Latin America seems to have finally freed itself from its failing patterns of populism with impressive economic results, but Venezuela and, more evidently, Argentina remain reluctant to play ball.
Latin America has suffered from decades of political populism, with mostly catastrophic results, including sovereign defaults and widespread poverty. More recently the region’s leading countries have embarked on pro-business and investment policies, resulting in better outcomes – economic growth and rising standards of living.
But there are always exceptions. Venezuela has been an outlier for some time, with president Hugo Chavez using oil revenues to fund populist social programmes rather than engaging in reform. Venezuela’s political future is currently unclear, with Mr Chavez battling cancer and elections due in October, but long-term sustainable development depends on creating a more rational economic environment.
Even more worrying is Argentina’s increasing tendency to go for the populist option, the latest incarnation being the moves to re-nationalise the oil company YPF, whose majority shareholder was the Spanish group Repsol.
With this decision, Argentina’s president, Cristina Fernández de Kirchner is making the classic populist mistake of pursuing short-term, crowd-pleasing fixes to economic problems that ultimately deter investment and make the situation worse. Yet again, Argentina’s poor, who have suffered from the effects of such populist policies before, are being let down by their leaders.
Unfortunately, Ms Fernández’s government has form. Frozen out of the credit markets as a result of the 2001 debt default, her government badly needs to play by the book to attract investment. Instead it has chosen to go further down the populist route, by seizing private pension funds dating back to 2008 and sabre rattling over the sovereignty of the Falkland Islands. All the while the government has sought to massage bad economic news by apparently applying undue influence to the statistics agency Indec (to the point where The Economist magazine has stopped using its numbers) and clamping down on independent economists.
In the past, such behaviour from Venezuela and Argentina would have simply been part of the general malaise in Latin America, with Chile being the sole example of good governance. These days, however, the continent is mostly characterised by good governance, with Venezuela and Argentina the renegades. Ms Fernández might like to pay a visit to Brasilia to discover how, with the right policies, things can be turned around.
