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Southern discomfort

Sukumar Muralidharan | Updated on January 20, 2018

Pressure tactics: Venezuelan President Maduro has accused the US of trying to overturn the Venezuelan economy by promoting the dollar black market Photo: Reuters

Sukumar Muralidharan   -  BUSINESS LINE

Dangers to Latin America’s second freedom

If ‘neoliberalism’ is a real thing, the perfect testing ground would be Latin America. Most of its key acts have premiered on the continent and having seen its worst, Latin America has staged the first systematic effort to stand the dogma on its head. A political tide began building up towards last century’s end, soon acquiring sufficient expanse and ambition to gain description as the continent’s “second freedom”.

That freedom today stands threatened. In January, Venezuelan president Nicolas Maduro declared a state of emergency as inflation, despite an economic contraction lasting months, touched a level described as “catastrophic”. A hostile national assembly moved to deny Maduro the powers he sought. A constitutional crisis was averted when the country’s highest court ruled a legislative mandate unnecessary for the emergency exercise of presidential powers.

Maduro is intent on keeping alive the legacy of his mentor, Hugo Chavez, whose election as president in 1999 inaugurated a continent-wide rebellion against neoliberalism. Between then and his death from cancer in 2013, Chavez won every electoral contest — nationwide, regional and local — fighting off a consistently hostile opposition and the bluntly stated intent of the northern colossus, the US, to overthrow him. It was an unambiguous mandate by any standard, before the setback of December 2015 turned legislative control over to an opposition coalition.

Brazil as the largest country and presumptive leader of continental trends, was momentarily left behind, but caught up with the inauguration of Luis Ignacio de Silva as president in 2003. When he stepped down in 2011 in accordance with constitutional term limits, ‘Lula’ as he is known, had an 80 per cent approval rating. But political rancour has since spiked as the economy turned sour.

Police investigators recently paid Lula a call to quiz him on corruption charges. President Dilma Rousseff, a long-time associate and protégé, quickly appointed him to a cabinet position, vesting him with partial immunity. The constitutional court frowned and a newly elected national assembly resolved afresh to proceed with Rousseff’s impeachment.

Lula took the fight to the streets, rallying the faithful to his vow that Brazil would not suffer another coup. Unlike earlier junctures when democracy was crushed by jackbooted caudillos with filial ties to the country’s aristocracy, the threat to Latin America’s second freedom comes from powerful media monopolies, able to stir up turmoil and simulate an abrupt withdrawal of popular consent.

The second freedom has been resisted at every stage by social strata accustomed to being on top of highly unequal hierarchies of privilege. It was uniquely facilitated by a conjunction of favourable circumstances, including a boom in global energy prices and the Chinese economy’s voracious import appetite through the early millennial boom.

Yet it took a deliberate political effort to ensure that attendant benefits were widely shared. First steps in vanquishing dogma were taken by Argentina after a financial crisis between 1998 and 2002 wiped out savings. The bitter medicine administered by the global financial cabal only led to a more rapid flight of capital. But that really was the turnaround, with a political shift to the left, the imposition of currency controls, and the inauguration of a determined fiscal stimulus. Within four years of messaging that it would place national interests first, Argentina successfully forced a loan restructuring on creditors.

Growth rates accelerated across all countries, with a significantly more equitable distribution of gains. In the decade following 2003, real wages in Brazil grew 35 per cent. While the share of the top 10 per cent income earners shrank from 51 to 34 per cent, that of the next 80 per cent increased from 47 to 65 per cent. Brazil saw a rapid change in quality of job contracts, with employment shifting significantly out of the informal sector, mostly facilitated by newly enacted laws.

In Venezuela, there was a rapid decline in poverty and a virtual tripling of university enrolments in proportion to the eligible population. Ecuador saw the ratio between average incomes of the richest decile and the poorest fall from 36 to 25 within five years of President Rafael Correa taking office. And Bolivia has, since electing its first president from an indigenous community in 2006, asserted control over its natural resource base and turned the revenue windfall into substantial welfare improvements.

All these gains are threatened today by plunging economies and a faltering policy response. Clearly all the regimes in power are intent on protecting the welfare gains of the last decade-and-a-half. Pacifying restive local elites and imposing on them a fair share of the burden of adjustment would be easy, if the northern colossus were to keep its hands off. Maduro recently spoke of a deliberate effort by the US to overturn the Venezuelan economy by promoting the dollar black market. And there is little question that since the global energy price crash, a large gap has opened up between official and parallel exchange rates for the US dollar, fuelling the vicious cycle of high inflation, a growing black market premium, expectations of further currency devaluation and capital flight. A restoration of order is possible, but a website run from Alabama in the US, has been doing its best to prevent that by quoting the black market exchange rate for the dollar on an hourly basis.

“It is a false, parasitic and speculative dollar that has done great harm to Venezuela”, Maduro declared recently. “Quantitative easing”, the lifeline that the US economy clings to as it fights off a slowdown, has pumped a dollar surfeit into the global economy. There are dollar reserves floating around which could be tapped. Venezuela has to an extent shown how, by trying up a strategic financial aid package with China. Similar initiatives elsewhere may well be the way to salvage the continent’s second freedom.

Sukumar Muralidharan is an independent writer and researcher based in Gurgaon and Shimla

Published on April 01, 2016

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