Special Reports







Moving through stagnation to growth
South America contains about six per cent of the world’s population – 382 million people. It’s a part of the world which Europeans used to regard as an economic disaster area. The countries of Latin America seemed permanently to be trapped in debt, mired in hyperinflation and plagued by unemployment. These problems seemed more intractable because of the chronic political instability that accompanied them. Violent and corrupt governments – often military dictatorships – retarded economic progress. But in the 21st century, times have changed. In our website, worldaudit.org (1) the nations of the world are listed according to their democratic credentials. Out of 150 countries, Uruguay and Chile are listed 17th and 20th. Brazil is 51st but heading in the right direction. Peru, Bolivia and Argentina are not far behind. Only Venezuela is near the bottom of the table.

In the first article on Brazil’s economic success (mid-February 2013 bulletin) we observed that the nine Spanish-speaking countries of South America have also grown in economic importance since the mid-nineties. There has been rapid economic growth of 8% per annum in Venezuela, Colombia, Argentina, Uruguay and Peru. Last year the economies of Latin America and the Caribbean grew by 3.1%, comfortably outstripping global growth of 2.2%. In Peru the economy grew by 6.2% and Chile by 5.5%. In the euro zone, the economy contracted by 0.5%.

In each of the past eight years, Latin American economic growth has outstripped that of Europe. During the economic crisis of 2008/9 South American countries recovered more rapidly from the shock compared to other countries and continue to perform well. ECLAC, the UN’s Economic Commission for Latin America, predicts economic growth in the region of 3.8% in 2013, while the euro zone will grow by just 0.3%. (2)

In April, the International Monetary Fund (IMF) released the latest World Economic Outlook Report (WEO) (3). It predicts gross domestic product (GDP) trends and the prospects in 2013 look good for South America at 3.4% GDP expansion. Peru is expected to grow 6.3%. The IMF predicts a 4.9% GDP expansion for Chile in 2013, 4.1% for Columbia, 3% for Brazil and 2.8% for Argentina. The country with the lowest predicted GDP growth in South America is Venezuela at 0.07%.

Meanwhile the ailing economies of Western Europe such as France, Spain, Portugal, Greece and Italy are expected to see negative GDP growth in 2013. In 2012 the unemployment rate in Latin America stood at 6.4%. More than 19.07 million are out of work in the euro zone with jobless rates at more than 26% in Spain and Greece. Small wonder that many Latin Americans who migrated to Europe in search of work are returning home and that Spanish and Portuguese citizens are migrating to South America.

However, the bad news about the EU economies is also bad news for South America. The EU is the world's biggest economic bloc and constitutes about a quarter of global GDP. It is Latin America’s biggest investor and accounts for 43% of all foreign direct investment in the region.

The formulas for success
Historically, Latin America’s economic performance was poor. During the 1980s - ‘the lost decade’ as it became known - raging inflation, low growth, rising poverty and an international debt crisis afflicted the region’s national economies. At the same time, the world economy was going through a new phase of globalisation as world trade and international capital flows increased. As a result, the established policies of import substitution and hostility to foreign investment seemed increasingly outdated. A new economic doctrine, ‘neo-liberalism’, was emanating from the USA and the international financial institutions that it dominated.

Designed to increase global economic growth, the ‘Washington Consensus’ (1989), as it became known, preached the importance of micro-economic stability and integration into the world economy. Policy prescriptions included: strict control of budget deficits, financial and trade liberalisation, reducing barriers to foreign investment, privatisation of state-owned enterprises, the deregulation of business to encourage competition and a reduced role for the state. Neo-liberal doctrine saw the state as overblown and inefficient, impeding market forces and stifling private initiative. The neo-liberals preached that the state should be lean and efficient. It should leave the market to release productive energies, stimulate growth and solve the wider society’s social problems like poverty.

