Latin America's New Consensus

Even as the United States wages a war in the Persian Gulf that Secretary of State Condoleezza Rice describes as a central front in an epic "generational struggle" in defense of Western values and freedoms, another geopolitical threat has been massing on its southern flank. Over the course of the past seven years, Latin America has seen the rebirth of nationalist and socialist political movements, movements that were long thought to have been dispatched by cold war death squads. Following Hugo Chávez's 1998 landslide victory in Venezuela, one country after another has turned left. Today, roughly 300 million of Latin America's 520 million citizens live under governments that either want to reform the Washington Consensus--a euphemism for the mix of punishing fiscal austerity, privatization and market liberalization that has produced staggering levels of poverty and inequality over the past three decades--or abolish it altogether and create a new, more equitable global economy.

This year, that number is likely to grow. Latin America is in the middle of an election cycle that has already seen Evo Morales win in Bolivia and Michelle Bachelet, a single mother and socialist, win a third term for Chile's center-left Concertación Coalition. On April 9 in Peru, Ollanta Humala, a nationalist former military officer backed by Chávez and Morales, came from behind to force a runoff. In the months ahead, Colombia, Mexico, Brazil, Ecuador, Nicaragua and Venezuela will hold presidential elections. And with center-leftist Manuel López Obrador ahead in Mexico, the Sandinistas poised to make a comeback in Nicaragua and Chávez's re-election all but certain, the Bush Administration is nervous. It has responded by trying to drive a wedge between what Rice describes as the "false populism" that is spreading throughout the Andes and the pragmatic reformism of Chile, Uruguay and Brazil--in other words, between the "statesmen" and the "madmen," as Chávez recently put it.

There are, in fact, important differences among Latin American leftists--between, say, Brazil's Luiz Inácio Lula da Silva, who has opted to pursue reform through market-led growth, and Chávez, who is more willing to mobilize the left's social base, allow the state a greater role in the economy and pick fights with international capital. But they are also highly dependent on one another, especially in their dealings with the United States. For Chávez, besieged during the first three years of his administration, the election of sympathetic regional allies, starting with Lula in 2002, came just in time to help him shore up his position and push back his domestic and foreign opponents. In return, the confrontational Chávez provides cover to his more circumspect counterparts, drawing Washington's anger. If it were not for its quarrel with Venezuela, the United States would certainly be less tolerant of what Rice calls its "differences with friends," which include Brazil's opposition to the Free Trade Agreement of the Americas (FTAA) and Chile's refusal to support the invasion of Iraq.

But more than just giving one another room to maneuver, Latin America's new leftists have produced over the last couple of years their own consensus, a common project to use the centrifugal forces of globalization to loosen Washington's unipolar grip. Brazil's Lula has been central to this project, especially insofar as he has helped to awaken international financial institutions to the downsides of free-market orthodoxy. When he was elected, he was hailed as Latin America's great hope, not just by the poor but, once he promised to maintain a high budget surplus, by the officials of institutions like the World Bank and the Inter-American Development Bank. His campaign took place in the shadow of Argentina's financial meltdown, the latest in a series of international financial crises that led globalization's managers to emphasize the importance not only of freeing markets but of strengthening institutions that could stabilize those markets. If a man of the left such as Lula could achieve "growth with equity"--which by Brazil's 2002 vote had become the World Bank's new mantra--in Latin America's largest economy, it would go a long way toward defining the post-Washington Consensus consensus. Lula, said former World Bank president James Wolfensohn in an interview last year, is leading the "most important experiment in Latin America today."

As Lula approaches the end of his first, and possibly only, term, the results of this experiment have been disappointing. Extreme poverty has decreased somewhat, but this has less to do with his showpiece "zero hunger" program than with steady economic growth driven by high commodity prices. Still, after emerging as a spokesperson for developing countries on trade issues and leading the opposition to the FTAA over subsidies and concerns about intellectual property rights, he did begin to represent an alternative, if not to free trade then to Washington's stranglehold over the way free trade was proceeding in the Americas.

Under Lula, Brazil has played a key role in fostering the economic links that have begun to wean the region from its dependence on the United States. Buoyed by Argentina's and Uruguay's turn left, and anchored by Brazil's enormous market and advanced agricultural, pharmaceutical, heavy equipment, steel and aeronautical sectors, the countries of South America have taken a number of steps to diversify the hemisphere's economy. They courted non-US trade and investment, particularly from Asia. Fueled by a consuming thirst for Latin America's raw materials--its oil, ore and soybeans--the Chinese government has negotiated more than 400 investment and trade deals with Latin America over the past few years, investing more than $50 billion in the region. China is both Brazil's and Argentina's fourth-largest trading partner, providing $7 billion for port and railroad modernization and signing $20 billion worth of commercial agreements. South American leaders have also sought to deepen regional economic integration, primarily by expanding the Mercosur--South America's most important commercial alliance--and embarking on an ambitious road-building project. These efforts appear to be working. In December Lula claimed that Brazil's trade with the rest of Latin America grew by nearly 90 percent since the previous year, compared with a 20 percent increase with the United States.

One sign that economic diversification is gaining force was the success last year of Argentine President Néstor Kirchner's take-it-or-leave-it offer of 30 cents on every dollar owed on its $100 billion external debt, to be paid in long-term, low-interest bonds. In the past, financial markets would have severely punished such insolence, but with Asian investment pouring in and the economy rebounding at a steady clip, a majority of lenders had no choice but to make the deal. For its part, the IMF, fearing either a complete default or a successful agreement made without its imprimatur, was forced grudgingly to sanction the bid. It was, according to Knight Ridder Business News, the "biggest sovereign debt restructuring in history, with international creditors accepting unprecedented losses." "For the first time in history," a triumphal Kirchner said in a speech to Congress reporting on the transaction, "a restructuring process has culminated in a drastic reduction of the indebtedness of the country."

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