Marco A. Alvarez’ Blog, News and Articles

By Ruchir Sharma
From Newsweek

Venezuelan president Hugo Chávez is the new rock star of world politics. His impassioned rants against globalization, with animated poses to match, make front-page headlines almost daily. The commentariat—particularly in Europe—seems to buy Chávez’s line that Latin Americans are so disenchanted by their short tryst with liberalism that they now prefer a strongman to spread the benefits of a commodity boom. The recent moves by a Chávez soulmate, Evo Morales, to renationalize the energy resources of Bolivia reinforce a growing perception that Latin America is lurching to the radical left.

But it’s not. While Chávez does seem to rekindle a certain romantic Western nostalgia for Latin American guerrilla movements, the underlying trends point in the opposite direction. Voters in Latin America, far from crying out for a radically new economic model inspired by Caracas, are in fact rallying powerfully behind leaders and parties who promote more-orthodox economic policies. As candidates espousing Chávez-style populism have plummeted in the polls in Mexico and Peru, their camps have tried to distance themselves from the Venezuelan leader. Elsewhere, incumbent presidents like Alvaro Uribe in Colombia and Luiz Inácio Lula da Silva in Brazil have won plaudits as economic managers, and look likely to be reelected.

This is good news for Latin America. It shows that political societies have evolved to the point where most people realize that, in a globalized world, they have to stick to a reformist path. Consider the maturation of Peruvian front-runner Alan García, who in his first stint as president let government spending run out of control, launched a disastrous attempt to nationalize the banking sector and left office in 1990 with the economy in crisis. He has promised to promote foreign investment, free trade and macroeconomic stability if re-elected. That has inspired Chávez to hurl invectives at García in an effort to help his left-wing challenger, Ollanta Humala. But Peruvian voters are unimpressed; García recently moved into a decisive lead in the polls. In Mexico, ruling-party candidate Felipe Calderón’s team has pressed the claim that if leftist Mexico City Mayor Andres Manuel López Obrador is elected, he would undermine the country’s economic stability by following Chávez’s “irresponsible” playbook. Calderón, too, has unexpectedly surged in the polls.

The same basic story line is playing out in Colombia, where a firmly right-of-center leader is cruising toward re-election on May 28. President Uribe is getting credit for engineering an economic revival, powered by domestic demand, and improving the investment climate by cracking down hard on drug cartels. He has helped cut the government deficit from 6 percent of GDP in the late ’90s to 1.4 percent and is promising to rationalize the tax structure if he wins a second term. Brazil’s Lula has followed a different ideological trajectory, moving from champion of labor to advocate of fiscal responsibility, but the result will likely be the same when voters go to the polls later this year: a second term for a mainstream candidate.

The power of incumbents is not particularly surprising, since Latin America is enjoying one of its best economic phases ever. Economic growth is likely to average 4.5 to 5 percent this year, spurred by the region’s biggest export: commodities. Latin American equity markets have been among the world’s top performers over the past three years, rising by 275 percent on average in dollar terms. Inflation in most countries has fallen to single-digit levels and the region is now running a current account balance.

That’s the big picture. But with Chávez grabbing headlines, the exceptional case of Bolivia—where economic growth was badly managed by Morales’s predecessors—has become central. Brazil’s $800 billion economy is the largest in Latin America, 80 times larger than Bolivia’s, and its stability is far more typical of the region. Yet Bolivia is now widely discussed as the important bellwether. Go figure.

Chávez’s ambition to become a dominant regional figure in the image of his idol, Simón Bolívar, is legendary. His role in Bolivia’s turn to the left—and in the Mexico and Peru elections—all play into this self-image. But if his foes in those elections triumph, the result will be read in part as a referendum on Chávez. He will be pushed to the fringe, marginalized. Much to the disappointment of the romantics, the Chávez road will have led nowhere.

And Latin America will be better off for it. Despite its recent economic successes, the region is still falling behind Eastern Europe and Asia, and needs to aim for even faster growth. Its economies must become less dependent on natural resources in order to raise per capita incomes and address sharp income inequality. All that is more likely to be achieved by strengthening domestic institutions and carrying out microeconomic reform than by selling people a new utopian dream.