Why Latin America was primed to explode

By Moisés Naím and Brian Winter

IN a world aflame with protest, Latin America stands out as a raging ten-alarm fire. From Bolivia to Ecuador, Haiti to Honduras, the closing months of 2019 have seen enormous, sometimes violent demonstrations prompted by a truly dizzying array of grievances, including electoral fraud, corruption, and rising fuel and public transportation prices.

Even Chile, the region’s ostensible oasis of calm and prosperity, erupted in protests and riots that left 20 dead and forced President Sebastián Piñera to declare a state of emergency. It is now an open question whether any country in the region can be considered truly stable.

The rapid spread across social media of images of burning buildings and besieged riot police has inspired widespread talk of a conspiracy: specifically, that the protests throughout the hemisphere are being orchestrated from Venezuela and Cuba.

These socialist dictatorships, the thinking goes, are hell-bent on distracting from their own domestic crises by destabilizing democracies in the region governed by center-right parties, such as Ecuador and Chile.

Venezuela’s Nicolás Maduro seemed to confirm the theory when he told an audience that “the plan is going exactly as we hoped,” with “the union of social movements, progressives, and revolutionaries . . . of all of Latin America and the Caribbean.”

Maduro has a long history of overstating his influence in the region, hoping to appear all-powerful in the eyes of his countrymen and the world. He has extra incentive to do so now, given Venezuela’s severe economic and humanitarian crisis and the ongoing threat to his rule from Juan Guaidó, who is recognized as the country’s legitimate president by dozens of governments, including the United States.

Cuba is also facing hard economic times, owing in part to sanctions from the Trump administration. That said, numerous credible voices, including Argentine Foreign Minister Jorge Faurie and Luis Almagro, the secretary-general of the Organization of American States, have denounced what they see as clear Venezuelan and Cuban interference in the region’s recent unrest.

And at the peak of the rioting in Ecuador in early October, that country’s interior minister said that 17 people had been arrested at the airport, “most of them Venezuelans … carrying information about the protests.”

At this early stage, it is impossible to say how important foreign interference has been in igniting or sustaining the protests. According to the Chilean newspaper La Tercera, Chilean police have identified several Venezuelans and Cubans who participated in violent attacks in Santiago in mid-October, to cite one example.

But the scale and unrelenting nature of the protests, which brought more than one million of Chile’s 18 million citizens into the streets on October 25, suggest that the root causes are large and structural. The focus on conspiracy theories, moreover, risks giving politicians and other elites a handy scapegoat.

Whether or not foreign agitators lit the sparks, much of Latin America was already primed to combust. After a commodity boom in the early years of this millennium raised expectations higher than ever, much of Latin America has entered a long period of disappointing growth. Against the backdrop of stagnating wages and rising costs of living, indignities such as inequality and corruption have become more difficult for many people to swallow.

At the same time, Latin Americans have become some of the world’s most dedicated users of social media. They watched as protests erupted from Hong Kong to Beirut to Barcelona. Some doubtlessly wondered: Why not us, too?

Hard up, fed up

The protests now raging across much of Latin America originated from different sparks but are connected by a single common denominator: economic malaise. On average, Latin American and Caribbean economies will grow just 0.2 percent in 2019, the worst performance of any major region in the world, according to the International Monetary Fund.

By contrast, emerging markets globally are expected to expand by 3.9 percent this year, building on several years of solid growth despite headwinds from the trade war between the U.S and China.

To understand why Latin America’s economic slump has generated such outrage, one need only rewind to the beginning of this decade, when the region was outperforming the rest of the world. Thanks to a boom in commodities prices, driven largely by demand from China, Latin American economies grew by an average of about 3.5 percent on a per capita basis between 2003 and 2013, their best performance in at least half a century.

These gains were relatively well distributed, and nearly 100 million Latin Americans ascended to the middle class during that period, according to the World Bank. Many people were able to buy cars, washing machines, and big-screen TVs for the first time. They expected the good times to continue for the foreseeable future.

But things haven’t worked out that way. In the last half decade, Venezuela endured one of the worst economic collapses ever outside of a war zone; Brazil weathered one of the longest and deepest recessions in its history; Argentina suffered a currency and debt crisis; and comparatively resilient countries such as Peru, Mexico, and Colombia experienced only disappointing growth.

The specifics vary country to country, but there are some common causes for the regional downturn. Many Latin American governments were left with unsustainably large budget deficits at the end of the commodities boom and failed to adjust quickly enough to reassure investors.

Productivity in much of the region has stagnated, and only sub-Saharan Africa has a lower ratio of investment to GDP. As a result of these factors, salaries have stagnated, poverty has ticked up in several countries, and people have railed against what they see as their governments’ broken promises.