This newly-minted version of nineteenth century laissez-faire capitalism had been dreamt up by Chicago University economics academic, Milton Friedman, and his economist former students – the ‘Chicago Boys’ as they became known. But what was needed was a ‘laboratory’ to apply their doctrine. The conscripted volunteers were the people of Chile, thanks to the pervasive influence of the US and Chile’s unsavoury leader, General Augusto Pinochet. In 1973, the democratically elected government of Salvador Allende, who was too left wing for American tastes, was overthrown in a coup led by Pinochet. In 1975 he faced an economic crisis and was looking for solutions. Friedman and his team, supported by the US government, virtually took charge of Chile’s economic policy. Putting a country’s economic policy into the hands of an economist is dangerous enough but allowing that economist to inflict upon it an untested economic ideology, regardless of the country’s culture and history is disastrous –as Lenin and Stalin could testify. So it proved with Chile.

The neo-liberal experiment lasted from 1974 to 1989 during which there were two depressions. In the first in 1974/5, GDP fell by 12% and in the second in 1982/3 GDP fell by 15%. Average Argentinian GDP growth during the period was 2.6%. In the ‘bad old days’ of state interventionism and protectionism between 1951 and 1971 growth averaged 4% a year. So much for the neo-liberal contention that free trade leads to rapid economic growth. Any growth that there was did little for the poor. Contrary to free market doctrine that ‘the rising tide lifts all boats together’, poverty and inequality increased dramatically. By 1989 40% of the Chilean population – 5.2 million out of a population of 13 million – was poor. In contrast, the richest 10% had acquired 46.8% of national income, compared to 36.5% at the beginning of the Pinochet era. The manufacturing sector of the Chilean economy suffered ‘de-industrialisation’ as a result of trade liberalisation and fighting inflation. The neo-liberal doctrine of the small state was also implemented in Chile by a programme of privatisation of state-owned enterprises. Trade restrictions on imports were lifted and so were the limits on foreign investment, both helping to integrate the economy into a globalised market. The effects of the shock treatment were increased poverty and inequality.

The democratic centre-left governments of the 1990s continued these policies but attempted to mitigate their harmful social effects. In the words of Philippine politician and author, Walden Bello: “By the early 2000s … governments throughout the developing world were reversing course, with most turning towards pragmatism and abandoning the most damaging doctrinaire policies”.(4)

In Chile, taxes were increased and so was social spending. The statutory minimum wage was also increased. Free trade policies were continued. For example, Chile signed an association agreement with the EU in 2002, a trade agreement with the USA and with China, the first Latin American country to do so. In 2010, it joined the OECD.

Chile's economy is based on the export of minerals, which account for about half of the total value of its exports. Chile is the world’s largest producer of copper and China is a major customer. Until recently Chile thrived on high world copper prices but a downturn in the world economy is a sharp reminder of the danger of dependence on commodity exports and the importance of diversification. Nonetheless Chile is one of South America's most stable and prosperous nations. It has been relatively free of the coups and arbitrary governments, the notable exception being the Pinochet military takeover in 1973. Bloody and repressive, the regime left more than 3000 people dead and missing.

The centre-right government led by President Sebastian Pinera faces an election in November this year. Despite Chile’s recent economic success, there is some civil unrest and opinion polls show Pinera’s popularity is falling. In April there were mass demonstrations in Santiago by students protesting that middle-class students have access to the best schooling, whereas the poor have access only to under-funded state schools.

Argentina’s meltdown and recovery
Neo-liberal policies were also taken up by Argentina in the 1990s when the world economy was flourishing but its appeal began to fade. After Brazil, Argentina is the largest economy in South America with a population of more than 40 million. It is rich in natural resources, it has a highly educated population, a diverse industrial sector and its agricultural commodities are a mainstay of its exports. Nonetheless, Argentina has suffered from recurring economic crises caused by high inflation, huge external debt, and capital flight. In 2001, the country suffered the worst economic crisis in its history after more than a decade of neo-liberal reforms.

