It appears that the world is about to witness another Hugo Chavez temper tantrum…seemingly sparked by whenever he feels like he isn’t getting enough attention from the U.S.  So, According to Al Jazeera, Hugo Chavez has announced details of an arms build-up which he says will make the South American nation “invulnerable” to any attack.   

The new program is described as a defensive system that could shoot down enemy aircraft and rockets.  According to Chavez: “We’re going to have a tremendous air-defense system, and with with missiles capable of reaching 200 kilometers,” Chavez said during a televised speech on Friday at a military academy in Caracas.

At the same time Chavez announced that Venezuela would also spend more than $561 million for factories to build AK-103 assault rifles as well as other munitions and detonators.  This is on top of the 2.7 billion that Chavez spent last year to purchase 24 Sukhoi fighters and 53 helicopters as well as 100,000 Kalashnikov rifles from Russia.  Chavez has also his expressed desire to collaborate with and purchase arms from Iran.

Mr. Chavez does this at a time when his nation has been experiencing South America’s highest inflation rate (17%) and he has been dealing with this looming disaster not by reducing his spending…which is evidenced by his new plan to dump large sums of money into the Venezuelan “defenses”…or by raising interest rates… his answer is inducing price controls.  These artificial prices are having a devastating effect on the Venezuelan economy and most importantly heavily affecting the poorest amongst them.

Since 2003, Chavez has used price controls as an attempt to tame the rising inflation.  He has frozen prices on food stuffs like rice and meat and has recently capped the prices of telephone and electricity rates as well as put controls on some 45 different construction materials.  His efforts have had devastating effects on the economy as shortages of all types are being found around the country…staples like rice and milk are rarely found on grocerystore shelves and a number of construction projects have screeched to a halt because of a shortage of materials. 

Another unwanted effect of the price controls is that they are creating and expanding the ”informal” sector in Venezuela where staples can be found for many times their worth at unregulated street markets.  Many farmers are avoiding selling their products to legitimate stores and are selling meats and crops on the streets becuase with the controls on the prices they end up losing money on what they produce…so, in effect, Mr. Chavez has created a black market in his nation where only the rich are nourished.

Also, Manufacturers, concerned that Chavez will deepen state involvement in the economy, have reduced spending on new plant and equipment to the point that central bank figures show that nongovernment investment equals no more than 4 percent of gross domestic product, the lowest among the 10 biggest economies in Latin America.

Many businesses are reluctant to expand production because of a lack of guarantees from the government on the protection of private property. Chavez has seized rural estates and factories that the government deems to be unproductive, including some assets of Lorenzo Mendoza, one of the wealthiest men in Venezuela, and of the food maker H.J. Heinz. (I wonder how Ted Kennedy will explain working with Chavez to his Comrades Teresa Heinz and her wife John Kerry?)

Foreign investors sold $778 million more in Venezuelan assets than they bought in the first nine months of 2006, according to the central bank. A decade ago, in the same period, they added $5.9 billion more than they disposed of.

Hugo Chavez, much like his hero and comrade Fidel Castro did for over half a decade in Cuba, is perpetually beating the war drum in preparation for an enemy that doesn’t exist while his fellow countrymen go hungry.  Chavez has been masterful at focusing Venezuela’s attention on national pride and world importance while he is actively stripping his country of its democratic legacy and its citizens of the most basic rights and liberties.  The only thing that kept the aspirations of Fidel Castro… to transform his self from a national to an international despot…was his hands were tied economically…the same is not true for Mr. Chavez…he is sitting on top of the world’s fifth largest reserve of oil.

