Storm clouds over Latin America

After nearly two decades of economic malaise, Latin America is now in a state of ferment. A rejection of the neo-liberal economic policies pursued by the governments of the continent and a demand for change are finding expression in a variety of forms throughout the region.

William I Robinson

LATIN America is sliding headlong into a maelstrom. The neo-liberal project, so meticulously imposed on the region by transnational elites and their local counterparts over the past two decades, is collapsing as the region descends into economic and political turmoil. One crisis after another has broken out with a rapidity beyond anyone’s prediction just a year ago.  The revolt in Argentina, peasant insurrection in Bolivia, aborted coup d’etats in Venezuela and Haiti, street uprisings in Paraguay, Uruguay, and Peru, a currency slide in Brazil, escalating civil war in Colombia... these are the order of the day.

Transnational elites from the IMF and the US Treasury hoped that the apocalyptic crisis that broke out in Argentina in December 2001 could be quarantined within that country.  But most observers saw the popular revolt that brought down five governments between 2001 and January 2002 as a harbinger for the region.  A decade of neo-liberalism emasculated the Argentine national economy, shot unemployment up from 3% to 20% of the population, and pushed the number of people living in poverty from one million to 14 million.

Both organised popular protest and violent crime have since spread to every corner of the country, making some regions ungovernable and leading to an unprecedented power vacuum.  President Eduardo Duhalde spent considerable effort trying to meet IMF demands for a fresh round of austerity as a precondition for new emergency lending. But it did not take him long to realise, in the face of continued popular revolt, that his hamstrung government could be brought down at any moment.  He was forced in recent months to ratify the country’s default on the debt, to back down from any new deal with the IMF, and to move elections up to March this year, in effect passing the crisis on to his successors.

If Argentina demonstrates the utter bankruptcy of the IMF-US Treasury model, the election of Luis Ignacio da Silva (‘Lula’) and the leftist Workers Party (PT) in Brazil is important because it symbolises the end of the reigning neo-liberal order but also the limits of parliamentary changes in the era of global capitalism. 

A one-time socialist and militant trade union leader, Lula was denied the presidency in three previous electoral contests. He won this time around, in part because of the growing strength of the popular movement and in part as a result of the social and economic malaise brought about by the neo-liberal policies of the preceding regime of President Fernando Cardoso.

But he also took the vote because his wing of the PT moved sharply towards the political centre, expanding a social base among middle-class voters and winning over centrist and even conservative political forces that do not endorse a left-wing programme yet are unwilling to tolerate the neo-liberal fallout.  The PT is beholden to these forces, who can be expected to use their influence to rein in the radical initiatives of any PT plan of government.  Behind the centrist and conservative bloc in the new government is the power of the transnational finance capital.  In August, as Brazil faced capital flight and a sharp decline in the value of the national currency, Lula calmed global financial markets by giving his blessing to a $30 billion IMF loan that committed the government to maintaining Cardoso’s adjustment policies and promising not to default on the country’s foreign debt.

Paraguay and Uruguay also caught the Argentine ‘contagion’.  The decision by the US Treasury to provide a $1.5 billion bridge loan last year to Uruguay, whose economy is closely tied to Argentina’s, underscored just how fearful Washington is that this tiny South American country, facing organised and increasingly belligerent protests since the ‘contagion’ hit earlier last year, could go the way of its much larger neighbour.  In Paraguay, the economic crisis that began seven years ago shows no sign of receding. Mounting protests in September by the Democratic Congress of the People (CDP), a broad coalition of trade unions, rural workers, peasants, indigenous, Left political organisations and other popular social movements forced the government of President Gonzalez Macchi to backtrack from neo-liberal measures, including privatisation of state service and utility companies.

