Report from the South American Spring
Mark Weisbrot

A massive geopolitical change has taken place in South America over the last twelve years. The region has now become more independent of the United States than Europe is, and it has a lot to do with economic policy. I think people should be more interested in it because it’s the only area in the world today that has seen real, positive, progressive change - over a long period - that has actually taken place through the ballot box.

The first cause of these vast changes was an economic growth failure in Latin America from 1980 to 2000, the worst in over 100 years. Total per capita growth for the region over that 20-year period was about 5.7 percent, compared to the prior two decades where the economy grew by about 92 percent. During the ’80s and ’90s, most of the big neoliberal policies were introduced: the biggest privatizations outside of the former Soviet Union; the move toward more conservative central banks; inflation targeting; more conservative macroeconomic policies (tighter fiscal and monetary policy, often pro-cyclical), the abandonment of any kind of development strategy, etc.

I think this huge, long-term growth failure associated with neoliberalism is the cause of the leftist, populist elections in Venezuela, Brazil, Argentina, Bolivia, Ecuador, Uruguay, and Paraguay – the whole continent now. In the process, they’ve changed the entire institutional structure of international relations. Even Colombia, which has one of the few right-wing governments – or non-left-wing governments – now sides with Venezuela, and against Washington, more often than not.

Argentina was a country stuck in its worst recession ever under IMF policies from mid-1998 to the end of 2001. Finally it couldn’t go on any longer; they defaulted on their debt and dropped the pegged exchange rate, which the IMF had been supporting with tens of billions of dollars in loans. What happened? They shrank for about one quarter – lost about 5 percent of GDP – but then they grew about 90 percent over the next nine years, the fastest-growing economy in the region. Poverty was cut by two-thirds; extreme poverty by about the same amount. They reached their pre-recession level of income in three years. The common myth is that this was all a commodities boom, but the data show exports contributed about 12 percent of the growth during that period, and commodity exports were maybe half of that. Actually, commodities were important because they provided needed foreign exchange, but they didn’t drive the recovery at all. What really drove the Argentine recovery, and possibly would drive a European recovery if the weaker Eurozone economies ever freed themselves from the European authorities, was a change in macroeconomic policy. The central bank targeted what they call a Stable and Competetive Real Exchange Rate, and abandoned all the contractionary policies that the IMF was supporting. They were pretty much cut off from international borrowing, and didn’t get much foreign investment, but that didn’t hurt them. Thus, two of the things that traditionally were thought to be the most important factors were not important to the fastest growing economy in the hemisphere over the last decade.

Brazil has not moved as far from neoliberalism, and they have a giant Wall Street problem, like we have in the US. The financial sector there is even more powerful than in the US, and has enormous influence on policy. That’s why, even though the economy shrank in the third quarter of 2011, interest rates are still at 11 percent. Even after adjusting for inflation, Brazil has the highest real interest rates in the G20. The policy of the Lula government was, at first, to maintain an inflation-targeting regime. Inflation was kept within the target for seven years by controlling import and export prices, which was accomplished by depreciating the exchange rate. Of course, that had a very bad effect on manufacturing. After 2003, the government loosened up enough to double the growth rate from 2004 to 2010, even with the world recession. There was twice as much annual growth as there had been in the past 25 years. Lula increased the minimum wage by 60 percent in real terms, leading to income redistribution. There were also great increases in employment; there were some increases in social spending, but these had much less impact than the macroeconomic changes, and especially employment.

Except for Argentina, these countries have not come close to the growth that they had in the ’60s and ’70s. In fact, if Mexico and Brazil simply had continued to grow at the rate they had been growing from 1960 to 1980, there would be European living standards in Mexico and Brazil today. Anybody who’s been to either of those countries knows how far they are from that.

There have also been very serious changes in Venezuela, Ecuador, and Bolivia. Venezuela is usually portrayed as the horrible enemy; you always have to remember that anything you hear in the US about Venezuela is basically like the Tea Party view of Obama; not just from Fox News, but from the rest of the networks and the newspapers as well. In a recent article about dictators in the Guardian, the author (an NYU political science professor) referred to Syria, Tunisia, Egypt, Yemen, and then Chavez. Venezuela was in there, despite the fact that their elections are cleaner than ours are procedurally, and the government controls only a very small percent of the national media. The other side of the story is that their opposition has most of the wealth and income in the country, and competes very ferociously in elections.

