Inter-American Dialogue
Policy Report 2003
The Troubled Americas
Inter-American Dialogue ■ Sol M. Linowitz Forum
The Troubled Americas
CONTENTS
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
The Troubled Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Supplemental Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Members of the Inter-American Dialogue . . . . . . . . . . . . . . . . . . . . 31
Inter-American Dialogue Policy Report 2003
Sol M. Linowitz Forum
FOREWORD
T
his year's Inter-American Dialogue report—our 12th comprehensive
policy statement on Western Hemisphere affairs since 1982—
analyzes the troubling political and economic developments in Latin
America and the Caribbean over the past two years. Since our last
report was released in November 2000, we have watched circumstances
in nearly every country in the region deteriorate. Growth has come to a
standstill, foreign investment has dropped sharply, and unemployment
and poverty have worsened. Attractive new leaders have emerged in
some places, but political institutions are unsettled in much of Latin
America. Several countries confront full-blown national crises that
could take years to resolve.
We see little evidence so far of a regional backlash against market economics
and democratic politics, but we are concerned that Latin
America's citizens and government are losing confidence in the economic
and political reforms that, in the past dozen years, have taken
hold in most of the region. The challenge, we argue, is to recast and
amplify, not jettison, the reform agenda.
We applaud the Bush administration's leadership in advancing U.S.-
Latin American trade ties, and note the vital importance for hemispheric
relations of negotiating a strong Free Trade Area of the
Americas. We express concern, however, that Washington is not as
decisively engaged with other hemispheric challenges—at a time that
Latin America needs U.S. cooperation and support to deal with a set of
particularly difficult problems. This is a moment when creative U.S.
leadership can help resolve many outstanding issues in inter-American
affairs and take advantage of new economic opportunities.
As a genuinely inter-American group, the Dialogue brings a special
perspective to discussions of hemispheric policy. One-half of our 100
THE TROUBLED AMERICAS
iii
members are citizens of the United States. The rest are from Canada
and 22 nations of Latin America and the Caribbean. Our membership
is also politically diverse. We include Republicans and
Democrats from the United States, and supporters of a wide spectrum
of parties from elsewhere in the Americas. All of us, however,
share a commitment to democratic politics, economic and social
progress, and greater cooperation in inter-American relations. The
Dialogue's Sol M. Linowitz Forum brings our members together in
plenary session approximately once every two years.
The report reflects the consensus of the Dialogue's members. Not
every signer agrees fully with every phrase in the text, but--except as
noted by individual statements--each of them endorses the report's
overall content and tone, and supports its principal recommendations.
Signers subscribe as individuals; institutional affiliations are for purposes
of identification only.
We want to express our gratitude to President Osvaldo Hurtado for
his outstanding leadership of the Dialogue as our Latin American
Co-Chair for the past five years. We are pleased to welcome our new
Co-Chair, President Fernando Henrique Cardoso, who rejoined the
Dialogue this January (and did not take part in preparing this report).
We are also appreciative of the many contributions we have received
for the Dialogue's endowment fund, which helps support the Linowitz
Forum. Our campaign chairs, John Whitehead and Javier Pérez de
Cuéllar, deserve particular thanks, and we are grateful for the strong
financial support of our Board of Directors, our members, and others
closely associated with the Dialogue. We are especially pleased to
acknowledge generous gifts from American Airlines, Andean
Development Corporation (CAF), AT&T, Bloomberg Inc., Coca-Cola
Corporation, Emerging Markets Partnership, The Ford Foundation,
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INTER-AMERICAN DIALOGUE POLICY REPORT 2003
The Starr Foundation, PhRMA, David Rockefeller, Time Warner,
Whitehead Foundation, and other individual and corporate donors too
numerous to mention.
Peter D. Bell, Co-Chair
Fernando Henrique Cardoso, Co-Chair
Peter Hakim, President
March 2003
THE TROUBLED AMERICAS
v
THE TROUBLED AMERICAS
1
The Troubled Americas
T
here has not been much good news coming out of Latin America
in the past several years. The economies of most countries, beset
by the global economic downturn and an array of unresolved challenges
at home, have been growing slowly, if at all. Some are deeply
depressed. Economic activity in the region as a whole contracted by
about 1 percent last year—with per capita income shrinking for the second
year in a row. Even the region's most robust economies, Chile,
Mexico, and the Dominican Republic, have lost momentum.
Unemployment is at record levels, and Latin America's halting social
progress has come to a standstill.
Some of Latin America's new leaders, most prominently Brazil's Luiz
Inácio Lula da Silva and Colombia's Alvaro Uribe, have sparked great
enthusiasm in their countries. Still, the quality of governance and leadership—and,
indeed, democracy—has been undistinguished in much of
Latin America. It is encouraging that, according to the respected
Latinobarómetro poll, most Latin Americans continue to prefer, by a
wide margin, democracy to dictatorship. The same survey, however,
also reveals that they are dissatisfied with their leaders and governments,
and with the failure of democracy to meet their most critical
demands—for jobs, education for their children, and personal security.
It is not surprising that more and more people are demanding political
and economic changes, and that their demands are shaping public
debates and deciding the outcomes of elections. Frustrated by the
Brazil's Luiz Inácio Lula da Silva and
Colombia's Alvaro Uribe have sparked
great enthusiasm in their countries.
region's setbacks and failures, citizens and governments alike may be
tempted anew by the failed models of the past—populist economic
schemes, inward-looking trade and investment policies, and authoritarian
solutions to political instability. Where they are tried, these
almost certainly will turn out once again to be blind alleys. The challenge
for the Americas in 2003 is how to meet the rising pressures for
change and social redress, while sticking with political and economic
principles that can produce growth, stability, and democracy.
With U.S. foreign policy focused on international terrorism and the
prospect of war with Iraq, Washington's response to Latin America's
strains has been sporadic and uneven. While the United States has
energetically promoted stronger hemispheric trade links, its approach
to the region's most severe crises—in Argentina and Venezuela—has
been indecisive. A stronger and steadier engagement from Washington
would facilitate Latin America's economic revival, and buttress the
region's ability to deal with other problems as well.
