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As Populists Rise, Latin America’s Economies Will Fall
By Kenneth Rogoff

In the space of a year, populists with autocratic tendencies have taken office in Mexico and Brazil, and laid the groundwork to return to power in Argentina. With the three largest economies in Latin America destined for further mismanagement, the prospects for growth in the region are dim.
Mexican President Andres Manuel Lopez Obrador attends an official event to mark the beginning of the construction of a new international airport, at the Santa Lucia Air Force Base in Zumpango near Mexico City, on April 29, 2019. – Months after cancelling work on another airport that was already one-third complete, Lopez Obrador marked the symbolic start of the construction of a replacement project. The new development will replace a part-completed $13 billion project championed by his predecessor, Enrique Pena Nieto, which Lopez Obrador axed after holding a referendum on the issue that was marred by irregularities. (Photo by Pedro PARDO / AFP) (Photo credit should read PEDRO PARDO/AFP/Getty Images)

Though US President Donald Trump tends to grab most of the headlines, he is hardly a global exception. Populist autocrats have enjoyed a breathtaking rise to power in countries around the world, and nowhere is the trend more pronounced than in Latin America following the elections of Mexico’s leftist president, Andrés Manuel López Obrador (AMLO), and Brazil’s right-wing president, Jair Bolsonaro. Americans are right to complain about Trump’s autocratic tendencies, but, as former Chilean Finance Minister Andrés Velasco would remind them, Trump is a mere apprentice compared to Latin America’s populists.

To be sure, this does not mean that the Mexican and Brazilian economies will share the same fate as that of Venezuela under Hugo Chávez and its current strongman, Nicolás Maduro. Chávez and Maduro managed to take Latin America’s richest country – home to one-quarter of the world’s proven oil reserves – and turn it into a basket case with inflation over 1,000,000% and a poverty rate over 90%. At least four million of Venezuela’s 32 million people have fled the country, and forecasts suggest that number could double this year if Maduro remains in office. Venezuela owes its plight not so much to Trump-era economic sanctions as to its own populist leaders. The country has been declining for years, with most of the drop in its social and economic indicators far predating the Trump administration.

AMLO, like the charismatic Chávez two decades ago, was swept into office last year on the promise that he would improve the lives of ordinary people. One of his first official acts was to abort construction of a desperately needed new airport in Mexico City – even though the project was already 30% complete – on the grounds that airlines are for the rich. He then launched a new airport project in an impractical, mountainous location farther away, where it stands even less chance of being finished.

Though AMLO campaigned on a promise to end corruption, his government has eschewed competitive bidding for more than 70% of the contracts it has awarded. Like Trump, he dismisses media critics as “fake news,” and warns reporters to “behave well,” or “you know what will happen to you.” Still, global investors are encouraged by the fact that AMLO has left the central bank alone, at least so far.

But even if the market isn’t pricing in a massive “Venezuela risk” for Mexico, many of the left-leaning celebrities, writers, academics, and politicians who once praised Chávez to the skies have been notably reticent to cheerlead for AMLO. Having watched Trump turn the Venezuelan tragedy to his political advantage, outsiders who may be sympathetic to AMLO’s socialist ambitions are wise to be cautious. The one exception, of course, is the British Labour Party’s far-left leader, Jeremy Corbyn, a longtime supporter of Venezuela’s corrupt Chavist regime, who attended AMLO’s inauguration in December 2018.

While AMLO poses a threat to Latin America’s second-largest economy, Bolsonaro is jeopardizing its largest. As the sad old saying goes, Brazil, with its bountiful natural resources and talented people, “is the country of the future – and always will be.” Its new president, a former army captain who wants to arm the citizenry and raze large swaths of the Amazon (which would significantly accelerate global warming), has become a lightning rod for student protests, environmentalists, and gay-rights activists. Anticipating massive protests, he recently canceled a trip to New York after receiving biting criticism from its mayor, Bill de Blasio.

Things aren’t much better at home. Bolsonaro’s approval ratings have fallen by half since he took office at the beginning of the year. Early scandals make it far from clear that he will be able to clean up the endemic corruption that cripples Brazil’s governance, much less demonstrate the coalition-building skills needed to implement his government’s ambitious economic reform agenda.

Making matters worse, Latin America’s third-largest economy, Argentina, is now facing the prospect of a return to corrupt, autocratic socialist rule after a presidential election this coming October. The country’s current president, Mauricio Macri, came to office in 2015, having promised a return to economic sanity after former President Nestor Kirchner and his successor/wife, Cristina Fernández de Kirchner, squandered the benefits of an agricultural export boom in the early 2000s. Yet Macri, who inherited an extremely difficult situation – not least a large budget deficit and limited borrowing capacity – has also made some critical mistakes.

To bring down inflation, which had probably reached around 30%, Macri’s government sought to slow the rate of money growth and find alternative sources of finance. But officials chose to rely on short-term foreign-dollar borrowing (a classic mistake), and Argentina soon found itself unable to pay its debts. The exchange rate has now collapsed, inflation is up to over 50%, and the Kirchners’ party is poised to regain power.

If all autocratic leaders were as competent as the late Lee Kuan Yew, Singapore’s founding father, recent political developments in the Americas might not be so worrisome. Sadly, this is not the case, particularly when it comes to the populists in Mexico, Brazil, and Argentina. As matters stand, it looks like Latin America will remain the region of the future indefinitely.

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. The co-author of This Time is Different: Eight Centuries of Financial Folly, his new book, The Curse of Cash, was released in August 2016.
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