The Nation: Latin America’s New Consensus


Richard Moore

Original source URL:

Latin America's New Consensus
[from the May 1, 2006 issue]

Even as the United States wages a war in the 
Persian Gulf that Secretary of State Condoleezza 
Rice describes as a central front in an epic 
"generational struggle" in defense of Western 
values and freedoms, another geopolitical threat 
has been massing on its southern flank. Over the 
course of the past seven years, Latin America has 
seen the rebirth of nationalist and socialist 
political movements, movements that were long 
thought to have been dispatched by cold war death 
squads. Following Hugo Chávez's 1998 landslide 
victory in Venezuela, one country after another 
has turned left. Today, roughly 300 million of 
Latin America's 520 million citizens live under 
governments that either want to reform the 
Washington Consensus--a euphemism for the mix of 
punishing fiscal austerity, privatization and 
market liberalization that has produced 
staggering levels of poverty and inequality over 
the past three decades--or abolish it altogether 
and create a new, more equitable global economy.

This year, that number is likely to grow. Latin 
America is in the middle of an election cycle 
that has already seen Evo Morales win in Bolivia 
and Michelle Bachelet, a single mother and 
socialist, win a third term for Chile's 
center-left Concertación Coalition. On April 9 in 
Peru, Ollanta Humala, a nationalist former 
military officer backed by Chávez and Morales, 
came from behind to force a runoff. In the months 
ahead, Colombia, Mexico, Brazil, Ecuador, 
Nicaragua and Venezuela will hold presidential 
elections. And with center-leftist Manuel López 
Obrador ahead in Mexico, the Sandinistas poised 
to make a comeback in Nicaragua and Chávez's 
re-election all but certain, the Bush 
Administration is nervous. It has responded by 
trying to drive a wedge between what Rice 
describes as the "false populism" that is 
spreading throughout the Andes and the pragmatic 
reformism of Chile, Uruguay and Brazil--in other 
words, between the "statesmen" and the "madmen," 
as Chávez recently put it.

There are, in fact, important differences among 
Latin American leftists--between, say, Brazil's 
Luiz Inácio Lula da Silva, who has opted to 
pursue reform through market-led growth, and 
Chávez, who is more willing to mobilize the 
left's social base, allow the state a greater 
role in the economy and pick fights with 
international capital. But they are also highly 
dependent on one another, especially in their 
dealings with the United States. For Chávez, 
besieged during the first three years of his 
administration, the election of sympathetic 
regional allies, starting with Lula in 2002, came 
just in time to help him shore up his position 
and push back his domestic and foreign opponents. 
In return, the confrontational Chávez provides 
cover to his more circumspect counterparts, 
drawing Washington's anger. If it were not for 
its quarrel with Venezuela, the United States 
would certainly be less tolerant of what Rice 
calls its "differences with friends," which 
include Brazil's opposition to the Free Trade 
Agreement of the Americas (FTAA) and Chile's 
refusal to support the invasion of Iraq.

But more than just giving one another room to 
maneuver, Latin America's new leftists have 
produced over the last couple of years their own 
consensus, a common project to use the 
centrifugal forces of globalization to loosen 
Washington's unipolar grip. Brazil's Lula has 
been central to this project, especially insofar 
as he has helped to awaken international 
financial institutions to the downsides of 
free-market orthodoxy. When he was elected, he 
was hailed as Latin America's great hope, not 
just by the poor but, once he promised to 
maintain a high budget surplus, by the officials 
of institutions like the World Bank and the 
Inter-American Development Bank. His campaign 
took place in the shadow of Argentina's financial 
meltdown, the latest in a series of international 
financial crises that led globalization's 
managers to emphasize the importance not only of 
freeing markets but of strengthening institutions 
that could stabilize those markets. If a man of 
the left such as Lula could achieve "growth with 
equity"--which by Brazil's 2002 vote had become 
the World Bank's new mantra--in Latin America's 
largest economy, it would go a long way toward 
defining the post-Washington Consensus consensus. 
Lula, said former World Bank president James 
Wolfensohn in an interview last year, is leading 
the "most important experiment in Latin America 

As Lula approaches the end of his first, and 
possibly only, term, the results of this 
experiment have been disappointing. Extreme 
poverty has decreased somewhat, but this has less 
to do with his showpiece "zero hunger" program 
than with steady economic growth driven by high 
commodity prices. Still, after emerging as a 
spokesperson for developing countries on trade 
issues and leading the opposition to the FTAA 
over subsidies and concerns about intellectual 
property rights, he did begin to represent an 
alternative, if not to free trade then to 
Washington's stranglehold over the way free trade 
was proceeding in the Americas.