Today's Latin America is being compared to the region's most troubled
periods in the past—including the lost decade of the 1980s, when
almost every nation in the region was overloaded with debt and stumbling
backwards economically. These parallels cannot be ignored, but
neither should they be exaggerated. Latin American nations have made
enormous strides in the past two decades in modernizing their
economies and establishing democratic rule and respect for human
rights. Most countries are working hard and sensibly to address their
problems. With a more vibrant global economy and greater U.S. cooperation,
Latin America could soon emerge from its current distress.
THE CONTINUING TRAGEDIES:
VENEZUELA, ARGENTINA, AND HAITI
V
enezuela's bitter political divisions may yet produce a bloody clash
between the fervent supporters of President Hugo Chávez and the
larger numbers who urgently want him out of power. Just a few years ago,
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Chávez was elected with a large popular mandate to overhaul a ruinous
economic and political situation. But, during his four years in office, virtually
all of the country's long-standing problems have gotten worse.
The economy, which has been stagnant for the past 25 years, is now collapsing.
Last year, economic activity plunged by some 10 percent and a
similar drop or more is forecast this year—with half of the decline resulting
from the country's massive strikes. Investment has dried up.
True, the Chávez government has not harshly repressed dissent, arrested
opponents, or grossly violated other basic freedoms. It has, however, gutted
Venezuela's democratic institutions, eliminated most checks on executive
power, given the military an exaggerated public role, and thoroughly
divided the nation. Whoever assumes power in Venezuela will
face the daunting tasks of rebuilding the economy and political institutions
and, at the same time, healing the country's deep political rifts.
The opponents of Chávez, which include almost every major private
organization—business associations, labor unions, the media, and many
other groups—have shown that they can prevent Chávez from governing.
But they remain divided on strategy and tactics, and have not been
able to create a unified leadership or develop a cohesive agenda for
action. What they agree on is that Chávez should be ousted, and the
sooner, the better. Chávez, for his part, has remained intransigent,
intent on holding onto power. While the government and opposition
forces struggle over their differences, the economy has been devastated
and the country is increasingly ungovernable.
Despite their limited progress so far, the negotiations led by OAS
Secretary-General César Gaviria, enhanced by the electoral proposals of
President Jimmy Carter, still offer the best hope for a peaceful settlement.
To succeed, they will require consistent support from OAS member
states. Washington's unambiguous and vigorous backing is most
needed. The United States, however, has stayed mostly on the sidelines,
still smarting from its clumsy handling of the short-lived military coup
against Chávez in April 2002. The recent formation of the "friends of
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3
Venezuela" support group, involving the United States, Brazil, Spain,
Portugal, Chile, and Mexico, is an encouraging development.
Although its political institutions are far more rudimentary, Haiti's circumstances
parallel those of Venezuela. The Caribbean nation is
intensely polarized between supporters and opponents of President Jean
Bertrand Aristide. Like the Chávez government in Venezuela,
Aristide's rule is not brutally repressive, but neither is it democratic. His
main objective seems to be establishing a monopoly of power in this
destitute country. But, the democratic credentials of many in Haiti's
opposition are also questionable. Haiti, after all, is a country that has
virtually no experience with democracy, no reliable public institutions,
no police or justice system, and a feeble civil society, at best. Lacking a
minimal base of trust, politics in Haiti show little capacity for compromise
or power sharing.
Political violence is rising in Haiti, while OAS-led negotiations have
failed to find a solution. Forceful engagement by the United States—
working both to resolve the political deadlock and address Haiti's
humanitarian crisis—could establish a basis for progress. There is more
than a grain of truth in the conviction of most Haitians that
Washington holds the key to political power in their country. But the
U.S. government has been hesitant to become, once again, heavily
involved in Haiti's complicated and messy situation. In the meantime,
Haiti's economy has stagnated, its population grows poorer, and the
government barely functions.
Last year was bitter for almost every Argentine. Violent street demonstrations,
provoked by the country's economic breakdown, prompted
the resignation of President Fernando De La Rua in December 2001,
less than halfway through his term. His successor, Eduardo Duhalde,
took charge after several interim leaders failed to rally support. But he
too fell victim to Argentina's fractious politics—and within months
Duhalde was forced to call early elections. During 2002, Argentina
defaulted on nearly all its debt obligations, new investments ceased, the
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economy shrank by about 12 percent, and the banking system became
insolvent. Rates of poverty skyrocketed to 50 percent of the population
in what had been, a little more than a year earlier, Latin America's richest
nation. Argentines are justifiably angry with their leaders.
The debate about the causes of Argentina's economic crash is still
intense. But there is broad agreement that culprits included the adverse
global economy, fiscally lax economic management by successive governments,
and pervasive corruption. Whether centrally to blame for the
crash or not, Argentina's popular convertibility plan, which allowed for
the free exchange of dollars and pesos, almost certainly made the crisis
deeper and more painful. For some, IMF-promoted economic reforms
were mainly responsible for the crisis. Others point the finger at
Argentina's failure to implement the reforms fully. But, even now, there
is little support for reversing the economic changes of the past decade.
Although increasingly hamstrung by infighting within the Peronist
party, a standoff with the legislature and the courts, and clashes with
state governors, the Duhalde government was able to bring a measure
of stability to Argentina by late 2002. Despite many unresolved issues,
the economy enjoyed a slight rebound and Argentina managed to
secure a minimal accord with the IMF, averting open default with its
official creditors and raising hopes for a continuing recovery. The difficult
task of repairing Argentina's politics will begin with the presidential
elections, scheduled for April 2003.
Argentina's financial debacle badly damaged its two small neighbors—
Uruguay and Paraguay. Paraguay has been stalled economically for the
past five years—and its politics have been in disarray as well for most
of that period. Uruguay's economy fell by more than 10 percent last
year, its fourth successive year of decline. Still, with its more dependable
politics and better-managed institutions, Uruguay avoided the
kind of political and economic trauma that undid Argentina.
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5
DISTRESS IN THE ANDES
V
enezuela may be the worst afflicted, but every country in the
Andean Community is struggling today with economic and political
distress.
Colombia is the most embattled nation in Latin America, fighting a
multi-front war against well-financed guerrilla forces, paramilitary
groups, and criminal drug gangs. Yet most Colombians have become
more hopeful since President Alvaro Uribe took office last August.
