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08/08/2002
Update: Latin America
Latin America is a mess, so I figured we should take a quick look
at the region, focusing in on Colombia and Brazil.
But first, as I’ve written in my “Week in Review” columns, it’s
amazing how ignorant our policy makers and strategists are when
it comes to the continent. After all, it’s only our freakin’
backyard, and a growing proportion of America’s own
population hails from there, so when all hell breaks loose, as it
has over the past year or so, you’d think our leaders would give a
damn.
Heck, right after President Bush was elected, he outlined his
dream of making this “The Century of the Americas.”
“We have a great vision before us: a fully democratic
hemisphere, bound together by good will and free trade,” the
President said. “That is a tall order. It is also the chance of a
lifetime.”
And, of course, we all remember those early summits between
Bush and Mexico’s Vincente Fox. You would have thought the
two were brothers. But then September 11 hit and suddenly
Latin America was the furthest thing from the Administration’s
minds as it focused instead on the war on terror, which was
understandable.
But since September, Latin America has been crumbling.
Colombia’s ongoing civil war intensified, Venezuela experienced
a coup attempt, Argentina’s economy collapsed, turmoil spread
to Paraguay, Uruguay, Peru and Bolivia, while Brazil struggled
to avoid default on its international obligations, as a left-wing
politician also threatened to pull off an election upset in October.
Across the region, economies have stagnated. GDP growth was all
of 0.6% in 2001 and now appears headed for negative growth in
2002. If you knew nothing else, know that this spells disaster.
40% of the people of Latin America live below the poverty line
and economic growth needs to be more in the 6-8% annual range,
just to keep the poverty rates from worsening as the population
increases. In other words, the whole continent continues to
slide into the abyss.
But who’s to blame? Everyone, starting with the governing
politicians. Corruption is widespread across the board and
what’s dangerous about this is faith in democratic principles is
waning, big time.
Also, schools are underfinanced, hospitals aren’t being built,
badly needed transportation projects aren’t completed, and the
judiciary is a mess.
Columnist Michael Shifter comments, “There is rage and
frustration at the inability of the political class to solve
problems.”
Colin Powell adds, “There is a disenchantment with the
institutions of elective government.”
The U.S. must be engaged.
So let’s just touch on a few hot spots.
--Argentina: I’ve written extensively on this topic elsewhere.
All you need to know is that the collapse is so severe here, over
50% of the people are now living below the poverty line. This is
the canary in the mine. A once proud people have been reduced
to begging. It’s a tragedy of epic proportions.
--Venezuela: The 4th largest exporter of oil in the world has a
leader, President Chavez, who survived an attempted coup last
April, even though he is a certifiable nut job. But class warfare
is rampant in Venezuela and Chavez was able to retake his office
because of his appeal to the working class poor, of which he is a
member. The oligarchs took over, for all of 24 hours, and the
people rebelled. Now Chavez is trying to unify the many
factions, but he’s meeting with zero success. Let alone the fact
that his nation borders Colombia
--Colombia: Relations between this country and Venezuela have
been going from bad to worse, as the rulers in Colombia hailed
the end of the Chavez regime, only to see him return to power
hours later.
More importantly, on Wednesday, August 7, Alvaro Uribe was
sworn in as Colombia’s new president. Uribe, who has the
support of Washington, was elected on a platform of promising
to “wage war” against both the FARC guerrillas, who have been
waging war on the government for decades, as well as the right-
wing paramilitaries, who seek to gain control of the drug trade
from FARC, as well as take some of the rebel lands. So it’s a 3-
sided battle.
Uribe promises to double the size of Colombia’s Army and
National Police, but that will cost $1 billion a year out of a total
budget of $27 billion. So, despite receiving some $2 billion in
U.S. military aid, Uribe has decided he needs to raise taxes and,
additionally, he has already proposed to reduce the size of
Congress by up to a half.
This latter point pisses off the very congressional members who
campaigned for Uribe, as you can imagine, so it was against this
backdrop that Uribe was inaugurated. What happened? A
mortar shell exploded blocks from the ceremony, killing at least
12 people. There were explosions all around the presidential
palace, even as the Army had established nine separate security
rings around it.
Uribe himself has survived some 18 attempts on his life, but
imagine what will happen to Colombia if he is ‘done in’ during
his first year? He is a bold man, who deserves the United States’
full support.
Lastly, needless to say the war is doing a number on the
economy. Growth will be around 1% this year and rural
unemployment stands at 50%. The rebels, incidentally, have put
a price on the heads of all mayors who support Uribe. Beautiful.
Brazil: And so we end here. On August 7, the IMF announced
that it was pledging $30 billion in emergency aid to help reverse
the decline in the currency and to re-instill investor confidence.
Hopefully, it works, but it may not, and therein lies a huge
problem for those, like the U.S. and its institutions, that have lent
Brazil gobs of money (specifically, $hundreds of millions, for
starters).
Brazil is the world’s 8th-largest economy, with a GDP of some
$1.2 trillion. But, as is the case throughout the region, foreign
investment has dried up and the ensuing credit crunch is cutting
off Brazil and others at the worst possible time.
And then there is Luiz Inacio da Silva, a scary dude who is
threatening to win the presidential election slated for October 6.
Da Silva has been running for president under the banner of the
leftist Workers’ Party for over 20 years, and while he claims he
has moderated his views, the fact is he gives the West the creeps,
and with good reason.
In the past da Silva has promised that if elected he would default
on Brazil’s international obligations, unless the terms were
renegotiated to his liking. Not exactly what most smart banks
want to hear. As of today, however, da Silva is in the lead in the
polls. This is a man who in the past has blamed the U.S.,
democracy and free markets, in general, for all of Brazil’s social
and economic ills.
One columnist, Constantine Menges, lays out a scenario where a
da Silva victory could lead to communist successes throughout
Latin America, including in Peru, Ecuador and Colombia. One
other potential target, Bolivia, did just elect a pro-U.S. candidate,
though they have their own severe economic problems to deal
with.
So there you have a brief tour of the region to our south. I
haven’t said much about Mexico, whose President Fox has every
right to be unhappy with the Bush Administration for failure to
act on his immigration proposals, which this editor supports. But
that’s a story for another day, and perhaps a different venue.
There is one good news item of the past few weeks, and that is
the new “fast-track” trade approval that President Bush has been
granted, allowing him to negotiate free trade pacts with our
southern neighbors, with little interference from Congress. But
in an atmosphere that is increasingly anti-American, this may not
be so easy to accomplish.
For now, continue to keep your eyes on Latin America,
particularly if you are a big holder of U.S. bank shares. Make
sure you’re diversified, is all I’ll say, or sell them outright. From
a risk-reward standpoint, it just doesn’t make sense to this guy.
Sources:
Larry Rohter / New York Times
Constantine Menges / Weekly Standard
Anthony Faiola / Washington Post
Michael Shifter / Washington Post
Ginger Thompson / New York Times
Simon Romero / New York Times
Associated Press
Brian Trumbore
**Hott Spotts will return August 22nd.
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