U.S. Economic Prescriptions Still Failing in Latin America

By Mark Weisbrot

This article was published in the following news outlets:

Knight-Ridder/Tribune Information Services - April 24, 2003
San Gabriel Valley Tribune (San Gabriel Valley, CA) - April 29, 2003
Milwaukee Journal Sentinel (Wisconsin) - May 4, 2003

With the war in Iraq receding from the media spotlight, the Bush Administration is now turning some attention to our traditional "back yard" of Latin America. U.S. Treasury Secretary John W. Snow has just completed a visit to Brazil, Ecuador, and Colombia.

In Washington circles such attention is seen as a positive development. It is widely acknowledged that our government has no policy toward Latin America other than those dealing with drugs and terrorism, and this is not exactly the best way to make friends.

Anti-U.S. sentiment in Latin America is running about as high as it has been since riots forced Vice-President Richard Nixon to cut short his 1958 goodwill tour of South America. The war in Iraq has been immensely unpopular, leaving many Latin Americans wondering what "regime change" might be next on Washington's hit list.

Closer to home, Latin Americans are increasingly rejecting "neoliberalismo," the economic experiment that their governments have adopted—at Washington's urging—over the last two decades. There can be no doubt as to the failure of this experiment, which has included indiscriminate opening to foreign trade and investment flows, large scale privatizations, and the widespread implementation of unsuccessful macro-economic policies advocated by the International Monetary Fund (IMF).

 From 1980 to 2000, income per person in Latin America grew by only 7 percent over the whole period. In the pre-experimental years of 1960-1980, it grew by 75 percent. No statistical test is needed to see that something has gone terribly wrong.

The opening years of the 21st century are looking like the beginning of another "lost decade." The downturn of 2001-2002 in Latin America was its worst in nearly two decades. The current recovery is anemic: the IMF projects regional growth of 1.5 percent for the year, which would still leave income per person—which is what matters for living standards—stagnant for 2003.

And given the weakness in the U.S. economy—including a $3 trillion dollar housing bubble that has yet to deflate—things could turn out even worse. Latin America sends nearly two-thirds of its exports to the United States, so a recession in our economy tends to drag the rest of the Americas down with it.

Latin Americans have increasingly taken to the ballot box, as well as the streets, to demand more effective and fair economic policies. The elections of populist presidents—Hugo Chavez in Venezuela in 1998 and 2000, Luis Inacio Lula Da Silva in Brazil (last October) and Lucio Gutierrez in Ecuador (November) are among the results of this rebellion.

Washington refuses to acknowledge that any of its economic policies have failed, and since the US Treasury Department controls the IMF—which heads up a creditors' cartel that most developing countries must deal with—it has a tremendous influence on economic decision-making throughout the region.

And for our government, the slogan appears to be "not one step back." Treasury Secretary Snow praised Brazil during his visit for its extraordinarily tight monetary and fiscal policies: short-term interest rates are set by the central bank at 26.5 percent, and the government is running a large (4 percent of GDP) primary budget surplus. (The primary surplus is the government's surplus excluding interest payments). The economy is unlikely to grow very much under these conditions, and it will be difficult if not impossible deliver on the social improvements for which millions of Brazilians voted.

In Argentina, the IMF recently signed an agreement that could easily stall the country's slow recovery after the worst depression in its history—which was itself largely a product of the Fund-supported policies. Yet the IMF continues to prescribe the same medicine of fiscal and monetary austerity.