled in all but a handful of Latin American countries were thrown out, replaced by elected civilian leaders (everywhere except Cuba, of course). Nego- tiated settlements brought an end to the civil wars that had plagued Central America, and former guerrilla leaders began to compete for power in elections. Between 1978 and 1990, some 15 Latin Ameri- can countries cast aside dictatorial regimes and began to elect their

P E T E R H A K I M is president of the Inter-American Dialogue.

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leaders. Only a few of them had any significant democratic traditions, and some, such as Bolivia, El Salvador, and Nicaragua, had virtually no experience with democracy.

Economic reforms were at least as revolutionary. During the late 1980s and into the 1990s, nearly all of Latin America's governments began to run their economies in accord with the Washington Con- sensus, the orthodox, free-market economic policies promoted by the International Monetary Fund (IMF) and the World Bank. In Argentina, 51 state-owned firms were sold for $18 billion between 1989 and 1992. The Mexican government auctioned off nearly a thousand com- panies for $12 billion between 1987 and 1993. Between 1985 and 1992, Costa Rica dropped its average tariff protection from 92 to 16 percent, Brazil from 80 to 21 percent, and Colombia from 83 to 7 percent. With the introduction of disciplined economic management, Latin America's average inflation plummeted from an average of more than 450 percent between 1986 and 1990 to little more than 10 percent today. Almost overnight, Latin America joined the world economy.

Expectations were high everywhere that Latin America would tran- scend the populist and authoritarian legacy that had so badly hobbled the region for most of its history and that rapid and sustained progress was now possible. Yet, as the decade comes to a close, these expectations are far from fulfilled. Many people are asking whether they ever will be. Across the continent, democracy and markets remain on trial.

DEJA Vu ALL OVER AGAIN

The global economic turmoil of the last two years has revealed the vulnerability of Latin America's economies and cast doubt on the assumption that the region can quickly achieve rapid, long-term growth. True, Latin America's dramatic economic restructuring and policy reforms have delivered sharply lower inflation, increased exports, and expanded access to international capital. But bottom-line results remain elusive. For the entire decade, the region's economies will have grown, on average, at a rate of less than 3 percent a year. That is better than the 1.9 percent growth of the 1980s, but it is less than half of Latin America's 6 percent average in the 1960s and 1970s and below the 3.4 percent minimum that the World Bank estimates is nec- essary to reduce poverty. It is far short of what the region's economic reforms were supposed to deliver. The Asian Tigers were the models for

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Is Latin America Doomed to Failure?

Latin America, but so far only Chile has managed to emulate them. Of 20 Latin American countries, only three-Argentina, Chile,

and Peru-will average 5 percent yearly growth during the 1990s. Three others will come close: the Dominican Republic, El Salvador, and Panama. A disturbing number of countries, including Colom- bia, Ecuador, Paraguay, and Venezuela, have lost ground. Their per capita income in 2000 will be almost the same as it was 10 years ear-

lier. This decade will be the second in a row in which GDP growth per capita is less than 1.5 percent, leaving most Latin Americans almost as poor in 2000 as they were in 1980.

At the same time, inequalities of income and wealth are worsen- ing almost everywhere. Latin America suffers the worst income disparities of any region in the

world (with sub-Saharan Africa running a close second). Today, more than half of Latin America's national income goes to one seventh of the population. Per capita income among the richest 20 percent of Latin Americans is nearly 12 times that of the poorest 20 percent. In East Asia and the Middle East, that ratio is less than seven; in South Asia, it is about four and a half.

This mediocre economic performance over the last 10 years stands in sharp contrast to the hyperbolic predictions of some U.S. and Latin American officials, the heads of several multilateral organizations, and many Wall Street firms and private banks. That inflated rhetoric has given way to harsh realities. It should not be surprising that Latin America's democratic governments are under strain. Their citizens have grown tired of stagnant economies and recurrent financial crises dragging down living standards.

