Is Latin America Turning Toward Free Markets?

Sebastian Pinera’s triumph in Chile’s recent elections would seem to confirm that Latin America is turning against statist left-wing populism.

First, Argentina’s Mauricio Macri unseated the Peronists, who had turned an emerging country into a fourth-world disaster. Then Bolivia’s Evo Morales lost a referendum in his effort to overcome constitutional term limits. (He is going ahead anyway but is encountering tough resistance.) Then Brazil’s Dilma Rousseff was impeached amid a national revolt against corruption and was succeeded by her vice president, himself under suspicion, who is bent on reversing decades of profuse government interventionism. Then Ecuador’s new president, Lenin Moreno, denounced his predecessor and one-time mentor, Rafael Correa, a demagogic admirer of Venezuela’s dictator. And now, after four years—during which the country’s center-left, for decades an example of “vegetarian” moderation, let loose some of its “carnivorous” instincts—Chile has opted for Sebastian Pinera, a staunch defender of a (relatively) free economy, which has placed Chileans within $5,000 per capita of becoming a developed country.

But the question, despite this mesmerizing turn of events, is twofold. Is this trend sustainable and will these new or prospective governments engage in bold reform or manage the legacy?

We can expect a degree of dynamism—it’s already happening. We have seen Brazil and Argentina move in the right direction, with varying degrees of intensity, on fiscal reform, tax reform, labor reform, pension reform, and other issues. Ecuador has hardly moved on those fronts, but it has progressed on the larger issues of political freedom and freedom of the press, as well as in the fight against graft. And Chile’s Piñera, although his party will be in the minority in Congress, wants to reverse a four-year decline in private investment.

If the general trend does not prove sustainable, however, most free-market administrations will be paralyzed by an emboldened opposition and their own fear. Several elections will take place across the western hemisphere in 2018, most importantly in Colombia (May), Mexico (July), and Brazil (October); in none of them is it certain that the regional backlash against statist populism will be confirmed.

In Colombia a former guerrilla, left-wing populist Gustavo Petro, is ahead in the polls and the general disgust with the corruption of the political class has created a perfect scenario for an unpredictable outsider to emerge—not to mention that the Revolutionary Armed Forces of Colombia (FARC), a terrorist organization with which the government signed a peace deal recently, is competing for the presidency with large resources after years of narco-trafficking.

In Mexico left-wing, anti-American populist Andres Manuel Lopez Obrador, whom President Trump has unwittingly helped with his anti-Mexican discourse, is well ahead in the polls. Although the government candidate, José Antonio Meade, a well-respected technocrat who was a minister in two administrations, is a potentially strong contender, there is no second round in that country’s elections.

Finally, Brazil’s former president Lula da Silva, who was responsible for the biggest corruption saga in that country’s history and was sentenced to prison in a lower court, is ahead in the polls because he is associated with the go-go years of the commodities boom, when he redistributed money to the political clientele of his Workers’ Party. If a higher court confirms his prison sentence, he will be barred from running.

In all these cases, those who currently lead in the polls may lose in the elections. But their commanding position today tells us that old-style Latin American populism is still a force to be reckoned with in three countries that carry significant regional weight.

It is premature to speak of a firm free-market trend in Latin America. We can more accurately say that the region, which on average has experienced no economic growth since 2013 in part due to statist policies, has the chance to embark on a whole new beginning—if Colombians, Mexicans, and Brazilians do the right thing in 2018.