Argentina has also had a turbulent political and economic history. A reminder of this was the recent death in prison of 87 year old Jorge Rafael Videla, the head of the military junta that took over from 1976 to 1983. During this period opponents of the regime were treated brutally. During the ‘dirty war’ (as it became known) at least 30,000 people were tortured and killed.(5) The economy was also in turmoil throughout the 1980s with chronic inflation, a fiscal deficit and external debt.

Throughout the 1990s Carlos Menem's democratically elected government assiduously followed the neo-liberal reform agenda. The financial sector was deregulated – creating a breeding ground for massive corruption and tax evasion. Privatisation of state-owned enterprises meant that they were now owned by foreign multinational companies, speculators and asset strippers. There were low taxes for the rich and low government spending on infrastructure and services for the rest of the population.

In 2001 Argentina was in severe depression. GDP had shrunk, unemployment was widespread and there were strikes and rioting in the streets. To combat inflation, the Argentine government had pegged the value of the peso to the US dollar. This strengthened currency led to cheap imports with which local businesses could not compete. This, combined with the government’s privatisation policies, had led to a huge rise in joblessness. At the same time the government embarked on a debt-financed spending spree. The ensuing bank run meant that Argentina faced the most serious economic, social, and political crisis in its turbulent history.

With no funds to repay interest payments on its debt, Argentina turned to the International Monetary Fund (IMF). In return for loans, the IMF recommended that the peso should continue to be pegged to the dollar. This proved disastrous. Argentines began losing confidence in the peso and converted all their pesos into dollars. The Central Bank then had to use much of the IMF loan to inject dollars into the financial system. This was followed by a run on the banks. The government then attempted to limit bank withdrawals to 250-300 pesos a week. There followed massive protests against the government which declared a state of emergency. However, violent riots led to the government’s downfall. In the midst of the turmoil, the government declared in December 2001 that it was defaulting on its debts. By general consent this was the biggest sovereign debt default of modern times. Thus by January 2002 the new government had decided that Argentina would go its own way.
The neo-liberal experiment was over. The peso link to the dollar was abandoned, allowing the peso to devalue. Direct government investment in industry, infrastructure, housebuilding and welfare followed. Despite its debt default, disaster did not result. One year later Argentina was borrowing considerable amounts from the World Bank and Inter-American Development Bank. Between 2002 and 2006 foreign direct investment rose 26% per year, much of it from Brazil.

From 2003 to 2007 growth averaged 9% a year. This enabled the government to fund new social programmes to reduce poverty. As luck would have it, Argentina had devalued its currency when the world economy was booming and commodity prices were high. There was growing demand from China and the other expanding economies of East Asia for Argentine exports like soya and oil seed. The cheaper peso not only brought a huge increase in exports but also a rapid rise in tourism.

From 2003 to 2011, GDP grew at an average annual rate of 7.6%. The Argentine economy recovered rapidly after the international economic crisis of 2008/9. During 2010, the economy grew 9.2% compared to 2009, experiencing an 8.9% growth during 2011, and a 2.4% growth during the first half of 2012.

Nonetheless the economy shows signs of weakness amid slow economic activity and a deteriorating external sector. The peso has been losing value against the U.S. dollar in the black market. Attempts have been made by the government to curb use of U.S. dollars and the government is depleting its foreign reserves in order to sustain the peso in the official market.

Meanwhile, President Cristina Fernandez de Kirchner, is currently mired in political controversy and scandal. She resents the independence of the judiciary when they rule against her. Her solution was a plan to give her ruling Peronist party control over the hiring and firing of judges. This is widely seen as Fernandez de Kirchner’s response to a federal court injunction last December stopping the government from breaking up Clarin, Argentina’s largest media group. Its journalists have criticised concentration of power in her own hands and the corruption scandals that have afflicted the governments of both Fernandez de Kirchner and her late husband, Nestor Kirchner, who was president from 2003 to 2007.

