Image: Javier Milei, via Wikimedia Commons.

The eccentric bushy-haired Javier Milei – who wielded a chainsaw in campaign appearances and hinted at receiving guidance from his deceased pet dog – was lifted to the Argentine presidency last December on a wave of voter frustration and anger. The self-styled “anarcho-capitalist” captured 56 per cent of the vote in a runoff against his opponent from the party of Argentina’s long-enduring Peronist tradition.

Milei’s ascension to the Casa Rosada, the presidential office, was convincing, yet – for all his iconoclastic style – does not mark a radical departure from a pattern that has defined Argentine politics for a century. Since the legendary Juan Perón was first elected president in 1946, Argentina’s politics have been an unsteady oscillation between two tendencies: on one side, reliance on government intervention to protect national industry and redistribute wealth, and on the other, attempts to shrink government to restore competitive market forces and repay the debts incurred paying for extensive social programs.

The Seesaw Process

Perón initiated the seesaw process after managing against all odds to ally Argentine conservative forces with organized labour. In the late 1940s and early 1950s, that political contract boosted worker incomes and social benefits while managing class conflict and encouraging social stability. In historian Alejandro Cattaruzza’s summary, Peronism can be “understood as homegrown fascism, a movement of worker emancipation, populism, an inheritor of nationalism, but also of radicalism and social Catholicism … (It) defined the second half of the 20th century in Argentina.” Shapeshifting over time, Peronism has embodied, at different junctures, both the state-expansionist and state-limiting vectors of Argentine politics.

Peronist president Carlos Raúl Menem implemented extensive liberalizing reforms between 1989 and 1999, but Menem’s efforts failed to free markets from regulatory shackles or quell the country’s always looming international debt. The liberal Fernando de la Rúa (1999–2001) presided over a collapse of the national economy while defaulting on $132 billion in international debt, the largest of nine such episodes in the country’s history. His government was the subject of angry protests that forced him literally to flee from his presidential office, by helicopter.

The subsequent Peronist presidents Nestor Kirchner and Cristina Fernández de Kirchner presided over a fragile stability between 2003 to 2015 during which they pursued an endless series of acrimonious negotiations with international financial institutions. An eventual agreement to restructure debt ran aground when a U.S. hedge fund insisted on receiving full payment rather than joining other creditors in “taking a haircut.” The stalemate was broken when the subsequent non-Peronist, centre-right government of Mauricio Macri agreed to pay the hedge fund’s bill.

Credit somewhat restored, Macri took a gradualist approach to market opening and debt reduction between 2015 and 2019. Characteristically, his government was supplanted by that of Alberto Fernández, another Peronist, who presided over a worsening economic crisis in which the government again defaulted on its debt before restoring a fragile liquidity. A late orgy of government spending, meant to secure the Peronists’ hold on office, failed to persuade electors that things could get better. In 2023 Milei was brought to power, the latest – and the most colourful – proponent of the state-shrinking, liberalizing tendency.

The crisis that propelled Milei into office has exacted much pain and suffering and fostered an abiding despair about the government’s ability to fix things. In 2023, inflation rose to 211 per cent. According to the International Monetary Fund, GDP shrank by 2.5 per cent and official unemployment rose to 7.8 per cent. Before Milei’s election in December, 44.7 per cent of Argentines had incomes below what was considered the poverty line for affording a basic basket of goods and services. The Argentine Catholic University’s Social Debt Observatory calculated that 9.3 per cent of Argentines were considered “destitute.”

According to World Bank figures, “The real wage for formal private sector workers and public workers fell 15 per cent and 18 per cent respectively (in the six years before 2023), while it decreased by 40 per cent among informal workers.” Scandalous revelations of members of Fernández’s government enriching themselves at public expense added to public exasperation.

Milei’s angry diatribes against what he calls “the caste” that occupies the top offices gained traction with the public. An expression current in the aftermath of Menem’s late-nineties regime was heard again: “Que se vayan todos” – in the characteristic Spanish subjunctive mode, “that they all should go,” roughly equivalent to “Throw them all out.” Milei’s “image of anger, vulgarity, and accusing everyone involved in politics was quite successful,” a seasoned Argentine diplomat said in an email exchange from Buenos Aires.

Milei was most popular among Argentine men between 16 and 30 years of age, not surprising given the 60 per cent poverty rate among young adults. He harvested nearly 50 per cent of all women’s votes, skewing more to the middle-aged and older demographic. The self-employed gave Milei a 30-point advantage; support from the industrial and high-tech sectors was also high and particularly significant given Peronism’s long association with interventionist industrial policy. Milei’s electoral support among the military reached 90 per cent, and among police 70 per cent.