But it is not only economic hardship that is undermining democracy's credibility. Few of Latin America's democratic governments are governing well. In country after country, they have failed to address the problems that most concern their citizens.

A large share of Latin America's population has little or no access even to minimal government services. In many countries, cities are crumbling and health care and education have deteriorated. Traffic

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Many citizens appear willing to give up some measure of democracy and accept authoritarian governments that they believe can solve theirproblems.



Hakim

and pollution, along with skyrocketing crime and ingrained corruption, degrade the quality of life and welfare of citizens everywhere. Virtually every city in Latin America is far more violent and dan- gerous today than it was a dozen years ago. The region's homicide rate of 300 murders per 1 million people is twice the world average. Guatemala, Colombia, and El Salvador all have rates exceeding 1,000 per million. In some places-Colombia, Peru, and Panama, for example-the number of murders more than quadrupled between the early 1980s and 1990s.

The region also lags badly in educational standards. Latin Ameri- can students score worse on international tests than their counterparts from Asia, Eastern Europe, and the Middle East. Only one of three Latin American children attends secondary school, compared with more than four of five in Southeast Asia, and most drop out before graduating. On average, Latin American workers receive two years less schooling than workers in identical jobs in other countries with similar income levels.

Compounding these problems, Latin America's basic democratic institutions-judicial systems, legislatures, political parties, and even the presidency-are weak and discredited in most countries. Some- times, they barely work at all. By comparison, freedom of the press has been a bright spot, but the media still face sharp restrictions in a number of countries, including Argentina, Chile, Mexico, and Peru.

Fatigued by dubious governing, ordinary citizens are losing faith in democracy. In Latinobar6metro surveys taken in South America and Mexico in 1997 and 1998, more than 60 percent of those polled were unsatisfied with democracy. Almost one third favored or were indifferent to authoritarian rule. Not surprisingly, the greatest dis- content was found in countries-Peru, Ecuador, Colombia, Paraguay, and Brazil, for example-where respondents had the least favorable view of democracy and felt that their own national progress had stalled.

Many citizens appear willing to give up some measure of democracy and accept authoritarian governments that they believe can solve their problems. That has certainly been the case in Peru, and it may be the course that Venezuela pursues. Nobody can predict how the practice of democracy in Colombia will suffer if the guerrilla conflict there continues to escalate. Recent events in Peru and Central America and earlier experiences in Argentina fail to reas-

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sure. In each case, intensifying conflict between guerrillas and the government produced massive human-rights violations and made a mockery of democratic rules.

Looking back over the last decade, it is hard to imagine that many of the region's democratic governments will enjoy quick or painless rebounds in the next one. Most countries will have difficulty gener- ating rapid and sustained growth, building a more vibrant form of democracy, and satisfying the needs of ordinary citizens.

THE UNPAVED ROAD AHEAD

Debates over whether Latin America's glass is half empty or half full miss the point. The region will neither leapfrog to full-fledged democracy and prosperity overnight, nor will it spiral into anarchy. Certainly the region is in trouble. Some countries will weather the rough ride, and some will even prosper. If they are to do so, however, Latin America's leaders must find ways to build healthier democratic institutions, attack poverty and inequality successfully, and stabilize roller-coaster economies.

Economic reform still has a long way to go. Tax collection, for instance, needs to be increased and made more efficient and fair. Although industrialized countries take in about 24 percent of their gross domestic products in taxes, Latin American receipts are stuck at about 14 percent. State employment needs to be reduced. Public salaries and benefits consume the lion's share of national expendi- tures in most countries, leaving governments with scarce funds for other costs of delivering services. And some countries have lost control of their pension systems for public employees. This year in Brazil, the shortfall between social security contributions and payments will be nearly $25 billion, equal to about 5 percent of GDP or a third of all federal tax revenues.