Colombia’s way forward
Colombia has adopted a more pragmatic approach to neo-liberalism. Traditionally pro-USA from which it receives more aid than any other Latin American country. However, the government has adopted an interventionist policy where it sees advantage in doing so. For example, it used the proceeds of the economic growth brought by high commodity prices between 2002 and 2007 to reduce poverty and unemployment.

It is South America’s third largest economy and has a population of 47 million. Some expect it to overtake Argentina in 2014 to become the second biggest economy after Brazil. Its economic growth has averaged over 4% in the last five years. This may seem surprising when media coverage is usually devoted to drug wars and guerilla violence. Although Colombia is the oldest democracy in Latin America, the state is fragile. It has never been in full control of large parts of the country. Hence the existence of the right-wing paramilitaries - the AUC and the communist-guerrillas the FARC and the ELN.

The FARC is the longest surviving terrorist group in Latin America, having been at war with the Colombian state for over fifty years. With the government unable to protect all its citizens or their land, the paramilitaries grew out of the self-defence groups that took its place.

The nature of the political elite in Colombia has been shaped by the violence and criminality. The notorious drug lord and cocaine trafficker, Pablo Escobar, was elected to congress in the 1980s while dozens of politicians have had links with paramilitaries. There were allegations powerful drug lords had financed Ernesto Samper’s successful presidential election campaign in 1994.

There is speculation as to whether the current President Juan Manuel Santos may seek a second term in 2014. Santos is a centre-right politician but has taken a different course from his conservative predecessor Alvaro Uribe. He has been more concerned with social issues, and is more conciliatory in trying to end the country’s conflict. In fact, the government and FARC rebels have recently reached agreement on land reform, after more than six months of peace talks. The deal calls for the economic and social development of rural areas and for the provision of land to poor farmers.(6)

Colombia’s political system tends to the right while the divided left plays a largely marginal role in the state’s affairs. The Conservatives and the centre-left Liberals dominated the political scene but in recent years, new parties have arrived on the scene. Election turnout is low, not least because voters are disillusioned by the widespread corruption.

Colombia is no longer perceived as a failing state because, despite its many problems, its economic performance has been impressive. Real GDP has grown more than 4% per year for the past three years, continuing almost a decade of strong economic performance. Its economic reforms have proceeded more cautiously than in Argentina.

There are a number of reasons for Colombia’s economic success. It has abundant natural resources - such as petroleum, natural gas, coal, iron ore, nickel, gold, copper - and a well-educated workforce. It has benefited greatly from the rise in world commodity prices. The government has been more successful in recent years in fighting the guerillas and drug cartels. This has given greater security to citizens and has attracted foreign investors. It has also been opening up the economy. Foreign investors are impressed by the government’s continuing commitment to reform – such as tackling corruption, increasing investment in education, reducing unemployment (10.3%) and building new infrastructure. It has also embarked on a new poverty reduction programme.(7)

The current Santos administration is committed to balancing the budget by 2014. The inflow of foreign capital has particularly benefited Colombia’s oil and mining industries which are central to Colombia’s economic growth. Also increasing foreign investment in retail, manufacturing and banking reflects a growing middle class whose purchasing power accounts for 28% of GDP, compared with only 14% in 2000.

Colombia also promotes free trade agreements -like the US-Colombia Free Trade Agreement in 2012 – to cushion it against external shocks. It has also made or is negotiating bilateral trade agreements with other countries in Latin America and elsewhere.

While commending Colombia’s huge economic progress in recent years, international organisations like the OECD (8) and the International Monetary Fund (9) warn of the challenges ahead – high unemployment, inequality and the vulnerability of oil and mining to the volatility of world commodity prices. Major infrastructure improvements are also necessary to sustain Colombia’s economic growth. The continuing problems of drug trafficking and insurgent guerrilla groups remain.

