Latin America Elections Update
5:30 – 6:00 p.m. Reception
6:00 – 7:00 p.m. Meeting
JULIA E. SWEIG: Good evening, everybody. Welcome to the Council on Foreign Relations. I’m Julia Sweig. I direct the Latin America program, based in our Washington office, and I’m happy to be up here with you New Yorkers tonight.
We have a good and serious and substantiative discussion with good and serious and substantive panelists tonight. And I have of course the business of housekeeping to take care of, so let me just say that this tonight is an on-the-record meeting. So our rules follow the on-the-record note.
We’re also a teleconference—is that true, Jim?—so we have national program members who are on the line as well from around the country.
We also have show and tell. You saw that some party favors are out there waiting for you, but not to diminish them; they’re serious documents. The first is by Pamela Starr, the author of our report on Mexico, which has been updated after its initial release, now that there’s a conclusive declaration of who will be the president of Mexico: Challenges for a Postelection Mexico.
The second, which we just put online today—we have the uncorrected proofs for you of Living with Hugo: U.S. Policy toward Hugo Chavez’s Venezuela, which was written by Richard Lapper, who is The Financial Times’ Latin America editor.
And last but not least, there’s a short article on Cuba coming out in Foreign Affairs, which you might take a look at as well.
MS. : Authored by Julia. (Chuckles.)
SWEIG: Well, we’ve had now—I was making the notes on the plane, and in no particular chronological order—Honduras, Nicaragua, Ecuador, Brazil, Mexico, Venezuela, Chile, Colombia, Uruguay, Peru, Bolivia and Costa Rica. Those are the elections—if I’ve left any out, just type in—that we have had in about the last 15 months in this hemisphere. And I guess it could include our midterm elections here in the United States, and there was an election in Canada. But leaving Canada and the United States aside, it seemed to me that we have a lot to talk about tonight.
There’s kind of three story lines coming out in terms of how this story is being told in the media and generally out there in the ether.
The story line that I heard driving to the airport this morning is—on NPR was about Ecuador, the Ecuadorian election; that Correa is from the left, he’s a friend of Hugo Chavez and is an anti-American candidate. And that sort of gives the headline that we, I think, have become most familiar with.
Then there’s a sort of second-tier story line which you hear and read about, and clearly you all see it when you travel to the region, which is that globalization and democratization were supposed to work to reinforce one another, but in a sense they may be working at cross-purposes so far in Latin America, and these backlash candidates, if you will, are a manifestation of problems that are deep-seated within the region, less a product of what the United States does or doesn’t do, and certainly a product of, sort of, facts on the ground.
And then there’s a third story line, which I hope we may get to, which is there’s a lot of social and human and unofficial integration happening in the hemisphere. It’s not the integration that was imagined in 1994 when the summit process started, but it certainly is—but it certainly is palpable, with $51 billion in remittances sent alone from north to south last year and the flow of people facilitated by technology. So that’s another dynamic going on.
I’m going to stop talking now and open the discussion to Richard Feinberg, Pam Starr and David Rothkopf. You have their bios, and we’ll get a conversation going and then we’ll open it up to you at 6:30. They will be talking specifically about what happened in many of these countries on the election front but then will also try to go beyond that.
So I’d like to start with Pamela, who has closely—having lived in Mexico for 10 or 12 years, come back to the States in the last year—closely followed developments there. Talk a little bit about, in Mexico, is there anything that has surprised you over the last six months, say, since July, not quite six months? What’s surprised you, what hasn’t? And what are the major challenges that Calderon faces? I’ll start with you and then come to Richard and then David.
PAMELA K. STARR: I think there’s three things that surprised me. In all complete disclosure, I had predicted that Lopez Obrador was going to win this election by 1 to 3 percent, so I guess that’s what surprised me first. (Laughter.) But I’d like to couch that with the fact that I did have two alternate scenarios, one which that Calderon was going to win by about 1 percent, and I did have a logic for those scenarios. So that, I guess, is the first surprise.
More importantly, there have been two other surprises in the post-election period.
One was the extent to which Lopez Obrador basically, I would argue, almost went off the deep end. And I think we can explain that with two different factors, and they’re closely related.
One is that Lopez Obrador really believed he was going to win this election. He couldn’t imagine that he could possibly lose the election. Think Al Gore in 2000. When in fact he lost the election, he didn’t know how to cope with that reality. Al Gore went into seclusion, gained 50 pounds and grew a beard. (Soft laughter.) Lopez Obrador, not believing that he lost the election, challenged it.
The other reason he challenged the election is because of the history of the left in Mexico. The left has historically been the victim of electoral fraud in Mexico. It continues to be the victim of electoral fraud at the state level, despite free and fair elections at the federal level.
The PRD won, as we found out in Miguel de la Madrid’s biography, The 1988 Election, and yet, Cuauhtemoc Cardenas refused to fight for it when it was stolen from him.
Lopez Obrador realized that this was a very, very sensitive topic for the left, and he used it to unify the left behind him, so he came out as the champion of the left’s right to win elections, the left’s right to not be discriminated against by the electoral authorities, the political elite and the economic elite. And it was a very, very intelligent strategy, but it did indeed surprise me.
And then finally what has surprised me is his refusal to moderate significantly at least his rhetoric in the period after which Calderon was named president in September. He’s still arguing that Calderon is the illegitimate president, that he won’t work with him, et cetera. It’s a way of keeping himself on the political stage, but nevertheless, it has been surprising.