Although Latin America's economies will, for some time, remain vulnerable to external economic shocks, the region has no choice but to remain deeply enmeshed in the global economy. Foreign capital from trade, investment, and borrowing is essential for sustained economic expansion. The recent global financial turmoil demonstrated the resilience of the region's restructured economies and their capac- ity for intelligent responses to crises. A dozen years of policy and institutional reform provided important protection to Latin America,

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enabling the region to avoid the meltdown that consumed Russia and several Asian countries. Nevertheless, the costs-economic, social, and political-of the crisis remain extremely high.

Realistically, Latin America needs a favorable global economic con- text to succeed. Even assuming the best, the region will be held back by dismally low savings rates, continued dependence on commodity exports with wildly fluctuating prices, low educational standards, and vast inequalities everywhere in income and wealth.

A political forecast reveals other barriers to progress. Widespread crime and corruption, stifling bureaucracies, and feeble legislatures and judicial systems will complicate the road ahead. Polarizing differences between rich and poor and between ethnic and racial groups may worsen. The limited democratic experience of so many countries and the region's historical propensity to turn to authoritarian or populist alternatives are sobering even to the most committed optimists.

One of the pillars of democracy-political parties-has begun to crack. Once the mainstay of democratic politics in nearly every Latin American country, parties are now declining sharply in many places, fragmenting politics and ensnarling governments. In Brazil, party loy- alty hardly exists, with a large number of members of the congress switching parties since last year's elections. In Peru and Venezuela, traditional parties have been hit hard. In both countries, indepen- dent candidates won the two most recent elections for president. In Venezuela, the two parties that had run the country for 40 years failed to elect a single representative to the 131-seat constitutional assem- bly this year. Even in countries where political parties remain power- ful, they are usually the least trusted of all national institutions, ranking behind the police, the judiciary, and the congress.

THE COMING QUAGMIRE

Some countries will start to make slow and steady gains in the next decade. All told, four or five countries in Latin America may be poised to expand their economies. A similar number could begin to enjoy robust and productive democratic politics.

Chile has set the standard. In the last 10 years, it has achieved steady growth of about 6 percent a year, slashed poverty (although inequality between economic classes remains), and improved government services. Chile's democratic institutions are growing stronger and more

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effective despite the burdens of some Pinochet-era restrictions. Argentina has made impressive economic and political advances

since democratic rule was restored in 1983 and is now well-situated -probably better than any other Latin American country-to accelerate its progress on both fronts.

Uruguay and Costa Rica, which along with Chile have the strongest democratic heritage in Latin America, will almost surely sustain the vitality of their democratic institutions and maintain the quality of their public services. The future of their economies is harder to predict. Historically, the economic performance of both countries has been uneven, and both are heavily dependent on their larger neighbors.

Mexico shows good prospects of significant economic success, par- ticularly if the U.S. economy remains strong. The quality of its politics, however, will be hampered by its short experience with democracy; continuing deep political divisions; and extensive drug problems, criminal violence, and corruption.

Among the region's smaller countries, El Salvador, Panama, and the Dominican Republic have demonstrated recent economic vitality.

Brazil, which accounts for nearly one third of Latin America's population and economic activity, will heavily influence the region's overall economic performance in the coming years. It is the wild card. True, Brazil's growth throughout the 1990s has been slug- gish and will average less than 2.5 percent a year for the decade. Nevertheless, the country succeeded far beyond anyone's expectations in squeezing inflation out of its economy and quickly recuper- ating from its recent currency crisis. At this point, there is no telling whether Brazil's economy will turn up or down. The country's fortunes hinge on the political skills and luck of President Fer- nando Cardoso and his advisers, who need to manage an unruly congress and fickle public opinion to keep reform efforts on track. Brazilian politics-fragmented, weakly institutionalized, and driven by local and regional interests-are a feeble underpinning for a modern economy and society. Yet few Latin American countries can boast richer political debate on key national issues, a more free and vigorous press, or a stronger trade union movement.

