Latin America Update

Monday, June 26, 2006

JULIA SWEIG: Ladies and gentlemen, friends, welcome to summer at the Council on Foreign Relations. Summer means that we’re still starting on time, and we’ll end on time. I’m Julia Sweig. I direct the council’s Latin America Program. I’m based in our Washington, D.C. office. I’m very happy to see all of you here. We are extremely fortunate today for our Latin America update discussion to have with us three extraordinarily knowledgeable and experienced individuals who come to the issues before us from very diverse perspectives.

We have Enrique Krauze, and he’s the editor and chief of Letras Libres and a frequent author and raised prolifically both in Spanish and English and is here today from Mexico City.

We have—will be brief about their bios because you have all of them.

We have Anoop Singh, who directs the Western Hemisphere portfolio at the International Monetary Fund. He is long experienced in managing macroeconomic issues throughout the world.

And we have Deborah Yashar, who, at Princeton University, directs the Latin America Program. She’s an associate professor with a particular expertise in issues of social movements, indigenous movements and democratization in Latin America.

Today, I want to contradict the document that you have in front of you. This will be taking place on the record, not off the record. So we chuck our non-attribution policies, and we’ll stay on the record. We have some members of the press here.

We’ll have a conversation between the four of us for about the first 25 minutes, and then, we’ll open it up to the floor to a conversation with you all. I want to make a little bit of—a housekeeping issues—please turn off all things electronic other than pacemakers—(laughter)—so that we won’t be interrupted, and when you have your machines on vibrate, that doesn’t cut it because the room vibrates. We hear the vibration. So if it’s possible to silence the vibrators, that would be lovely as well.

We released at the Council on Foreign Relations an important paper on Mexico last week, “Challenges for a Post-Election Mexico.” It’s the first in a series of three council special reports on Latin America. We will be releasing one on Venezuela and one on Bolivia over the next couple of months. The Mexico report is in its uncorrected, proof version. We’ll be—we released it this week, and we will then update it once we know who the winner of the election is and re-release it both in Spanish and English in the middle of July and have a discussion about Mexico also here in New York in the middle of July.

So I want to get to our discussion here today, and you know, I—it seems that we thought of this, doing this meeting because we wanted to try to get our arms around this issue of what’s happening in Latin America, how many lefts are there—one left, two left, three left, wrong left, right left. But beyond that, it seems that—and the Mexican elections surely demonstrates that, that what we have is in a sense the forces of democratization and the forces of globalization in Latin America. Their interplay is not necessarily one of reinforcing one another, but it’s at times bumping up against one another. So with these three speakers, I think we’ll be able to dig deep.

And for the perspective—perhaps the most positive perspective, paradox, I’d like to turn to Anoop Singh, who can talk a little bit about what’s happening on the economic front and a bit about what he sees coming down the pike for our hemisphere.

ANOOP SINGH: Thank you very much. It’s always good to sacrifice the notes when you’re speaking publicly.

But let me say this, as you look back the last 50-100 years in Latin America, there’s one and one event that stands out, and that is, the region has been busted by a kind of macroeconomic instability every five or 10 years like no other region has in the world. And I think it is this financial instability that has been at the core of the social and poverty malaise that we’ve seen.

Now, to cut a long story short, from my own conversations, from others I’ve met, I am becoming convinced that there is a new macroeconomic reality that has developed or is developing in America. And whether you speak to those in Venezuela, in Argentina or in La Paz, I think you get the same view of macroeconomic instability; that the politicians in this new democratic world that the region is in, have realized that high inflation and macroeconomic instability is going to get them voted out of office. And therefore, suddenly we find, I believe, that low inflation and macroeconomic stability makes for good politics.

And so I am astonished by how much people have stressed publicly and to us that their governments or their parties are committed to macroeconomic stability. That is not just words. As you look back the last five years elections, you find that in the one and two years after the recent elections inflation has actually gone down on average from before these elections. And we find that during the transitions, all shades of politics had seemingly worked together to maintain control of the macroeconomic variables.

And I’ll end with just one point made to me in La Paz, in February, soon after the Morales government won, and we went to meet them and spoke about macroeconomic stability and the budget, and so on. 

And one very senior official turned to me and said in a rather scolding tone, he said, “Please remember, low inflation and macroeconomic stability is not the preserve of the IMF, it is an asset of the Bolivian people, and we would not lose it.” 

Dramatic words. 

So I think there is a reality that new governments will at least try not to sacrifice macroeconomic stability, so perhaps we need not be that concerned about market evidence in the coming elections where they still have to take place. The issue is with the kind of fiscal structures we have in the region, do the leaders realize what it will take to maintain that stability?

Julia, that’s where I am.

SWEIG: Terrific.

Well, Enrique, I’ll turn to you now because we were talking a bit about this matter of do the leaders realize—I guess that would be a good theme, especially in this increasingly democratic environment in the hemisphere, for you to talk a bit about Mexico.

ENRIQUE KRAUZE: Yes. First of all, to touch on the subject of economics, if Lopez Obrador tries to deliver 5 percent of the promises he has given to the people, the whole idea of macroeconomic stability that you have been talking about will crumble in Mexico. And let us not take his promises lightly, and let us try—this is my aim here to be with you and to try to help you to read correctly what’s happening in Mexico.