Uribe has put forth a compelling strategy for dealing with the country's
problems, and has marshaled broad national support for his approach.
Calling for intensified military action against all illegally armed groups,
he seeks to expand the government's territorial control, gain decisive
battlefield advantage, and set the stage, thereby, for peace negotiations.
It is too early to assess whether Uribe's security plans are likely to succeed.
But, government security forces have taken the initiative away
from the rebels and paramilitary fighters in recent months.
Uribe has also made progress on other fronts. He has managed to secure
congressional approval for a series of economic and administrative
measures that were needed to restore confidence in the country's
finances. With a stagnant economy over the past five years, Colombia's
financial situation remains precarious, but the danger of outright
default has subsided and the country can continue to borrow on international
markets. All told, Uribe has re-energized presidential authority
in Colombia, which had been substantially weakened by the constitutional
reform of the early 1990s.
Still, President Uribe faces immense risks in the coming months and
years. Even with expanded financial and material support from the
United States, Colombia's army may not succeed in taking and keeping
military advantage over the guerrillas—and, even if it does, the guerrillas
could do sufficient damage, particularly in the nation's cities, to
undercut public support for the government. Even with the recent
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improvement in Colombia's finances, it will be hard to pay for the substantial
military buildup that Uribe's strategy demands, without putting
the economy in peril.
Moreover, Uribe's proposals have raised concerns in the international
community (and among Colombians as well) about the prospects of a
wider and dirtier war in Colombia, with less opportunity for negotiations,
more refugees, and increased human rights violations. Unless the
government addresses its human rights and humanitarian problems
aggressively, it may find itself justly condemned internationally and at
home. For now, however, Uribe is widely popular in Colombia. His evident
determination and decision is heartening to a country that has
long been drifting and insecure.
In neighboring Ecuador, elections last year produced an unlikely president,
former Colonel Lucio Gutiérrez, a leader of the 2000 military
coup that deposed Ecuador's previously elected president Jamil
Mahuad. Although his campaign had a strong populist cast, Gutiérrez
has committed his government to an orthodox economic course, promising
to retain the U.S. dollar as Ecuador's currency, pay the country's
foreign debts, and negotiate a new IMF accord—which the country
needs to avert another full-scale financial crisis.
It is hard to be sanguine about Gutiérrez's chances of success, given the
nation's economic woes and the abject failure of so many of his predecessors.
Ecuadorian politics are among the most unruly in Latin
America, and Gutiérrez is an inexperienced outsider, with minimal support
in Ecuador's rancorous Congress. He will also have to contend with
a politically active military. Gutiérrez, however, is backed by Ecuador's
powerful indigenous movement, and many think he can bring fresh
energy to a country that has been demoralized in recent years.
THE TROUBLED AMERICAS
7
Gutiérrez is an inexperienced outsider, with
minimal support in Ecuador's rancorous Congress.
After an impressive growth spurt in the early 1990s, the economy of
Bolivia—South America's poorest country—has been stagnant for the
past five years. The election last year of Gonzalo Sánchez de Lozada,
one of Bolivia's most successful past presidents, is a reason for some
hope—as are the country's plans to develop its rich natural gas reserves.
But, lacking a majority in Congress, Sánchez de Lozada has allied with
his traditional rival, creating a potentially conflictive governing coalition.
His main opponent is Evo Morales, the leader of the radicalized
coca growers. The Bolivian government faces the almost impossible
challenge of balancing the demands of Morales and his supporters, who
threaten violence against coca eradication efforts, and Washington's
intense pressure for an active eradication campaign.
Peru has advanced both politically and economically. In 2000, Alberto
Fujimori's autocratic and corrupt administration was forced from power
by a combination of international pressure and national rejection. A
caretaker government, led by Valentín Paniagua, during its nine-
month tenure managed to restore significant credibility to Peru's public
institutions and bring about some measure of reconciliation to the
country's divided populace. Elections in June 2001 gave the presidency
to Alejandro Toledo, who had demonstrated enormous courage and
persistence in leading the battle against Fujimori.
Toledo's record as president has been mixed. Despite continuing financial
problems, Peru posted a growth rate of more than 4 percent last
year, the highest in all of Latin America. But, in its first 18 months in
office, the Toledo government drifted without consistent direction and
its popular support declined sharply. Toledo's party was roundly defeated
in local and regional elections last year, while the once disgraced former
president Alan García, who left Peru bankrupt at his term's end in
1990, emerged as the front-runner for the 2006 presidential elections.
Yet, even aside from the economy, there are reasons for cautious optimism
about Peru in the coming period. The Toledo and Paniagua governments
have made important progress in dealing with the abuse and
corruption of the Fujimori era, and democratic practice has been
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strengthened. Both the judicial system and legislature are demonstrating
considerable independence, and Peru has a fully free press.
WELCOME PROGRESS IN
CENTRAL AMERICA AND THE CARIBBEAN
D
espite natural disasters and the collapse in coffee prices worldwide,
the economies of Central America have, on average, been
performing better than those of the rest of Latin America, and the
region anticipates further gains from the free trade accord it is now
negotiating with the United States. More remarkable has been the
uninterrupted stretch of democratic politics—for a dozen years,
through many changes of government—in a region that, except for
Costa Rica, had hardly known democracy. Although democratic institutions
remain embryonic, in nearly every country the press is free and
militaries are largely subject to civilian control. Widespread poverty
and rampant criminal violence are Central America's two most
intractable problems.
The region's largest country, Guatemala, is its most troubled. The 1996
peace agreement, formally ending Guatemala's 35-year civil war, was a
vital step toward national reconciliation and social justice for the country's
majority indigenous groups. But Guatemalan governments, hobbled
by the region's worst corruption, have since done little to implement
the accord, and the country remains bitterly divided by race and
class. Unlike the rest of the region, the military retains considerable
autonomy and authority in Guatemala.
