Latin America’s unfinished quest

The participants came, European guests were greeted, speeches were delivered, toasts made, and, in the end, the annual meeting of the Community of Latin American and Caribbean States (Celac) was hailed as a success. But what remained the morning after was the clear sense of a region that is deeply divided, missing a common purpose, and, above all, lacking leadership.

First, the good news: the four main countries on the Pacific Rim - Mexico, Colombia, Peru and Chile - took important steps to deepen their trade-and-integration agreement. By the end of this year, 90 percent of all trade within the bloc will be tariff-free. Costa Rica asked to join, and Japan was accepted as an observer. This Pacific Alliance, with nearly 40 percent of Latin American GDP and $500 billion in annual exports, has the potential to become a driving force for economic growth in the region.

Venezuelan President Hugo Chavez’s health kept him from attending, but the heads of state who follow his lead were out in force, and collectively blocked a European request to include in the final statement a guarantee that investment rules will not be changed arbitrarily. Bolivian President Evo Morales used the forum to criticize Chile and reiterate his country’s territorial claims. When, at the end, Cuban President Raul Castro took over the rotating presidency of Celac, an institution presumably devoted to extending democracy’s range, not even the most seasoned diplomats could suppress an ironic grin.

Celac, which pointedly excludes the United States and Canada, was launched in 2010 so that countries in Latin America and the Caribbean could shape their own path toward democratic politics and shared prosperity. They have not.

To be sure, most countries in the region remain nominally democratic. But political freedom is nonexistent in Cuba, and democratic rule is under permanent challenge in Venezuela and elsewhere.

True, most economies in the region have grown since the crisis, profiting from an international environment characterized by sky-high commodity prices and rock-bottom interest rates. But, given limited competitiveness and little business capacity to innovate, no one knows what will happen to growth in Latin America if and when commodity prices return to earth.

Likewise, some measures of inequality have declined recently in a handful of countries. But the region remains the most unequal on the planet, and poorly functioning schools and labor markets suggest that it will retain that dubious honor for the foreseeable future.

Ask Latin American and Caribbean leaders how they plan to cope with these challenges, and you get a cacophony of answers - not all of them coherent. The roots of the problem are in the 1980s and 1990s. Back then, governments in several Latin American countries launched radical attempts to deregulate their economies and open them to international trade and capital flows.

Some liberalizing reform was long overdue in those countries. But privatizing without strengthening pro-competition policies often led to the creation of private monopolies that charged high prices for mediocre goods and services. Similarly, permitting massive capital inflows before properly regulating the domestic banking system caused lending booms and massive financial crises. The social and economic costs of those strategic missteps were huge.

A backlash was inevitable. Indeed, populism, so familiar from the region’s history, made a roaring comeback in Argentina, Bolivia, Ecuador, Venezuela and elsewhere. The rhetoric has been 1960’s-style and crudely anti-capitalist, and the policies have been erratic and often arbitrary. And, despite the windfall provided by the global commodity boom of the past decade, the results leave a great deal to be desired.

In Venezuela, per capita income today is lower than it was three decades ago. In Argentina, the government addressed persistent inflation of 20 percent or more by cooking the price data.

Of course, the countries that have performed better are those that have steered clear of both right-wing zealotry and left-wing populism. Brazil under President Fernando Henrique Cardoso and President Luiz Inacio Lula da Silva comes to mind, along with Chile under the Concertacion governments. In those cases, market incentives for investment and growth were combined with ambitious social policies. Incomes expanded and poverty fell, while a broad range of human-development indicators improved.

Brazil and Chile do not have all the answers: both countries remain highly unequal and their educational systems are mediocre, to mention just two entrenched problems. But they do seem to have found more answers, more effectively, than countries pursuing alternative approaches. So, why haven’t Brazil and Chile become modern, center-left development models for the region?

In Chile, the Concertacion was an ineffectual advocate for its own achievements, because many older, more traditional Concertacion leaders never quite approved of the moderate policies that the coalition was putting into place. Brazil, a much larger country, was the natural candidate for political and ideological leadership in the region. But, unwilling to confront Chavez and too eager to be everyone’s best friend, Brazil forsook that role.

Imagine a future meeting of Celac in which that body’s presidency is handed over to a modern, progressive leader who can put forward a compelling agenda of personal freedom, economic growth and social inclusion. Imagine a meeting at which claims to defend democracy were something more than a cruel joke. Is that too much to ask? An entire generation of Latin Americans hopes that it is not.

Copyright: Project Syndicate, 2013.

*The author, a former finance minister of Chile, is a visiting professor at Columbia University.

by Andres Velasco