Under Lula, Brazil has played a key role in 
fostering the economic links that have begun to 
wean the region from its dependence on the United 
States. Buoyed by Argentina's and Uruguay's turn 
left, and anchored by Brazil's enormous market 
and advanced agricultural, pharmaceutical, heavy 
equipment, steel and aeronautical sectors, the 
countries of South America have taken a number of 
steps to diversify the hemisphere's economy. They 
courted non-US trade and investment, particularly 
from Asia. Fueled by a consuming thirst for Latin 
America's raw materials--its oil, ore and 
soybeans--the Chinese government has negotiated 
more than 400 investment and trade deals with 
Latin America over the past few years, investing 
more than $50 billion in the region. China is 
both Brazil's and Argentina's fourth-largest 
trading partner, providing $7 billion for port 
and railroad modernization and signing $20 
billion worth of commercial agreements. South 
American leaders have also sought to deepen 
regional economic integration, primarily by 
expanding the Mercosur--South America's most 
important commercial alliance--and embarking on 
an ambitious road-building project. These efforts 
appear to be working. In December Lula claimed 
that Brazil's trade with the rest of Latin 
America grew by nearly 90 percent since the 
previous year, compared with a 20 percent 
increase with the United States.

One sign that economic diversification is gaining 
force was the success last year of Argentine 
President Néstor Kirchner's take-it-or-leave-it 
offer of 30 cents on every dollar owed on its 
$100 billion external debt, to be paid in 
long-term, low-interest bonds. In the past, 
financial markets would have severely punished 
such insolence, but with Asian investment pouring 
in and the economy rebounding at a steady clip, a 
majority of lenders had no choice but to make the 
deal. For its part, the IMF, fearing either a 
complete default or a successful agreement made 
without its imprimatur, was forced grudgingly to 
sanction the bid. It was, according to Knight 
Ridder Business News, the "biggest sovereign debt 
restructuring in history, with international 
creditors accepting unprecedented losses." "For 
the first time in history," a triumphal Kirchner 
said in a speech to Congress reporting on the 
transaction, "a restructuring process has 
culminated in a drastic reduction of the 
indebtedness of the country."

Asian investment, road building and common 
markets are not what Fidel Castro had in mind 
when in the 1960s he rallied third-world youth to 
take up arms against Yankee imperialism. Yet the 
rise and maintenance of the United States as a 
world power has long been predicated on claiming 
Latin America as its own. On the eve of the cold 
war, for instance, even as Harry Truman was 
promoting the United Nations and pushing for open 
markets elsewhere, his envoys in Latin America 
were negotiating an alliance that gave 
preferential treatment to US corporations and 
allowed Washington to mobilize the region as a 
bloc in its struggle against the Soviet Union.

In the past few years, however, the region's most 
consequential nations have refused to be 
conscripted into Bush's "war on terror." And 
unlike the way they lined up to quarantine Cuba 
during the cold war, they have rebuffed 
Washington's calls to pursue an "inoculation 
strategy" against Chávez, as Secretary of State 
Rice put it to Congress in February. Last year, 
Bush even saw his nominee to head the 
Organization of American States bested by a 
candidate backed by Venezuela. If Latin America's 
new left achieves nothing else, it has at least 
broken the political bonds of this proprietary 

The FTAA is the US government's gambit to turn 
things around. It is meant to do for Latin 
America what the North American Free Trade 
Agreement did for Mexico: ratify its status as a 
US province within an increasingly globalized 
economy. Under NAFTA the United States has come 
to dominate Mexican trade, muscling out other 
Latin American countries. The same is expected to 
occur when the Chilean and Central American 
free-trade pacts are fully implemented. Call it 
"market polygamy," whereby the United States can 
have multiple partners but each of those partners 
must remain faithful to it alone.