The other thing that surprised me is Felipe Calderon’s ability to deal with that. Felipe Calderon—I met him first a year and a half ago at a meeting at the U.S. embassy. And the way I described him to my clients after that was that he just was like a big teddy bear. He’s really a nice guy. I met him again two weeks ago in Washington, and he is genuinely a nice guy. And, given that, it gives you the sense that he wasn’t going to be able to deal with the situation, that he is in over his head. And I’m still not convinced that he’s not in over his head. But his moves in the last month-and-a-half have been absolutely perfect. He has made all the right moves in terms of how he’s dealt with Lopez Obrador, in terms of how he’s built his Cabinet, in terms of how he’s designed his political strategy. Whether or not he’s going to be able to do it is the big question. Those are sort of the big surprises.
What does that mean for Mexico going forward? Briefly, I think it means that Mexico will continue to be Mexico. Mexico is not going to have dramatic political instability. It’s likely to have dramatic economic instability, at least over the next two to three years. Mexico also is not going to make a huge leap forward—economically, politically—in that same period. It will continue to have the polarization in politics we’ve seen over the last year-and-a-half, but it will be manageable, and Mexico will muddle along. We’ll see some small, important reforms, but they’ll be delayed and oftentimes watered down.
But Mexico will continue to be basically democratic, market-oriented, integrated with the United States. The bigger questions are the medium-term—and they’re largely about what happens in the Mexican economy, and the ability of the Calderon administration to manage economic policy in a way that pushes the country forward, as opposed to allowing the country to slide into what could be a serious fiscal trough.
SWEIG: So, bouncing off of Pam’s conclusion, which is sort of the muddling through some stability, some instability, Mexico will be Mexico—you’ve spent some time traveling back and forth to Nicaragua, not just as an election observer, but in the last couple of years. Is there something that surprised you about Daniel Ortega’s reelection, and after the reelection is it more Nicaraguan muddling through, or should we expect something dramatically different?
RICHARD E. FEINBERG: Okay. Well, first—and seeing Jack Devine here reminded me that, you know, this is the second time in less than 30 years that we’ve lost Nicaragua. (Laughs.)
(Off mike comments followed by laughter.)
Well, Pam was so honest to say that she perhaps didn’t quite predict what happened in Mexico, but I actually did predict that Daniel Ortega would probably win the elections. Why did Ortega win? Basically, because he was clever enough, and foresighted enough, to recognize that he couldn’t get 40 percent of the vote. And so he worked through various political backroom machinations to lower the minimum floor needed to win in the first round to 35 percent—which he knew, based upon his previous campaigns, that he probably could get 35 percent and a little bit more. He also won because the right divided, and the right not only divided, but they savaged each other in their campaigns, and that enabled, therefore, Ortega to get 38 percent, which was what he needed to win in the first round.
But the other factor was he maintained his FSLN hard-core base, and also did pretty well among younger people. People vote when they’re 16 in Nicaragua. And he did pretty well in the rural areas, and how do you explain that? I explain it basically the anemic performance of the economy in the last 15 years since, you know, market capitalism was restored. You have the combination of very high fertility rates combined with anemic growth, creates unemployment, social pressures, and opens the way, of course, for sort of a populist appeal.
I do just want to emphasize that although the media paints this, as you suggested, as sort of the defeat for American diplomacy, I would argue that actually, if our baseline interest is democratic consolidation and we’re not so worried about who wins in any particular moment, that actually what happened in Nicaragua was a victory for American interests. And democracy is taking root in Nicaragua. It’s taking root in terms of political parties, in terms of a stronger electoral system, which we, by the way, finance in many of its aspects. We finance the electoral system itself, we finance the party pollsters, we finance the NGOs that watch over the elections, we finance the “get out the vote” campaign. So—and I think that was largely successful.
Ortega does not control the Congress, so he will have to continue to maneuver there. He has, as you may know, over the last years worked with sort of the corrupt right in this sort of sordid pact. But Ortega may not be the smartest guy on the block, but he’s known for being very quick politically. And he was already talking about—or his people were already talking about dumping that alliance and starting to allay with the more modern—what they would call the international bourgeoise or the Montealegre faction, which would make more sense in terms of my final point, which is where are they going to go.
In the last three months of the campaign, Ortega and all of his people began to say, “Actually, we love CAFTA.” They let it go through the Congress; they didn’t vote for it, but they let it pass through their Congress. They could have blocked it procedurally. And they are now saying, “We embrace CAFTA.” And he’s met with all the businessmen any number of times, both collectively, and the major businessmen individually. Any foreign investor that wants to see Daniel Ortega toady is welcomed into his office. So they’re trying to do everything they can to reassure the investor community, international and domestic, that this is not the 1980s. Half of the Sandanistas have moved at least one foot into the private sector; they, themselves, are businessmen. They’re not going to expropriate their own properties, et cetera.
Where will it go? I think a lot of that depends on the United States, basically. I think there’s a opening. Ortega has said, in Spanish—(speaks in Spanish)—“You can’t eradicate poverty if you get rid of investors.” So that’s the opening.
In a small country like Nicaragua, CAFTA captivates the imagination of the country. It’s not just a little minor piece of legislation as it is here. It’s potentially transformative, because with CAFTA it requires a modernization of governance, it requires altering the investment climate, it requires an infrastructure, a credit system, et cetera. And so it’s potentially transformative. And if Ortega sticks with what he’s been saying—and we’ll have to see; and if the United States remains open to that engagement, you know, I’m hopeful.