Economic hardship has focused protesters’ anger onto related issues such as inequality and corruption.

All of which helps explain the current unrest. In Chile, protests erupted after the government hiked public transit fares by 30 pesos, the equivalent of four U.S. cents. In Ecuador, people took to the streets after the government slashed fuel subsidies, causing diesel prices to more than double.

Both the Chilean and Ecuadorian governments reversed themselves after protests broke out, but the damage was already done: unrest continues in both countries. Even where the proximate causes of protests have been political, economic issues have loomed large in the background: riots erupted in Bolivia this month after President Evo Morales, whose popularity has sagged along with the country’s economy, won a fourth consecutive term in an election marred by widespread allegations of fraud.

Economic hardship has focused protesters’ anger onto related issues such as inequality and corruption. Latin America has long been one of the world’s most unequal regions, but the limits of what people consider tolerable are shifting.

The middle class that sprang from the last commodities bonanza is more educated and, thanks to the Internet, hyper-connected. Its members now have an unobstructed view of the flashy cars, designer handbags, and expensive Miami vacations of the Latin American elite.

During the boom times, middle-class people seemed to have a degree of patience for such excesses, perhaps rooted in the hope that they might one day enjoy them. But along with the region’s economic prospects, that hope seems to have melted away in recent years.

A wave of recent corruption scandals landed former presidents of Brazil, Peru, and Guatemala in prison and has likewise eroded the credibility of the establishment. In polls, political parties frequently receive the lowest trust rating of any entity or group.

And voters across Latin America have increasingly concluded that it is not just politicians or parties that are corrupt; it is the system itself. Only 57 percent of Latin Americans now believe democracy is “better than any other form of government,” according to a recent poll conducted by the Latin American Public Opinion Project at Vanderbilt University.

That is compared with 66 to 70 percent in the decade before 2014, when economies shifted into lower gear and several corruption scandals exploded into public view. The results of the Vanderbilt poll and other similar ones do not necessarily mean that people want a return to the military dictatorships that dominated the region in the 1970s.

But voters are clearly turning to “strong” civilian leaders such as Mexican President Andrés Manuel López Obrador and Brazilian President Jair Bolsonaro (a former army captain), both of whom came into office promising easy solutions that they have so far proved unable to deliver.

Mission improbable

To succeed in the current climate, Latin American leaders will have to manage a tricky balancing act, one that may ultimately prove impossible to pull off. On the one hand, their constituents demand that they take immediate, sweeping action to fix problems that in many cases have festered for decades, if not centuries.

On the other hand, these leaders have lousy approval ratings (many of them, including Chile’s Piñera, below 30 percent) that will make passing legislation extremely difficult. The protests hem these leaders in further, increasing polarization and making consensus even more elusive.

In Chile last week, Piñera tried to address this quandary. He apologized in a nationally televised address for what he called a “lack of vision” so far in his administration and announced a 20 percent increase in the minimum pension, a higher minimum wage, and price cuts for medicines for the poor. These measures were designed to close the gap between rich and poor Chileans.

But it is simply not possible to lastingly reduce inequality unless an economy is growing at a healthy pace. Piñera and his counterparts elsewhere in Latin America surely know this. People will need to put their mobile phones aside for a moment and stop expecting governments to solve all of their problems.

If Latin America is to recapture the relative prosperity of the early years of the millennium, an ambitious reform agenda is necessary—one that goes beyond the standard measures popular among pro-business types, such as tax reform and trade deals.

Instead of waiting for the protests to spread, leaders across the region should identify the top two or three priorities for their countries—for example, malnutrition in the Northern Triangle countries of Central America, security in Mexico or Brazil, infrastructure in Colombia, modernization of schools everywhere—and convene broad coalitions to address them.

Chronic shortfalls in health care, security, infrastructure, and education hold back growth in much of the region. To effectively address these problems, governments, businesses, and civil society must collaborate. People will need to put their mobile phones aside for a moment and stop expecting governments to solve all of their problems.

Such broad-based and ambitious reform may be a lot to ask. But the region can’t simply wait for another commodities boom or some other magical source of growth. Passivity will lead only to a vicious cycle of slowing economies, declining faith in democracy, and rising populist leaders. Such was the cycle that propelled much of Latin America into repressive military dictatorships in the 1970s and 1980s.

The same gears may churn toward mayhem and division, sown from within Latin American countries and without. Venezuela and Cuba may not be the main reason for the current protests. But if the region continues down its current path, it will be vulnerable to the next conspiracy, whether from Havana, Caracas, or somewhere else.