- Current political and economic issues succinctly explained.
This publication is now archived.
U.S. President George Bush heads to South America this week to meet heads of state at the fourth Summit of the Americas November 4-5 in the Argentine seaside city of Mar del Plata. Bush will also visit Brazil and Panamaon his trip. The theme of the conference is fighting poverty, creating jobs, and strengthening democracies. Trade issues are a major concern, as negotiators at the first such meeting in 1994 sought a free trade agreement for the Americas by January 1, 2005. But conflict over farm subsidies, distrust of U.S. foreign policy motives, and new trade opportunities with players like China and the European Union slowed momentum toward striking a trade deal, experts say.
In addition, throughout the region polls indicate there is great animosity toward Bush—extensive protests are planned for his visit—as well as the free-market reforms of the 1990s, which caused economic pain and helped bring a wave of left-wing politicians to power in the last few years. Corruption has also flourished in the region, making ordinary citizens cynical of the benefits of both democracy and the free market. Critics accuse the United States of imperialism in foreign policy and pushing neo-liberal economic policies—cutting tariffs, fiscal discipline, and privatization—that have hurt the poor while enriching the elite and the United States. Experts say, however, it is critical for South American countries—many of which have seen economic growth in the last few years—to make more progress on fair tax codes, flexible labor codes, independent judiciaries, and solid democratic institutions to ensure sustained growth. Fighting corruption and removing barriers to starting businesses are also high on the summit’s agenda.
Cuba is another sore point. The Communist island headed by leader Fidel Castro has been shunned by the United States since 1961, when U.S. officials broke off diplomatic relations. The United States has imposed an embargo on Cuba since 1960, two years before the Cuban missile crisis of 1962 nearly led to nuclear war. Many Latin American countries, including Venezuela and Argentina, admire Castro’s commitment to socialism and continued defiance of the United States. Cuba is not invited to attend the Summit of the Americas or many other multilateral meetings; many Latin American leaders and their populations believe U.S. opposition to Castro is misguided and outdated.
Below is a brief synopsis of conditions in selected Latin American countries, and what Bush can expect from their leaders. More Council resources include the transcript of an April CFR meeting on the policy implications of Central American Free Trade Agreement (CAFTA) and a Center for Preventative Action Commission report on the Andean region.
Selected Latin American countries attending the Summit
Argentina: Argentina’s population is the most strongly anti-American and anti-Bush in South America; an Economist poll shows nearly 40 percent of Argentines have a “very bad” opinion of the United States, the highest in the region. Thousands of activists are planning to demonstrate for the duration of Bush’s visit, and left-leaning President Nestor Kirchner will have his hands full dealing with the protests. Kirchner isn’t committed to an entirely free-market economy; price controls, protectionism, and currency manipulations are all still regarded as legitimate tools of policy inArgentina. But overall, experts say Kirchner is more fiscally conservative than his predecessors, whose policies drove Argentina into a financial crisis in the late 1990s, leading to a default on $88 billion of debt in 2001. After years of economic hardship, a surge in exports, construction, and industrial activity sparked an economic recovery that began in 2002 and led to an impressive 9 percent growth in gross domestic product (GDP) in 2004.
Bolivia: In Bolivia, leftist protests recently brought down two presidents—Gonzalo Sanchez de Lozada in 2003, and Carlos Mesa in 2005. Eduardo Rodriguez, former president of the country’s Supreme Court, took power in June 2005 and promised to hold new elections within six months. U.S. officials have accused Venezuela and Cuba of using Bolivian opposition leader Evo Morales, a former coca farmer, as a proxy to turnBoliviainto a Marxist, anti-American state. The ongoing cultivation of the coca leaf, used to make cocaine, has also caused tensions between Bolivia and the United States. But Bolivia has seen real growth since market reforms began in 1980: infant mortality has been nearly halved, adult literacy has soared, life expectancy has grown from fifty-two years to sixty-four years, and GDP has more than doubled, to $8.1 billion in 2004.
Brazil: Bush heads to Brazil after the Argentine summit for two days of meetings with President Luiz Inacio da Silva. Lula, as the Brazilian president is known, is a fiery former trade union leader and socialist who has become more centrist since he was elected president in 2002. He seems committed to fiscal discipline and free markets, trusting that they will promote sustained growth, create jobs, and provide the revenue his government needs to address social problems in the world’s fifth most populous country. Brazil had one of the region’s highest percentage increases in foreign investment last year, despite a corruption scandal that threatened to bring down Lula’s government. The country’s GDP grew 5 percent in 2004, inflation is under control, and the government is paying off debt.Brazil, with its population of more than 180 million, is regarded as a regional leader by many of its neighbors on issues from international trade to farm subsidies to environmental protection. It is rich in natural resources, including minerals, gems, oil, wood, and aluminum. The country also has 14 percent of the world’s renewable fresh water. China and European countries have been wooing Brazil as a political and economic ally; Brazil is one of the Group of 20 nations representing developing countries’ interests in the World Trade Organization’s Doha Round development talks, and China is a growing market for Brazilian exports.