The man is a charismatic leader. In a recent piece in the New Republic, I called him—and it’s not entirely a metaphor—“the tropical messiah” because he really, deeply, sincerely—he’s not a cynic, he doesn’t lie—feels that he has a bond with the people and the people believe in that bond, and he has promised that he will start a completely new era in Mexico. And he has promised things that not even the Swedish government could deliver to its people.

Now, we can discount that as promises of any electoral system. Might be. But my idea is that the man is very serious. And since he has strong limitations for the fact, for instance, that he hasn’t been able—he hasn’t been interested in traveling abroad, he doesn’t hold a passport, so his primitive outlook and his lack of economic knowledge, in spite of the good people that surround him, might be dangerous.

But aside from economics, let me touch upon the last sentence in a foreign affairs piece that I published in Foreign Affairs last year, in November. “In many ways”, I said, “a victory for a modern, left-wing government would be the best possible result for Mexico. Regrettably, it is far from clear that the PRD can become such a movement. The PRD, that is the party of Lopez Obrador, has favored retaining state ownership of the oil and electrical industries, and been suspicious of free markets, foreign investment, and the process of globalization.

“Meanwhile, many members of the Mexican left have show ambivalence or outright hostility to liberal democracy—limits on the extent of government power, especially absolute power in the hands of a single man; but also power manipulated through messianic demagoguery and mass mobilization; a full commitment to the autonomy of the judiciary and the division of powers, to freedom of speech, and to complete financial openness, accountability in government, or respect for autonomous institutions, such as the Central Bank, and a distaste for violence, especially when reforms can be accomplished peacefully.

“These are all necessary principles of a liberal democracy, of an open society. And some of Lopez Obrador’s past behavior suggests that he may not respect them. A failure to honor them at the national level could put the process of democracy itself at risk.”

I wrote these lines in October, 2005, and I have no reason to believe that the man has changed. So I hope I can explain a bit more during this session why I have reasons to fear. Of course he’s not Hugo Chavez, but he’s not Lula either. So who is he? I might give some clues. (Laughter.)

SWEIG: Well, let’s bounce off of Enrique and Anoop’s comments to talk about what they raise, is this issue of populism and how it is that elected leaders in today’s environment that are increasingly responsive to their electorates are going to be able to manage the domestic political environment while also managing Wall Street, keeping macroeconomics in check. And it sounds like a very tall order.

Speak a little bit about Bolivia, if you could, Deborah, and about the environment there and elsewhere in the Andean region, where Peru and Ecuador also are undergoing significant shifts on the popular level that are affecting the macroeconomic and democratic institutions.

DEBORAH J. YASHAR: Sure. Well, first I’d like to start off by thanking you for the invitation to participate in this conversation with everyone today, and start off secondly with an observation before we turn to Bolivia, which is that one of the striking developments throughout Latin America over the last several decades have been the emergency of indigenous politics in a way that we really had not seen in prior years.

For as we all know, there are quite significant, indigenous populations throughout Latin America, particularly in the Andean region, actually. I mentioned also in Mexico and parts of Central America. And what we’ve witnessed over the last few decades has been on the one hand a decline of some class-based movements in many countries, particularly unions and peasants of the earlier populist version, and the emergence of indigenous movements, particularly in Bolivia, in Ecuador, in Mexico. The famous examples are the Zapatistas in 1992 and on, parts of Guatemala and the like.

These indigenous movements are striking in part because many Latin American countries, when they had talked about populism in early decades, had not really considered the ethnic dimensions of their countries; in other words, there’s an effort to talk about “the people” and responding to popular demands in terms of class-based, material-based understandings of poverty.

What we find throughout the Andes now is that there’s a sense of obvious observation at this point with respect to people, and many of these countries are ethnically diversified. In Bolivia and Ecuador and Peru, to come back to your question, there are quite large indigenous populations. And we find movements emerging, in some of these cases, that are demanding that the state recognize them.

So to come back to the Bolivian case, Morales is just one type of indigenous movement—represents one type of indigenous movement that’s mobilized over the last few decades, demanding that indigenous people be recognized, that they be incorporated—and in his case, and not all indigenous movements—to recognize the demands associated with the Cocalero movement, which I’m happy to talk about, but I don’t want to reduce indigenous movements to a coca-based tradition of organizing.

The last thing I’ll say here and I think that is—remains to be seen in terms of politics is that the indigenous movements in general that are emerging throughout the region are demanding two broad-based kinds of demands: on the one hand, very traditional, liberal demands, which is that each individual in a country should be recognized, should be treated equally, should not be discriminated against; in other words, they should have the individual rights that inhere in democracy.

But on the other hand, they are also demanding a recognition of collective rights that are not embedded in a liberal understanding of democracy: a recognition of collective communities, a recognition of collective identities, a recognition of different juridical systems. And so part of what we see in the region is this tension that is not only in Latin America between individual, liberal demands and a set of collective demands that I’ve referred to as a post-liberal challenge.

SWEIG: Anoop, on your trip to Bolivia—and I suspect subsequently others on your team have been working with the new Bolivian government—do you have a sense of an assessment from these last six months of whether those commitments that you heard on your first visit are intact? And speak a little bit more generally about Bolivia, if you would.