As many as one third of all Latin American countries, possibly including Brazil, may enjoy economic expansion and political liberal- ization in the coming decade The remaining two thirds, however, will probably manage only modest growth and mediocre government per-

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formance. Several countries will do even worse. A vicious circle has taken hold in Ecuador. Economic failure has

drained the government of the authority and support it needs to implement the tough policies required to address the nation's myriad problems. As a result, the economy continues to slow, the government is further crippled and less able to act, and citizens lose confidence in democratic leaders and institutions.

Other Latin American countries may be heading toward this kind of quagmire. One of them is Colombia, where massive criminal and political violence, not economic deterioration, is the central problem. Nowhere in South America are crime and violence more pervasive and deadly or the lack of personal security greater. Some 20,000 guerrillas roam freely over nearly one half the country. Upwards of 3,000 deaths a year result from Colombia's internal warfare, and more than a 1.5 million Colombians have been displaced from their homes (more than the 700,000 ethnic Albanians who fled Kosovo). The level of human-rights abuses is ghastly. To make matters worse, Colombia is the world's leading producer of cocaine. These black marks have accumulated, helping debilitate Colom- bia's once envied economy. No one should be surprised if, at some point, voters in Ecuador and Colombia give up on democracy and conclude that

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stronger, more authoritarian leadership is needed to solve their problems. Peruvian and Venezuelan voters have already done just that.

No country in South America has drifted further from accepted standards of democracy than Peru. President Alberto Fujimori tightly controls political power; other branches of government serve mostly as rubber stamps. Fujimori was first elected in 1990 when, after 10 years of democratic government, the Peruvian economy was suffering from both depression and hyperinflation, and the terrorist violence of the Shining Path guerrillas was running out of control. Two years later, Peruvian voters applauded his so-called self-coup, which suspended the activities of the congress and the courts. Today, Fujimori retains considerable pop- ular support and may win a constitutionally questionable third term.

Like the Peruvians, Venezuelans turned against the traditional democratic leaders and parties that they believed had run the nation into the ground. On taking office in February 1999, President Hugo Chivez moved quickly to transform Venezuela's politics. The nation's congress and its supreme court were stripped of most of their powers, although the actions were arguably within the letter of the law and were certainly carried out with the support of the people. Soon, the country will have a new consti- tution. It is still too early to know whether democratic rights and proce- dures will survive the Chivez presidency and whether his revamped government will satisfy the needs of ordinary citizens. He has already gone a long way toward eliminating the constraints on executive power nor- mally associated with democratic rule, and his extensive involvement of the military in government is troubling [see article on pages 114-115].

Peru and Venezuela represent a complex mixture of authoritarian and democratic elements. On one hand, national leaders are selected through competitive elections. There are few restrictions on opposition activity. Institutions such as the congress, the judiciary, the press, political parties, and labor unions, enjoy some measure of autonomy. And harsh repression is not used as an instrument of political or social control. On the other hand, power is concentrated and politics is highly personalized. Through a combination of mass appeal and military support, Presidents Fujimori and Chaivez invariably get their way. Presi- dential authority is limited by few constraints beyond the need for re-election every four or five years. These hybrid systems-not fully democratic and not quite authoritarian-have yet to spread widely in Latin America, but they may represent a growing danger for countries where democratic governments perform badly over extended periods.

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A SHAKY CONSENSUS

Even though Latin America will fall short of expectations, most of the region will avoid disaster. Neither true military dictatorships nor populist economic strategies are likely to re-emerge, at least not any time soon. Most of the region's political leaders and financial man- agers are betting on democratic politics and market economics and are struggling to make them work.

