Not Just Another Recession
Why the Global Economy May Never Be the Same
Two decades ago, following the end of the Cold War, the United States and Latin America seemed more prepared than ever before to forge political and economic partnerships. Latin America was emerging from an era of stagnation and economic crisis and appeared to be moving toward market economies and liberal democracies. In the early 1990s, building on U.S. President George H. W. Bush’s widely applauded vision of a hemisphere-wide free-trade zone, Mexico, Canada, and the United States negotiated the North American Free Trade Agreement. At the Organization of American States’ conference in 1991, which brought together 34 countries, a landmark agreement codified collective pro-democracy actions. Continuing this trend, the hemisphere’s democratically elected leaders gathered for the first-ever Summit of the Americas in 1994 and confirmed their deepening commitment to democratic principles, growth-oriented economic policies, and broad U.S.–Latin American cooperation. Words like “consensus” and “community” were used to capture the sense of good will.
Since 1999, however, when the recently deceased Venezuelan President Hugo Chávez came to power, the sense of community in the region has dissipated. Policy divergences among Latin American countries have become sharper; free trade and liberal democracy are no longer popular goals; and Latin America and the United States have, albeit cordially, gone their separate ways. Admittedly, generalizations about Latin America are risky; after all, for every country that has deviated from democratic norms, another has moved toward them. And Chávez was not single-handedly responsible for deflating the hopeful spirit that prevailed two decades ago. But his relentless defiance of Washington and its chief allies -- often accompanied by aggressive, even belligerent, rhetoric -- polarized the region.
To be sure, Chávez’s boldness partially helped inspire pride and political self-confidence in the region, in addition to revitalizing the dream of leftist revolution in Latin America. Chávez’s contributions, however, were minimal compared with the positive impact of larger and more important factors, such as the rise of Brazil, the commodity boom, the growing assertiveness of many of the region’s countries, and the acute fiscal and political shortcomings of the United States.
Far from unifying Latin America and thereby realizing the vision of Chávez’s hero, nineteenth-century independence leader Simón Bolívar, Chávez contributed to the fragmentation of the hemisphere. His attempts at regional cooperation, such as the socialist Bolivarian Alternative for the Americas (ALBA), appealed to only a handful of like-minded countries. After all, both at home and abroad, Chávez was mainly intent on accumulating power, not fostering cooperation. That is what motivated him to curtail Washington’s influence in Latin America and around the world.
To pursue his aims, Chávez not only relied on his endless energy and seductive rhetoric but also a great deal of money. The former president took full advantage of the benefits of being at the helm of one of the world’s largest oil producers. Despite declining oil production and exports stemming from Venezuela’s dismal governance and crumbling institutions, Chávez got lucky during his reign: the price of oil skyrocketed, from just $10 a barrel in 1999 to around $100 today; the peak, in 2008, was $145 per barrel.
Unique among Latin American leaders in the scope of his ambitions and resource wealth, Chávez forged security and economic alliances with China, Iran, and Russia. He also became the chief benefactor to a host of regional governments, which he supplied with subsidized oil under highly favorable financing terms. In 2005, Chávez made this patronage more official by establishing the Petrocaribe oil alliance, which now includes some 18 countries throughout Central America and the Caribbean. Many member states have profited from reselling part of their share of subsidized Venezuelan oil. In Haiti, for example, the practice accounts for roughly $400 million a year, or four percent of GDP. Precise figures are hard to come by, but there is little question that a number of Petrocaribe countries depend on Venezuelan largess.
In ALBA countries, shared political ideology has deepened economic reliance. Cuba, for example, imports an estimated 100,000 barrels of Venezuelan oil every day at preferential prices. The annual subsidy is approximately $3 billion to $4 billion a year, a substantial part of Cuba’s overall economy. Under Chávez’s rule, Venezuela essentially supplanted the Soviet Union as Cuba’s lifeboat. Similarly, Nicaragua enjoys roughly $500 million a year in subsidies from Venezuela. Whether even a like-minded successor government could maintain such commitments is a major worry for dependent governments, especially in light of mounting economic pressures in Venezuela.
Chávez left his imprint on recently founded regional organizations, too, all of which exclude the United States and Canada. Chief among them are the Union of South American Nations, created in 2008, and the Community of Latin American and Caribbean States, which was launched in 2011 and also includes Mexico and Central American countries. Although the organizations were designed to reflect Latin America’s unity, independence, and reorientation away from the United States, there is considerable disagreement among members on key issues of economic and trade policy, democracy, and U.S. relations. This raises doubts about how meaningful a role such institutions can play in the region.
Of course, Chávez deserves some credit for championing social welfare. He tirelessly confronted the social injustice and inequality in his own country. Toward this end, Chávez developed a number of social programs over the course of his tenure, which offered health services, literacy training, and discounted food to poor Venezuelans. This, in part, explains why he remained so popular.
The problem, however, is that Chávez’s approach to his country’s acute social problems ultimately proved ineffective and unsustainable. His programs were patronage-driven and did virtually nothing to create enduring institutions for broad-based, long-term economic and social development. Although his aggressive attacks against traditional elite groups (“rancid oligarchy” was a favorite characterization), had some popular resonance, the virulence of his discourse made his social programs more controversial and divisive than necessary, which ultimately undermined their success.
Whatever Chávez’s intentions, his insatiable craving for control crippled his government. For all of his effort and bravado, Chávez failed to build a coherent model that could be adopted elsewhere. His legacy in the region can be illustrated by comparing his administration with that of other countries, especially other leftist governments that are also independent of the United States and committed to a social agenda. The 2002–10 administration of Brazilian President Luiz Inácio Lula da Silva of the Workers’ Party is a good example. Lula managed to combine the give-and-take of democratic politics with fiscal discipline and well-designed social policies that lifted millions out of poverty. Venezuela’s debt-ridden economy, marked by chronic shortages and high inflation, is hardly an appealing alternative. The Latin American recipients of Chávez’s beneficence were understandably grateful, but it is telling that no other government in the region has sought to replicate his example. Most of the region’s leaders proclaim stronger support for Lula’s approach than for Chávez’s. With more effective governance models, marked by pragmatism and moderation, the prospects for sustained prosperity are better in countries such as Colombia and Peru than in Venezuela.
It is difficult to predict who will take the reins in Venezuela. The country’s vice president and Chávez’s designated successor, Nicolás Maduro, is in the strongest position, but Diosdado Cabello, the president of the Venezuelan National Assembly and a Chavista camp, as does Rafael Ramírez, president of the state-owned petroleum company. Meanwhile, the opposition remains weak and lacks a coherent, unified platform. Still, Henrique Capriles, the losing candidate to Chavez in the October 2012 election, has showed leadership capacity and could well be a major player in the future. Amidst this uncertainty, one thing is for sure: whoever takes over, Chávez’s legacy, and the damage he left behind, will not be easily undone.