After a dozen years of peace, important political and social changes are
visible in El Salvador, which has had the best-managed economy in the
region. Although the ARENA party, which has elected three successive
presidents, dominates national politics, there are continuing vibrant
debates with the opposition parties over key issues. In neighboring
Nicaragua, President Enrique Bolaños succeeded, against considerable
odds, in coaxing a reluctant Congress to allow former president Arnoldo
THE TROUBLED AMERICAS
9
Alemán to be prosecuted for corruption. This was an impressive accomplishment,
but the close, one vote majority that made it possible underscored
how entrenched corruption is in the country. For the past two
years, Honduras has grown faster than the rest of Central America, but
it continues to struggle economically and politically. Panama, the only
country in the hemisphere with a female head of state, Mireya Moscoso,
has suffered a depressed economy for the past two years.
Democratic politics is firmly established in the English-speaking
Caribbean, and its economies have been growing faster than those of
Latin America. The decline in tourism following the U.S. economic
downturn and the 9/11 terrorist attacks, however, has been costly for
the Caribbean states, whose traditional agricultural exports are also
doing badly. Much of the region is tormented by drug trafficking and
criminal violence. The Caribbean countries have expanded their cooperation
on regional issues, but their small size has made it difficult for
them to adjust to global economic changes. In hemispheric trade negotiations
and other forums, Caribbean governments contend that their
particular needs and concerns are neglected. There is continuing friction
with the United States on such matters as immigration, narcotics
control, offshore banking, and trade issues.
Cuba's economy has slowed down in the past two years, and would have
fallen further if not for subsidized oil shipments from Venezuela. Although
no one should expect a significant political opening in Cuba until the
departure of President Fidel Castro, it is encouraging that, for the first time
ever, a visible opposition to his rule is emerging. Despite the risk of government
reprisals against signers, the Varela project collected more than 11,000
signatures on a petition calling for democratic reforms in Cuba. U.S. relations
with Cuba are also changing. The U.S. embargo has been loosened to
allow some trade between the two countries, although still under restricted
conditions—and there now appears to be a majority in Congress that favors
more sweeping adjustments in U.S. policies. Even though it remains on the
U.S. State Department's list of terrorist countries, Cuba is more a diplomatic
annoyance than a serious threat to U.S. security.
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THE BEST PERFORMERS—MEXICO AND CHILE
E
ven Chile and Mexico, which, along with the Dominican Republic,
have stood out as the region's strongest economies in recent years,
stumbled in 2001 and 2002. Political and economic frustrations have
diminished national confidence in both governments, but neither
Mexico nor Chile confronts serious social or political unrest. Indeed,
Mexican president Vicente Fox and Chilean president Ricardo Lagos
maintain substantial popular support, each with approval ratings of
about 50 percent, among the highest in Latin America.
Lagos has achieved some notable successes. Most important, Chile
concluded free trade agreements with both the United States and the
European Union, and the government adeptly managed the sensitive
politics of former dictator Augusto Pinochet's return to Chile. But
growing discord among the parties in Chile's governing coalition and
an unexpected corruption scandal have been politically disruptive.
Although largely driven by external factors, the country's economic
slowdown has also been a source of discontent. Following a 6 percent a
year expansion throughout the 1990s, Chile's economy grew by little
more than 2 percent annually over the past two years.
After his historic electoral triumph in 2000 over the candidate of the
Institutional Revolutionary Party (PRI), which had dominated Mexican
politics for 71 years, Fox proposed an accelerated agenda of political and
social reform. Set against the new government's ambitious goals, progress
has been slow, constrained by an opposition majority in Congress and
frictions within the Fox administration. Mexico is changing, but more
gradually and grudgingly than Fox had sought. The most important setback
for his government may have been the post-9/11 cooling of the
U.S.-Mexican relationship, which forestalled a high profile, Mexican-led
initiative to restructure immigration policies in the two countries.
THE TROUBLED AMERICAS
11
Mexico is changing, but more gradually
and grudgingly than Fox had sought.
Another disappointment has been the Mexican economy. Buffeted by
the slumping U.S. economy, it grew by less than 1 percent total in the
last two years, after five years of 5 percent plus annual expansion.
BRAZIL AS THE BELLWETHER
T
he future course of Latin America will be decisively shaped by
events over the next years in Brazil. On January 1, labor leader
and founder of the left-wing Workers' Party (PT) Luiz Inácio Lula da
Silva, universally known as Lula, was inaugurated president of Brazil,
after an overwhelming triumph in last year's elections—and an exemplary
transition period.
The accomplishments of Lula's predecessor, Fernando Henrique
Cardoso, are widely recognized. His two-term government, over eight
years, brought new stability to Brazil's economy, put greater order in the
nation's politics and institutions, and began to face up to the country's
deep social needs. Opposition candidate Lula triumphed, nonetheless,
because Brazilians, like other Latin Americans, have been dissatisfied
by the slow, uneven pace of economic and social change.
For the past five years, Brazil's economy has been flat; in only one year
has growth exceeded 2 percent. Wages are low, jobs are scarce, massive
income and wealth inequalities persist, and criminal violence has
become more pervasive and more vicious. Brazilians elected Lula
because they want him to make good on his campaign promises to reactivate
growth and boost employment; attack poverty, hunger, and race
discrimination; and push the social agenda faster and harder than his
predecessors. Managing the conflicting demands of many different constituencies,
maintaining financial stability and, at the same time, taking
significant steps to address human and social needs, will fully test
Lula's political skills and leadership.
It will not be easy for Lula to get his way with Brazil's notoriously uncooperative
Congress, where his Workers' Party holds less than one-fifth
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of the seats. Even counting the votes of allied parties, his government
coalition will be a minority in both houses. Opposition parties also control
the bulk of Brazil's powerful state governments. Still, Lula comes to
office with one great asset. He has enormous popular support and good
will across the political spectrum. The great majority of Brazilians want
him to succeed.
During the electoral campaign, Brazil seemed headed toward an
Argentine-style financial collapse. As Lula's advantage in the polls
widened, investors became increasingly apprehensive about the
prospect of a populist-led government in Brazil. A $30 billion IMF rescue
package partially reassured world markets. Even more reassuring
were Lula's policy statements and cabinet appointments in the weeks
following his election. Lula has assembled an orthodox team of economic
managers and advisors—giving immediate credibility to his
pledges to stick to the IMF program, meet Brazil's debt obligations, and
sustain market economic reforms. Indeed, expectations are now high
that the Lula government will pursue needed reforms of the country's
badly flawed labor, tax, and social security legislation. Lula has also
made clear that, although Brazil will be a tough and demanding negotiator,
it will participate fully in hemispheric free trade talks.