SINGH: Yeah, sure.

What I think in the now almost five months since the government has been there—we’ve had a mission out there last month that has spent two weeks talking to them.

I think on the macroeconomic side, they’re holding firm so far. I think they are saving a high proportion, so far, of the windfall gains from gas. I think their fiscal outturn this year will be much better than was even targeted in the budget. And although they did change the central bank governor, the new governor has given every indication that he continues—that he will be strong and there will be continuity. So I think on the macroeconomic side, they’re holding firm and they are being allowed to hold firm.

The tension, of course, that is arising is with their structural initiatives. (I would ?) point this out—I don’t want to defend anything—and that is what they’ve done and the way it’s been done has grabbed the newspapers and the headlines. But in fact, they haven’t actually implemented too much in the sense that regarding gas and Petrobras and the companies, it depends how contracts are rewritten, and that process is under way. So we need to wait and see how the process will turn out.

But what is clear to me is that however well-intentioned the government would like to be on the macroeconomic front, there will be a lot of tension if their structural initiatives are such that they do not attract investment and do not raise productivity. As you look back the last 10, 20, 30 years in Latin America and compare that to Asia, it’s very simple what there is going on. In Asia, you had all kinds of models. But you either had high-factor accumulation, a lot of capital being used, or you had high productivity, or you’ve had both. What is clear is that Latin America has had neither. That’s a reality. 

And therefore if growth is going to rise, they will have to find a formula under these governments that brings back investment, because if it does not raise growth, it will become impossible in due course to maintain that macrostability that I’ve talked about, because there will be the rise of even more extreme populist (measures of spending ?)

SWEIG: A very tough dynamic.

Enrique, there’s an argument that I’ve heard made that Lopez Obrador, should he win, actually, in the sort of Nixon-China sense, has the political capacity domestically to make the kind of economic reforms—for example, opening up the energy sector and dealing more aggressively with corruption—than a Calderon, because his base may be more willing to accept those sort of measures, unlike a Calderon base. And I wish—I wonder if you could bounce off of that and address that.

KRAUZE: Yeah. I was very interested in meeting Lopez Obrador three years ago, because I really thought after the disillusion with Fox’s government—the frivolity, the responsibility of Fox’s government that was more interested in seeing how things were with his wife than with the country—it was really a big disappointment, and I wanted to meet him, because I wanted to see in him the kind of modern left-wing leader that would finally come out with the important reforms that the country needs, more or less in the way that you have described them.

And he is very popular. He is very charismatic. People all over Mexico love him.

But I was slowly having my own disappointment with him because I haven’t heard him not only not saying but even talking or hinting about doing the kinds of reforms that you are mentioning; quite the contrary. He has upgraded, let’s say, the degree and the heat of class polarization and the discourse of class conflict in Mexico as no other president has done in the last 70 years—the rich against the poor, those from above and those from below.

He has had almost daily, as a kind of—I would call it as a kind of soft revolutionary, talking against power, those in power, the rich, the businessmen. He has called the bankers “parasites.” And all these kind of assaults have made me think that he has not been hiding his agenda.

In truth, I think that what he wants to do is to have the state having much larger place in Mexican economy. Just let me give you one example. He said he will save $10 billion, and he will use them to give the money to the poor—money and Medicare and every imaginable service.

So in a TV program, I asked him, “How are you going to do that?” And he said, “By slashing to half the salaries of high bureaucrats.” Since he had repeated that for a thousand times, I had my numbers. So I said, “Okay. There are 4,000 high bureaucrats. Their salaries are this. Let’s slash them in half, or let’s fire them all. You still—the number goes not to $10 billion but to 5 percent of it. Where are you going to get the 95 percent, that rest?” He simply did not answer. And (neither ?) Ramirez de la O has answered that.

So—and this is only one—

SWEIG: Did you say Ramirez de la O has answered that?


KRAUZE: No, he hasn’t answered. And we have posed publicly the question, and they haven’t answered.

But aside from that, they, for instance, also promise to have two fast trains from Mexico to the border. 

SWEIG: The southern or the northern border?

KRAUZE: Northern border. (Laughter.) Two fast trains. 

I asked the Spaniards that are good at fast trains, and they told me that the costs would be like $30 billion. So where is he going to get the money? Aside from the little question that we now have these artifacts called planes—(laughter)—which are rather cheap, you know—(laughter)—and we really don’t see the use.

But he is promising all these things. Now, you can—if he is only cheating in order to get there, and then there is a pragmatist, a Lula, a Lagos, a Felipe Gonzalez inside him, I would be very glad to come here in a year and say, “Look, as a prophet, I was terrible,” you know. But the truth is that I think he means what he says, and people believe him. And he won’t go just like that in Mexican history, like another president dressed in populist clothing and inside having a technocratic or a liberal market heart. That’s my feeling.

SWEIG: It looks like you want to jump in, but let me grab Deborah for a second, and then I’ll come back to you, and then we’ll open up.

The dynamic Enrique describes is not limited to Mexico, as you note. We have leaders that are running on tickets promising a sort of Mayor Daley “chicken in every pot” kind of patronage, direct ghetto/pueblo sort of social services to the poor. And after decades, of course, of no social services or minimal social services to the poor, how can that not be appealing?