SWEIG: I’ve got many questions for you.
David Rothkopf, you are spending a lot of time traveling back and forth to the region as well, but you’re also looking at the Asia-Latin America relationship from the private perspective. But before I get you into that, which I will, anything that surprises you in the last year and a half in this hemisphere?
DAVID J. ROTHKOPF: Well, I think the place that produces the most surprises on a dependable basis is Washington. (Laughter.) I was delighted to hear Richard suggest that there were people who still cared about CAFTA; they certainly don’t in Washington. And you know, the thing that’s surprises me and it shouldn’t—this is just—everybody’s confessing here. It’s becoming kind of a group therapy session—(laughter)—and I suppose that it’s, you know, my own naivety that I find it, you know, continuously surprisingly Washington’s view of the world can be skewed or off.
But you know, you hear about how Latin American politics are going in Washington, and then, you go to Latin America and it’s two different themes completely, you know. And I attribute it to what I would call Washington narcissism, where the key question about anything that’s going on anywhere in the world is: Do they like us? And by “us” they mean governments, and what are the governments doing and how are the policies working between the governments.
And you know, if you listen to that view, then the issue that you’ve got is—or the situation we’ve got in the region is the emergence of this hemispheric axis of evil, you know. (Laughter.) You’ve got Chavez and Morales, and now you’ve got Ortega and then you’ve got Correa, and then, you know, well, let’s throw Fidel in for good. I mean, he’s not—we can’t use him for communism anymore; let’s use him for something else.
And so you’ve got this kind of, you know, horrific picture of a region gone bad, but you know—and you know, clearly there’s—there are a lot of problems in the region, but take the Golden Age when Richard was in charge of U.S. policy towards the Americas and you know, the ‘90s. And if you look at just three indicators of what’s gone on in the region and just sort of take averages from 1994 to ‘99 and then averages for the past four years, in terms of GDP growth, the average across the region at that period was 2.5 percent. During the past four years of the hemispheric axis of evil, it’s 3.5 percent growth. If you take foreign direct investment inflows for the period of the ‘90s, the average annual inflow into South America during that period was $29 billion total. If you take 2005, it had gone up to $44 billion. It was a 51 percent increase over that period.
If you take the average of the past four years, this period of all this stuff going wrong in the period—in the hemisphere and compare it to the ‘90s, it’s up 13 percent. And the reason it’s not up more is two countries primarily that are underperforming and attracting foreign direct investment—Argentina and Bolivia. Venezuela’s had its ups and downs a couple years—up a couple years, down.
But the point is, the rest of the world—you talked about Asia—53 percent of all Chinese overseas direct investment goes to Latin America. I mean, the Chinese have some idea about where the rest of the world is going. And then, you know, I think the most stunning statistic and the one that’s probably most illustrative of the reality on the ground—and I think the foreign direct investment inflows suggest that Wall Street has a different view from Washington about what’s going on the ground—but the most stunning is that the average inflation across the region in the period of ‘94 to ‘99 was 69 percent, and the average for the past four years is 8 percent.
In fact, the problem of inflation, if you look at it, you know, over an extended period is licked in the region. They’ve internalized the Washington consensus, and I would argue in some respects that they have moved beyond it. You know, the things that we wanted to work are working; the economics are improving. They are disconnecting from governments, just as they are everywhere else in the world.
You mentioned, you know, remittances. Remittances last year were $51 billion; this year they’re going to be $60 billion. If we had had a conversation 10 years ago in Washington about the United States—you know, would we send $60 billion to Latin America, everybody goes, “That’s ludicrous.” We’d never send that money. But it’s not just—not coming from the government, it’s coming from families that average $30,000 a year in annual income. We are deeply integrated. Things are going on.
Now, beyond that, they will internalize the orthodoxy of democracy, and Richard was indicating this, as well. Are we surprised that we wanted to create pluralist systems and people who have views that don’t agree with us would come into power? I don’t think we should be.
And that in fact, what has happened is that we solved the inflation problem, we’ve internalized the orthodoxy, people like Lula or Michelle Bachelet, a Socialist, or Alan Garcia—who was evil, you know, 10 years ago, and now we love him, we were so relieved when he came in instead of Humala—these people have embraced this orthodoxy. And I don’t think we should be at all surprised that the central political issue in Latin America now is the one that the Washington consensus failed to address, which is social equity, and that you now get in this system people saying let’s deal with social equity in this issue.
Now, that’s traditionally been the province of the left. You’ve had a lot of victories on the left in each one of these countries. But if you look at them, one of the reasons Lula was elected was people expected that he was going to continue fairly orthodox policies. One of the reasons Michelle Bachelet was able to win was they expected her to continue these policies. Same with Garcia. Even Morales, who started off as a complete nut job, doing a whole bunch of things that would scare the hell out of anybody, has realized that doing that keeps the money out. And, you know, he wants people to come in and invest, and he is taking a couple of steps back from this, and so is Daniel Ortega.
So what’s happened, the left has moved to the center. And so instead of the rise of the left that we hear about and throw our hands up in the air, we’ve actually got Latin America becoming more centrist than it’s ever been in its history, with both the right and the left converging a little bit on the middle.