Relations between Colombia and Venezuela have always been fraught. Colombia’s conservative administration has traditionally been pro-USA and accommodates American military bases on its territory. Venezuela’s leftist government under the late Hugo Chavez – and now under his former vice-president, Nicolas Maduro - was opposed to US economic and military hegemony in the region and regarded the American military presence in Colombia as a threat. However the two countries have common interests too and under the Santos government, trade between them has increased enormously during the past two years.

Venezuela’s Chavista answer to Uncle Sam
Although Venezuela is awash with oil deposits – as well as huge quantities of coal, iron ore, bauxite and gold - most of its 29 million citizens derived little benefit from it over the years. There was little progress on structural reform during the 1980s until Carlos Andres Perez took office in 1989. Belatedly a neo-liberal austerity agenda was adopted: privatisation of state owned industries, spending cuts and reduction in government subsidies. This precipitated violent social unrest. More of the same policies, of the kind the IMF approved, followed under the Rafael Caldera administration from 1993 to 1998. All this did was to accelerate the country’s decline without addressing the underlying structural reforms and lack of international competitiveness.

In 1998 Venezuelans elected the populist left-winger Hugo Chavez. The former army officer declared that he would start a "Bolivarian revolution", named after South America's independence hero Simon Bolivar. A reaction against globalisation and American-style capitalism, Chavez referred to his political programme as “21st Century Socialism.” It involved nationalising strategic sectors of the economy like the important oil industry, telecommunications and power. He expropriated more than 1,000 businesses, sundry farmlands and urban properties, often without compensation. He justified this because the owners were corrupt or because it would help the poor. In his desire to build socialism, he used oil revenues and external borrowing to finance food subsidies, housing, health, education and other welfare programme to alleviate poverty. However, heavy government spending caused rampant inflation which averaged 22% during Chavez’s tenure.

The spectacular rise in the price of oil was central to the economy but paradoxically the oil industry itself suffered a lack of investment and upkeep. This caused a fall in oil production from 3.2 to 2.5 million barrels a day. Because the economy has failed to diversify, it is still over-dependent on oil revenues. Oil now accounts for 95% of exports compared with about 80% in 1999.

Chavez’s political skill was to enlist and maintain the support of most ordinary Venezuelans who credited him with the benefits they received without blaming him for all the mismanagement and corruption.

His foreign policy was to thumb his nose at the US and to promote a multi-polar world and greater Latin American integration. He also sought to move closer to Russia, China, Nicaragua, Cuba and Iran.

What challenges lie ahead for Venezuela post-Chavez? A key challenge will be to improve the government’s social policies which have been central to the Bolivarian Revolution’s popularity over the last decade. There have been great social gains in providing universal healthcare, expanding educational opportunities and welfare provision. Household poverty has been greatly reduced, illiteracy has almost been eliminated and, although much poverty remains, redistribution of income has made Venezuela the most equal country in Latin America.

Peru’s Fujishock tactics
Peru, is the fastest growing economy in Latin America It has a population of more than 30 million and is rich in oil, copper, silver, lead, zinc and gold. Thanks to its production of coca leaf, drug trafficking has also been an important part of the economy. Its populist president Alberto Fujimori adopted neoliberalism of the ‘red in tooth and claw’ variety in 1992. When he was elected that year the country was in crisis. The economy was in meltdown with annual inflation at 7000%. The Sendero Luminoso (Shining Path) guerilla movement was committing acts of terror in both urban and rural areas and the government appeared powerless to deal with it.

Fujimori, who had been a senior academic and was the son of Japanese immigrants, presented himself as an outsider and man of the people. Soon after his election, the leader of Sendero Luminoso was captured and Fujimori brought in his neoliberal reforms or ‘Fujishock’ as they were known.

The US had made it clear that unless Peru adopted an orthodox economic strategy and ended hyperinflation, Peru could not re-enter into the international financial community, and could not therefore receive international aid. Fujimori did what was asked of him – and more. He relaxed price controls in the private sector, cut state subsidies and the number of state employees. He abolished exchange controls and lifted many restrictions on imports, investment and capital flow. Structural reforms followed: most state companies were privatised, the state withdrew from the financial sector and an independent central bank was established.