Until now, governments across the region have resisted the populist temptations that typically have plunged Latin America's economies into crisis. They are trying to maintain fiscal discipline by controlling spending and collecting more taxes. Nowhere is there any serious discussion of renationalizing privatized enterprises, reinstituting high tariff barriers, or shutting the door on foreign investment. Even President Chavez, who denounced "savage market capitalism" and promised to radically redistribute Venezuela's wealth, has not strayed from market orthodoxy. In Argentina, Chile, and Colombia-all countries facing their worst economic recessions this decade-governments have stuck with the standard market policies promoted by the IMF and multilateral banks even in the face of eroding public support. That was the approach Mexico used to surmount its 1995 currency crisis and the way Brazil responded this year: Both nations recovered faster than expected.

The political costs of implementing market policies in Latin America's newly elected democratic governments were not trivial. Today, market policies are not only considered the best route to economic progress, they also appear to be the best way to achieve political success. With rare exceptions, the winning candidates in Latin America's presidential elections in the last 6 years have been those committed to market reforms. This trend shows no immediate sign of abating, certainly not in the elections scheduled over the next year. Indeed, in most of the contests, all the leading candidates support disciplined, market-oriented economics.

Latin American politics, however shaky, are still mainly democratic. Nowhere in Latin America today is democratic rule threatened by military takeover, as it has been through most of the region's history. Aside from Haiti's President Jean-Bertrand Aristide, no elected executive in Latin America has been removed from power by armed force since 1976, nearly a generation ago. In the last 12

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years, military coups were attempted in only three countries and all of them failed. Latin America has changed too much for a return to military dictatorship. Civilians no longer look to the armed forces to resolve their political problems; both civilian and military leaders are aware of the immense costs that financial markets impose on economies plagued by political disruption. Nearly every hemispheric government would repudiate a military coup anywhere in Latin America. The military rulers would be isolated and subject to sanc- tions. A coup attempt in Paraguay in 1996 was averted by the quick and forceful action of the United States and the country's MERCOSUR partners (Brazil, Argentina, and Uruguay), which threatened, among other things, to expel Paraguay from the trade pact.

Aside from Peru, where controversy over Fujimori's standing for a third term may mar the elections, presidential votes this year and next-in Chile, the Dominican Republic, Guatemala, Uruguay, and Mexico-are all expected to be free and fair. Plus, for the first time ever, Mexico's long-ruling Institutional Revolutionary Party (PRI) selected its candidate in an open primary, and the subsequent general elections are likely to be the most competitive in the country's history. Although Bolivia, El Salvador, and Nicaragua were novices at democracy when they took their first steps away from authoritarianism, all three governments have now survived two or three changes of administration-and during tough times. No doubt, democracy will be on trial in Latin America for the foreseeable future, but Latin Americans are not likely to give up the benefits of the ballot box.

Whatever its future trajectory, Latin America will probably be unable to count on much help from the United States. The withdrawal of the world's only superpower from a positive hemispheric agenda is unmistakable. Despite continuing prosperity at home, North Ameri- cans appear to have become less confident in engaging Latin America.

The beginning of the 1990s was accompanied by high expectations for U.S. relations with the region. Presidents Bush and Clinton talked effusively about the Western Hemisphere community and took important first steps in that direction. Nevertheless, the United States promised more than it delivered on an array of important inter-American issues. Trade especially stands out. There is still no fast-track trade-negotiating authority for the U.S. president, no deal with Chile, and no arrangement for the Caribbean Basin countries, all pledged by the United States at the

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Miami Summit of the Americas in 1994. True, the administration acted promptly when financial crises hit Mexico in 1995 and Brazil in 1998, helping avert economic meltdowns in both countries and wider regional crises. Washington also responded generously and constructively to the Hurricane Mitch disaster in Central America. These were exemplary responses to crisis situations. Yet, these actions provide scant evidence that the United States has the interest or capability to design and conduct the kind of long-term cooperative policy that will help reinforce democracy and economic progress in Latin America. For better or worse, Latin Amer- icans are on their own.

Measured against the high expectations that took hold early in the decade, the 1990s were disappointing for Latin America. Growth was too slow. Economic volatility prevailed. Too little progress was made in fighting either poverty or corruption. The institutions of government and civil society remained wobbly with- out firm roots in most places.

