As Venezuelans go to the polls, they bring to a close not just a contest between President Hugo Chávez and his main challenger, Manuel Rosales, but a year-long, continent-wide campaign. Those sharply critical of Washington-backed economic liberalisation have been pitted against those in favour of freer trade with the United States. It’s been a race to the wire, with leftists taking Bolivia, Chile, Uruguay, Nicaragua and Ecuador, and centrists and conservatives holding Colombia, Peru, Costa Rica and Mexico.
Those committed to a vision of globalisation as it proceeded in the 1990s – reduced tariffs, deregulation, tight money and privatisation – have worked hard to brush off the importance of this election cycle. The Wall Street Journal and the Economist, for instance, repeatedly point out, correctly, that many of Latin America’s new leftists, such as Luiz Inácio Lula da Silva in Brazil or Michelle Bachelet in Chile, are fiscal moderates, and that the firebrand style of Chávez is the exception not the rule for the region’s reformers.
Yet, despite policy differences, and largely independently of the outcome of specific elections, Latin America is undergoing a political and economic realignment. The White House is hoping for an upset in Venezuela, but even if the impro bable happens and Chávez loses, this will only slow, not stop, the decline of US influence in the area that used to be called its “backyard”.
During the cold war, Washington counted on Latin America to watch its back as it moved about in the world. Regional governments voted en bloc in favour of the US and against the USSR at the United Nations, while bilateral economic treaties gave US corporations and banks special preference, ratifying Latin America’s status as a province of the United States within an increasingly open world. When a country tried to break out of this system, the US supported coups that installed more co-operative military regimes, with death-squad auxiliaries eliminating those who continued to dissent.
Following the demise of the Soviet Union, Washington moved away from its reliance on repressive Latin American proxies, banking instead on its ability to project its power through elections and economic pressure.
This worked throughout the 1990s, as heavily indebted countries governed by centrists, grasping for the carrot of foreign investment, submitted to the command of the IMF. Ever mindful of the punishing stick of currency-market sell-offs, they cut back social spending, privatised national industries, weakened the power of organised labour, deregulated the financial sector, and did away with trade barriers that protected local manufacturers and peasant producers.
Over the past few years, however – roughly since Chávez’s landslide victory in 1998 – the system has begun to break down. The Washington consensus, as this set of policies came to be called, proved an absolute disaster.
Between 1980 and 2000, the region grew cumulatively by only 9 per cent in per capita terms. Compare that with the 82 per cent expansion of the previous two decades, and add to it the financial crises that have rolled across Mexico, Brazil, Venezuela, Bolivia, Ecuador and Argentina over the past 15 years, sweeping away accumulated savings, destroying the middle class, and wrecking the agricultural sector, and you will get a sense of why voters have turned left.
Efforts to move beyond free-trade orthodoxy have been aided by the significant stores of capital that have been built up in Asia, Europe and the Middle East, which have helped wean Latin America off its dependence on US finance. Likewise, high oil prices have transformed Venezuela into a regional creditor, with Caracas investing its petrodollars not in US banks but in infrastructure and bonds that help neighbouring countries break free from the IMF.
When, in 2004, the Argentinian president, Néstor Kirchner, offered the holders of his country’s $170bn external debt 30 cents per dollar, many predicted the markets would punish Argentina by withholding future investment. But, with Chinese capital pouring in, and Kirchner’s economic prudence proving a profitable bet, such threats are not as persuasive as they once were. Similar access to alternative sources of investment has allowed not just the leftist governments of Bolivia and Venezuela, but even a conservative one in Ecuador, to negotiate more favourable contracts with multinational energy companies.
Co-operation among the region’s economies is also providing Latin America with leverage. Earlier this year, the Montevideo-based Latin American Integration Association reported that trade among its 12 member nations had grown 110 per cent since 2003, a much faster pace than had been predicted. In addition, rapidly expanding trade with Europe and Asia, particularly China, has helped the region gain considerable autonomy from US markets.
With financial independence comes political freedom. Over the past couple of years, governments from across the political spectrum have demonstrated a steadfast unwillingness to enlist in Washington’s “war on terror”. They have rejected the Pentagon’s efforts to subordinate their militaries to US command; opposed the invasion of Iraq; refused to elect the US-backed candidate to the leadership of the Organisation of American States (OAS); declined to pass a law that would have exempted the US from the International Criminal Court; and rebuffed calls to isolate Venezuela. Such dissent was unthinkable during the cold war.
In response to this independence movement, the White House has tried to sell the idea that there are “two lefts” in Latin America: a responsible one it is willing to work with and an irresponsible one that is a threat to democracy. It gets help from commentators such as Jorge Castañeda, who divides Latin America between bad populists and good reformers, and Álvaro Vargas Llosa, who writes about a “carnivorous” and a “vegetarian” left.
Yet such a simplistic split does not hold. For one thing, it is the supposed red-meat left that has had the most economic success. Growth in Venezuela and Argentina is off the charts, with impressive declines in poverty and unemployment, while Chile and Brazil are experiencing sluggish performance.
And the “good reformers” themselves don’t buy it. Leaders from Lula, Bachelet and Morales to Kirchner and Chávez share a commitment to integration, diversification and policies that spur not just growth, but fairness. It is this common agenda that led Bachelet, responding to the Bush administration’s attempt to use her moderation to criticise Chávez, to defend Venezuela as a country working to “eradicate poverty and eliminate inequality”. It is also what led Lula to make his first post-re-election trip abroad to Caracas, where he announced his support for Chávez’s third-term campaign.
There are real conflicts among Latin American nations that Washington could exploit: between Bolivia and Brazil over energy issues, say, or Argentina and Uruguay over trade. It is having a hard time, however, backing up its divide-and-rule strategy with real incentives. The US has tried to weaken opposition to the Free Trade Areas of the Americas by picking off low-hanging fruit such as Paraguay and Peru with bilateral economic pacts. But the Democrats, now in control of Congress, have just declared that they will block ratification of free-trade treaties with Peru and Colombia because they fail to protect labour rights. Likewise, the steady decline of the dollar has reduced the importance of the US market. So, when Washington recently threatened to revoke trade concessions to Argentina and Brazil as punishment for their resistance to regional free-trade agreements, Buenos Aires and Brasília refused to budge.
With its political and economic influence in the region waning, the US is at a crossroads. It can either work with Latin American nationalists to develop equitable economic policies, or return to the days when it relied on repressive strongmen to enforce its authority locally. That the Pentagon last month announced an increase in military aid to Latin America in response to the rise of the left suggests that it has already taken a step in the wrong direction.
Greg Grandin teaches history at New York University. His latest book is “Empire’s Workshop: Latin America, the United States and the rise of the new imperialism” (Metropolitan Books)