The effect of these measures was dramatic: petrol prices rose by 3000%, electricity prices rose fivefold and water prices eightfold. To cushion the impact Fujimori established a $400 million poverty relief fund and quadrupled the minimum wage but ‘Fujishock’ had a devastating impact on the poor and also the middle class. However, despite their social effects, the measures established a degree of economic stability and recovery for which many craved.

In April 1992, Fujimori, anxious to retain power but frustrated by an unsupportive legislature, staged an autogolpe (a self-administered coup) with backing from the military. He declared a state of emergency, dissolved Congress, and introduced a new constitution. Fujimori's and his allies then won a majority in Congress. The effect was to allow the president to rule nearly unopposed.

Reaction abroad to Fujimori’s autogolpe was negative. Most international financial organizations delayed making their loans and the US government suspended all aid. Germany and Spain did the same and many of Peru’s neighbours showed their disapproval by diplomatic means. The coup threatened the entire economic recovery strategy of reinsertion into the world economy. Yet, despite international condemnation, Fujimori refused to rescind the suspension of constitutional government, and the armed forces reasserted their support for the measures.

By the mid-1990s a second wave of neoliberal reforms was in process. Marketisation and competition were applied to pensions, health and education policies, as has happened elsewhere. In 1995, Fujimori was re-elected, most voters asserting that his victories over left-wing insurgents and over hyperinflation were the reasons why he was re-elected. However, there were already signs of the corrupting effects of power. He was accused of intimidating rivals, exerting excessive control over the judiciary and media and then was finally undone by a bribery scandal. In 2007 he was jailed for six years for abuse of power and in 2009 he was convicted of human rights abuses and jailed for 25 years. Sayonara Fujimori San.

In 2001, the centrist Alejandro Toledo was elected president with 53% of the vote. His humble origins and mixed Indian and Latino heritage endeared him to the poor. Disillusion soon followed when he awarded himself a large pay rise while invoking the need for austerity. In June 2002, a popular revolt took place in southern Peru when Toledo broke a pre-election promise and sold off two state-run electricity firms to a Belgian company, Tractebel. According to opinion polls, Peruvians had become hostile to neoliberal policies. Privatisations and foreign investment had led to price increases, mass layoffs and corruption with few perceptible benefits to the population as a whole. A series of scandals and political mishaps between 2003 and 2005 caused Toledo's approval ratings to plummet.

His successor, Alan Garcia, president for the second time, continued along the same neoliberal track but did little to alleviate poverty or corruption. Ollanta Humala, a career army officer, won the June 2011 presidential election after promising to respect democracy and spread the benefits of a decade-long economic boom to the poor. He campaigned for a dramatic transformation in the manner of Venezuelan President Hugo Chavez's "socialist revolution". More recently he has re-invented himself as a family man and has softened his radical image. He has promised Peru's poor a greater share of the country's mineral wealth. Although he favours a free market, he says he wants to put Peruvians first. Since taking office, Humala has tried to strike a balance between protecting the $50 billion pipeline in mining investments for the next decade and passing reforms to discourage pollution and give communities more say in projects that affect them. His approval rating has shown him to be the most popular Peruvian president in years, in large part because of his emphasis on social programmes for the poor. The Peruvian economy has been growing by an average of 6.4% a year since 2002 with a stable or slightly appreciating exchange rate and low inflation.

Growth has been in the 6-9% range for the last three years. This can be attributed to a huge rise in foreign investment, especially in the extractive sector, which accounts for more than 60% of Peru's total exports. Like other countries with mineral resources, the economy is subject to fluctuations in world prices. Inequality persists and continues to pose a challenge for the new Humala government, which has a policy of social inclusion and a more equitable distribution of income. The Shining Path guerrillas are a diminishing force. The last of its original leaders has just been sentenced by a Peruvian court to life imprisonment.

