Mexico and the World
Vol. 3, No 1 (Winter 1998)
http://www.profmex.org/mexicoandtheworld/volume3/1winter98/lookingforaleader.html

Temisfile, January/February 1997

Looking for a leader

by Sidney Weintraub

Nineteen ninety-six was a waiting year in relations between the United States and Latin American and Caribbean countries.

Performance internally in the region was mixed — some recovery in Mexico and Argentina, some deterioration in Colombia and Peru, finally a start on adjustment in Venezuela, and continuation of good performance at a modestly lower growth rate in Chile. The subregional integration arrangements had some successes, such as greater internal trade in Mercosur (the Common Market of the South), but also some setbacks, such as Mercosur's increased import restrictions against the outside world. It was not, on the whole, a year to remember.

 The transformations in the hemisphere during the past decade have been remarkable. The economic model based on protected domestic markets as the stimulus for development ran out of steam after about 50 years of existence and was replaced by more open markets throughout the region. Export pessimism gave way to export promotion. A highly nationalistic, negative attitude toward foreign direct investment was jettisoned in favor of an active search for foreign capital and technology. During the horrible years of the 1980s, when economies were faltering and à priori reasoning predicted a flowering of authoritarian populism, there was instead a flourishing of democracy.

Similarly, the United States engaged the hemisphere following almost 25 years of neglect after the Alliance for Progress atrophied in the late 1960s. The two most significant manifestations of this change were the entry into effect of the North American Free-Trade Agreement (Nafta) and President George Bush's proposal for free trade from Alaska to Tierra del Fuego. During the first two years of his first administration, President Bill Clinton contributed actively to these two initiatives. Each of these innovations stimulated progress in Latin American and Caribbean subregional economic integration based on open markets.

This past year, however, was largely one of pause and this poses the danger of retrogression as a consequence of standing still.

Based on preliminary data from the Economic Commission for Latin America and the Caribbean, the region's GDP growth in 1996 was 2.9 percent, or a little more than 1 percent per capita. This was better than the per capita income decline in 1995, but still quite dismal for an emerging region. The figures for the two years were heavily influenced by Mexico and Argentina, both of which recovered in 1996 from economic declines in 1995. Unemployment, open and hidden, increased in the region in 1996. There was a modest decline in inflation, in this case heavily influenced by the improved performance in 1996 of Brazil and Mexico.

The region's merchandise exports increased by about 10 percent to what should total about $245 billion in 1996, a respectable figure but below the growth record of the past decade as a whole. This is not extraordinary because sustained high percentage growth becomes increasingly difficult as the absolute numbers rise. In this case, the regional figures were heavily determined by Mexico, which accounted for two-thirds of the 1996 increase. Mexico was helped by the cheap peso, plus the assurance of the open US market under Nafta. Capital inflows into the region for 1996 should reach $50 billion, almost half in the form of direct investment. The region has now overcome the hesitancy of investors that followed the Mexico meltdown.

The data show a mixture of good, mediocre, and poor country performances — in other words, a year of economic ambiguity. Because one should expect economic outcomes to vary when measured on a yearly basis, it is perhaps more important to assess the attitudes that dominate current thinking. The opening of markets that was the hallmark of the new model seem to have run its course. If border barriers are to be reduced further, this will have to be negotiated in a regional or global context because they will not be unilateral.

That there is no stomach for this is demonstrated by the general lack of enthusiasm for moving ahead forcefully on the Free Trade Area of the Americas. Brazil has made clear it is in no hurry to further reduce import restrictions; if anything, they have gone up recently, as in the automotive industry. Mexico sends more than 80 percent of its exports to the United States, and nobody expects it to lead the pack in seeking hemispheric free trade and thus sharing its preferences in the US market. Colombia is in the doghouse with the United States and Venezuela is far from ready for an active role in pushing further trade liberalization. Unless the United States acts, nobody else will promote hemispheric free trade.

The elimination of overt dictatorships in the hemisphere, save only for Cuba, has been quite remarkable. Just as open markets became contagious, so too did open political systems; and perhaps the two necessarily go together. In some countries, the politics opened first — Argentina, Brazil, Peru, and Nicaragua are examples. In others, the economic opening took the lead — Chile and Mexico are the best examples of this.