Do we have big problems left to solve for these politicians? Yes. Is social equity central to them? Yes. Are these guys going to solve them? Well, we know Hugo Chavez isn’t going to solve the problem. And if oil were $30 a barrel, we wouldn’t even know who Hugo Chavez was anymore. We know that some of these guys are adopting kind of the kind of populist short-term, you know, political gain stances that we know don’t work over the longer term.
But to take the broad trend line, to take the broad political trend lines and the broad economic trend lines in this part of the world—and I would say the Washington view that the world has spun off its axis, Latin America and North America have split in different directions and that we’re in this kind of “dark age” where Latin America is an inch away from its Africanization—which, you know, we’ve all been in conferences where we’ve heard that kind of thing—it’s just wrong. The facts don’t support it. So.
SWEIG: So in about five minutes we’re going to open it up to a conversation with all of you. So I’d just like to ask each one of you to very briefly address the next question, which kind of bounces off of this notion of how Washington may or may not see the region, the axis of evil and the sort of hysteria around the rise of the left, because in part, you know—I hate to say anything too nice about Washington, but the Washington that’s running Latin America policy today actually, I think, gets that it isn’t this “red tide” today. But the question I’d like each of you to address is, how much weight does U.S. policy and what the U.S. government and what Washington does or does not do now have in this new Latin America panorama? I mean, are we still the go-to guy? Are we still the biggest guy on the block? Or do we matter less as a result in part of all of these—(inaudible)—that we’re discussing?
So go to that, and then we’ll open it up.
FEINBERG: All right. Well, let me—
SWEIG: It’s different. I understand it’s different, depending upon where we are.
FEINBERG: Yeah. Yeah. There is a lot—yeah.
Let me just say with regard to—to underscore what he was saying and why I think what’s going on the ground is so different from the perspective that we have is—you know, Richard Lapper wrote this piece, right—if you read the Financial Times, you would think Latin America was going to hell and that it’s all going, quote, “left.” But David very importantly distinguished between Hugo Chavez and the authoritarian populace, let’s say, and what is really the major thrust in the region, which is modern social democracy. And most of the people that you mentioned—you know, Lula, Bachelet, Arias—these are—what we would call in the European continent contemporary social democrats.
The left moved to the center, if you will, or the Washington consensus plus social equity; democracy plus improved governance. That’s the agenda. That’s modern social democracy, and Washington can perfectly get along with those people.
FEINBERG: This current administration, if you scratch, you know, some of the occasional rhetoric, which is usually off message but picked up by the media—you know, Tom Shannon and the State Department get along okay with the social democrats. They can’t get along beautifully with them, and why not? Not for reasons that have to do with hemispheric policy, but for reasons that have to do with U.S. global policy.
A country that invades a major developing country, a country whose leaders seem to accept torture as an instrument of government is not going to get along well with social democrats in Latin America. So the basic problem, I think—the tension in hemispheric relations is not really because of the assistant secretary on Hemispheric Affairs; it has to do with global—sort of White House policies.
Does the United States matter? I think—our two basic objectives, as David underscored, are basically on track, namely global economic integration and democratic consolidation.
SWEIG: Okay. What do you think?
STARR: I think it’s really important to emphasize the fact that Washington matters differently in different parts of Latin America. Washington matters enormously for Mexico. Mexico is—and the Caribbean countries, Central America are distinct from the rest of the region in that sense because of their economic and social integration with the United States, not only in terms of trade, financial flows, but remittance flows and human flows, illegal although they may be.
That’s very, very different than the Southern Cone. The Southern Cone now—and I would disagree a little bit with David here—is that what we’re seeing in the Southern Cone is an economic boom based on commodity prices, on direct investment based on investment in mining above all else. And so what we see in that region is that you have current account surpluses, and so they really don’t need Washington. There’s not a lot of economic integration with Washington there. Their trade ties go elsewhere. So I think Washington actually is not very important for the Southern Cone countries, even as it remains important for the Northern Tier.
And the Andean region is always that in-between region. It’s the region which is least democratized. With the exception of Colombia, democratic institutions are not at all well-developed in that region. Their economies tend to be raw material based. Their economies and their polities tend to be more volatile as a result, but they’re also in an intermediate ground where they are very reliant on the United States. The United States has influence, but at the same time, they’re not as reliant, and therefore, they some way can—sometimes can track their own course. So I think it’s really important that—to think about those different Latin Americas when we think—ask the question about how much does Washington matter.
SWEIG: David, and expand—not just Washington, but the United States.
ROTHKOPF: Well, I think they’re two very different things, and I think that’s to the benefit of the United States.
You know, Washington, as the U.S. government, clearly has some role to play in the region, but it’s fairly minimal. I think Richard is right. We’ve lost credibility. We’ve played into the hands of opponents of the United States by doing things that the United States shouldn’t do and by doing things that contradict the morality and the sort of views and values that we’ve been preaching to this region for a long, long time.
We’ve also—by the way, the government’s become a little bit less relevant because it was fairly successful. If you have trade agreements and you reduce tariff barriers, government’s role is decreased, and you leave it more open to the business community. And I think, you know, we have seen—you know, Dan Yergin wrote, you know, “The Commanding Heights,” you know—and you know, we have sort of seen this kind of transition to an era in which the role of government everywhere is diminishing.
