The rising tide of the left in Latin America

Argentinian football soared as its politics sank to a low ebb. Just weeks before Messi’s triumph, the left-wing government’s vice-president, Cristina Fernández de Kirchner, was sentenced to jail over a $1 billion fraud — a charge she denies, saying it is politically motivated. This might seem a cautionary tale for Latin America, which two decades ago had mixed success under “socialist” governments. By 2017, right-of-center politicians dominated the region. But the pink tide began to rise once again a year later with Mexico’s Andrés Manuel López Obrador. When Brazil’s president, Luiz Inácio Lula da Silva, returns to office on Monday, left-leaning leaders will be in control of six of the region’s seven largest economies.

They are now charged with bridging big economic, gender and racial divides. Political polarization is undermining democracy, making it harder for many to respect compromise. 

Quasi-stagnation

Geology, as much as geography, is destiny in Latin America. With 60% of the world’s lithium, the white gold of electric batteries, and the world’s largest oil reserves, the neighboring U.S. carries a big stick. In the 1980s, the Washington consensus led its nations to borrow in dollars and liberalize their capital accounts to attract foreign investors. The lost decades that followed the neoliberal turn in the region saw stagnation, coups and armed conflict. This was the chaotic backdrop in Latin America as authority over spending and investment was transferred out of elected legislatures and into markets, courtrooms and central banks.

Two left-wing governments in Chile and Peru have tried — and failed — this year to rewrite pro-market constitutions. The Chilean president, Gabriel Boric, was swept into office on a wave of social unrest in 2019. However, his proposal for a new, progressive charter was rejected in a September referendum campaign drowning in misinformation. He survived the loss and is seeking to draft a new constitution. In Peru, Pedro Castillo — a former teacher and union leader — attempted to dissolve Congress and elect a constituent assembly to draft a new constitution after a chaotic year. He ended up impeached, detained by police and replaced by a left-wing former ally. 

The world, post-COVID but convulsed by Russia’s Ukrainian war, is in flux. This offers Latin America some hope. A different global model once worked in its flavor. Keynesian policies held sway between 1950 and 1980, and saw the region develop without damaging boom-and-bust cycles. This period, bounding the late Pelé’s career, ended with democracy replacing dictatorship. The flaws of globalization today have been increasingly obvious since 2008 — and nowhere more so than in Latin America, which Brazil’s former finance minister Luiz Carlos Bresser-Pereira says has been condemned to “quasi-stagnation”. His country has seen higher-end exports like vehicle parts and electronics give way to trade in iron and oil.

Rentier politics

The last generation of left-wing leaders could thank high commodity prices for their public investment programs. But that entrenched a rentier class with an interest at preserving the status quo, such as Brazil’s rich landowners who bankrolled the right-wing Bolsonaro campaign. High energy prices now have many nations worrying that a deteriorating balance of trade will put downward pressure on their currencies, risking inflation and making dollar debt repayments harder. Hence, nations have historically tried to build up their stock of greenbacks through exports using pegged currency rates. The upshot, Bard College’s Randall Wray suggests, is that governments use austerity to reduce the wages of workers instead of the wealth of rentiers, by depreciating the currency.

Rising domestic prices also widen the gap between rich and poor in the world’s most unequal region. The Argentinian economist Agustín Mario argues that pursuing full employment with a free-floating peso would be a better way to reduce inflation and poverty rates rather than the widespread use of indexing costs to prices that propagate inflationary shocks. The region needs a new model, beginning with debt relief and followed by a push for more equitable, sustainable growth involving state-led industrialization and regional integration. No longer bound just to the U.S., Latin American economies should be easier to recast through bargaining among several partners. These are no less self-interested than Washington. Projects backed by China appear to be some of the worst violators of human rights and environmental law. 

After so many false dawns, claims about the end of the neoliberal era will be taken with a pinch of salt. But the established order is coming apart, and rightly so. The task is to create a superior one.