Stay tuned…

Written by Matthew Willette

According to a recent report released by the UN Commission on Latin America and the Caribbean (ECLAC) Latin America has just completed it best period, in terms of poverty reduction, in over 25 years. The number of poor shrank from 44 percent in 2002 to 39.8 percent in 2005; however, despite improving economic circumstances, about 205 million people still live in abject poverty in the region. Naturally, as one might suspect, with such a large percentage of the electorate living in squalor while increasingly participating in the electoral process, the contemporary political climate has been dominated by left-leaning populists who promise wealth redistribution, land-reform and new, large-scale welfare programs. Throughout 2006, Latin America experienced 12 elections in one of the regions most active cycles in recent memory. Amidst all the speculation and predictions by the punditry as to what this historic cycle foretells for Latin America, one major divergence from the traditional Latin American pattern should be noted by pundits and policy makers alike: the fissure of Latin America’s Left into two distinct and seemingly diametrically opposed camps.

The Old Left Pulls a Crazy Ivan

In countries like Venezuela, Bolivia and, recently, Ecuador the old left has made quite a noticeable and dangerous transformation. These governing regimes are now primarily authoritarian and appear to have evolved out of traditional Latin American populism; however, their agendas and actions suggest they have fused tradition with cherry-picked elements of nationalism, socialism and fascism. These regimes aim to consolidate political power through open defiance of democratic principles and institutions; they call for state control of natural resources, the nationalization of major industries and aim to mobilize nationalist sentiment by decrying the evils of the US and the neo-liberal economic model. They aim to repress political and economic freedom, further stifle dissent and actively work to tear down the remaining vestiges of liberty. This new left, born out of the legacy of the old, represents a radical neo-fascist shift in Latin American governance. They grasp for ever more power through a style of personalism based on figures like Hugo Chavez, Evo Morales and Rafael Correa: the radical populists and new-age caudillos.

Venezuela

Hugo Chavez has recently called for, and has been given, the ability to rule by decree for the next 18 months. One of his actions will likely be to abolish Presidential term limits which will make way for him to become “President” for life.

Chavez has undermined and destroyed the legitimacy and independence of the Venezuelan Supreme Court by forcing those not loyal to him to resign, expanding the number of Justices to diminish their influence while packing the court with his own appointees.

He has already nationalized most of the electrical, telecommunications and petroleum industrial infrastructure, expropriated “unused” land and has announced an end to the autonomy of the Venezuelan Central Bank.

Mr. Chavez has repeatedly denounced US policy while openly courting relationships with both Syria and Iran. He aims to create military alliances with those that oppose US influence throughout the world. Ultimately, he aspires to unite Latin America, through his “Bolivarian Revolution”, in an effort to oppose US hegemony.

Bolivia

President Evo Morales and his party, Movimeiento al Socialismo (MAS), have been actively working to create an Indigenous government and society through imposing an Andean culture throughout Bolivia. It is their aim to institute governmental culturalism within an entirely racist vision for the future.

Morales has already signed legislation that would expropriate large swaths of “unproductive” lands from wealthy families as well as, in effect, nationalize the tin and natural gas industries through a new framework of corporate taxes and royalties paid to the state.

Mr. Morales and MAS have pressured the Constituent Assembly to pass a law that would require only a simple majority to amend the Constitution and has announced plans to replace the Bolivian Senate with a “popular” form of assembly. He has also spoken of his aspirations to rule by decree.

MAS and Morales are already using “citizen militias” to oust recently elected opposition governors in the wealthier and whiter southern Departments as well as to stifle political dissent and cultural tolerance. These groups use Gestapo-style tactics similar to those used in Germany under the Nazis, and more recently, under Castro in Cuba and, now, Chavez in Venezuela.

Ecuador

Recently elected President Rafael Correa announced that he would call for a Constituent Assembly in order to change the Ecuadorian Constitution.  After firing over half of the elected Congress and replacing them with loyalists…Mr. Correa got his wish. Now, he will choose those to fill the seats of the Assembly that will rewrite the Constitiuon.  Mr. Correa is likely to include sweeping new powers allowing him to fulfill his authoritarian desires.  He is following the lead of his comrades Hugo Chavez and Evo Morales.