In the same vein, as the United States has drawn its attention elsewhere, other people have stepped in. I agree; you do have to look at the region in different ways. And the boom or the economic health of different parts is due to different kinds of things. And I think that one of the issues that has to be dealt with in the Southern Cone particularly is the—what I would call the value-added deficit, which is to say they export raw materials, and they’re taking in value-added goods, and until they close that value-added deficit, they’re at significant risk.
But you know, having said that, when the United States, in its infinite wisdom, cut off funding for military training to the Bolivian government because they had supported the International Criminal Court, the next day, according to a reliable source that I spoke to, the People’s Republic of China came in and said, “How much were you getting from the United States?” And they said $10 million or whatever it was. And they said, “Fine. We’ll write you a check.”
There are other people in the region, there are other countries in the region willing to step up and play a bigger role as our role has receded, because the government’s role has receded, because we’re unable to play the role, because we’re distracted elsewhere and our credibility has been damaged.
And so as all that’s happened, just to conclude, the role of the United States in the region has grown, because businesses are active in the region, because remittances are an important tie, because immigration and human flows between the region are growing, because 40 million Americans are now of Latino descent, and it’s growing as a number, and we’re culturally coming together.
And so, you know, I would say, even as Washington recedes, the importance and the involvement and the connections with the United States have grown. And I think, actually, we had a conversation not too long ago in which you talked about a study. And you can give the source of the study, but it talked about 150,000 nodes—pairs of nodes between communities in Latin America and communities in the United States that remain in contact and are socially connected with each other. That wouldn’t have been possible 10, 20 years ago. And that’s the fabric of the Americas that’s really important and, I think, is not revokable by the action of any of the governments.
We’ve stayed—we’ve been in the weeds on some countries and gotten very general. I want to encourage all of you, when you let me know if you have a comment or a question to make, to push these guys on specific countries, if you’d like. So just let me know. It’s time for the open discussion now. Get my attention.
I see Allison and Gabriel and (Ralph ?), and I can’t see who you are in the back.
SWEIG: Bill, and Alex. I didn’t get your name, I’m sorry, but—
QUESTIONER: It’s like the animal, Fox.
SWEIG: Oh, of course. Thank you.
So introduce yourself and—
QUESTIONER: I’m Allison Silver. I have a question. I was reading somewhere recently about Mexico and the remittances we’ve heard about, that actually a large part of them aren’t from Mexicans here sending money home, but actually U.S. citizens buying houses there. And that’s actually a huge point which I hadn’t read about other places. And I was wondering if you could just speak about that.
STARR: To be honest, I don’t know where Americans buying houses in Mexico would appear on the balance of payments. But what is clear—so I don’t know if that’s part of the remittance flow or not. My guess is it would not be. Would it be?
MS. : No.
MR. : No.
STARR: It wouldn’t be—I don’t think it would be in the accounting there.
I have no doubt that there is a capital inflow that’s a result of U.S. citizens buying property in Mexico. I have trouble accepting that it’s $20 billion to $24 billion a year, which is what the remittance flow currently is. The remittance flow actually is—we see it in the Western Union statistics and in the other banking (statistics ?) because it’s more and more in the formal sector, it is in fact is Mexicans living in the United States sending money home.
FEINBERG: Let me just add. You know, we’re used to Latin Americans coming—migrating here. But what we are seeing already in significant numbers—and living in San Diego, I see this very tangibly—is the baby boomers moving to Latin America with their retirement funds because they can live much more prosperously with the same amount of money there than they could if they were living in Phoenix or in the United States. You’re seeing this particularly in northern Mexico. Guadalajara, for example, has a large American expatriate population. And increasingly you’re seeing this now—and real estate prices are rising dramatically in Costa Rica, Panama, some of the Caribbean islands.
This is important in terms of the theme that David was underscoring, which is integration. You’ve got integration now with people moving in both directions as investors, as individuals, as families, moving in both directions. And I think there will be a lot more of this in the future. In fact, one of the reasons that Ortega is interested in trying to calm the sort of negative press coverage that inevitably he gets up here, is that he wants Americans to continue to move down there for investment, for real estate investment, and as retirees.
SWEIG: Good. Anything to add to that?
QUESTIONER: This is to—
SWEIG: Introduce yourself.
QUESTIONER: Gabriel Guerra. This is to Pamela and Mexico. In today’s Wall Street Journal there was an article stating that President Calderon is not going to have any honeymoon and he has to hit the ground running. One of the things that I have heard from senators—I can name McCain, Hagel, Dodd, Clinton, Menendez, and Salazar—that one of the things that they are upset with Mexico and they hope Calderon addresses, is the control of the oligarchy and the business community on key industries in Mexico and the lack of competition and the repercussion that has on the economic welfare of Mexico, that then has repercussions of Mexicans then coming to the U.S. and deflating the whole immigration issue.
With Calderon getting to power precisely with this group behind him and supporting him and giving him money, and many of the now main Cabinet members from that group, how do you believe Calderon will address that issue and not hit a wall with those that care about Mexico here in the U.S., including the senators that I just mentioned?
STARR: Clearly, dealing with the concentration of economic production and wealth in Mexico is something that is—has to be on the agenda of any president that wants to increase competitiveness in the Mexican economy. Calderon has talked about it, but it has never been a focal point. He’s always talked about increasing Mexicans—Mexico’s competitiveness globally, not competition within the Mexican economy. So we start with that.