If Lula succeeds, even modestly, not only would the prospects of economic
recovery improve throughout Latin America, but the region's
otherwise dispirited politics would also receive a substantial boost. His
success would demonstrate that, within a modern and disciplined economic
policy framework, Latin America has ample room for political
choice and social progress. It would underscore the fact that responsible
economic management and effective social policies go hand in hand.
THREE IDEAS THAT CHANGED LATIN AMERICA
L
atin America is in distress. A few countries are in out-and-out turmoil.
Many others have lost ground, economically and socially, in
the past two years. Nations across the region are politically unsettled.
THE TROUBLED AMERICAS
13
Yet, viewed in historical perspective, Latin America has made impressive
progress. The region today is far better off than it was in the 1980s,
when the debt crisis had depressed almost every Latin American economy.
From 1981 to 1990, average income fell in 17 of 20 Latin
American countries, year after year capital flowed out of the region,
and sky-high inflation devastated the economies of several nations.
Most Latin American countries were either just emerging from repressive
military dictatorships or still struggling toward civilian rule.
Central America was ravaged by brutal civil wars that produced massive
human rights violations and a humanitarian crisis in the region.
Every one of the Inter-American Dialogue's five hemispheric policy
reports in the 1980s focused on these problems—Latin America's crisis
of high debt and no growth, the region's difficult transitions toward
democracy, and the destructiveness of Central America's wars.
During that period, three powerful ideas gained wide support among
Latin America's political and intellectual leadership—and began to
reshape the region's political and economic course.
*
The first was that democracy and elections are the only acceptable
way to gain and exercise political power. With the inauguration of
Patricio Aylwin in Chile in 1991, an elected president or prime minister
headed every country in the Western Hemisphere, save Cuba.
Aside from Haiti, no military regime has assumed power in the
region since the Argentine coup in 1976. In addition, over the past
dozen years, there has been a striking expansion in the authority and
responsibility of the member countries of the Organization of
American States (OAS) to respond collectively to threats against
democratic rule in the Americas.
*
The second idea was that Latin America's economies should be reorganized
along market lines, and opened to international trade and
investment. In country after country, state-owned enterprises were
sold to private buyers, new discipline was imposed on national budgets
to keep expenditures in line with revenues, and barriers to trade
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and capital movements were dismantled. By the early 1990s, these
and other reinforcing economic reforms, codified as the
"Washington Consensus," had become the mainstays of economic
policy across Latin America.
*
The third idea was that, in order to succeed economically, Latin
American nations needed to build constructive partnerships with
the United States. Nearly every Latin American government
responded enthusiastically to the first President Bush's call in 1990
for a hemisphere-wide free trade arrangement. The approval of
NAFTA in 1993, which brought Mexico into a free trade pact with
the United States and Canada, was widely applauded in Latin
America. At the 1994 Miami Summit of the Americas, all 34 participating
heads of state agreed to complete negotiations for a hemispheric
free trade pact by 2005.
These ideas continue to hold sway in nearly every country of the
region—but their credibility has diminished because of Latin America's
economic and political shortfalls in recent years, coupled with a disappointing
lack of commitment from Washington. Most Latin Americans
want to preserve democracy, but citizens are losing trust in their own
democratic governments and institutions. The conviction that market
policies can produce economic growth and jobs, and adequately meet
social needs has faded, and skepticism has grown about the value of
closer cooperation with the United States. Yet, no one has come up
with better or more powerful alternatives to replace these ideas. The
central challenge is still to make them work in practice.
BOLSTERING DEMOCRATIC POLITICS
R
estoring democratic rule and building respect for human rights has
been Latin America's most notable accomplishment in this generation.
Regular, free elections, growing civil societies, expanding press
freedoms, progress toward gender equality, and efforts to contend with
race and ethnic discrimination are healthy signs of the region's demo-
THE TROUBLED AMERICAS
15
cratic culture. Although support for democracy may have slipped in the
past few years, few Latin Americans want to turn the clock back to military
rule.
Autocratic, even oppressive leaders may occasionally be elected and
abuse their power, but under most circumstances their legitimacy and
capacity to govern cannot be sustained for long. The authoritarian
option has become unthinkable in most of Latin America today.
The main concern, in short, is not whether democracy will survive.
Rather, what is at issue is the quality of democratic governance and politics
across Latin America. Only a few Latin American nations enjoy
vibrant democracies—Costa Rica, Chile, Uruguay, and Brazil are
among them. Some countries face outright political crises, with no
decision-making authority that is widely accepted as legitimate, no
agreed-upon rules to manage conflict, and few, if any, credible leaders
and institutions. Politics and governance remain weak in many other
nations, where national and local institutions are unresponsive, civil
society is listless, and corruption is pervasive.
There are no simple or short-run formulas for revitalizing Latin America's
politics. Several challenges have defied solutions almost everywhere.
*
Strong, representative political parties are essential for good politics.
But, no one has figured out how to revive the badly deteriorated,
sometimes moribund party systems of so many Latin American
countries. Political parties are the least-respected institutions in the
region, falling below legislatures, judicial systems, and national
police forces; in a recent poll not a single Argentine expressed confidence
in the nation's political parties. Yet, virtually every one of
the world's sturdy democracies—in Europe, Asia, and Latin
America—has a healthy party system.
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INTER-AMERICAN DIALOGUE POLICY REPORT 2003
*
Latin America also needs stronger political leadership. To be sure,
there have been outstanding Latin American leaders in recent years,
and many others who governed effectively. But too often, citizens
have been let down by their elected officials. Far too many presidents
have turned out to be feckless or dishonest, or both. The large
number of presidents forced from office in recent years, although for
different reasons and under different circumstances, illustrates the
depth of Latin America's leadership problems. Ineffectual executive
leadership can be particularly damaging in Latin America, where
deficient political institutions, lack of accountability, and absence of
checks and balances already stand in the way of good governance.
