A New Cold War is Brewing in Latin America

Alessandro Bruno

After scoring apparent successes in Colombia, Chile and Peru, market capitalism is failing in Latin America. Increasing costs of living clash with austerity measures, privatization, growth without redistribution, resulting in explosions of popular anger. What’s left of markets and stability will need force to maintain.

Then there’s an ideological aspect. And this is where Trump and the US come in.

The Trump administration, backed by some far-right and Protestant Christian elements, sees Latin America as the opportunity to settle some scores against the socialism of the 2000’s – and its resurgence now. More significantly, perhaps, the growing influence of China (and Russia) have made it necessary, in the current new ‘Cold War’ atmosphere, for hawks in the US Government to pose a challenge and re-establish Washington’s influence in a region, which, as part of the Monroe Doctrine, has been a matter of policy for well over a century. As for investment opportunities, whether you vote Democrat or Republican, the past few months have shown that Latin America is fertile ground for tensions and fertile ground for America to unleash another front in the Cold War against China. In other words, military spending will continue to remain at current exorbitant levels or increase further. Defense stocks such as Lockheed Martin (NYSE:LMT) or General Dynamics (NYSE:GD) and Boeing Co. (NYSE:BA), to name a few, will remain among the most stable and most profitable.

The Roots of the Ideological Clash

 In 1990, the Brazilian Workers’ Party (Partido dos Trabalhadores-PT) When the first São Paulo Forum brought together various Left and socialist parties from all of Central and South America, the Left held a position of weakness. Only Cuba had managed to develop a socialist system – and that, only through revolution. Nevertheless, after two decades of various forms of military dictatorship enforced economic austerity politics, many of the region’s governments begun a transition toward democracy, leaving behind the desaparecidosand the Condor Plan. In the 2000’s, the Latin American Left gained ground, propelled by Hugo Chavez’s Venezuela, which nationalized oil production, using the proceeds to help lift millions out of poverty.

In Brazil, the government of Ernesto Ignacio Lula managed the heretofore unthinkable: it put more Brazilians to work through expansive socio-economic policies; yet, it also improved the investment climate, such that never before did the Sao Paolo stock exchange experience as many initial public offerings (IPO). Brazil proved improving social stability was good for business and investors as well as the people. No doubt, soaring oil and commodity prices in the 2000’s made it possible for governments to spend without having to endure sanctimonious lectures from the likes of the IMF, the World Bank or the Inter-American Development Bank (IADB).

Now, a decade later, austerity is back in fashion in Latin America. And with the commodity boom over, the middle and lower social strata of the population have been experiencing the sting of income inequality and decaying social services.

And now these roots are now giving their bitter fruits.

From fighting poverty, South American governments have cut social spending, intensifying privatization and austerity measures, typified by the governments of Jair Bolsonaro in Brazil and Mauricio Macrì in Argentina (now replaced by Alberto Fernandez, who defeated him the October 27, 2019 general election) marking the return of a harsh neo-liberal style conservatism, which will fan the flames of unrest. Therefore, violent protests have occurred in Quito, Ecuador as the inaptly President Lenin Moreno enforced a harsh package of austerity reforms in a country, dependent on commodity sales. In countries with such limited economic outlets as Ecuador, austerity measures and cuts to social programs take a heavy toll, So, it’s no wonder that the lifting of a subsidy on the price of fuel, would enrage the poorest population, triggering the indigenous communities to protest in the capital, leading to the cancellation of the ‘reform’. But for how long – that is how long before the austerity measures are re-introduced?

Colombia, hailed as one of the successes of market capitalism in South America, has experienced general strikes, marked by violent incidents in capital Bogota. At least 18 people have died so far in the turmoil. Market capitalism has brought prosperity for some, but in a country like Colombia, the increase in inequality has, in turn, reduced the opportunities for political compromise, generating social instability in a country with a complex political past, marked by over five decades of a guerrilla style civil war. While the government and the Fuerzas Armadas Revolucionarias de Colombia (FARC), guerrilla organization, reached a precarious peace in 2016, the regional and local context suggests that war could break out again.