Hopes that Brazil could counter the gravitational 
pull of the United States have been diminished by 
the corruption scandals that in the past ten 
months have rocked Lula's Partido dos 
Trabalhadores (PT) and shattered its 
Congressional coalition. While Lula has not yet 
announced whether he will stand for re-election 
in October, recent polls indicate that if he 
does, he will most likely face a tough fight. 
There is still time for him to pull through. He 
has recently raised the minimum wage, increased 
social spending and cut interest rates, all in 
the hopes of boosting the economy in the run-up 
to the election. But even if he does win a second 
term, he will govern from a greatly weakened 

As Lula recedes, Chávez proceeds. Until his 
victory in the August 2004 recall, it was easy to 
dismiss the Venezuelan president as the latest in 
a long line of Latin American Bonapartists, a 
strongman who emerged to restore order after 
Venezuela's two-party system collapsed under the 
weight of its own venal incompetence. During 
Chávez's first six years in office, his fiery 
rhetoric did little to diminish economic 
inequality or challenge the generous contracts 
his predecessors gave to petroleum 
multinationals. But whereas Lula started with 
high expectations only to disappoint, Chávez has 
moved in the opposite direction. He has rebounded 
from the recall fight to quicken the pace of 
reform. With the economy booming, unemployment 
falling, the opposition in disarray and his Fifth 
Republic Movement in control of Congress and 
regional posts, he has accelerated the 
distribution of expropriated land, nationalizing 
industries and diverting Central Bank reserves to 
diversify the economy.

For Washington, the most immediate threat posed 
by Venezuela is not the spread of "false 
populism" in Latin America but Chávez's emergence 
as the motor behind the left's attempt to advance 
economic and political multilateralism. He has 
turned out to be a skilled rope-a-dope artist, 
making at times preposterous political 
pronouncements--in March Chávez requested that 
the legislature have the white horse on 
Venezuela's flag face left instead of right, so 
that it would no longer be an "imperialist 
horse"--while playing a nimble Great Game of 
geopolitics. He has capitalized on the rise of 
China and India as alternative sources of 
investment and trade--Venezuelan exports to India 
tripled over the past year, while oil sales to 
China are expected to double this year and 
increase fivefold by 2010--and parlayed the 2004 
election of Spanish Prime Minister José Luis 
Rodríguez Zapatero into a strategic victory. 
Under Zapatero's predecessor, José Aznar, Madrid 
not only backed Bush's "war on terror" but helped 
enforce neoliberalism in Latin America through 
Spain's powerful banking sector. That has changed 
as Zapatero and Chávez have joined their 
respective countries into a corridor linking 
South America and the European Union. Although 
Washington may yet scuttle the deal, Spain 
recently agreed to sell Venezuela $2 billion 
worth of transport planes and patrol boats, while 
Caracas has offered a long-term agreement to 
supply Spain with gas and oil.

Chávez has cultivated alliances across the 
ideological spectrum, buying arms from Russia and 
negotiating a deal with Colombia's conservative 
President Alvaro Uribe to build a natural gas 
pipeline connecting the two countries--the first 
step in what observers believe will give 
Venezuela access to the Pacific and lower export 
costs to China. Venezuela has also managed to 
secure the tacit endorsement of Chile's just 
inaugurated Bachelet for its bid to become a 
nonpermanent member of the UN Security Council, 
which surely will contribute to John Bolton's 
anger issues.

Last December Venezuela scored another diplomatic 
coup, joining Argentina, Brazil, Uruguay and 
Paraguay as a full member in Mercosur. When 
Mercosur was founded in 1991, it was to be little 
more than a tool to groom individual countries 
for eventual absorption into the US market. But 
reformers in recent years have worked to 
transform it into a real alternative to 
Washington's FTAA. The entrance of Venezuela, 
South America's third-largest economy, comes just 
at the moment when Lula's troubles are 
threatening to derail this project. Serious 
obstacles to trade and tariff standardization 
remain, yet at the same meeting where it approved 
Venezuela's petition for admission, Mercosur 
established a Parliament modeled on the European 
Union, agreeing to cooperate on a range of 
issues, including multilateral trade agreements 
with countries like China. Caracas has promised 
billions of dollars to develop northern South 
America's transportation and commercial 
infrastructure and has even floated the idea of a 
"Bank of the South," along with a common Latin 
American currency, which would provide an 
alternative to US-controlled financial 
institutions like the IMF and dollar-denominated 
financial and commodity transactions. Venezuela 
has already become an important regional 
creditor, purchasing more than $1 billion of 
Argentine debt last year, which allowed Buenos 
Aires to pay off its IMF tab in full.