Further north, the five Andean countries (Bolivia, Colombia, Ecuador, Peru and Venezuela) are also engulfed in turmoil. In Bolivia the radical indigenous leader Evo Morales narrowly lost the last elections in a vote heavily influenced by US pressure, the threat of international economic reprisals should Morales have won, and charges of fraud. But the popular and indigenous movement in Bolivia will make it impossible for the new government of President Gonzalo Sanchez de Lozada to continue the neo-liberal path. Peru and Ecuador face as well powerful indigenous and peasant movements, an economic slide, mounting social unrest and political conflict.

While Mexico and Central America are anything but immune to the turmoil, the most volatile countries in Latin America at this time are Venezuela and Colombia.  Venezuela faces a situation somewhat distinct from its neighbours.  President Hugo Ch‡vez and his left-oriented populist project have ignited resistance not from the poor but from the country’s middle and upper classes, led by the business federation, Fedecamaras, dissident military officers, and traditional political bosses - with Washington’s not-so-subtle backing - a situation not unlike Chile under the socialist government of Salvador Allende (1970-1973).

Rumours of a new putsch ran rife in the Venezuelan capital of Caracas in the months following the aborted coup attempt of April 2002. In December, the Fedecamaras and its allies launched a business lockout, dubbed by the foreign press as a ‘general strike’. Although it petered out and was finally called off in early February, the action further damaged the fragile economy and heightened repolarisation in the country. Ch‡vez responded by increasing state control over key economic levers (e.g., the state imposed foreign exchange controls and extended control over the oil industry) and encouraging popular sectors to increase their mobilisation. Thus the elite provocation, while intended to spark a crisis that would force Ch‡vez to resign, actually served to push the political process in a more radical direction. With Colombia already facing an escalation of its civil war under its new authoritarian president, Alvaro Uribe, the Andean region could become enflamed in transnational military conflict should civil war break out as well in Venezuela - something that increasingly looks like a distinct possibility as a desperate elite becomes further displaced from power and the poor more emboldened.

Behind the turmoil: The collapse of neo-liberalism

Behind all this turmoil is the collapse of the neo-liberal model and a realignment of social and political forces throughout Latin America. In the 1980s and 1990s, Latin American countries experienced a thorough restructuring and integration into the global economy under the neo-liberal model. But the model has been unable to resolve the region’s development crisis and the fragile civilian regimes that took over from the dictatorships of earlier years are increasingly unable to contain the social conflicts and political tensions generated by the polarising effects of the neo-liberal model.

Any academic assessment would have predicted the region’s descent into turmoil.  Yet until the Argentine crisis broke out in December 2001, transnational functionaries insisted that the neo-liberal model was on track and was bringing about recovery. They pointed to the massive influx of transnational capital into the region in the 1990s and the renewal of growth for much of that decade. But the vast majority of capital inflow was not in the form of direct foreign investment that could have helped expand the region’s productive base. It was mostly the ‘casino capitalism’ variant associated with the global economy - the purchase of stock in privatised companies, speculative investment in financial services, such as equities, mutual funds, pensions, and insurance - along with new loans.

The foreign debt climbed steadily throughout the late 1980s and 1990s, from $230 billion in 1980 to $533 billion in 1994, to over $714 billion in 1997, to $793 billion in 1999, and then to over $1 trillion by the 21^st century. Payment on this colossal debt exacted a painful tribute on Latin American popular sectors and prevented any lasting recovery in the 1990s. Argentina’s payment on the interest alone ate up 35.4% of export earnings in 1998. For Brazil, the figure was 26.7%; for Colombia, 19.7%; for Ecuador, 21.2%; for Nicaragua, 19.3%; for Peru, 23.7%; and for Venezuela, 15.3%.

The predictable sequence is as follows: once debt-repayment pressures reach the point in which default becomes a possibility or a government can no longer contain pressure for it to meet even minimal social obligations, the spiral of crisis begins.  Local elites are caught between the withdrawal of transnational investors and mounting unrest from poor majorities who can no longer bear any further austerity.  The current slide into crisis began in the late 1990s when the net outflow of resources once again came to surpass the net inflow. In Argentina, for instance, the government could keep the economy buoyed so long as there were state assets to sell off.  Once there is no quick money to be made, capital flight can - and has - plunged countries into overnight recession. The current economic collapse is the third in recent years, preceded by the ‘Tequila crisis’ that started in Mexico in 1995, and by the collapse triggered by the Asian financial meltdown of 1997. But the current round is different, in that it threatens to draw into its vortex the entire continent, from Mexico to Chile, and because the regional crisis is in turn tied to a spiral crisis of the global economy.

