Latin America’s challenge: the ‘boring stuff

By Andres Oppenheimer

We all know what conventional economists say about the future of Latin America: Venezuela, Argentina, Bolivia and other countries that pursue populist policies will go downhill, whereas Chile, Peru, Colombia and others that pursue “responsible” economic policies will do great.

So when I interviewed the most unconventional among the best-known U.S. economists — Nobel Prize winner Paul Krugman — last week, I was eager to know whether he agrees with the conventional wisdom on Latin America.

Krugman, who has just published a book entitled “End this depression now!” — where he argues that the United States and Europe should increase their economic stimulus packages to jumpstart the world economy, rather than continuing to cut public spending — is often cited by Latin America’s populist governments as a supporter of their big spending policies.

Earlier this year, Argentina’s President Cristina Fernández de Kirchner enthusiastically cited in a speech one of Krugman’s “Conscience of a Liberal” blogs in The New York Times, in which he stated that Argentina’s economy is getting unfair treatment from the media.

Asked whether he agrees with mainstream U.S. economists that Latin America’s “populist” governments will end up destroying their economies, while “responsible” governments will do much better, Krugman surprised me for being much closer to the mainstream — at least on this issue — than one might have suspected.

“The little bit that we know is that the old rules still apply: If you print money to cover your bills even when the economy is not in a recession, you will get high inflation. If you follow irresponsible populist policies, it will hurt growth. So I don’t think that Venezuela is any kind of role model,” he said.

“On the other hand, the hard-line free market stuff has not worked the way it was supposed to,” he added. “We had heard promises of great growth in Mexico for decades now, and Mexico is not terrible now, but it certainly has not had the kind of takeoff. The economies that seem to do the best are the ones that seem to have somewhat middle-of- the road policies, that are basically free market, responsible fiscal policies, but also make some serious efforts at poverty reduction, Brazil being the obvious case.”

Asked about Argentina, he said that “it’s not a good story either, although it’s not in the Venezuelan league.”

According to Krugman, “Argentina had a remarkable recovery from its crisis of the early years of the last decade, but clearly they have gone on with the populist policies too far too long....If they had made a turn to more moderate policies in 2007, then the Argentine story would be an entirely positive one. Instead, they kept their foot on the gas pedal.”

Despite the fact that the region’s economy is expected to slow down from 4.3 percent last year to about 3.7 percent this year, Krugman said he is “still relatively optimistic” about the region.

“I don’t see anything in the latest data that would lead me to believe that it’s actually going to get caught up in the full depth of the (world) crisis,” he said.

On whether he is more optimistic about Brazil or Mexico, he said that “while I am not a dire pessimist about Mexico,” Brazil right now looks more promising. “I don’t think there is an easy policy explanation about why Brazil has done better. It just seems that there seems to be more of an entrepreneurial drive,” he said.

Asked what would be his advice for Mexico’s virtual president-elect Enrique Pena Nieto, Krugman said that Mexico has been pursuing sound economic policies, but that now “it needs to work on all the boring but necessary stuff: education, infrastructure and rule of law, which is a big issue for Mexico.”

“The best thing you could do for the Mexican economy would be to control the drug trade and the crime wave, and hope that the re-shoring of production from China (to Mexico) finally generates the economic miracle we keep waiting for,” he added.

My opinion: I agree with most of Krugman’s views on Latin America, especially his recommendation that Mexico focus on the “boring but necessary stuff,” such as education and infrastructure.

That should be sound advice for the entire region, and perhaps for the United States, too. I would only add that the biggest challenge for our part of the world is to stop seeing these tasks — especially education — as “boring,” and re-packaging them as the most exciting challenge of our generation. 

Victory may not boost Chávez’s regional clout

By Andres Oppenheimer

The conventional wisdom is that President Hugo Chávez’s victory in Venezuela’s elections will increase his influence in Latin America, and that it may encourage other presidents to seek indefinite reelections. But there are good reasons to think that Chávez’s political momentum will be short lived, and geographically limited.

After Chávez’s Sunday victory, which will allow him to rule until 2019, most of his supporters and critics seem to agree that his victory will re-energize his followers throughout Latin America.

In a telephone interview from Caracas, Venezuela’s vice minister of foreign relations Jorge Valero told me that Chávez’s victory will mark a turning point in Latin America’s current history.

“This election will have a much more profound impact on the continent than what the Bolivarian Revolution has already had,” Valero told me. “This is a revolution, and this is a victory that may even impact other continents, such as Europe.”

Chávez’s victory will “give a new impulse” to several Latin American diplomatic groups that were born since the Venezuelan president took office 14 years ago, such as the Venezuela-led ALBA group that is also made up of leftist countries, such as Cuba, Bolivia and Nicaragua; Union of South American Nations (UNASUR) and the recently created Community of Latin American and Caribbean States (CELAC), Valero said.

The start of Chávez’s third term in 2013 will coincide with Cuba taking over the rotating presidency of UNASUR, which is now held by Chile. That will be only one of many factors that will help bolster Venezuela’s diplomatic influence, he said.

Will the fact that a significant 45 percent of Venezuelans voted for the opposition — despite an uneven race in which Chávez virtually controlled television time and used massive state resources to buy votes — lead the president to reach out to the opposition, or will he radicalize his revolution, I asked Valero.

“The message from the Venezuelan people is that we need to move forward in the construction of an egalitarian society,” Valero said.

Elsewhere in Latin America, the outcome of Venezuela’s elections is likely to embolden other presidents — such as Argentina’s president Cristina Fernández de Kirchner — to change their constitutions and seek indefinite reelections, as well as to step up efforts to clamp down on critical media, the Spanish daily El Pais said Monday. Many leading Latin American analysts voiced similar views in recent days.

My opinion: Chávez will undoubtedly get a political boost from his election victory at home and abroad, but his momentum will not compare to the clout he had a few years ago.

First, one of the most remarkable things of Venezuela’s Sunday election is that opposition leader Henrique Capriles won about 45 percent of the vote — much more than any predecessor — although Chávez had a “captive vote” of millions of public employees and recipients of government subsidies, as well as a near total control of television time.

Despite 14 years of near absolute powers, Chávez is much weaker today than he was in the 2006 presidential elections, when the opposition got only 36 percent of the vote.

Second, all politics is local, and Chávez’s victory will not automatically translate into a growing club of presidents-for-life. In a few months, Chávez’s victory will be a distant memory in most countries.

Third, and most important, Chávez’s influence at home and abroad is directly proportional to world oil prices, and there are no signs that oil prices will soar anytime soon.

When Chávez took office, oil was at $9 a barrel. When oil prices jumped to nearly $150 a barrel in 2008, Chávez reached his peak, traveling around the world giving away petro-dollars to boost his narcissist-Leninist model, and seeking a seat at the United Nations Security Council.

Now, with oil prices back to about $100 a barrel, Chávez will have to spend much of his time taking care of domestic problems, such as fighting pressures to carry out a massive devaluation of the currency after the Dec. 16 state elections, controlling runaway inflation, lowering record crime rates, and ending electricity shortages that are politically embarrassing in one of the world’s top oil exporters.

Venezuela’s difficult economic situation, alongside a gradually growing opposition, and Chávez’s own uncertain health will keep Chávez from significantly stepping up his international activism. Barring an unexpected rise of oil prices, he will be too busy trying to keep the lights on at home.