But I want to press you a little bit because you didn’t really answer my question, which is how will somebody like Evo Morales manage this huge mandate that he has now got, this enormously tall order of campaign promises? His first hundred days were busy, and his poll ratings are very, very high now. But talk a little bit about the Constituent Assembly that’s coming down the pike, and the land reform and its polarization potential there. I want to just draw you out a little bit on that.

YASHAR: I want to first, if I could, respond first to something that Anoop said, but it will come back to this comment, which is that Latin America has obviously had just terrible, in many cases, patterns of growth, certainly not sustainable growth. And we’ve often looked towards East Asia to think about how we could replicate the models of growth that we’ve seen in those cases. But, of course, one of the huge differences are the levels of inequality. And this will come back to your question, which is that when we look at the East Asian cases, the levels of inequality are not anywhere close to the levels of inequality in Latin America, which is oftentimes seen—and Brazil in particular—as one of the most unequal regions in the world. Brazil, arguably one of the most unequal countries in the world. 

This provides a context for the populism that we were talking about, whether or not it’s Bolivia, Mexico, Peru, Guatemala and the like. It’s not just a question of poverty, but people who see the extremes whereby the kinds of claims of Lopez Obrador to slash the salaries of those who are at the highest level has an appeal, not just because of poverty, but because of the inequality that they see.

Now, can someone like Morales actually manage this? I am actually going to agree with some of the comments that Anoop was saying earlier, which is that I’m not sure that Morales or any other leader in this particular context, whether or not they were seen as coming from the left or coming from the moderate position, or from some other area—place on the political spectrum, could manage this in a remarkably successful way, not only because of the levels of inequality, but also because the political party system in Bolivia, in Peru, in Venezuela, in Guatemala, is bankrupt. Mexico stands out, in part, because its party system, while changing, has at least been firmer than the party systems in other places. And I raise this because presidents, in most cases, cannot sustain an agenda absent having legislatures sign off. When you have a political party system which is either non-existent or crumbling, the first problem is being able to sustain a political agenda that is programmatic and forward-looking. That’s the first problem for Morales. Even though he has a significant group in the legislature, the party system is bankrupt. And Bolivia is a very interesting example in this regard, because as many of us know, in the 1990s, under Sanchez de Lozada, no leftist president from this earlier period, but someone who implemented very significant reforms, it doesn’t mean that those reforms were sustained. And this is in part a question of having a difficult party system.

But the final part that I’ll add—because I could talk about this at length—is that Morales, as an indigenous leader who has come to represent the anti-neo-liberal agenda in Latin America, has mobilized constituencies not just among the indigenous people, but amongst the kind of anti-free trade grouping within Bolivia. But, as Anoop said, that doesn’t necessarily mean that he himself is going to promote this radical agenda. And so I see him as being caught, in some senses, like many political leaders would be, which is on the one hand needing to respond to this constituency, which is likely to push it to become even more radical, as we’ve seen in places like Brazil and other cases; and on the other hand, needing to respond to very serious constraints and concerns about inflation, macroeconomic stability; wanting to negotiate some kind of free trade agreement which will be favorable, while certainly not on the terms that the Bush administration has put forth. Can he do that successfully? I think it’s a very tall order. But I would just end by emphasizing that I’m not quite sure who would be able to negotiate that in a successful and—and I underscore “and”—a sustainable way in the long term.

SWEIG: Excellent point, yes. Something for us to bear in mind over the next 500 decades—500 years.

Anoop, I wanted you to jump in. You had something to follow up on Enrique.

SINGH: Well, I was just going to make another optimistic point, and that’s, at the same time, it seems that Lopez Obrador has been sending his apparent economic team, economic advisers, to the U.S. to meet with all shades of opinion, and to reassure them, you know, that they’re going to do the right thing. So—

KRAUZE: Let me put it this way. I completely agree, I think they are very positive the idea of helping the people directly. Many of his social programs make sense. The main point is that to really make them work, he would have to touch upon vested interests; for instance, the unions, or not only the top 4,000 bureaucrats, but the bureaucracy itself.

I don’t see him doing that. And my only big concern in the economic aspect is that he has promised so much, and he has—he feels himself to be really the savior of Mexico after 500 years of darkness, that it’s something—the personality, the character, the charismatic is something that disturbs me.

But I want to underline that my preoccupation with him more than economics is politics. Mexico, do not forget, is a very young and feeble democracy. We have been a democracy for a few years now, a real democracy. We have free elections, orderly elections, clean elections—no corruption at all in the elections. We have freedom of speech and thought, real freedom in the media, real debate, balance of power, a lot of transparency—several things that we simply did not have. President Fox was—has been unable to pass many reforms that I would have liked him to pass because the congress was against it. My fear—and I can talk about it later on—is that we could—with Lopez Obrador it might happen, but we could have nothing less than the reconstitution of the old Mexican political system, not in the PRI, but in the PDR with the migration of the members of the PRI, of an imploded PRI, to the PDR.

So we could end up very soon or not that late, sooner than later, of having an all-powerful president again owning the country. That would be a shame because that wouldn’t be but a simulation of democracy, not a real democracy. My main preoccupation is political.