*
Common crime has become a nightmare for most Latin Americans,
overwhelming the region's mostly under-financed, poorly trained,
and often corrupt police and judicial systems. Latin America leads
the world's regions in kidnapping, and its homicide rate is twice the
global average. With the spread of drug trafficking and gang activity,
nearly every city and town is more dangerous and violent than it
was even a half-dozen years ago. Confidence in democratic governments
is bound to falter if they cannot better protect the personal
security of their citizens.
*
Finally, democracy in Latin America is unlikely to thrive while economic
growth is anemic, unemployment is at record levels, poverty
and steep inequality are pervasive, and most people believe their
lives will be worse than those of their parents. Under conditions of
continuing economic and social distress, regardless of its source, no
government can sustain the confidence and support of its citizens. It
is not surprising that, in country after country, restoring economic
growth is the highest priority for governments, regardless of their
political perspective. In most nations, U.S. economic cooperation,
in the first instance through the successful completion of a strong
hemispheric trade agreement, is viewed as vital.
THE TROUBLED AMERICAS
17
REBUILDING THE CONSENSUS
FOR ECONOMIC REFORM
D
espite Latin America's economic troubles, no country in the
region has yet retreated from market economic policies.
Throughout the region, however, doubts have multiplied about the
benefits of free trade and about the pace and breadth of economic
reform efforts. No wonder. After a decade or more of intense reform,
per capita growth has stagnated since 1998, the average person is getting
poorer, jobs remain scarce, national debts have piled up, and many
economies remain trapped in up and down, roller coaster cycles.
Skepticism about the prevailing economic wisdom also reflects the
widespread perception—and frequent reality—that Latin America's
economies have been managed unfairly, with benefits going to a tiny
minority while leaving most people poorer. With burgeoning numbers
of high-priced automobiles, new shopping plazas, and luxurious apartment
buildings across the region, many parts of Latin America look and
feel a lot more prosperous than they did ten years ago. But, as income
statistics make clear, the majority of citizens are no better off today
than they were one and two decades back.
If not quite the backlash many had predicted, public support for market
economic reforms has dwindled in Latin America. But there is still
wide agreement that sustained and faster growth—an elusive goal for
nearly 25 years now—has to be at the core of any solution to the
region's economic and social woes. To achieve the needed pace and
consistency of growth, Latin American countries have to keep their
markets open, emphasize exports and competition, and facilitate foreign
investment and technology sharing. Countries can best reduce the
risk of market volatility and external contagion, not by turning inward,
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INTER-AMERICAN DIALOGUE POLICY REPORT 2003
Latin America's economies
have been managed unfairly
but instead by avoiding large fiscal deficits, building their competitiveness,
and maintaining a tight check on external borrowing.
To improve living standards, Latin America needs to strengthen and
refashion, not abandon, its reform agenda—so that it addresses, more
directly and more effectively, the problems of gross inequities, massive
poverty, backward and unequal education systems, and personal economic
insecurity. In 2001, a joint commission of the Inter-American
Dialogue and Carnegie Endowment for International Peace proposed a
series of specific measures to deal with these challenges, including:
*
Building social safety nets for the poor that are quickly triggered during
financial crises; for example, emergency public works programs
and family grants to keep children in school.
*
Lowering subsidies for better-off university students to increase public
spending on preschool and primary school programs.
*
Reducing tax evasion and closing tax loopholes that benefit upper
income groups.
*
Reducing the onerous red tape that hampers small businesses and
providing them with expanded credit, access to information, and
professional services.
*
Revising archaic labor laws that do little to protect workers and discourage
job creation and mobility.
*
Frontally attacking racial and ethnic discrimination and exclusion.
*
Expanding opportunities for rural land ownership through market
and community-based reform initiatives.
Advances on these issues will result in a more even-handed economic
policy with fairer outcomes for most people. That is what it will take to
THE TROUBLED AMERICAS
19
build more consistent and durable public support for growth-producing
reforms. In addition, improvements in the welfare of the poor will
themselves, according to accumulating evidence, help to spur growth.
The economic reform agenda for Latin America has not been wrong. It
has been too narrow and unimaginative.
REINFORCING U.S.-LATIN AMERICAN TIES
F
or most of the 1980s, U.S. relations with Latin America were tense
and sometimes conflictive. The Inter-American Dialogue was
founded in 1982 to respond to the discord between the United States
and Latin America. When Great Britain and Argentina went to war
that year, most Latin Americans were dismayed by Washington's support
for Great Britain. The United States and Latin America were at
odds over how to deal with the debt crisis that also began in 1982 and
left the region economically depressed for nearly a decade. They
clashed as well over U.S. policy in Central America.
It was during the first Bush administration, at the end of the Cold War,
that U.S.-Latin American cooperation began to flourish. President Bush
launched the Brady plan in 1989 to resolve Latin America's debt problems.
His administration helped to settle Central America's long-festering
civil wars, initiated NAFTA negotiations with Mexico and Canada, and
launched the idea of hemisphere-wide free trade. Carrying these Bush initiatives
forward, the Clinton administration fought for congressional ratification
of the North American Free Trade Agreement and convoked the
first summit meeting of Western Hemisphere heads of state since 1967.
Most Latin American governments, however, were disheartened by the
Clinton administration's failure to obtain congressional approval of fast
track authority, which had become emblematic of U.S. interest in economic
cooperation with Latin America. Clinton's quick and helpful
responses to the financial crises of Mexico and Brazil in 1995 and 1998
were applauded in Latin America, but, by the end of his term, the trade
agenda had lost steam and Latin America's economies had begun to sour.
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INTER-AMERICAN DIALOGUE POLICY REPORT 2003
Before he took office, George W. Bush announced that Latin America
would be a central priority of his administration. He emphasized two
goals: enhancing U.S. links with Mexico, which he later called the
most important U.S. relationship in the world, and building toward
economic and trade partnerships with every country of the hemisphere.
Latin American governments welcomed Bush's attention, but the Al
Qaeda attacks of September 11, 2001 intervened and produced an
abrupt redirection of U.S. foreign policy.
