The Return Of The Old Caudillo

Listen to the rhetoric gusting around much of Latin America these days and you'd be forgiven for wondering if a new cold war was in the making. Suddenly, heavy-handed state interventions into the economy, such as price controls, stiff taxes and loose money, are back in fashion. So are takeovers of foreign assets, usually garnished with broadsides against "imperialismo." It's not just Hugo Chávez, the Venezuelan strongman, who in the name of his "Bolivarian revolution" has seized multinational oil holdings, bullied business, and generally beat the gringo devil. The demonization of the free market and its foreign sponsors is spreading throughout the region—and the sound bites are getting shriller. "The capitalist era is over!" vowed Evo Morales of Bolivia.

Don't wait for the revolution. Beyond the boilerplate anticapitalism, the assortment of caudillo firebrands, self-styled socialists and soi-disant revolutionaries now presiding over a large patch of Latin America—most prominently in Argentina, Bolivia, Ecuador, Nicaragua and Venezuela—lack any discernible doctrine that would fuel a common agenda. But what distinguishes these rulers is something far more familiar and potentially troublesome: populism. With the old split between social liberals and free-market champions that once ran through the hemisphere largely faded, a divide between democrats and authoritarian populists, the famous caudillos, has re-emerged, says Susan Kaufman Purcell, director of the Center for Hemispheric Policy at the University of Miami.

Both groups wax passionately about helping the poor. But while most democratic-minded leaders are committed, or at least resigned, to abiding by legislatures, the courts and the creaky machinery of the public bureaucracy, populists rule with their feet on the soapbox and their fingers in the national purse. Democrats are "committed to strengthening democratic institutions," says Kaufman Purcell, while the caudillos undermine democratic institutions "to concentrate political and economic power in their own hands."

In one sense, the return of populism is no surprise. Self-anointed saviors arrived with the conquistadors. "Give me a balcony and I'll become the next president," said José Maria Velasco, a five-time president of Ecuador early in the last century. Even democratic-minded leaders like Brazil's Luiz Inácio Lula da Silva can't resist playing to the galleries, raising the minimum wage and giving handouts to the needy. And as in most places, Latin American populism thrives in times of despair. Yet, strangely, the region has never looked fitter. Foreign debt has declined and trade is surging. After years of stagnation, the economy is growing—up 5.3 percent last year and on target to expand 4.6 percent in 2008. Last week, Standard & Poor's raised Brazil's debt rating to investment grade. Peru reached that state of grace a few weeks earlier, and Colombia and Panama are expected to follow. Even the poverty rate has eased, from 48 percent in 1990 to 36 percent last year.

But the new prosperity has not come nearly fast or deep enough to leach out centuries of want and inequality. What has spread spectacularly is the democracy of information. "Globalization has connected people like never before," says Michael Shifter of the Inter-American Dialogue, a think tank. "The poor may be better off, but they are aware that a lot of people are doing better and making a lot of money. That feeds a sense of frustration." Such frustration has always been fertile soil for populists, and in a region where education levels are poor and political parties a shambles, voters still swoon to what Harvard historian Kenneth Maxwell calls "the man on horseback."

Today's populists have deeper pockets than ever, thanks to the commodities boom. Petropopulism and agropopulism are part of the new political lexicon. Even chronically impoverished Bolivia, sitting on one of the largest hydrocarbon reserves in South America, is an energy sultanate. Some countries, including Brazil, Chile, Mexico and Peru, have put the windfall to good use by writing down debt and building up budget surpluses. Others, such as Argentina, Ecuador and Venezuela, have seen it as a blank check for crowd-pleasing measures like soft loans, larding payrolls and handouts at election time. "When good times come, populists have no reason to reform spendthrift economies," says Shelly Shetty, an analyst at Fitch Ratings.

But good times come to an end—and troubles already loom. Until recently, Venezuela and Argentina boasted near "Chinese rates" of growth, with GDP expanding 7 to 9 percent a year. Now their governments are trying to hose down their overheated economies with price controls and taxes on exports. Invariably, manufacturers and farmers respond by withholding goods from the market or selling them abroad for a higher price. Empty larders spur even greater discontent. Food shortages in Venezuela have helped push Chávez's popularity to record lows. Industrialists and soybean planters in Bolivia's lowland eastern provinces have defied Morales by supporting a May 4 referendum on regional autonomy, in the hope of breaking free of what they see as La Paz's iron grip and a surge of tax-and-spend populism. In response, indigenous peoples and peasants are marching east, with Morales's blessings, to combat the "threat to national unity."

Last month, when Argentine farmers were on strike to protest scorching export taxes, President Cristina Fernández de Kirchner did what any self-respecting member of the ruling Peronist Party would: she played to the crowd. "Never have I seen so many attacks on a government elected by popular vote," she intoned from a dais at the Plaza de Mayo before thousands of cheering boosters. But the farmers have warned that if their demands are not met, roadblocks will paralyze the countryside again. It seems there are some things not even a balcony can fix.

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