Data from the annual reports of the UN’s Economic Commission for Latin America and the Caribbean (ECLAC) show high growth rates in a handful of countries but stagnation and negative growth in most for the past four years.  But more revealing are the indicators on the social costs of the economic crisis.  ECLAC data shows that per-capita income declined an average of 0.9% every year in the 1980s, known as the ‘lost decade’ in Latin America, and then declined by an average of 1.5% each year in the 1990s, the alleged ‘decade of recovery.’  Poverty levels and deprivation indicators also spiralled in most countries over the past 20 years.

Waves of spontaneous uprisings have broken out in recent years in almost every country, triggered by IMF adjustment programmes and involving violent clashes between governments and protesters. The social and economic crisis has already given way to expanding institutional quandaries and transnational political-military conflict.  The civilian elites who took over from military regimes in the late 20^th century and corrupt political classes seem to have lost credibility.  It is not clear if these fragile regimes will be able to withstand the tensions of economic and social crisis without themselves collapsing. This panorama suggests that state structures set up to implement the neo-liberal programme and protect dominant interests are now decomposing, possibly beyond repair.

What next?

What may replace the current political order?  One may be the Brazilian model, where the price of electoral victory and financial stability seems to be the emasculation of a radical programme in favour of the popular classes. Another is Ch‡vez’s Venezuela, which may represent a new brand of populism - a direction in which Argentina may be moving and which could take hold elsewhere as desperate elites attempt to regain legitimacy.  The Left is deeply divided, wracked by infighting, and at best has been able to craft a sketchy and incomplete alternative to neo-liberalism.  But grassroots movements of workers, peasants and the poor have also proliferated and resistance among popular forces has been increasingly organised and directed towards the depredations of global capitalism in the region.

How the unfolding crisis of neo-liberalism will unravel is not clear.  But we can surely expect a new round of US political and military intervention in the region under the guise of wars on ‘terrorism’ and drugs.  Remilitarisation under heavy US sponsorship was already well underway by the turn of the century, from the $1.3 billion Plan Colombia, to the sale by Washington of advanced fighter jets to Chile’s military, the installation of a US military base in Ecuador, the large-scale provision of arms, counterinsurgency equipment, and ‘anti-terrorism’ training programmes to Mexico, new multilateral intervention mechanisms, and a new round throughout the hemisphere of joint US-Latin American military exercises and training programmes.

One or another of the hemisphere’s governments have labelled as ‘terrorist’ the Landless Workers Movement (MST) of Brazil, the Zapatistas of Mexico, the FARC and the ELN guerrilla movements of Colombia, the indigenous movement in Ecuador, the Farabundo Marti National Liberation Front in El Salvador, the Sandinistas in Nicaragua, and other legitimate resistance movements.  The US Central Intelligence Agency has identified as ‘a new challenge to internal security’ the indigenous movement that - 510 years after the Conquest began - has spread throughout the hemisphere and is often at the forefront of popular mobilisation. Washington for the moment has fixed its attention on the distant lands of the Middle East and South Asia.  But Colombia may be the most likely epicentre of direct US intervention and a region-wide counterinsurgency war in South America.         

William I Robinson is a sociologist at the University of California-Santa Barbara and a specialist on globalisation and on Latin America.  His most recent book, Transnational Conflicts: Central America, Social Change, and Globalization, will be published in August 2003 by Verso Press. The above is a revised version of an article which appeared in Focus on Trade (No. 83, December 2002), an electronic bulletin published by Focus on the Global South.