SWEIG: Well, this is a good time for us to open the floor to you all, and I’ll take your questions in the order that I see your hand come up. And we’ll—you all will feel free to let me know if you want to take a question, and then, I’ll refer to you.

Yes? And if you could identify yourself when you stand up, please.

QUESTIONER: Cheryl Brookins (sp), Public Capital Advisors (sp). Latin America failed to take advantage of the commodity windfall from the 1970s. What’s your—what is your best thinking as to whether these new leaders are going to wake up to the fact they are part of the globalized world, and whatever their domestic constraints are, they’ve got to become more competitive. What is your best guess as to the leadership in Latin America being able to take advantage of this commodity windfall or is it going to be a hard landing again?

SWEIG: Anoop?

SINGH: Well, I think that—(word inaudible)—answer. I think the China effect is happening. I’m astonished by how many leaders and the teams and presidents are going to China, and we had a discussion with Mr. Morales a year ago before he became president, he was a candidate, and he was talking about public investment and so on the street. And we discussed China, and we tried to explain that the reality is in China much of the incremental growth that has happened in the last 10 years and in India recently has come from private investment and from the private sector, not from the state. And that is a reality that I believe is sinking in Latin America.

I would like to believe that leaders are aware that they need investment, the state sector cannot provide it, and it’s best to go outside. What they face, as I think Deborah was saying, is a balancing act—how do they reconcile that with their campaign promises and so on. So I think they’re caught in a bind.

SWEIG: Deborah, you want to speak about oil and gas in Ecuador and Bolivia and the Andean region?

YASHAR: Well, I did, but I wanted to say a prior comment, which is, I think it is not entirely correct to say that they don’t—that they’re not aware of globalization and the need to integrate themselves. In fact, there have been ongoing efforts throughout the region to create different kinds of common markets, economic integration within the region, with a recognition that individual countries on their own are not going to negotiate better terms of trade for themselves by lowering the tariffs if they are not able to join forces and create some kind of internal trade and buy extension to negotiate with others elsewhere.

So it’s happening with China, but it’s also happening with the European Union and again, as I said, within different blocs, you find Mercosur in the south, you find the Andean Pact trying to renegotiate itself in some kind of interesting way. Whether or not they’ll do it successfully is another question. But I’d want to highlight that there are very serious efforts to try not only rely on the United States, but to diversify.

But the second point, to come back to Julia’s question, is that obviously there has been the discovery of these oil and gas reserves throughout the region. Now we might all think that this is actually a great boom for the region, and certainly it’s provided a set of resources to promote some of these populist measures that were talked about earlier.

But if we step back and look at countries that have relied on oil and gas reserves, or primary commodities of this sort, they have not tended to be a sustainable basis for development because the prices of oil and gas tend to be so—to fluctuate so much over time. It’s high now, but it might not be high 10 years from now. And those resources, then, are not historically been invested in in a sustainable way, not just in Latin America, but around the world, whether or not we look in this particular region or elsewhere. And the economists could talk about the—(inaudible)—better than I could, but I would not expect that the discovery of oil and gas will provide a kind of golden key to development in the region. In fact, I’m concerned about what that suggests for long-term development.

SWEIG: Enrique? No?

Okay. The gentleman sitting next to you, yes. No, you. I’m sorry.

QUESTIONER: Thank you. Deroy Murdock with the Atlas Economic Research Foundation. We’ve seen over the last couple of years, Fidel Castro and Cuba moving more closely, of course, to Venezuela and Hugo Chavez. I’m wondering to what degree you think Castro and Cuba are moving close to—or the following countries— Bolivia with Morales; Argentina with Kirchner; possibly Mexico with Lopez Obrador—moving closer towards Castro and Cuba. And if so, should we be concerned about that?

SWEIG: Who wants that? Enrique?

KRAUZE: Well, as much as I want to underline the worries that I have with Lopez Obrador; the fact, for instance, that he has said that he admires President Kirchner very much because of his wonderful handling of the foreign debt—he said that, which makes me think that the IMF has a task, a difficult task of not only—of teaching, actually teaching the people. For instance, I heard Evo Morales said he admired very much China, because he was a reader of Mao. And even Lopez Obrador said that he admired China because they have this huge—it’s like Mexico because they have such large manpower. No? I mean, they are very ignorant, very ignorant. That’s a very important premise.

But as much as I worry, I have to say that no, Lopez Obrador, if he wins—and I’m assuming, obviously, as you’ve noticed, that he will win—there are other two candidates, we should talk a bit about them, at least about Calderon, because he has some chances. But no, he will not—even though he—the only place he liked to have as a resort of vacation in his life was Cuba, even though he’s from the tropics, as Venezuela and Castro are, I don’t see him taking sides or doing anything. He’s very inward-looking, and he’s very much—he has an extraordinary historic, almost a Hegelian idea of the Mexican state, that’s important to bear in mind, very important, the role of the Mexican state. And he has very little—he cares very little for private investment or businesses. He has said, for instance, “I will allow private investment, not in oil and electricity.” But the word “allow” made me think, who does he think he is?  That’s why I called him the Mexican messiah.