And it’s a realistic position. Calderon is not—Calderon will not take on the oligarchs. He will not confront them directly, and his choice of Cabinet members show that. There is no member of his Cabinet that directly—is directly from the oligarchy or directly represents them. The only one that potentially could be in that position could be one of the two finalists for the head of PEMEX. We’ll find out that the day after tomorrow. But up until now, the oligarchy does not have any direct representatives in the Cabinet, which is very important. It’s not to say that they’re not there and somewhat influential.
The reason—and also Calderon, although his campaign was financed by the Monterrey business community, they came to him very late. They actually were supporting the pre-candidate until well into the spring. So he doesn’t really owe everything to them. They’d like to think he does because they were important in the last weeks of the campaign, last couple months.
All of that said, Calderon will not confront them. He will not try to break the oligarchy, and it’s very, very logical why he won’t: They’re too powerful. No president can do it. Carlos Slim’s holdings alone account for more than half of the Mexican stock market—of the capitalization of the stock market. You don’t directly confront somebody like that. You do it slowly, little by little. Calderon realizes he can’t do it all at once, and if the friends of the United States and the U.S. Congress think that he can, they are sorely mistaken. And if they put all their hope in that, unfortunately, they will be disappointed, and that will be a bad thing for U.S.-Mexico relations. I’d argue they need to think a little bit more realistically about Mexico and what’s possible.
SWEIG: David, do you want to jump in on that?
ROTHKOPF: Well, I just want to expand on that. I agree with everything that’s been said, and I think most of the people you mentioned will be preoccupied with running for president in the next couple of years—(laughter)—in any event and will not be able to focus as much on the Mexican oligarchy as they might, since I don’t think that’s going to be a major campaign issue.
However, having said that, the issue of oligarchies in all of these countries is the remaining issue. Virtually every single one of these countries is dominated by a handful of family-owned or large businesses, and those people were the ones that embraced the Washington consensus as it was because when you privatized, who bought assets? Who in a society that didn’t have a lot of equity markets could? People with assets. They could borrow money and buy the assets. When you liberalized, who benefited from the liberalization? They did. As you draw in capital, who benefits from insuring that labor markets stay cheap and competitive? They do.
And so they have played an important role in creating a system that appears to be liberalizing, but is disproportionately benefitting them, where inequality has grown to be the worst in the entire world. And until the system is changed so that more stakeholders in that system are created, you will not actually address the underlying issue of inequality, and you won’t break out of the cycle of the periodic reemergence of a populace, which for a lot of perfectly good reasons is unsettling to people.
QUESTIONER: I have two interconnected questions. My first question is for Pamela Starr. What is Lopez Obrador’s capacity to create major problems for the next administration, chaos or disturbances in Mexico City, or disruption and so on?
And my question for Richard Feinberg is this: We’ve heard many stories about American money being used against—in the elections, against Ortega and so on. Was the American embassy or American money machine involved in the campaign against him?
STARR: I think it’s a mistake to talk about Lopez Obrador’s ability to disrupt things in Mexico. Lopez Obrador is a very important actor in Mexican politics, but I believe his role is going to decline.
But that will not undermine the power of the left in Mexico. The left remains strong, with or without him as its figurehead. And the left is very well-positioned to become a very big thorn in the side of Felipe Calderon.
The extent to which the left is capable of causing problems in Mexico depends at least on two things. One that immediately comes to mind is Calderon’s ability to undermine them, his ability to deal with them and deal with them cleverly. So far he’s been very good. What we’ve seen over the last couple of weeks is a clear management of the news cycle management of the politics, so that he’s able to dominate the left. I don’t expect that to continue, but it is a good sign.
And as long as he doesn’t touch on what are touchstone issues for the left, which is good and bad news—it means that we’re not going to see anything in the way of energy reform in 2007—as long as he doesn’t touch on those issues, to give the left an excuse to—or an issue around which it can reunify itself, he can gradually eat away at the foundations of the more radical left.
But at the same time, the radical left is going to try to maneuver cleverly so that they can maintain control of the broader left movement, and that may, from time to time, imply taking control of the streets, sending the electricians union out. So I expect we’ll see political noise in 2007, but not, you know, political instability along the line of what we’re seeing in Oaxaca, for example.
SWEIG: Richard, on Nicaragua.
FEINBERG: Thanks. If by American money, you mean U.S. government money—if there was anything under the table, of course I wouldn’t know about it—what was public was that we did—as I say, supported the electoral system itself, and we indirectly funded the political parties by funding their ability to get out the vote, their ability to register their members, et cetera. So we sort of played a role there.
In terms of American money in the private sector, there was nothing prohibiting candidates from coming to the U.S. to raise money. And the conservative business candidate, Eduardo Montealegre, you know, did travel around the United States trying to raise some money. And so there was some private money moving in that direction.
The Liberal Party candidate, the guy that we thought was corrupt and in league with Aleman—the U.S. embassy did make an effort to close off funding; that is to say, went around to the Nicaraguan private sector and said, “Don’t fund this guy,” which upset, needless to say, the Liberal Party.
Nevertheless, they still seemed to have plenty of money to run their campaign. Where did that money come from? Who knows? A lot of people suspected Daniel Ortega. In any case, objectively speaking, it was in Ortega’s interest to see the Liberals running, you know, divided. Many people speculated it was Hugo Chavez’s money. Anyway, they had a lot of money. We don’t know where it came from, objectively speaking; maybe those sources.
In terms of U.S. policy in general, the two people that we didn’t like—we, the embassy—the embassy did make a number of public statements criticizing Ortega, on the one hand, and this is the Aleman clique on the other—
SWEIG: Did the embassy pay for Oliver North’s plane ticket? (Laughter.)