Venezuela is making cheap oil available to a 
majority of its neighbors, including a quid pro 
quo with Paraguay for support of its bid to join 
Mercosur. But oil does more than grease Chávez's 
diplomatic wheels: Energy integration, he 
insists, will lay the foundation of Latin 
American unity. Kirchner, Chávez and Lula have 
announced plans to build a 5,000-mile pipeline 
that will transport Venezuelan natural gas 
through Brazil to Argentina; Buenos Aires and 
Brasilia just signed a deal whereby Argentina 
will ship 1.5 million cubic meters of gas to 
Brazil in the summer and Brazil will provide 
Argentina with 700 megawatts of electricity in 
the winter. In March the government-owned 
Petróleos de Venezuela (PDVSA) announced that it 
would spend $3 billion to buy thirty-six oil 
tankers from a Brazilian shipbuilder. The deal, 
which is the largest foreign order of Brazilian 
vessels to date, is expected not only to create 
10,000 new jobs but, as a prime example of 
Chávez's realpolitik, to help Lula's re-election 
prospects. In addition, over the last year 
Venezuela and Brazil have signed a number of 
energy deals and have begun the construction of a 
joint oil refinery in the Brazilian state of 
Pernambuco. And while US pundits have dismissed 
Chávez's provision of cheap oil to poor urban 
neighborhoods in New England and Chicago as a 
public relations stunt, this innovative form of 
diplomacy lets him bypass unsympathetic national 
governments and build alliances directly with 
local political movements. In March he reached an 
agreement with a group of FMLN mayors in El 
Salvador, including the mayor of San Salvador, to 
supply them with petroleum under preferential 
terms, allowing Chávez to strike into a region 
firmly under US control and giving the leftist 
mayors access to an important resource 
independent of the national government, which is 
headed by the FMLN's main rival, the 
ultraconservative ARENA Party.

Much of this activity is taking place under the 
umbrella of three Chávez-brokered oil 
alliances--PetroAndina, PetroCaribe and 
PetroSur--through which Venezuela is not only 
offering a reliable stream of petroleum at a set 
price but cheap credit, processing capabilities 
and financing to expand gas and oil production in 
the respective regions. Caracas has allowed 
fifteen Caribbean countries to pay part of their 
oil bills up front, spreading the balance out 
over twenty-five years at low interest rates, and 
has even let some nations pay their debt in kind, 
with bananas, sugar or, in the case of Cuba, 
doctors. This past September, twelve Latin 
American energy ministers met in Venezuela and 
voted to pursue the unification of the three oil 
alliances into one PetroAmerica, which if it 
comes into being would allow petroleum exporting 
countries to negotiate collectively with the 
United States, generate price competition through 
the creation of new regional markets, and help 
buffer economies from energy price spikes.

Chávez's oil diplomacy extends beyond Latin 
America. Perhaps his most consequential 
initiative upon taking office in early 1999 was 
to end Venezuela's role as a rate-busting OPEC 
member and to work with Iran and other 
petroleum-exporting countries to enforce 
production quotas, which, well before Bush's 
invasion of Iraq and the current troubles in the 
Middle East, began a steady rise in world oil 
prices. Last year, taking advantage of increased 
global demand, Chávez forced seventeen foreign 
companies to increase royalty payments and 
convert their operating contracts into joint 
ventures with PDVSA, which not only means that 
the state now owns at least 51 percent of all oil 
production but that the multinationals will be 
picking up the bill for modernizing the country's 
drilling and refining capacities. When ExxonMobil 
balked at Chávez's New Year's deadline to become 
PDVSA's junior partner, Spain's Repsol-YPF 
stepped in and bought out its holdings under 
Venezuela's terms. A similar diversification of 
demand may help Morales renegotiate Bolivia's 
existing contracts with foreign natural gas 
companies, if not to nationalize production then 
perhaps to set up something similar to 
Venezuela's joint ventures. With Malaysian, 
Indian and Chinese gas companies eager to get in, 
firms already operating in Bolivia, including 
Repsol, will have to consider seriously whatever 
offer Morales puts on the table. Just recently, 
Russia's Gazprom struck a preliminary deal with 
the Morales government to invest in joint 
exploration, production and refining 
operations--which would give one of the world's 
largest energy companies its first significant 
toehold in Latin America--while Brazil's 
state-owned Petrobras has signaled its 
willingness to renegotiate existing contracts, 
backed up by an announcement that it would help 
jumpstart Bolivia's moribund state energy company.