SWEIG: I see many hands. I’ve got the gentleman at the back table, and then we’ll take you, sir. And then we’ll come back over here. And—yes, sir. Please stand up and—

QUESTIONER: Yeah, my name is Ricardo. I am a Mexican journalist in New York. And this question is for Mr. Krauze—

SWEIG: With which—with which—

QUESTIONER: I work for the Mexican News Agency, and for a magazine called Expansion. I want to ask you, is there a better option in Mexico than Lopez Obrador? And what are, in your view, that conditions that allowed Lopez Obrador to be in the position he is in?

KRAUZE: The second part?

QUESTIONER: What were the conditions, in your view, that allowed Lopez Obrador to be in the position he’s in?

KRAUZE: The best option for Mexico was and has been the option of the modern left. But there is not such an option, in my opinion, right now, because he has such an idea of the state, and such low opinion of what private investment and modern economy is. You will have to do lots—and the people surrounding him, lots of teaching. 

And secondly, I dislike very much the way he reacts, for instance, concerning the law. He dismisses laws and the rule of law. He thinks laws were made by the bourgeoisie to oppress the poor—all those sorts of old-fashioned 19th century ideas, this is what he has in mind.

So, is there a better option? Well, I guess Calderon is a better option, although he has his own problems.

SWEIG: Let’s be fair and balanced here. Why don’t you speak for a minute about Calderon?

KRAUZE: Calderon has had a very fast—he has grown very fast. Almost no one knew him in November; now he’s very tight in the—and he’s honest, he’s intelligent. He is—he wants more or less the same model that we’ve been talking here.

But the PAN, his party, lacks experience in politics. He doesn’t have the appeal of Lopez Obrador, and he has the liability of Fox. Fox was a big disillusion.

And to answer your question, the reason why we have Lopez Obrador in such a strong position is the power void that Fox created. After having had nearly 90 percent of public approval when he came in the year 2000, he simply forgot about it, and he even toyed with the idea—which is almost comic—of having his wife succeeding him as president. That was so shameful that it really made him seem as a not very serious person.

So that power voids get filled, and it’s Lopez Obrador who filled the void.

SWEIG: Yes, sir.

QUESTIONER: Dick Huber, I’m a private investor in Latin America.

Mr. Singh, you cited the Asian model and how Latin America has been unable to learn or profit from that model. But we have a model, really, of success in Latin America that no one mentioned.

SINGH: Chile.

QUESTIONER: Of course. Chile has taken advantage of the commodity boom, has, I think, had pretty damn good administration. They’ve invested in public services. Why can’t it serve as a model for other countries in Latin America ?

SINGH: You want to go first?

SWEIG: No, no, no, no, no.

KRAUZE: That’s for you.

SINGH: Well, you’re absolutely correct that Chile is an outstanding model. In fact, it is a better model than Asia for Latin America for all the obvious reasons. And I would like to believe that there are growing models. As you look at different areas of economic policy, you see different countries creating niches of good policies.

You have social programs that are becoming role models; even in Mexico and Brazil. So Chile is an outstanding model, and there are others, too.

Your question is, why is that model not inspiring the neighbors? Well, I don’t know. I’ve asked that question, and I’ve got no answer.

KRAUZE: Can I step in—

SINGH: You may have an answer—

KRAUZE: No, I don’t. But I might—

SWEIG: No, but Deborah might.

KRAUZE: Oh, yeah.

YASHAR: I was going to say in part why I think the Chilean model is so hard to replicate. I just think people are inspired by the Chilean model, that Chile stands out again not just because of levels of growth sustained in the light of lowering poverty levels, although still there is serious inequality levels in Chile.

But Chile stands out because it has a real party system, number one. You have political parties that mean something, that can build coalitions that have been sustained over time and that have been able to maintain programmatic policies. Moreover, Chile, unlike several of the countries that we’ve been talking about, has a capable state; in other words, when policies have been passed, they’ve actually been able to implement them.

Again, coming back to Bolivia, since it’s the country that we probably would not have mentioned at all 10 years ago, it’s come up more often today than one might have expected, is a country that has very low state capacity, that the capacity of the state to actually follow through on policies that have been legislated is low. And third, levels of human capital are high in Chile, again, compared to many other places in Latin America.

So when we’re thinking about investment models and why countries choose certain policies or are able to follow through, the obvious point that I’m making here is that the policies independently of thinking about the political parties in the state capacity—if we don’t think about this as a package, we’re missing one of the major challenges in the region.

SWEIG: We have several more questions from the audience, so on the next one, I’m not going to be able to allow all of us to answer, so—just so that we can resume in a timely way.

And I do see the gentleman here. Yes, please? And I’ll try to then take several questions and we can collect—(word inaudible)—answers.

QUESTIONER: I want to address this to Julia Sweig. My name is Steven Mukamal. And I what I see in all of the conversations that have been going on is that you got, like, a perfect storm brewing in the Americas. And if the electricity manages to congeal into one place, we could have an implosion of some kind. How can the United States set any kind of policies that may look towards preventing this storm from happening?

SWEIG: Well, thank you.

I wasn’t expected to have a question directed to me, Steven. This was a day for me to just have others speak.