Nevertheless, the proverbial canary in the mine indicating a toxic risk level, is Chile. The fact that Chile is experiencing popular discontent now, after being hailed as a model of ‘liberal’ market-based success suggests what’s happening is no ordinary crisis.

General Augusto Pinochet, with significant U.S. support, overthrew the socialist government of Salvador Allende on September 11, 1973. His goal was quite literally to make Chile into an experiment for some of the most radical neoliberal economic ideas. Indeed, Pinochet literally invited a few young Chicago economists, who came to be known as the ‘Chicago Boys ‘ to Santiago and advise the Chilean government on how to apply the theories of Milton Friedman. And the Chileans did…to the letter. Under the cover of military suppression of dissent, the Chicago Boys recommended slashing public funding of such public services as health, education and social security, making these fully private – going beyond what the policies of the United States. Today, even such basic items as water are managed by the private sector. Meanwhile workers’ unions were for all practical purposes eliminated.

After Pinochet was deposed, the military-state repressive apparatus was dismantled; yet, the new democratic governments that succeeded him perpetuated the Chicago Boys’ legacy. And, more than forty years after the start of the experiment, the conclusions would urge a shift in policy, given the violent reaction to the last affront – president Sebastián Piñera’s decision to raise the cost of public transport in Santiago by a few cents. That was the ‘Franz Ferdinand 1914’ moment serving as the fuse to unleash a wave of anger, repressed for decades, characterized by looting of luxury goods shops, burning of subway stations and the sight of military troops marching on the streets, evoking a not forgotten sad era of socio-political repression. Chile’s socio-economic model has shown deep cracks, and analysts will have to revise the notion that it represents the most financially sustainable and sensible economy in South America.

The situation in Bolivia is more complex, and more immediately volatile. Socialist President Evo Morales was re-elected (by a ten percent margin) on October 20 – a victory underscored by the support he enjoys from long marginalized indigenous peoples, who have experienced a considerable improvement in their living conditions during his three terms in power. Yet, many found a loophole to dispute the result, describing Morales as a usurper and finding the ‘vehicle’ to mobilize the upper middle class against the ‘usurpation’. The template was seen recently in Ukraine (2014) and in Chile of 1973. But, Morales, was able to find refuge in Mexico, avoiding arrest (or worse: Allende’s fate), describing the protests as a coup.

The Limits of Market Reform. Permanent Instability?

The outcome is that people of Latin America have descended on the Streets to reject the policies of austerity, implemented to please investors and international/multilateral lenders such as the International Monetary Fund, arguing they do little to reduce income inequality or improve social services. Much has been made about the protests in Venezuela. But, that country, which took a socialist turn over twenty years ago, has long been out of investors’ concerns.

What’s more troubling is that Brazil, Chile, Argentina and , until recently hailed as examples of significant capitalism success in Latin America, have either experienced electoral outcomes, violent protests and uprisings against pro-market governments: Chile has pursued intense pro-market policies; Bolivia and Ecuador have adopted idiosyncratic blends of socialism and capitalism. Yet, all have been enduring similar social unrest in recent months.

To his credit, President Hugo Chavez nationalized the Venezuelan oil industry, and distributed its profits to fund social programs, which did help millions of poor Venezuelans. In Argentina, which has a larger ‘middle-class’ than its fellow South American societies, President Nestor Kirchner addressed its military dictatorial past of summary executions and government terrorism, challenging the old military establishment. But, most significantly perhaps, President Lula helped boost employment, suggesting there was substance to São Paulo Forum model.

Ostensibly, the protests reflect the end of the commodity (soybeans, copper, phosphate/potash) price explosion of the 2000’s. It was the related inflow of dollars that promoted prosperity, allowing the socialists to extend and expand State welfare without having to address the deeper causes of the sharp socio-economic differences that characterize Latin America. Ultimately, the commodity Eldorado, acted as a fragile patch, which was able to buy time, brushing problems under the carpet chronic issues of socio-economic inequality, including crime and corruption, without ever addressing the root causes.

Alessandro Bruno

Alessandro Bruno

Alessandro Bruno, born in Naples, (BA and MA in International Relations, University of Toronto). Alessandro is a research analyst and writer in various business sectors and international politics. He was a Programme Officer for the UN in North Africa and a senior for one of the first international sustainable investment...
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