Peru's free trade policy has continued under the Humala administration. Since 2006, Peru has signed trade deals with countries around the world, like the US, Canada, Singapore, China, Korea, Mexico, and Japan. It has begun trade talks with Central American countries and others and has signed a trade pact with Chile, Colombia, and Mexico called the ‘Pacific Alliance’, that rivals Mercosur (the South American Common Market) in combined population, GDP, and trade. The US-Peru Trade Promotion Agreement came into force on the 1st February 2009, opening the way to greater trade and investment between the two economies. Trade agreements with South Korea, Japan, and Mexico were signed in 2011.

Growth in the smaller economies
Ecuador’s 15 million people are a mixture of the indigenous community, people of Spanish colonial origin and the descendants of African slaves. Ecuador's agricultural economy has been transformed in recent decades by industrialisation and the discovery of oil. This led to progress in housing, health and education but the benefits have been distributed unequally. The dominant Spanish-descended elite gained the most. Neo-liberal austerity measures generated widespread unrest, particularly among the indigenous poor. These social upheavals along with the growing corruption of the ruling elite led to a period of profound instability. From 1997 to 2007, Ecuador had seven different presidents, three of whom were directly removed by popular insurrections. Rafael Correa, an outsider with no political party backing, won the presidential elections in 2006 after promising a social revolution to benefit the poor. Once elected, he joined Latin America's club of left-leaning leaders, including Venezuelan President Hugo Chavez and Bolivian President Evo Morales. They share a common criticism of the US and its neoliberal agenda and have led a South American nationalisation drive.

Bolivia: Evo Morales, a socialist, was elected President of Bolivia. This landlocked country of 10 million is the highest and most isolated country in South America. It has the largest proportion of indigenous people, who constitute about two-thirds of the population. It is rich in natural resources such as soya beans, natural gas, zinc, gold, silver, lead and tin but it remains one of South America's poorest countries. As in Ecuador, political and economic life have been dominated by the wealthy urban elite of Spanish ancestry.

Describing himself as the candidate "of the most disdained and discriminated against", Morales was the first member of the indigenous majority to be elected president of Bolivia. He was re-elected with a convincing majority over his conservative opponents in December 2009. He made poverty reduction, the redistribution of wealth, land reform favouring poorer peasants and public control over Bolivia's oil and gas resources his main priorities. He has nationalised much of the energy sector and has continued to maintain his anti-US stance. In May he announced that he will expel the US Agency for International Development (USAID). Mr Morales accused the agency of seeking to "conspire against" the Bolivian people and his government.

Paraguay one of Bolivia’s neighbours, is also landlocked. It is bordered by Argentina, Brazil and Bolivia. More than 80% of the Paraguayan population of 6,500,000 are mestizos - people of mixed Spanish and native American descent. The country has had a tumultuous political past – most notably the repressive regime of Alfredo Stroessner. The son of a German immigrant brewer he led a military coup in 1954. The brutal and repressive regime endured until 1989.

Paraguay’s fragile economy was badly affected by Argentina’s collapse. It received an IMF loan subject to the usual austere neo-liberal conditions. Fernando Lugo, a former Roman Catholic bishop was elected president in 2008, ending six decades of one-party rule. Mr. Lugo had initially been expected to focus on reducing inequality but in 2012 was ousted by parliamentary impeachment. Paraguay’s new president is a very wealthy tobacco magnate, Horacio Cartes. He was elected after promoting conservative, business-friendly policies during his campaign.

Paraguay’s powerful neighbours, Argentina and Brazil have expressed their disapproval of what they call a legislative coup – as have the left-leaning governments of Bolivia and Venezuela. Lugo’s 2008 election did not mean a socialist government but it reflected the growing popular mood against US-imposed neo-liberalism and for greater national sovereignty and regional integration, a step too far for the Paraguayan elite. Paraguay's economy is mainly agricultural but the manufacturing and pharmaceutical sectors are expanding. The main driving force for its recent high growth figures has been the export of soya beans.