But since you asked—(laughter)—you know, I don’t think that the United States is well-positioned at the moment to weigh in in a positive way. We have lost a lot of influence, we—whether positive influence or coercive, negative influence, we just don’t have a lot of it, and part of that has to do with the global environment and how our resources have been dedicated and used for good reason and sometimes for not good reason in the last several years. So—and our standing and credibility is very low in Latin America.

But having said that—and I don’t think it’ll happen right now or in the next two years, or maybe not in the next 10 years—Latin America and the United States—we’re all sort of stuck with one another. 

We have geographic proximity. We have maybe—I think there’s a professor out in UCLA who’s documented 150,000 microdemographic spaces in the United States where Latin Americans live. I’m talking about this tremendous Latino demographic that we have in the United States that continues. Our trade and investment continues to flow, although the investment has declined. So in a sense, we're stuck with one another.

But until the United States takes a look at the imbalance—and you know, at the council we’ve looked at this pretty significantly in the—what is the toolbox that we have, other than trade and drug and terror? Well, you know, we’ve got some aid money. We have a long history of ambivalence, but I think we have nowhere to go but up in terms of recovering our standing. And we have a drug policy that especially in the Andean region is very out of whack and an utter failure, quite frankly.

So you know, if you take the $1.8 billion in aid the United States has for Latin America, almost half of that is drug eradication-related. I think it’s time for us to have a new discussion, as we had in 1997-98, when we came up with Plan Colombia—and there’s been some successes there—but a new discussion about what we want to use with particular tool.

There’s another tool called the Millennium Challenge Corporation, where at the moment very few Latin American countries, because they’re too wealthy, are eligible. But we could recalibrate eligibility criteria so that poor areas within middle-income countries might be eligible. That would give us some space.

And also, we need to have a discussion about our rigidities, our own domestic protections related to trade.

So I think there’s some—we have a lot of work to do domestically to have that debate before we can take up the bilateral, but I do think that there is space to move.

And the—but the perfect storm may be brewing well before we get our own domestic act together.

Let’s see. So many of you. Let’s see. Let me let me take your question and Jose’s question, and then Tepperman and then my Brazilian journalist friend there. So we’ll take all four of you and then bring it back to our panelists.

QUESTIONER: Thank you. (Name inaudible) from Covington & Burling. A question for Enrique Krauze. How do you—how would you gauge the risk—if Calderon is announced the winner, how would you gauge the risk of instability and risk to the institutions of the country?

SWEIG: And I’m going to take the other questions first and let you all respond.


QUESTIONER: Jose Fernandez, Latham & Watkins. One of the by-products of a bankrupt political system is that there’s no credible opposition in many of these countries— Argentina, Bolivia, you name it—other than a handful of them. How do you see the opposition in Latin America acting as a limiting factor? And how do you see the U.S. playing with that opposition to try and restrict some of the disaster scenarios that you’ve been talking about?


QUESTIONER: Jason Tepperman, Baker Capital. Brazil has attracted some notice as an example to emulate of energy independence. To what extent, your judgment, has this been achieved through a true use of clean fuels or ethanol versus increased domestic production? And to what extent is it replicable as a strategy within the region or across the world?

SWEIG: (Off mike.)

QUESTIONER: I’m Angela Pimenta with BBC Brazil, and my question is for Mr. Singh. I would like you, sir, to comment on Bolsa Familia and how viable, how sustainable that will be to the social redistributing coming program in Brazil and how the next administration would be able to keep it, given the current level of government expenditure in the country.

SWEIG: And was there another? Are there any other—there’s a gentleman back there that’s very—please stand up, and then we’ll—and then I’ll ask the three of you to take whichever portions of these questions you’d like to, and use that as an opportunity to wrap up as well.

QUESTIONER: Hi. Alberto Mendeiros (sp). I’m a correspondent here for Reforma, the newspaper in Mexico. I wanted to ask Mr. Krauze—one of the things—you’re painting Lopez Obrador as a devil, as something—


QUESTIONER: —somebody very scary. But—

KRAUZE: No, no, not as a devil. Let’s be precise—

QUESTIONER: A messiah who might be—

KRAUZE: A tropical messiah, and it took me 25 pages to depict him—(laughter)—so don’t make a caricature of what I—but go on.

QUESTIONER: I think you’re sort of making him a caricature.



SWEIG: Your question?

QUESTIONER: My question is, aren’t we forgetting that he was in power already in Mexico City, and he worked with the business structures there, that he was in some way quite successful?

And then the other question would be, what do you see the role of congress if Lopez Obrador wins and he doesn’t have a majority?

SWEIG: So is there somebody that I called on that didn’t get the microphone? Okay.

So we’ll go—Enrique and then Deborah and then Anoop, and then we’ll be at 2:00.

KRAUZE: Okay. He worked very well with a few businessmen in the construction business. He has been bashing the business community all over his campaign and during his five years in office. It is in his speeches, and it is widely known. And it is the way not only big businesses, small businesses throughout the country feel. So I am not prejudging. I simply think that he has had a negative attitude towards private investment and business because he has such an idea of the state and the role of the state.