In Latin America today, a year and a half after the attacks, the view is
widespread that Washington has lost interest in the region. Latin
Americans were disturbed by what they perceived as Washington's indifference
to the collapse of Argentina's economy last year. Many were also
troubled by the Bush administration's willingness to countenance the
April 2002 military coup against Hugo Chávez, the rapid decline in U.S.
policy attention to Mexico after 9/11, and then treasury secretary Paul
O'Neill's criticism of the region's economies. Most Latin Americans are
uneasy as well about Washington's single-minded emphasis on the battle
against terrorism, and about the prospect of preemptive war in Iraq.
THE ADVANCING TRADE AGENDA
Y
et, on one crucial front—trade policy—the Bush administration
has made dramatic and widely acknowledged progress. In July
2002, the White House gained congressional approval of fast track,
now called Trade Promotion Authority (TPA), giving the administration
the mandate it needed to negotiate the Free Trade Agreement of
the Americas (FTAA) and other regional trade accords. The White
House also secured long-awaited trade preferences for the Andean
Community nations, initiated free trade talks with Central American
countries, and successfully completed a free trade accord with Chile.
These advances were all broadly welcomed in Latin America, although
THE TROUBLED AMERICAS
21
The Al Qaeda attacks produced an abrupt
redirection of U.S. foreign policy.
the region's enthusiasm was dampened by the administration's earlier
decisions to impose hefty new tariffs on imported steel and sharply raise
U.S. farm subsidies.
A lot is now riding on the success of the FTAA negotiations. More
than any other inter-American measure, the FTAA will provide the
essential underpinnings for a long-term, constructive U.S.-Latin
American relationship. It will give Latin American nations what they
most need and want from Washington—secure access to U.S. markets,
investment capital, and technology. A free trade deal with the United
States will also bolster political support for Latin America's economic
reform agenda. U.S. interests will also be well served by opening and
expanding hemispheric trade. This is the best opportunity ever for the
United States to build a genuine, multilateral partnership with Latin
America. Nothing would more enhance the credibility of U.S. leadership
in the region.
It will not be easy for the nations of the Americas to clinch the FTAA
agreement, particularly by the January 2005 target date. To make the
negotiations succeed, Washington will have to agree to dismantle at
least some of its most egregious curbs on Latin America's exports, even
in the face of powerful U.S. political constituencies. Agriculture will be
an especially difficult stumbling block—first, because it is such a politically
sensitive and troublesome issue for the United States and, second,
because it is so economically critical to Latin America.
Reaching a favorable agreement on agriculture will generate huge benefits
for both Latin America and the United States, but it will require major
concessions from both sides. The U.S. administration will have to muster
sufficient political resolve to bring down U.S. tariffs, some in excess of 100
percent, on a range of food and other commodities produced in Latin
America. In exchange, Latin American governments will have to open up
their economies far more than they are today to U.S. services, manufactured
products, and investment. This is what it will take to secure the kind
of FTAA needed to reinvigorate the hemisphere's economies.
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INTER-AMERICAN DIALOGUE POLICY REPORT 2003
OTHER CHALLENGES
T
he successful negotiation of a strong FTAA would be a giant step
forward for inter-American relations. Ratifying the U.S.-Chile
free trade accord and reaching a U.S.-Central America agreement will
also be key advances. But other hemispheric challenges need to be
addressed as well. The United States has a central role to play in meeting
these challenges—which Latin American nations are not able to
resolve on their own. Washington cannot solve them alone either.
Making headway will require sustained inter-American cooperation.
*
Argentina's economic and political turmoil is a collective problem
for every nation of the hemisphere. It is easy to agree that
Argentina's leaders bear most responsibility for the crisis, but the
nation's broken economy endangers the economic future of its
neighbors (and, possibly, the entire region). Washington, particularly,
needs to be more directly and energetically engaged in finding
solutions. IMF resources and technical expertise are crucial, but so is
U.S. political leadership. Washington should make clear that, following
presidential elections in April, it will be prepared to work
closely with Argentina's next administration toward the nation's full
recovery, and not wait on the sidelines for the new Argentine government
to struggle on its own.
*
Latin America's recent history of devastating economic reversals
underscores the need for regional economic cooperation that goes
beyond trade. The hemisphere's financial leaders, with the U.S.
Treasury taking a prominent role, should seek to devise cooperative
strategies to defend against financial crises—developing mechanisms
to help countries better manage debt and international capital flows,
reduce the damage of crises when they occur, and help prevent their
spread from one economy to the next. U. S. and Latin American financial
leaders should also begin to establish common macroeconomic
policies and targets in such key areas as inflation, exchange rates, budget
deficits, and debt burdens (in the fashion of Europe's Maastricht cri-
THE TROUBLED AMERICAS
23
teria and Mercosur's policy harmonization initiative). Macroeconomic
convergence among the hemisphere's nations would help to bolster
growth and stability and multiply the benefits of free trade.
*
Like Argentina's troubles, the increasingly treacherous political
crises of Venezuela and Haiti are shared problems for the entire
hemisphere. There is wide recognition that the OAS offers the most
promising path toward a peaceful and democratic settlement in
these two distressed nations. So far, however, the OAS has failed to
achieve results in either place—and the prospects for intensified
violence in both Haiti and Venezuela are rising. Although there are
many obstacles to success, one problem stands out. The senior OAS
officials managing the negotiations, Secretary General Gaviria in
Venezuela and Assistant Secretary General Luigi Einaudi in Haiti,
have not had the full and unambiguous backing of OAS member
states. That support, particularly from the United States, is essential.
Washington's vigorous engagement is needed both to press for solutions
in the two countries, and to mobilize the participation of other
governments. The Inter-American Democratic Charter, approved in
Lima on September 11, 2001 could become a dead letter, if collective
action does not coalesce to end the political paralysis and escalating
hostility in Venezuela and Haiti.