FEINBERG: Yeah, who knows?
The—but the two guys we didn’t like did pretty well. That is to say, Ortega won, and the Liberal—the corrupt Liberal guy, the Aleman guy, did much better than expected—Rizo. So our influence, in that sense, seems to have been fading.
QUESTIONER: Thank you. Julia, I thought your way of framing some questions at the beginning of the discussion were very helpful. And my name is Bill Shear (sp), by the way. I work here in New York for Houlihan Lokey, but my home state is California. And as I sat at a Thanksgiving table where the next generation is linking to Latin America with significant others, and I’m hearing a lot of Spanish, the table erupts in this discussion of the failure of globalization. And there’s lots of points of view and languages spreading around the table.
I was encouraged when David said things aren’t as bad recently as they used to be. But I sure hear the point of view, rhetoric, substantive or not, of the second theme you pointed out at the beginning of this evening, that the failure of globalization perhaps is a message we have to pay more attention to.
And I just wondered, is it the oligarchs or is it the failure of commerce? Help me understand what you think is the real issue.
SWEIG: Who wants to take that?
ROTHKOPF: Let me take a stab.
First of all, the failure of globalization—I don’t recall the discussion being about the failure of globalization. And in fact—
QUESTIONER: Maybe I misunderstood.
ROTHKOPF:—quite the contrary, I think globalization—
STARR: I said that the expectation was that globalization and democratization would reinforce one another. And part of this—sort of the element of these backlash candidates is that quite specifically say globalization isn’t delivering for us; our societies are not meeting the challenges.
ROTHKOPF: Right. And I think one must distinguish between the consequences of globalization for national government and the tensions between global interests and national interests, and the consequences of globalization for everybody in a society. And, you know, you get cultural integration, you get economic integration, you get market integration, and government is—you know, actually the ultimate lagging indicator in this whole thing; it follows everything else. Governments actually are designed not to integrate with other governments. They’re the one thing that is designed not to go along with this process of globalization, with very, very few exceptions, such as the EU. And so, you know, I think the process is taking place and moving along at a good clip.
Has globalization solved all the problems of, you know, 500 years of inequity in the hemisphere in the course of the 10 years that it’s been taking place at a big clip? No. Will it, will the combination of it and new technologies and democracy and markets ultimately benefit? Yes. Will politicians who are insensitive to those inequities be turfed out, as they have been in Latin America? Absolutely. We’re in the transitional period. Politicians will play those transitions to their benefit. And so, you know, the work is not done, it’s just beginning. But we need to distinguish between the impact of globalization on people and markets and companies, and the impact of globalization on governments and the role governments play.
FEINBERG: Let me just—you know, I live in California, and so I hear this sort of anti-globalization stuff all the time, especially on the college campuses, which I always find extremely ironic because California is so itself globalized, and so much of its wealth and resources are a result of, you know, globalization.
So there’s a lot of—you know, Latin America, if course, is itself the result of globalization. I mean the Spanish Conquest was, of course, globalization in its time. So Latin America has always been part of—from, you know, Christopher Columbus on, it’s always been part of a global political economy. So the idea that somehow the problems of Latin America have been caused by the economic trends over the last 10 or 15 years, you know, shows a complete lack of historical perspective.
Latin America has been growing in the last several years. However, the growth rates are still insufficient, given the demography and given the history, to solve the problems, you know, in the time frame that people would like to see them solved. Latin America has been making progress in terms of competitiveness issues, productivity, et cetera, but not fast enough, given global competitiveness, given what’s going on in Asia, Eastern Europe, Southern Europe. Latin America is running fast, but not fast enough. And to that extent, globalization puts pressures on Latin America to move more rapidly.
You know, 50 years ago, if Mexico lost a couple of years because of a Lopez Obrador type, it wouldn’t matter. Now Mexico cannot afford to lose six years because Lopez Obrador, you know, wants to disrupt the political system. Six years lost in the global economy is not tolerable. So in that sense.
The final point I would make is that, yes, of course, Latin America, as we all know, has—again, from the Spanish conquest at least been very unequal. That problem persists. The single biggest reform I would like to see in Latin America would be attacking tax evasion. If companies and wealthy individuals and these oligarchs, et cetera, if they would just pay the taxes on the books, on the books, that would go a long way towards giving states the resources that they need to begin to address, you know, the social issues and to look like some of the issues of inequality were being tackled.
SWEIG: Here I’m going to just jump in really briefly and sound like a broken record, especially to my friend John Heimann sitting over there, but just to reinforce Richard’s point and address your question, Bill, about sort of where’s the nub of the problem. Latin America’s percentage of tax revenue that comes from GDP is about 8 to 16 percent, 8 (percent) at the low end, in Guatemala, 16, 17, 18 (percent)—
FEINBERG: Leaving out Brazil. Leaving out Brazil.
SWEIG: Leaving out Brazil. Okay, leaving out Brazil. But Mexico, the other big country, I mean it really is down in the barely high teens, into the single digits. By comparison, the average OECD countries are in the high 20s. Our rate, the United States, has gone down. But Richard’s point is absolutely critical, because if you look at tax payments as a barometer of sort of is there a social contract in this country, in a country like Colombia, real property is generally not even taxed. That is a glaring sign of whether these oligarchs, whether the elites are actually investing in the way that they need to in order to deal with these forces called globalization, for example. So I think it’s absolutely just fundamental.