Is Latin America doomed to failure? Surely not. With few exceptions, most countries in the region need to worry more about stagnation than backsliding. The region will still have its share of success stories, but no giant leaps forward can be expected any time soon.

WANT TO KNOW MORE?

For a review of democracy in Latin America, see Scott Mainwaring's "The Surprising Resilience of Elected Governments" (Journal of Democracy, July 1999) and Michael Shifter's "Tensions and Trade- Offs in Latin America" (Journal of Democracy, April 1997). Jorge Dominguez discusses the region's political parties and other representative institutions in "Latin America's Crisis of Representation" (Foreign Affairs, January/February 1997).

The "Washington Consensus" was originally set forth in John Williamson, ed., Latin American Adjustment: How much has hap- pened? (Washington: Institute for International Economics, 1990). A critical view and prediction of its downfall appears in John Cavanagh and Robin Broad's "The Death of the Washington Consensus" (World Policy Journal, Fall 1999). Beyond the Washington Consensus: Institutions Matter (Washington: World

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Bank, 1998), edited by Shahid Javed Burki and Guillermo Perry, offers a useful look at the failures of Latin America's vital institutions.

Sebastian Edwards' Crisis and Reform in Latin America: From Despair to Hope (New York: Oxford University Press, 1995) and Perry and Burki's The Long March: A Reform Agenda for Latin America and the Caribbean in the Next Decade (Washington: World Bank, 1997) provide historical overviews of the economic reform efforts undertaken in the region.

The Inter-American Development Bank's annual report on economic and social progress in Latin America for 1998-99, entitled Facing Up to Inequality in Latin America, is a rich source of information and analy- sis on the vast income and wealth disparities in the region.

There have been a large number of publications on Mexico's 1995 currency collapse. Among the best are Edwards and Moises Naim, eds., Mexico 1994: Anatomy of an Emerging-Market Crash (Washington: Carnegie Endowment for International Peace, 1997); and Nora Lustig's Mexico: The Remaking of an Economy, second edition (Washington: Brookings Institution Press, 1998). Useful information on the 1997 Asia crisis and its impact on Latin America can be found on the Web site, What Caused Asia's Economic and Currency Crisis and Its Global Contagion?, by Nouriel Roubini.

For a good introduction to the alarming level of criminal violence in Latin America, see the Inter-American Development Bank's recent book, Too Close to Home: Domestic Violence in the Americas (Washington: Inter-American Development Bank, 1999).

The best cross-country surveys of public opinion in Latin America are presented in the annual publication, Latinobar6metro, published by PROMPERU.

For a thorough review of the troubled state of education in Latin America and what it will take to improve it, see The Future at Stake (Washington: Inter-American Dialogue, April 1998).

Some good recent assessments of the politics and economics of indi- vidual Latin American countries include Shifter's "Colombia on the Brink" (Foreign Affairs, July/August 1999); Ken Maxwell's "The Two Brazils" (Wilson Quarterly, Winter 1999); Amaury da Souza's "Cardoso and the Struggle for Reform in Brazil" (]ournal of Democracy, July 1999); Steven Levitsky's "Fujimori and Post-Party Politics in Peru"

(Uournal of Democracy, July 1999); Mark Falcoff's "Argentina: An Electoral Turning Point" (Latin American Outlook, October 1999); and

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M. Delal Baer's "Misreading Mexico" (FOREIGN POLICY, Fall 1997). For an early optimistic view of the potential for cooperation in the

Western Hemisphere, see the Inter-American Dialogue's 1993 report, Convergence and Community. Abraham Lowenthal offers a more cautious assessment in "Latin America: Ready for Partnership?" (Foreign Affairs, 1993).

For links to relevant Web sites, as well as a comprehensive index of related FOREIGN POLICY articles, access www.foreignpolicy.com.

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Is Latin America Doomed to Failure?