Chile: The conservative, Washington-based think tank the Heritage Foundation ranks Chile’s economy one of the most open in the world. The leftist government of President Ricardo Lagos has struck trade deals with countries across Europe, Asia, and North America, and the country has seen consistently strong growth, including a GDP increase of 6 percent last year. Chile more than doubled its foreign direct investment—from $2.5 billion in 2003 to $7.1 in 2004—despite limiting how quickly capital can be moved in and out of the country to encourage long-term investing. The government has also increased social spending, and has slashed the proportion of the population living in poverty from 40 percent to 18 percent in the last fifteen years. The country depends heavily on exports—of copper, minerals, wood products, fruit, seafood, and wine— and ended 2004 with a historic $9 billion trade surplus.
Costa Rica: President Abel Pacheco, elected in 2002, leads a strong economy with a 2004 GDP growth rate of 4 percent, but relatively high inflation of 14 percent. The country has enjoyed stability unusual among its neighbors, with strong democratic institutions and an orderly pattern of government succession. Costa Rica is relatively prosperous, less stratified along class and ethnic lines than many Latin American countries, and has a stable middle class. Its lack of an army has spared it from experiencing the military rule of other countries in the region. Costa Rica has a stable relationship with the United States, and benefits from the Central American Free Trade Agreement (CAFTA) passed by Congress last summer and signed into law August 2004. Tourism and related activities account for over 60 percent of Costa Rica’s GDP.
Colombia: Colombia—a huge country whose population of 45 million is the third-largest in the region, after Brazil and Mexico—has a troubled relationship with the United States. Colombians accuse U.S. officials of pressuring them to end the drug trade while doing little to curb demand in theUnited States, the region’s biggest drug market. The drug industry also feeds the violence, terrorist attacks, and conflict with armed militias that have plagued Colombian society. President Alvaro Uribe, elected in 2002, has focused on improving national security as well as expanding international trade, supporting alternate means of development, and reforming the judicial system. He enjoys high popularity ratings over significant improvements in security, including an 18 percent drop in homicides since 2002. He also enjoys good relations with the Bush administration, which has contributed more than $2 billion worth of aid—including military and police assistance, humanitarian aid, development, and economic and judicial reforms—to the country in the last five years. Coca and poppy cultivation are down 33 percent since 2001, and the economy grew over 4 percent in 2004.
Dominican Republic: The Dominican Republicis also benefiting from CAFTA. The agreement eliminated tariffs on more than 80 percent of U.S. consumer and service exports to the region, and will phase out the remaining tariffs over the next ten years. Eighty percent of imports from the region already enter the United States duty free. The United States is the country’s most important trading partner, accounting for 87 percent of export revenues. The Dominican Republic’s most important exports include nickel, sugar, coffee, cacao, and tobacco. After strong growth in the late 1990s, the economy shrank by 0.4 percent in 2004. The government of President Leonel Fernandez, elected in May 2004, has worked closely with theUnited Stateson law enforcement, immigration, and counterterrorism issues.
Ecuador:Public protests brought down former president Lucio Gutierrez—a leftist populist who campaigned on an anti-corruption platform—in April after he used authoritarian tactics to fight growing opposition. Vice President Alfredo Palacio took over, but his government is considered weak and under pressure to deliver on reforms. The country’s economy is heavily dependent on oil, which accounted for more than 50 percent of its total export earnings in 2004. Ecuador is also the world’s largest exporter of bananas and a major source of shrimp. Last year, the country forfeited $15.7 million in U.S. aid for refusing to sign an agreement giving U.S. military personnel special immunity from the International Criminal Court. Some ninety countries have ratified the ICC, but theUnited Statesopposes it for fear its soldiers could be subject to politically motivated prosecutions.
Guatemala:Guatemala, a CAFTA member, depends on agriculture for a quarter of its GDP. The country produces coffee, sugar, bananas, cardamom, vegetables, flowers and plants, timber, rice, and rubber. The United Stateshas pressured Guatemala on drug trafficking, saying the administration of President Oscar Berger Perdomo, who took office in January 2004, has been ineffective in fighting thedrug trade. World Bank reforms have modernized bank regulations and criminalized money laundering, but the country still suffers a high crime rate and a serious public corruption problem. In addition, human rights activists, judicial workers, journalists, and witnesses in human rights trials are often violently harassed or intimidated. As in many Latin American countries, income distribution inGuatemalais highly unequal: the wealthiest 10 percent of the population receives half of all income. Eighty percent of the population lives in poverty, with some 7.6 million of them in extreme poverty. The country has some of the worst development indicators—including infant mortality and illiteracy—in the hemisphere.
Honduras: PresidentRicardo Maduro Joest took office in January 2002 in what international observers called a free, fair election that showed the maturation of the country’s democratic institutions after a history of military rule. Maduro promised to reduce crime, reinvigorate the economy, and fight corruption. One of his first acts as president was to deploy a joint military-police force to the streets to address the country’s massive crime problem. Maduro has been a strong supporter of the U.S.-led war on terrorism, even contributing 370 troops to the U.S.-led coalition inIraq .