Pam, and then we have others people. But let me say this. We’re having a dinner afterwards, so anybody who’s in the queue whose question didn’t get addressed, I’m going to pass this over to our dinner presiders to make sure that you all do.
STARR: I just want to make two quick points on the question of globalization. One is, I think we have to all keep in mind that globalization is not an inevitability that will always continue. Globalization is the result of two forces—technological change and political decisions. As we saw in the past, globalization can be cut short as a result of the decisions of sovereign states, so don’t count on it as an always. There’s that political side to it.
The other thing is, when we talk about globalization, we need to know what kind of globalization we’re talking about. There’s political globalization, things like the U.N. There is cultural globalization, things like, you know, the popularity of, you know, whatever—
STARR: Yeah, Shakira—(laughter)—in the U.S. And there is economic globalization of different sorts—trade, capital flows, both foreign direct investment portfolio flows and the flows of labor. They all are at different levels of advancement. We have a lot of globalization when it comes to portfolio capital flows; we have very little globalization when it comes to politics; and somewhere in between when it comes to human movement, labor flows, but it tends to be illegal. So they’re all different issues, and they’re not all—it’s not all the same dynamic.
SWEIG: It’s five minutes to 7:00. The council is nothing if not punctual. We’re going to close at 7:00. Alexandra Starr has the last question in this section of our discussion. And then I’ll pass over to our presider those of you that remain, which I have about four people on the list.
QUESTIONER: I wanted to ask about the tangible benefits that Venezuelan President Hugo Chavez might reap from this last round of elections we saw in Nicaragua, Ecuador, and then, obviously, last year in Bolivia.
SWEIG: Who wants to take that?
FEINBERG: Well, the—let me see. We’ve tended to focus in this discussion on Mexico and then on social democracy and some of the market reform that continues. But then you do have what I call the authoritarian populists, which is basically Chavez and then some of the satellites that he may be developing. I do think Chavez is a bad guy. I say that directly. I think what he exports is confrontational politics, polarized politics, anti-institutional, personalized politics—and that’s all bad for what we would like to see develop in the region.
Now, Chavez was very vocal early this year in supporting candidates. And I think quickly he began to realize that it was counterproductive, that people were actually running against him both on the grounds that he was sort of interfering, okay, but also who he is. And, you know, by and large, most Latin Americans, they don’t really like that sort of confrontational politics, they don’t like that up-front attack on the United States. For him to be—the hypocrisy of talking about anti-globalization at the same time that he’s still pumping oil to fill our SUVs, right? So the gap between his rhetoric and what he actually does in the international sphere is huge.
Now, in Nicaragua, initially he was embracing Ortega. But in the last three months of the campaign, Chavez was quiet and Ortega was quiet about those links. However, some of Ortega’s people have been saying that Chavez would completely subsidize the Nicaraguan oil import bill, which is large—$700 million to $800 million at current prices. And that’s—you know, they’re very, very energy-dependent. And the proposal on the table is that half of that would be paid for in long-term bonds, in other words, basically written off, presumably. But half of it would be paid for through agricultural exports from Nicaragua to Venezuela. Now, if Nicaragua were to export $300 million to $400 million of agricultural exports, that would be big in the—that could, if done in a state-to-state trading relationship, very much distort the Nicaraguan economy. So that would be something that I would be concerned about, if they were to actually go ahead at that level. I think that’s something to watch out for.
ROTHKOPF: I think the potential benefit that will accrue to Chavez from these election results will come if the United States government reacts strongly against them as a regional trend and does things to try to publicly suppress them or isolate these governments, and starts to fan the fading—somewhat fading flame of Hugo Chavez a little bit more with these kind of activities.
Richard is absolutely right, you know, Chavez’s approach has not endeared him to many countries in the region who don’t particularly want a bully, regardless of whether it’s from the Northern Hemisphere or closer to the Equator. And so, you know, I think there’s an opportunity for the United States, if it starts viewing countries, as Pamela earlier suggested they ought to be viewed, one at a time in terms of their individual needs, and starts building up dialogues with each, and does it with somewhat less of the hamfisted technique that we tend to use in most places in the world. And that can offset it.
But right now, that’s where he stands to gain the most, is in fueling the anti-Americanist impulses, which are there under the surface.
SWEIG: We have time—and the national program has sent a question. One person that’s on the line I believe from Puerto Rico, Juan Garcia Pasalaqua (sp): Will the recent hemispheric conference in Panama favoring sovereignty for Puerto Rico be acknowledged and supported by the United States at the United Nations?
And with that, we’ll wrap up if somebody has a good sense of what the United States might do with respect to Puerto Rico at the U.N. (Laughter.) We’re getting Cheshire cat smiles, for those of you that are on the line.
I think the sense is the United States won’t do much.
But I’m going to thank our panelists and welcome you all to stay for dinner. And those of you that weren’t called on, I’ll give your names to Maria Victoria and thank you very, very much for an exquisite session. (Applause.)
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THIS IS A RUSH TRANSCRIPT.
Shannon K. O'Neil examines pledges by Mexico's presidential candidates to shift drug war priorities from arresting traffickers to reducing horrific violence.
Whoever wins Mexico's presidential election will need to jumpstart economic growth, work toward energy reform, and deal with a violent drug war, says CFR's Shannon K. O'Neil.