Uruguay is another small country of 3,300,000 whose economy is deeply affected by the state of larger neighbours. In 2002 it was affected by the economic problems of Brazil and Argentina, its main export markets. It is also vulnerable to fluctuating commodity prices, as its main exports are meat, rice, leather products and dairy products. With a population of only three and a half million it has nevertheless been more affluent than other countries in South America. It was the first country in Latin America to establish a welfare state, maintained by taxes on industry. It also has socially liberal laws and advanced education. Like its neighbours it has its fair share of political turmoil – the Tupamaros leftist guerrilla insurrection in the 1960s and 1970s and military rule which ended in 1985.

The current president, Jose Mujica, was a former leftist guerrilla and was elected in 2010. Recently divisions have opened up within government on current economic policy. Mujica supports a high level of government interventionism in the country's economy, while his vice-president Danilo Astori supports more traditional centre-right economic policies. This seems to reflect Uruguay’s recent economic policy mix of neo-liberal fiscal prudence and active interventionism on social issues.

What future for neo-liberalism?
For many it was the nostrums of neo-liberalism that caused the world financial crisis in 2008. Deregulated free markets had brought the global economy to its knees. But there were many in Latin America who were aware of the dangers in the 1980s, because it was here that Milton Friedman and the Chicago Boys set up their laboratory. It was not only Pinochet in Chile but Fujimori in Peru and Menem in Argentina who enthusiastically embraced the new orthodoxy. But all the free market philosophy brought after the debt crisis of the early 1980s was low growth and burgeoning inequality. Hyper-inflation was checked, but at huge social cost. Economic development virtually halted, the concentration of wealth grew, public deficits spiralled and national debt grew. Meanwhile for the working population employment protection laws were gradually being dismantled. The resulting popular disenchantment brought Hugo Chavez to power in Venezuela in 1998 and a variety of radical and moderate left candidates have also been elected in Argentina, Brazil, Bolivia, Ecuador and Uruguay. The politics of these so-called ‘pink tide’ governments have ranged from radical anti-imperialism to moderate reformism. But, whatever their ideology, they were responding to the growing popular mood against US-imposed neo-liberalism, and for greater national sovereignty and regional integration. Policies that only benefited US corporate interests were called into question. No government with democratic credentials can long survive if free market shock therapy impoverishes the majority while wealthy elite gets richer. Government have had to intervene to ensuring social justice, contrary to the ‘minimal state’ doctrine of the neo-liberals.

Not all free market policy has been jettisoned by pragmatic reforming governments. They have continued their commitment to low inflation, balanced budgets, liberalised trade and foreign investment – perhaps acknowledging the onward march of globalisation. However, they see no contradiction between these policies and the use of state intervention to redress the excesses and injustices which naked capitalism inflicts. They have taken initiatives to reduce unemployment, poverty reduction and social inclusion. Perhaps most important of all, land reform has returned to the agenda.

In the 21st century, as South America’s economic importance grows, its influence on the world stage grows with it. The recent election of a Brazilian to head the World Trade Organization is just the latest example of Latin America’s growing voice and role in the global arena. The continent has moved a long way from the colonialist-imperialist domination of either Europe or the United States. Increasingly, it is a region full of nations forging their own identities and establishing new strategic alliances across the globe. In this changing scene the US is only one potential strategic partner among many.(10) Latin America is now more actively shaping its future than it was ever allowed to in its past.

Peter Crisell

(1) http://www.worldaudit.org/democracy.htm
(2) http://www.eclac.cl
(3) http://www.imf.org
(4) Walden Bello is the author of Capitalism’s Last Stand. http://zedbooks.co.uk
(5) http://www.bbc.co.uk
(6) http://www.bbc.co.uk
(7) http://www.as-coa.org
(8) http://www.oecd.org
(9) http://www.imf.org
(10) http://books.google.co.uk