The Chavez government couldn’t do much for the first four years of its administration because it didn’t have control of the oil industry, which is 95 percent of the country’s export earnings and half the government budget; but after 2003, the economy grew about 95 percent in real terms in five and a half years. Poverty was cut in half, and extreme poverty by three-quarters. Access to health care and education was vastly expanded, more than doubling university enrollment. That’s why Chavez keeps getting reelected, and will probably continue to do so as long as he survives.

Bolivia re-nationalized hydrocarbons, and very successfully instituted a countercyclical policy in recession. They had the highest rate of growth in the hemisphere during 2009 on a massive increase in public investment just at the right time. They also lowered the retirement age from 65 to 58 and included some millions of workers in the informal sector. That’s very good, as the average male life expectancy is only 63. Bolivia was under IMF agreements for 20 years straight before Evo Morales was elected. In 2005, their GDP per person was less than it had been 27 years earlier.

Ecuador has some of the best economists of all the governments, and it does make a difference. Ecuador doesn’t have its own currency; it has the dollar. They had to get creative in order to avoid a serious recession, successfully, in 2009. The banks were forced to repatriate money to the country. President Correa made good on a campaign promise to set up a commission to look into the debt. The commission found that about a third of the foreign debt was illegitimate, so the government defaulted on it. That resulted in big savings, and their credit rating is now no worse than it was before the default.

All of these countries did different things to improve their economies, and then started to direct funds toward social spending and public investment. They’ve had the best growth in 30 years.
I could give more details for several of the countries, but I want to get to the other side of the story. This session is about regime change, and of course the United States didn’t take these changes in governments and economic policies sitting down. Our government has its own concept of regime change, and tried very hard to reverse the direction this was heading.

Some of you may know that there was a coup in Venezuela in 2002. What you may not know is that the US was involved in that coup. They paid the people who were involved, and lied about what happened during the coup in an attempt to help it succeed. The IMF, which is run by the US Treasury (in this part of the world, at least), took the unprecedented step of announcing four hours after the coup that they were ready to help the new government.

Bolivia does not have ambassadorial relations with the US. Relations were severed over a suspicion that USAID money was going to the opposition. They’ve had a lot less trouble since the ambassador was kicked out. It’s not so much the money that’s important, because all these opposition groups have a lot of money; it’s really the 60 years of US experience in regime change that makes a difference.

Lastly, I just want to mention Honduras and Haiti. Those are the two places where the United States supported successful regime change that overthrew their legitimately elected governments.

In Honduras in 2009, the US played a very strong role in making sure that the coup succeeded and was legitimized by elections that were rejected by the rest of the Organization of American States. In fact, this struggle goes on even now. The Obama administration so alienated Brazil and its other potential allies that they now have formed a replacement for the OAS, called the Community of Latin American and Caribbean Countries (CELAC). It had its first real organizational meeting a couple of months ago, to which everybody from the OAS was invited – except for the United States and Canada.

Haiti is another example of regime change with a tragic outcome. Here the US used the Organization of American States to overturn the results of an election. The OAS basically has admitted that they had no statistical basis and did no recount for overturning the results of the Haitian election in order to help put in a right-wing government.

Why does the US care about Honduras and Haiti? Because they are pawns in the overall game to reverse the left movement in Latin America. Honduras and Haiti have been the only ones the US could get. It was tried in Venezuela, and there was an attempted coup in Ecuador, in September of 2010. The attempts have been unsuccessful, partly because South America is now both politically and financially independent.

The IMF has lost almost all of its influence in Latin America, and with that, its loan portfolio went from $20 billion to less than a billion in four years. It was at the top of a creditors’ cartel, along with the World Bank and the IDB, which fell apart as well. This actually made a very large difference in policy independence. Most of the changes that I described would not have happened if the IMF still retained the influence that it had even in 2000. Therefore, I hope people will pay more attention to these major changes in Latin America brought about by democratically elected governments and real, positive, progressive change.

Mark Weisbrot is Co-director of the Center for Economic and Policy Research in Washington DC. He received his PhD in economics from the University of Michigan. He has written numerous research papers on economic policy, especially on Latin America and international economic policy. He is also co-author, with Dean Baker, of Social Security: The Phony Crisis (University of Chicago Press, 2000), and President of Just Foreign Policy (www.justforeignpolicy.org).