Mexico: Mexico is the most populous Spanish-speaking country in the world, with 105 million people. It is highly dependent economically on the United States, which buys 88 percent of its exports and accounts for 25 percent of the country’s GDP.As the U.S.economy has improved since 2001, so has the Mexican economy, which grew 4.2 percent in 2004. Top Mexican exports to the U.S.include petroleum, cars, and electronics equipment. Despite its close ties to the United States,Mexicoalso has strong trade links with many other countries, includingCanadaand the European Union. Vicente Fox Quesada was elected president in 2000 in what were considered the most free and fair elections in Mexico’s history. Fox, an opposition candidate from the National Action (PAN) party, ended the Institutional Revolutionary Party’s (PRI) 71-year hold on the presidency. The Fox administration has worked closely with the Bush administration on trade and economic reform, homeland security, drug control, border issues, migration, and democracy promotion. But early Bush administration promises of major progress on U.S. immigration reform—in return for more Mexican cooperation on border control—have failed to materialize, cooling the relationship.
Nicaragua: Nicaragua has seen significant improvement in its economy since it began free-market reforms in 1991, after years of economic neglect under the Sandinista regime of 1979-90. In that time, the country has privatized more than 350 state enterprises, reduced inflation from 13,500 percent to 5.3 percent, and cut the foreign debt in half. The economy began expanding in 1994 and grew 2.5 percent in 2001 before contracting as a result of the global recession, low coffee prices, a drought, and a series of bank failures. The economy grew at only 1.97 percent in 2004. Despite the progress, Nicaraguaremains the second-poorest nation in the hemisphere. Unemployment is officially around 22 percent, and another 36 percent are underemployed. Nicaraguasuffers from persistent trade and budget deficits and pays a high level of debt servicing, leaving it dependent on foreign assistance. In 2001, Enrique Bolanos of the Liberal Constitutionalist Party was elected to the presidency in elections generally considered free and fair.
Panama: Bush will end his overseas trip in Panama, meeting President Martin Torrijos Espino for talks November 6-7. Torrijos, elected in May 2004, has mounted a “zero tolerance” campaign against corruption, and also focused on increasing transparency in the government. Many of his closest cabinet ministers are non-political technocrats known for their support of the government’s anti-corruption goals.Panama ’s GDP, which grew 6.2 percent last year, is the highest per capita in Central America, but 40 percent of the country’s population lives in poverty. The economy is based on services—including traffic regulation through the Panama Canal, banking, insurance, container ports, flagship registry, and healthcare—which account for nearly 80 percent of GDP.Panamahas free trade agreements with Central America, the United States,Singapore , and Taiwan . It has been a strong supporter of the war on terror; in January 2005, Panama sent election supervisors to Iraqto help monitor the country’s parliamentary elections.
Peru: After ten years of increasingly autocratic rule under Alberto Fujimori,Peruelected Alejandro Toledo president in 2001. His government has followed mostly orthodox macroeconomic policies and tried to attract investment. GDP has grown steadily, including an estimated 5 percent growth increase in 2004. Economic growth has come from construction, mining, investment in natural gas, and exports. Inflation was 3.5 percent in 2004, and the fiscal deficit fell to 1.4 percent of GDP. Despite this success, Toledo had terrible approval ratings last year of barely 10 percent, from a high of 59 percent when he took office. Public dissatisfaction is due partly to accusations of corruption in his government but also from workers’ frustration over missing out on the economy’s growth. Major challenges remain: 54 percent of the country’s population lives in poverty, and 24 percent in extreme poverty. Twenty percent of children under five years old are malnourished. Wealth and economic activity are concentrated in Limaand other major cities, while rural Andean and jungle areas suffer extreme poverty. Unemployment and underemployment levels total some 56 percent nationwide. Still, the United States enjoys a strong and cooperative relationship with Peru, particularly on drug-eradication efforts.
Venezuela: President Hugo Chavez, elected for the first time in 1998, has become a huge thorn in the side of the Untied States, constantly challenging Bush administration policies and practicing a mix of populist socialism and strong-arm tactics supported by the country’s oil revenues. Chavez has repeatedly accused Bush of trying to overthrow him and invade his country. He has also made a point of reaching out to Fidel Castro’s Communist regime. U.S. Secretary of State Condoleezza Rice has spoken out strongly against Chavez, but says the United States has no plans to pursue regime change in Venezuela. Many experts say Chavez, who enjoys wide popularity across Latin America, could prompt a confrontation with Bush at the Argentine summit. Chavez has stayed in power despite attempts to overthrow him, including the 2002 demonstrations in Caracas that brought half a million people to the streets to demand his ouster. Venezuela, one of the top four suppliers of foreign oil to the United States, enjoyed 16 percent economic growth in 2004 primarily due to high oil prices. The petroleum industry accounts for a quarter of GDP. Despite its resources, Venezuela has massive income inequality: 75 percent of the population lives in poverty, with 40 percent in extreme poverty.