Mr. Correa has said that he is leading a “citizen’s revolution” against neo-liberalism and that Ecuador’s foreign debt is illegitimate. Many believe that Correa is planning to use the Argentine default model as an example of how to turn his economy around. He has vowed to cut ties with the IMF and the World Bank unless his debt load is lowered by half.  Suprisingly after announcing that Ecuador would not make its first installment on an IMF loan…it was paid…in cash.  It seems that Mr. Chavez is doing more than partnering with Correa and is buying allies much like he has done with Kirchner in Argentina.

Correa has rejected a free trade deal with the US and has said that he will not renew the lease with the US for Manta Air Base when it comes up for renewal in 2009. This base is reported to be responsible for 60 percent of all U.S. drug interdiction in the eastern Pacific.

The Other Left Hangs a Right

While this past election cycle has produced, or in some cases reaffirmed, figures like Chavez and Correa, it has also signaled the emergence of another type or style of leftist in Latin America: the neo-moderate left. This new left appears to be much more pragmatic in its policies than previous Latin American leftists as they have shifted to the right on certain issues while social spending and poverty reduction remain near the top of their national agendas. These regimes, like those of Chile and Peru, are, on the whole, supporters of free markets, free trade policy and are committed to consolidating and preserving democratic institutions. They might, at times, denounce US actions or partner with those who have chosen an adversarial relationship with the US; however, their commitment to democratic and, mostly, neo-liberal market practices and principles make them more of an ally than an adversary.

Chile

The recent election of Michelle Bachelet, part of the governing Concertation coalition, has signaled that Chile will follow, more or less, the policies that have made it Latin America’s most successful economy for the past 16 years. Chile has also been known as having the most solid and consolidated democratic institutions in the Region.

In 2003, The US and Chile signed a free trade agreement and, as a result, trade has doubled between the two nations since its signing.

President Bachelet, despite being the leader of the Socialist Party in Chile, has committed herself and her nation to protecting private industry and property while strengthening international trade ties. Chile has recently signed trade deals with China and Colombia.

Bachelet has increased attention to the needs of the poor by promising further spending on welfare programs; however, the Bachelet Administration has committed itself to continue the practice of a structurally built-in fiscal surplus of 1% (of GDP) into the national budget.

Peru

Alan Garcia, recently elected President, has welcomed the signing of a US-Peru Free Trade Agreement (FTA) and is currently seeking deals with Canada, the EU and China.

Garcia has committed Peru to cooperate with the US on the eradication of coca growing and has promised action aimed at limiting his nation’s growing, production and exportation of coca and cocaine.

Mr. Garcia has promised new and innovative social programs to help his countries’ poor while a commitment to neo-liberal fiscal policy and increases in export commodity prices produced 6.6% growth in 2006.

He has railed against Hugo Chavez and his petro-diplomacy as Chavez funneled huge sums of money into Garcia’s hard-left opponent (Ollanta Humala) in the recent Peruvian election. Since the election, tensions have cooled; however, Chavez is no friend of Garcia.

It is imperative that U.S. policy-makers understand the fundamental differences between these two leftist camps and approach them accordingly. The old Cold War labels of simply left and right no longer apply in Latin America and are applied to ones peril. One type of leftist the US can, and should, work with. The other has placed itself in an adversarial position. To pressure and challenge the ideals of the neo-caudillo left and to encourage and support the new moderate left, the President and Congress should:

Put pressure on the Organization of American States (OAS) to enforce the 2001 Inter-American Democratic Charter. The President and Congress should urge the OAS to intervene where democratic institutions are being threatened in the Region. This should be an effort to sustain the development and consolidation of democratic institutions and to prevent the further erosion of liberties and democratic foundations.Article 3 of the Charter states: “…Essential elements of representative democracy include…the pluralistic system of political parties and organizations, and the separation of powers and independence of the branches of government.”Article 4 states: “…freedom of expression and of the press are essential components of the exercise of democracy.” Events unfolding in OAS member nations such as Venezuela and Bolivia run contrary to the language and intent of the Charter.