There have been many indications that democratic norms are consolidating. Countries that most recently shifted from authoritarianism or military rule to democracy now have had at least two elections; the list includes Argentina, Brazil, Chile, Peru, Nicaragua, Haiti, and Panama. In Mexico, which has had democratic trappings but without elections fairly contested or honestly counted, the 1994 elections were deemed by inside and outside observers alike to be the most open in the country's modern history. When the military coup was attempted in Paraguay in 1996, the country's Mercosur partners, along with the United States, made clear that this would not be accepted. A comparable coup attempt earlier in Guatemala was prevented by outside pressure.

Yet the entrenchment of democracy should not be pushed too far. President Fujimori of Peru did pull off an autogolpe (self-coup) in 1992 to consolidate his power. He, along with President Carlos Menem of Argentina, have forced constitutional change to permit reelection which benefited them, not their successors. President Fernando Enrique Cardoso of Brazil is expected to attempt a similar maneuver. Chile has had two presidential elections since Gen. Augusto Pinochet peaceably stepped down after his country's plebiscite, but as commander in chief of the army, he still retains a veto over many of the country's decisions. After completing what for Mexico were mind-boggling modifications to democratize the electoral system, the Institutional Revolutionary Party membership in the Congress decided to pull back somewhat, particularly on election financing, including even backtracking on agreements reached with the opposition parties.

As in the economic sphere, any informed observer must be impressed by recent political accomplishments in the hemisphere, but not thereby be misled into concluding that the process must necessarily march forward endlessly. The status quo ante cannot return, but gains still must be consolidated.

The modest economic growth generally in Latin America and the Caribbean over the past decade, coupled with catastrophic setbacks in particular countries, has meant that the region's deep social problems remain. Real wages have remained stagnant in many countries during the 1990s; in Mexico, the decline has been substantial. Income disparities have grown almost everywhere, even in Chile, which otherwise is the continuing success story of the hemisphere. The number of people living in absolute poverty in the hemisphere has not decreased; if anything, it has gone up.  

Cities are becoming more overcrowded, even as job opportunities have not kept pace. One result is the growth of lawlessness in most of the hemisphere. There was no progress in dealing with these social issues in 1996. In contrast with the economic and political developments during the past year, there has been little ambiguity in the social arena.

The United States contributed (this is understatement) to the uncertainty over hemispheric free trade in 1996. US national elections inhibited any actions to further the process by seeking fast-track authority and this stimulated the falloff in interest in the hemisphere. The change in the economic model that now dominates the region owes much to US proselytizing and to the training many key policy makers in the region received in graduate studies in the United States. The exuberance that initially greeted the hemispheric free-trade proposal was destined to diminish once the details were absorbed, but by then the process might well have gone so far as to make it unstoppable. US failure to deliver on its own initiative, particularly after the Miami Summit meeting at the end of 1994, dealt the enthusiasm a heavy blow, perhaps a fatal one. A hemispheric trade agreement, even if achieved, is unlikely to be as ambitious as it could have been had the United States pressed forward.

US hesitancy on open markets was nourished by the financial debacle and subsequent economic collapse in Mexico in 1995. This led many to believe that the regional market was apt to be a sometimes thing. Yet, US exports to the region continue to grow. For the first nine months of 1996, US merchandise exports to Latin America and the Caribbean were $89 billion, up almost 11 percent from the same period of 1995, compared with less than a 7 percent increase for US for exports worldwide.

There is not much time left for procrastination. The leaders of the hemisphere are scheduled to have another summit meeting in March 1998 in Santiago, Chile. If President Clinton does not have trade negotiating authority by then, he would be well advised not to go. There are other important issues for the leaders to consider such as further fostering democracy, combating drug traffic, and inhibiting money laundering — but the centerpiece will be trade, just as it was in Miami in 1994. If President Clinton is able to provide only free-trade rhetoric rather than the promise of the real thing, he really has nothing to say to the other hemispheric leaders.