What ever happened to US relations with Latin America?
from Follow the Money

What ever happened to US relations with Latin America?

More on:

Emerging Markets

One of the things that has fascinated me is that US-Latin America relations have soured so much under Bush's watch. 

I think I am fascinated in part because I don't really buy the standard explanation: I don't think the US has entirely turned its back on Latin America after 9.11.  The Bush Administration did not ignore financial crises in Latin America in 2001 and 2002.   It backed a large increase in Argentina's IMF program in 2001.  The IMF's 2002 bailout of Brazil is very similar to the IMF's 1995 bailout of Mexico - a big loan that enabled a key country to avoid a potentially very disruptive default.  And as I argued in my previous post, if money is a measure of love, the Bush administration showered Latin economies with IMF love between 2001 and 2002. 

OK, Paul O'Neill said an undiplomatic thing or two before signing off on the IMF loan to Brazil, and the US was not banging on the IMF's door trying to convince them to make the loan.  But bottom line, the US did not stand in the way of a large IMF loan for Brazil.  The US played a very active role getting IMF (and World Bank) support for Uruguay, and was quite involved in various IMF decisions on Argentina as well. 

So what went wrong?

Part of it is that the Bush Administration has always seemed embarrassed that it relied on a Clinton-era tool - big IMF loans - to give substance to its relationship with much of Latin America.  As a result, the Bush Administration has not really claimed much credit for even the successful IMF bailouts that took place under its watch -- Brazil and Turkey are prime examples.   Instead of embracing big IMF loans and arguing that the IMF has a key role to play in managing the risks that come with financial globalization, the Bush Administration preferred to talk about limiting future IMF lending.  That was true even when the Administration was busy signing off on big loans. 

Lula is also rather embarrassed that his initial success also hinged heavily on support from the IMF.   The IMF's success in Brazil is consequently something of a political orphan. 

Part of it is that the US has done little other than not stand in the way of IMF lending.  The Bush Administration has not led a serious discussion about the financial risks that led to the crises, or contributed much to the dialogue about financial globalization.  Some said the Clinton Administration -- and the Clinton Treasury -- talked of little else.   Consequently, after the Brazil crisis passed, the US and many Latin countries have had little to talk about. 

Plus, there is a widespread perception that the Administration's policy is Chavez-centric (if not international criminal court centric).  Sebastian Edwards:  "Nothing has changed from the past ... It's still the neglected backyard.  This administration couldn't care less about the region, except for Chavez." 

Part of it is that much of the Bush Administration's broader agenda is at odds with social and political currents in Latin America.  Its "more markets and less taxes" bromides ring a bit hollow- Latin America feels like it tried that strategy in the 1990s, and found the results disappointing.  One can debate whether Latin America let the Washington Consensus down, or the Washington Consensus let Latin America down.  But there is little debate that Latin America expected more from its "market reforms" than it gotLarry Rohter of the New York Times:

The feeling among many Latin Americans is that the United States is coming with little to offer other than the usual nostrums about free trade, open markets, privatization and fiscal austerity, the same recipe that has vastly increased social inequality throughout Latin America during the past decade. "We've almost all of us been down that road, and it didn't work," said a diplomat from one South American country, speaking on condition of anonymity so as not to offend the Bush administration. "The United States continues to see things one way, but most of the rest of the hemisphere has moved on and is heading in another direction."

The funny thing is that both the Latin left and the Latin right are at odds with the Bush Administration.  Many on the right fault W for not offering Latin market reformers the same level of support that they got from his father.  See Domingo Cavallo -- though it should be noted that Cavallo did get a decent amount of cash from 43.  And those on the left don't relate with Bush's social, foreign or economic policies.

My favorite line comes from Riordan Roett, director of the Latin American studies program at the Johns Hopkins School of Advanced International Studies, also in the New York Times

He doesn't have any money to offer, so the president doesn't really have any cards to play ... Nobody among the crop of fiscally conservative but socially progressive presidents that we now have around the region is going to go to his defense.

Bush, in contrast, is socially conservative and fiscally ... liberal? reckless? Pick your adjective.  

Today, the US runs a primary fiscal deficit, while Argentina and Brazil run primary fiscal surpluses (the primary balance is government revenues - government spending on items other than interest). To be clear, because Brazil pays a lot more interest on its debt than the US does, Brazil runs an overall deficit despite a primary surplus.  Argentina generaly has had an outright budget surplus.    And today it is the US, not Argentina or Brazil, that has a large and potentially troublesome current account deficit ...   

More on:

Emerging Markets