Latin American “Populism” Doing Well

Populist leaders are defying Washington, aiding the poor and spuring growth

Article created by the
The Center for Economic Policy Research.

A specter is haunting Latin America – the specter of “populism.” Hardly a week goes by without a warning from pundits that the region may return to its “populist” past. We are warned of economic failure, unfavorable investment climates, dictatorships, nationalism, Anti-Americanism, and protectionism. Non-native English speakers would be forgiven for thinking that populism was a dreaded disease, like botulism.

But the reality is another story altogether. Consider the economic part of this populist revolt, which is indeed happening. Presidential candidates have promised to fix the economic reforms of the last 25 years, and this promise has won elections in Argentina, Brazil, Ecuador, Bolivia, Uruguay and Venezuela. This is not surprising if one looks at the basic economic facts: the last 25 years have been an unprecedented failure for Latin America.

From 1980 to 2000, region’s income per person – the most basic measure that economists have for economic progress – grew by only 9 percent. For 2000-2005 it has been one percent. But from 1960-1980 it grew by 82 percent. This collapse of economic growth means that a generation and a half of Latin Americans has lost out on any chance to improve its living standards.

Here in Washington, most policy-makers have looked on the bright side – from their point of view – that Latin America has adopted the reforms they have advocated. Governments have removed most restrictions on international trade and investment flows, privatized hundreds of billions of dollars of formerly state-owned industries, allowed their central banks to set higher interest rates and reined in public spending. The dismal results, in terms of economic performance, have not attracted much attention here.

Can the new populists do better? Consider some of the most “populist” governments today, according to their critics. President Nestor Kirchner of Argentina took office in May 2003, as the country was recovering from a terrible recession that had put the majority of people below the poverty line. He took a hard line against foreign creditors to whom the country had defaulted, against the IMF, and foreign-owned utility companies. Most experts agreed that Argentina would suffer for this defiance and for pursing macroeconomic policies that the IMF opposed. Instead, the economy has had three years of the fastest economic growth in the hemisphere, more than 9 percent annually, creating millions of new jobs.

Venezuela’s Hugo Chavez is perhaps the most controversial “populist,” but he will almost certainly sweep to yet another electoral victory this fall. The reason? He kept his promise to share the nation’s oil wealth with the poor, who now have free health care, subsidized food, and increased access to education. After surviving a 2002 military coup supported by the United States, and a devastating oil strike by the opposition, the economy has boomed since political stability returned to the country – growing 28 percent in the last two years.

Bolivia’s Evo Morales has also been criticized as a “populist.” He has only been in office for a month, but the movement that brought him there also forced the government last year to get a better deal from foreign-owned gas companies. This is bringing in tens of millions of dollars of new revenue to the government, which will enable it to deliver on its commitments to the country’s poor majority. As in Venezuela, the experts’ warnings that such “a new deal” would choke off investment in the energy sector proved unfounded.

Democracy has also increased along with the new populism. Kirchner revoked the military’s impunity for the thousands of murders, torture, and disappearances during the 1976-1983 dictatorship. Previously marginalized and excluded groups (Bolivia’s indigenous majority, the poor in Venezuela) have been brought into the political process. Maybe that’s what the pundits really don’t like about the new populism.

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