Develop further cooperative efforts with right-of-center and moderate leftists in the Region. To counter authoritarian movements and the rhetoric from nations like Venezuela and Bolivia, US policy makers should continue to welcome and strengthen cooperative initiatives. Counter-narcotics collaboration and Free Trade Agreements (FTA) are examples of working relationships that stress rule of law, free market principles and the support for and the consolidation of democratic institutions. The US should continue collaborative efforts such as:Brazil is working closely with US officials to attempt to revive the stalled Doha round and it is expected that the U.S. and Brazil will sign an accord, within a year, which would promote technology-sharing and encourage more Latin American neighbors to become bio-fuel producers and consumers.The US and Colombia have worked closely, for years, on an initiative called Plan Colombia. This collaborative effort aims to achieve peace, strengthen democracy, and deal with the drug problem in Colombia.

Congress should renew the President’s Trade Promotion Authority (TPA). The President’s ability to negotiate trade deals is set to expire on June 30^th, 2007. Congress should swiftly renew the President’s ability to negotiate trade deals as they are one of the most effective tools we have to encourage the development of democratic institutions and the commitment to free market practices. Negotiating free trade agreements without TPA sets them up for failure before they even begin as TPA forces an up or down vote on the language without amendment.Congress Should Swiftly Approve Pending FTA’s with Colombia, Peru and Ecaudor.  These three Latin american nations have chosen to ally themselves with Washington in at least they are embracing freer trade and free markets.  Democrats in congress should not further block these agreements based on domestic political maneuvering and pandering to the protectionist base.  Failing to approve these FTA’s will only send a dangerous message that the U.S. cannot be trusted as a partner even on the one thing that it has been pressing for in latin america and around the world: free trade.

Conclusion

Leaders like Hugo Chavez, Evo Morales and Rafael Correa are actively orchestrating the ongoing erosion of democratic institutions, the wanton expropriation of private lands, the extreme divergence from free market principles and the quenching of their thirst for totalitarian power. If left to their own devices, these men, once gone from power, will leave in their wake a wide swath of poverty and repression on a scale that will have created numerous deficient and backward nations throughout the region. It is imperative that a proactive stance toward these regimes be formed into a cohesive foreign and economic policy that will limit their influence and destructive ability. It is equally important that the US continue to build lasting working-relationships with those nations that share a commitment to democratic institutions, respect for the rule of law and belief in the liberating nature of the free market. Realizing that the old rules of left and right no longer apply is crucial to an informed and successful foreign policy toward Latin America.

Written by Matthew Willette

As President Bush toured Latin America a little over a month ago he assured the region that this trip (the most extensive his Administration has taken to Latin America as of yet) signaled a new phase in the relationship between the U.S. and our neighbors to the South.  The President spoke of working with Brazil to develop new technologies aimed at making ethanol a viable fuel alternative…potentially reducing our dependence on foreign oil, further partnering with Colombia to battle the ongoing plague of narco-terrorism and the wider drug trade and collaborating with the new conservative government in Mexico to offer ways to break-up the corporatist and monopolistic structures…potentially enabling more Mexicans to envision an authentic and prosperous future in their native land.  

Even the most optimistic observer remains highly skeptical of this call for a renewed engagement as Washington tends to have the attention span of a 3 year old.  The U.S. has traditionally tended to limit involvement in the region to democracy promotion, drug eradication and free trade; but, now with a Democrat controlled Congress it appears that Latin America will not only not see renewed engagement as the rise of radical populists like Hugo Chavez threatens to plunge the region into a new “lost decade” but will now see a protectionist trade policy arise out of the U.S. based simply on domestic political pandering.  For months, Peru, Panama and Colombia have been begging the U.S. Congress to approve their repective free trade agreeements but Congress has balked and threatens to permanently stall based on what has been described as “labor and environmental concerns”. In reality, Democrats are posturing and pandering to the populists and protectionists (both domestic and international) that are demanding action to combat the effects of free trade.  In fact, here is what free trade has done for the U.S.-Latin American relationship so far.

