WESTERN HEMISPHERE: Brace for political impact of global economic crisis

Miami Herald

SUSAN KAUFMAN PURCELL

It is now clear that Latin America will not be able to insulate itself from the global financial crisis.
The International Monetary Fund now predicts 2.5 percent growth in Latin America and the Caribbean next year, in contrast to its earlier prediction of 3.2 percent. Those countries that are most dependent on commodity exports will experience the greatest decline in economic growth, with Venezuela heading the list. Countries whose exports are more diversified, such as Brazil, will see the smallest declines. There is no consensus, however, regarding how long the crisis will last. Optimists think that the worst will be over by the end of 2009. Pessimists believe it could last through 2010 or longer.
If it is hard to forecast the economic impact of the global financial crisis on Latin America, it is even more difficult to make predictions about the political impact of the crisis on the region. Decades ago, Ted Gurr, a political scientist, wrote a book entitled Why Men Rebel. It argued that men mainly rebel when periods of economic growth and opportunity are suddenly reversed. While his argument was a hypothesis and not an iron-clad rule, it does lead to questions regarding the future political stability of Latin America.
No social safety nets
The recent commodity boom, for example, caused an acceleration of economic growth and a rise in living standards that allowed many poor people to transition into the middle class or to dream of doing so. The global financial crisis now threatens them with downward mobility. Latin America also remains a region characterized by a very inequitable distribution of income and where new technology has made it relatively easy for charismatic populist leaders to mobilize poor and unhappy people against their government.
The existence of large sectors of the population, such as indigenous groups, which are not well integrated into the national economy or political system, further expands the potential for such mobilization. So does the absence of social safety nets to help absorb the shock of sudden downward mobility.
At the same time, not all Latin American countries are equally vulnerable to political instability. The least vulnerable have political systems that are more institutionalized and accountable and do not depend for their stability on a single individual. They also have more diversified exports, substantial foreign reserves and low levels of foreign debt. And one or two have adopted counter-cyclical economic policies that put aside some of their new wealth to be used when the commodity boom ended.
For these countries, the crisis presents an opportunity to reduce the potential for future political instability by implementing reforms that would further strengthen their political institutions, make their economies more productive and globally competitive and provide new opportunities for the poor.
Examples of such reforms include investment in education, as well as in needed infrastructure such as roads, ports and information technology, which provide employment and generate more economic growth than merely giving people money. Investments that improve personal security by reducing crime and corruption strengthen both political institutions and a country's economic potential.
The global financial crisis also presents an opportunity for those countries in the grip of authoritarian caudillo populist leaders to change course. Populism without substantial resources to distribute is a difficult proposition. There are two obvious alternatives to this problematic situation:
• To maintain stability by resorting to increasingly authoritarian methods of governing.
• To move in the direction of more economically sustainable and productive policies.
The recent behavior of Latin America's current populist caudillos makes the former option seem more probable than the latter.
The strengthening of populist caudillo rulers in the wake of the global economic crisis, however, is not a foregone conclusion. Much depends on the behavior of the democratic opposition and its ability to fashion an attractive economic alternative to authoritarian populism. The recent elections in Venezuela show what can be achieved if opposition movements work together and unite around a single candidate in any particular election.
Reform capitalism
What is also needed, however, is an economic alternative to populism -- what Venezuelan political analyst Aníbal Romero has called a program of capitalist modernization. This would involve restructuring Latin America's current brand of capitalism -- which tends to perpetuate a highly inequitable social structure and distribution of wealth -- into a capitalism that is more productive and efficient and that provides employment, income and opportunities for advancement for a much larger percentage of the population.
This is a difficult goal. But since every crisis presents new opportunities, it is also not impossible to achieve.