Secondly, the congress. He will not have a majority of the congress for sure, but my fear is precisely—that comes to one other question—that after arriving to power, being as charismatic as he is, the PRI will migrate the members of the PRI to the PDR, so we will have probably in the year 2009, in the mid-term elections, he will have the majority in the congress. A charismatic president with a majority in Mexican congress can change the judiciary; can do what he did in the federal district which is—in Mexico City—which is, he did not have the law of transparency. He can limit also the Bank of Mexico; he can do more or less everything he wants because he will be in the position of the old presidents in Mexico that were really the owners of the country and with something even more worrisome because he’s not—he won’t be an institutional president, but a charismatic president.

He has said that he will have a referendum in two years. In three years, he will ask the people if he stays or leaves, and we asked him, “Well, that’s a bad idea because we will have a political turmoil all these years.” “Okay, yes, I’ll do that,” he said, “in three years. If they said I should go, I go, but if they say I stay, I stay.” Then we asked him, “What about the sixth year? Will you pass the referendum again?” He said, “No, that I won’t do because the many times that that has been tried in Mexican history it hasn’t worked.” But he didn’t say that he was against that in principle. I am among the people who thinks that even he—if he doesn’t reelect himself, he will become like the power behind the power. We will have a reconstruction of Mexican political system under the hand of one man.

Now, Calderon can win. Yes, I think he can win. I don’t see it probable, but the probabilities are not high. If the margin is very little, we will have mobilizations in the street—in the streets for sure, and we will go into a very dangerous zone. If the margin is wide enough, 5, 6 percent, something like that, well, I guess Lopez Obrador will wait until the year 2012.

SWEIG: Deborah.

YASHAR: All right. I’d like to take on the question about oppositions, what they can do in thinking about the role of the United States. It’s a very striking question because five years ago the left would have been the opposition in most of these countries, and so the first thing to take note is that this current period, when we think about Bolivia and we think about Uruguay and other places, but that we have a new round of more left-oriented, leftists—with a plural—leaders who might have been in earlier periods the opposition. So what should the opposition do? They should play electoral politics in the way that we expect electoral politics to be, which is they should think about what their program is, they should mobilize their constituencies, they should get their message out, and they should try to win elections in a sustainable way.

In that context, I would say the United States should try to not get involved because, to come back to Julia’s observation, the United States, first off, does not have a particular cache in many countries. So the first point to recognize is that if there’s a discovery that the U.S. is trying to play and tilt electoral politics, that will, first off, not favor those whom they’re supporting. But secondly, and more to the point, electoral politics should be a question of domestic sovereignty, and I strongly believe that domestic politics and domestic citizenry should decide what their election—electoral outcomes should be. I believe that the opposition should play democratic politics, and if the United States is committed to democratic politics, then it needs to accept, not always with a smile, but accept the candidates who win a particular election.

But the second thing I just want to end on is that we have a history in the last two decades of presidents who campaign on one platform and who engage in what is commonly referred to as bait-and-switch: You pull them in, you come into office, you confront another set of realities, and you are forced to engage in a different set of economic policies than the ones that you campaigned on. Now, there’s been a lot of discussion about why that was problematic and the like, but I listened to this discussion of Mexico, and I’m not a Mexicanist, but I can’t help, as a comparativist, wondering whether or not, if Lopez Obrador is elected, and it sounds like he will be, the degree to which he really will have the free reign that you talk about.

SWEIG: I commend to all of you Deborah’s book. It was published last year not forthcoming, and it addresses many of these issues on domestic political mobilization that you’ve addressed today.

And Anoop, you had the first word. You can have the last word.

SINGH: Julia, thank you very much. Well, I’m glad that there was a question on Brazil, and we can end on Brazil. It’s a measure of the success of Brazil and President Lula that there has not been any other question on Brazil in the last 45 minutes. This really shows how far Brazil has come.

Just on the specific point about Bolsa Familia, I think they’ve done very well to reach 11 million families now. I think the evidence coming in from the (Baulch ?) Household Survey is that poverty has fallen quite significantly since 2002. And no doubt that program has played an important role in it.

I think they have managed to expand Bolsa Familia and social spending, while keeping their primary surplus right above 4, 4.25 percent of GDP. I don’t see any difficulty in Brazil doing that balancing act in the coming years.

Let me just end by saying that obviously Mexico is next week, and, therefore, enormously important—

KRAUZE: This week.

SINGH: —or this week—what happens. But as we look ahead the next five or 10 years, I think what Brazil does is going to be critical for the continent. And I think Brazil has already done a lot, where they were in 2002 and where we are now in terms of growth, in terms of the fall in poverty. And what has gone a little bit unnoticed in the popular literature is the enormity of Brazil ’s export response. That’s a country that has been deemed as being somewhat closed on the trade account, their export phenomenon the last few years has been a phenomenon. It speaks to the potential there is as Brazil opens up. So I think we need to watch Brazil. I think that holds an important key to Latin America the next 10 years.

SWEIG: Well, I want to tell you all that in the next school year, at the Council on Foreign Relations, we’ll be running a major task force on Latin America that will endeavor to come up with—to cover all these issues and answer the question about the United States and about other institutional and international actors and the hemisphere. So stay tuned for our Venezuela and Bolivia council. CFR will be reporting on those soon. 

And thank you very, very much. You’ve been a just superb panel, and I hope we can get you to come back soon. And thanks all for coming. (Applause.)







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