the Bush Administration may well face the 
following scenario by the end of the year, 
starting closest to home and working downward: A 
likely López Obrador win in Mexico in July, 
possibly supplemented by a Sandinista victory in 
Nicaragua, would bring Latin America's left 
renaissance to the United States's doorstep. 
Since signing NAFTA, Mexico has been one of 
Washington's few sure regional allies, countering 
Chávez's oil diplomacy by spearheading its own 
effort to integrate Mesoamerican and Colombian 
energy production and consumption. Markets are 
betting that López Obrador will speak like Chávez 
but govern like Lula. Yet Lula has demonstrated 
that being "fiscally responsible" in the eyes of 
the global financial community no longer means 
complete submission to Washington's will. López 
Obrador has not yet taken a stand on 
PetroAmerica, but he has invoked Mexico's long 
tradition of petro-nationalism, pledging not to 
privatize the state-owned industry and to reduce 
foreign influence in its operations. He has also 
promised to renegotiate NAFTA--particularly a 
provision scheduled to go into effect in 2008 
that completely opens the Mexican market to US 
corn--and allying with Venezuela could strengthen 
his hand at the bargaining table. And while few 
welcome the possible return of the now corrupt 
Daniel Ortega, there are still worthy grassroots 
social movements within the Sandinista coalition, 
and a victory might begin to thaw Washington's 
icy grip on Central America.

Further south, with Morales in Bolivia and 
Chávez-style candidates on the march in Peru and 
Ecuador, the United States could confront a 
mobilized Andean rim, which could put access to 
cheap natural resources in danger and leave 
Colombia, its one trusted lieutenant in the 
region, isolated. Chávez's re-election, which 
seems assured, would give him at least another 
six years to consolidate Venezuela's position as 
a strategic hub, connecting the Andes, the 
Caribbean and southern South America to Spain and 
the EU, Russia, the Middle East, India and China. 
And PT militants in Brazil may look to the 
success of Chávez's Fifth Republic Movement to 
renovate their party. But Latin American 
solidarity historically has been honored more in 
the breach than in the observance. Entrenched 
political and economic rivalries will probably 
slow, if not stall, Mercosur and PetroAmerica 
integration. If the dollar declines and shrinks 
demand for imports, if global interest rates go 
up and swell Latin American debt, or if China 
slumps, leading to a fall in commodity prices and 
Asian investment, the economic growth that has 
underwritten regional cooperation over the past 
few years could end abruptly. Yet even if a 
pro-FTAA candidate wins in Brazil in October, and 
Peru and Ecuador remain firmly in Washington's 
camp, the United States would still confront 
opposition from Argentina, open defiance from 
Venezuela and, most likely, skepticism from 
Mexico--three of Latin America's four largest 
economies and critical to any successful 
free-trade deal.

As its political and economic influence in the 
region wanes, Washington has given up trying to 
convince Latin America to join the "war on 
terror," while its trade envoys are now reduced 
to signing bilateral deals with negligible 
economies like Paraguay and Ecuador to dilute 
opposition to the FTAA. The White House, under 
the sway of neocon ultras, has further backed 
itself into a corner by encouraging Chávez's 
adversaries to go for broke. Rather than 
patiently broadening a base of opposition and 
accumulating grievances, they have pursued an 
increasingly desperate series of actions--a coup 
attempt, an oil strike, the recall and, most 
recently, a boycott of legislative 
elections--that have left their nemesis 
strengthened and themselves discredited. 
Washington may be laying the groundwork for the 
same all-or-nothing strategy against Morales, 
having just announced that it is cutting off 96 
percent of its military aid to Bolivia, a move 
that seems calculated to provoke the armed forces 
to act. The Bush Administration now promises to 
wage a battle for the "future of Latin America," 
but with few options left--except, of course, the 
military one--it is unclear if it will have any 
more success in what used to be the United 
States's backyard than it is having now in the 
Middle East.

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