According to the Oppenheimer Report in The Miami Herald:

The newly released U.S. Commerce Department trade figures for 2006 show that Latin American countries that have free-trade agreements with Washington have substantially increased their exports to the U.S. market. The United States, in turn, has increased its exports to most of its regional trade partners at a somewhat slower but respectable pace.

Consider the latest figure

–Since the United States signed a free-trade deal with Mexico, Mexican exports to the United States have risen from $40 billion in 1993 to $198 billion in 2006, a nearly 400 percent increase. Conversely, U.S. exports to Mexico over the same period have risen from $41.5 billion to $134.1 billion, a 223 percent increase.

–Since the United States signed a free-trade deal with Chile, Chile’s exports to the United States went up from $4.7 billion in 2004 to $9.5 billion in 2006, a 104 percent increase. Conversely, U.S. exports to Chile went up from $3.6 billion to $6.8 billion, an 88 percent increase.

–Since the United States signed a free-trade deal with five Central American countries and the Dominican Republic, overall exports from the so-called CAFTA-DR countries to the United States went up from $18.1 billion in 2005 to $18.6 billion in 2006, a 2.8 percent increase. Conversely, U.S. exports to CAFTA-DR countries went up from $16.9 billion to $19.6 billion, a 16.1 percent increase.  While it is too early to completely judge the effects of the newly signed free trade deal and that only 4 countries have ratified it…growth is still growth. 

The current threats and attempts to stall negotiated and agreed-upon free trade agreements with Peru, Colombia and Panama by Democrats Charlie Rangel (Chairman House Ways and Means) and Sander Levin ( Head of Ways and means Subcommittee on Trade) smacks of protectionism, domestic political maneuvering and pandering to the unions and the environmentalists. They want trade pacts to guarantee enforcement standards set by the U.N’s International labor Organization (ILO) which are currently in conflict with U.S. labor regulations.  Through attempting to enforce these ILO provisions Democrats are demanding that Latin Americans enforce laws that the U.S. will not agree to and appear to punishing these countries for the fact that U.S. law does not “live-up-to” the standards they call for. Thankfully these regulations would never fly here at home…even with a Democrat controlled House and Congress because many realize that it is the flexible U.S. labor laws that have kept the U.S. economy prosperous, innovative and with half the unemployment rate of the European Union for years.

Another miscalculation that Democrats have made by demanding that Latin American nations should be forced to follow ILO labor standards is the fact that much of Latin America’s economy is informal.  Large chunks of the economy produce and survive by evading governmental rules and taxes. According to Alvaro Vagas Llosa at the Independent Institute : 

One way to help Latin Americans transit from the informal to the formal economy is to create incentives for legalization through free trade.  Numerous Peruvian companies have become formal in recent years because export opportunities to the United States have made it profitable for them to legalize their activities.  Opening trade is one way to ensure that the enforcement of rules one day becomes a reality.  Making universal enforcement of ethereal laws a precondition for free trade in Latin America amounts to putting the cart before the horse. 

The recent rise of radical populist figures like the authoritarian Marxist Hugo Chavez and his proteges Evo Morales in Bolivia and Rafael Correa in Ecuador show that Latin America is once again on the political and economic roller coaster ride that it seems to have been on for decades.  The extreme oscillation from left to right has left the region largely passed over by the gradual prosperity of most of the world and has failed to bring the regions 200 million-plus destitute out of the ranks of the poor. 

Peru, Panama and Colombia are attempting to reach out to the U.S. to get off the roller coaster and begin the process of building stable and lasting institutions.  They are attempting to stand up to Chavez and his ilk and are putting their faith in the knowledge that freedom will provide the greatest results.  If Congress attempts to include language about new labor standards or environmental protection–or worse yet– fails to ratify the pending free trade agreements with Colombia, Peru and Panama they threaten to send a dangerous message to the region:  That the U.S cannot be trusted as a reliable partner even in the one issue that it has been pressing in Latin America and around the world for years: free trade.   

Written by Matthew Willette