*
No foreign policy issue is more important to the U.S. government
today than the battle against international terrorism. Washington
should be able to count on the support of Latin American governments,
even though this is not a high priority for the region. Mexico
and Canada, whose assistance is especially vital, have both cooperated
extensively with the United States on security matters since
September 11. It is in every country's interest to work with the
United States to curtail money laundering, whether by drug crimi-
24
INTER-AMERICAN DIALOGUE POLICY REPORT 2003
The treacherous political crises of
Venezuela and Haiti are shared
problems for the entire hemisphere.
nals or terrorist networks. For its part, the more Washington is prepared
to systematically engage Latin America's problems, the more
the nations of the region will be inclined to cooperate with the
United States on security matters.
*
Colombia's national security problems, far and away the most dangerous
in the hemisphere, threaten the nation's territorial integrity
and the survival of its democratic government. They, too, should be
of collective concern for the entire region. In his first months in
office, President Uribe has set a promising course, but he needs
external support to reestablish governmental authority throughout
Colombia, address humanitarian and human rights challenges, and
build conditions for peace negotiations. Continuing U.S. assistance,
political, financial, and military, is vital to Colombia, as is
Washington's help to mobilize political and economic support from
Latin American and European nations.
Aside from a sagging global economy and sharp swings in capital flows
to the region, there is no single cause or common set of causes that
explain Latin America's malaise. Each country is fighting a different
mix of problems and disorders. In some countries—Venezuela, Haiti,
and Argentina, for example—leadership failures seem to be paramount,
sometimes compounded by the discrediting and collapse of political
parties. Colombia is the only country beset by guerrilla war, but social
upheavals have disrupted several others, particularly countries with
large indigenous populations such as Ecuador, Bolivia, and Guatemala.
Often associated with and intensified by political shortcomings, economic
policy miscalculations are taking a major toll in some countries.
But, if there is no common explanation for Latin America's ills, there
is also no shared remedy that will respond to every country's needs.
Each country's government and citizens will bear most responsibility for
finding and implementing their own solutions.
What is just as clear, however, is that U.S. policies and actions can
make an important difference. Washington has considerable power to
THE TROUBLED AMERICAS
25
shape events and determine outcomes in Latin America. With U.S.
leadership, the hemisphere's free trade agenda is steadily advancing.
Stronger leadership from Washington could help address other regional
economic challenges. An engaged United States may have helped to
avert, or at least temper, the crises in Argentina and Venezuela, and
certainly Washington can now do more to assist both countries, and
several others, in resolving their problems. By doing so, the United
States would be serving its own interests as well.
The United States can most effectively advance its objectives in the
hemisphere by using its power not for short-term political gains, but to
promote shared regional interests and values—and to rally other nations
to the task. Multilateral, cooperative approaches to shared problems are
preferred to unilateral action, but multilateralism can only work when
the United States is prepared to commit its power and resources.
In contrast to earlier periods in inter-American history, the United
States and Latin America now mostly share the same values and goals.
That fact makes cooperation easier and more productive—and indifference
and distrust less defensible.
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INTER-AMERICAN DIALOGUE POLICY REPORT 2003
Washington has considerable power
to shape events in Latin America.
SUPPLEMENTAL COMMENTS
Raúl Alfonsín
I want to highlight a vital issue that is not sufficiently addressed in the
report. As in the 1980s, many countries of Latin America are struggling to
manage their debt obligations. In Argentina and elsewhere, the size of the
debt is reflected in country risk levels, which reduce growth prospects and
create unsustainable fiscal situations. This has weakened the credibility of
many governments, aggravating the effects of the economic stagnation of
the past four years, of deteriorating social conditions, and of increasingly
unequal income distribution. The report should emphasize the need to
find solutions to Latin America's debt problems. The IMF's proposal to
allow countries to seek "bankruptcy protection" sounds neither reasonable
nor responsible to me.
Nicolás Ardito-Barletta
Panama should be included in the U.S. free trade negotiations with
Central America.
Jimmy Carter
The characterization of Venezuela's polarization is overstated. While
there is an extreme hard core for and against Chávez, there is a sizable
group of moderates (for and against) who want a peaceful, negotiated solution.
As part of our role in the Tripartite Working Group with the OAS
and UNDP, The Carter Center put two concrete proposals for an electoral
solution on the table in late January which both sides are now discussing.
Eugenio Clariond Reyes-Retana
While I agree with the three main ideas of the report—democracy,
market orientation, and partnerships—the concept of poor management
in Latin America is missing. Mexico's president Fox is a good
example of how poor management can be ruinous even if all the other
fundamentals are in place. When Fox came to power, Mexicans expected
to see a rationalization of the PRI-created over-sized bureaucracy.
THE TROUBLED AMERICAS
27
28
INTER-AMERICAN DIALOGUE POLICY REPORT 2003
Instead, he created new government agencies, making free enterprise
even more difficult. With the exception of Chile, all of our countries
have a terrible management problem. If we are not able to improve the
way our countries are managed, democracy, the Washington
Consensus, open economies, and trade agreements are not going to
help us develop nor reduce poverty and inequality.
Lee Cullum
As a journalist, I cannot endorse this report, but I certainly respect the
seriousness with which it is written. This is a sobering assessment that
compels the attention of policy-makers.
Karen DeYoung
As a practicing journalist who covers U.S. policy, I cannot offer a judgment
regarding the report's recommendations.
Alberto Ibargüen
I am in a similar position to that of Lee Cullum. I agree with her and
also respect the report as a serious, thoughtful assessment that should
be considered by policy makers throughout the hemisphere.
Abraham F. Lowenthal
The international environment is increasingly unstable and dangerous,
with the prospect of war looming. The world economy suffers from
overcapacity and stagnation, exacerbated by growing income disparities.
Competition among developing countries for investment and
markets is becoming more intense. A gathering crisis of governance is
affecting many countries: not only in the developing countries but in
the First World, not only in the governmental sphere but in corporations,
religious institutions and the communications media. Latin
America's severe problems cannot be separated from these wider currents,
which reinforces the importance of forging constructive inter-
American cooperation to face shared challenges.
THE TROUBLED AMERICAS
29
Peter McPherson
The report makes many sound observations, but there are several others
that I don't agree with, e.g., I don't agree at all that the United States
did little in the 1980s to try to aid the economic recovery of Latin
America. In brief, the report is not always balanced in assessing U.S.
government actions, and overall the tone of the report does not imply
equality in the relationship or partnership between the United States
and Latin Am