The diplomat noted the importance in the campaign of social media, including TikTok, which he argued made for even greater superficiality than normal for electoral discourse. He characterized the campaign as a “degradation of values,” a gradually diminishing focus on community and social responsibility. “Argentina,” he concluded, “is a completely different country than 40 years ago.”

The time frame was chosen advisedly. In 1983, Argentina shook itself free from a sinister military dictatorship that waged a “dirty war” against often arbitrarily identified political opponents. The diplomat referred more to Argentina’s preservation of its “social capital” than its welcome escape from military repression. High levels of social, educational and cultural development seemed to survive the dictatorship. Social capital has been deeply eroded by four decades of economic mismanagement and turmoil.

Harsh Adjustment Measures

Milei’s unexpectedly large presidential victory does not guarantee him any greater chance of success in breaking the long-term pattern and restoring – or, more aptly, finally establishing – a stable economy. The primary limitation, as in all previous efforts to right the fiscal boat, is politics and whether the government can maintain popularity while implementing corrective measures that cause public pain.

Hampering Milei is the fact that his party holds only a handful of seats in Argentina’s lower house and no seats in the Senate. The Peronist alliance, Unión por la Patria, holds the most seats in Congress. None of Argentina’s provincial governors is from his party. He is getting some support, however, from the party of the former liberal president Mauricio Macri, Juntos por el Cambio. Its candidate in the opening round of the 2023 election, Patricia Bullrich, has joined Milei’s cabinet.

Milei’s first and most sweeping omnibus bill of radical measures put to Congress failed to win enough support. Since modified and resubmitted, the Ley de Bases, as it’s called, includes plans to privatize state entities, reform taxes and curb state subsidies. It has been approved by Congress but not yet by the Senate. In the meantime, Milei has relied on what he can do by presidential powers alone, which under the Argentine constitution are significant.

By decree, Milei has devalued the Argentine currency, closed ministries, slashed transport and fuel subsidies and cut spending to project a federal government budgetary surplus. Controversially, he has eliminated funds for food banks. He has also proposed increases in export tariffs on agricultural goods, a measure contradicting his espousal of free markets but an indication of how deeply embedded protectionism is in the Argentine economic toolbox. The largest contribution to achieving a projected budgetary surplus is the liquidation of assets in government employees’ pension funds. In a speech to a business forum in the resort city of Bariloche, Milei boasted of having introduced the harshest adjustment measures in history. Argentina “had neither the time nor the financing for a more gradualist approach to austerity.”

The short-term effect of these supposedly reinvigorating measures has been the withdrawal of great swaths of income from the economy. For example, those with public pensions, after having had their reserves cashed out, have also had their payouts reduced through suspension of inflationary adjustments. State funding of universities has been reduced by 30 per cent. Some major public works have ground to a halt.

“Informal” or “black market” workers, who constitute 44 per cent of the private-sector workforce, mostly in the domestic service, construction, agriculture, social service, and private health sectors, have been most affected by the currency devaluation. Between December 2023 and January 2024 their wages rose only 20 per cent against price rises of 51 per cent, according to the Argentine National Institute of Statistics and Census. Argentine taxpayers will also begin to feel the bite as the government restrains thresholds beyond which income tax kicks in.

A Reuters poll of economic analysts estimated the annual contraction of the economy by the end of February to have been 5.9 per cent, the fourth registered decline in as many months. Milei acknowledges that his shock program is causing pain. “I know that the situation we are living through is hard. Yet we are already halfway through,” he tried to reassure viewers in a television broadcast. “This time the effort is going to be worth it.”

Will he, against historical precedent, be able to run out the clock? Will what he views as necessary austerity carry the economy to the tipping point where market signals recover and genuine economic growth resumes? Or will the public suffering and immiseration become so great that the affected populace will erupt in protest and demand relief?

As is usual with shock therapy, financial markets have been supportive. As Reuters reported earlier this year, investors are “starting to believe.” Dollar-dominated bonds in the Argentine market were pushed to four-year highs. Among ratings agencies, Standard and Poor gave Argentina a triple C stable rating in March 2024, hardly a glowing endorsement but an improvement over the triple C negative of a year before.

But the cool calculations of market managers and investors are being challenged in the streets. On April 23, at least 150,000 people, according to estimates, marched in opposition to severe cuts in postsecondary education. At the University of Buenos Aires, some faculties had to turn off the lights and the school’s associated hospital had to suspend surgeries and reduce its activities by 30 per cent. The much-constrained budgets of the universities struck directly at what many Argentines have for years considered part of their social contract: free access to university education. Protests have also taken aim at the suspension of aid for Argentina’s many food banks, which have proliferated in recent years to mitigate long-term declines in families’ purchasing power.

Revisiting the Dirty War

Milei’s primary focus has been on the economy, but his iconoclastic instincts have carried him into other fields. His appointment of Victoria Villaruel as vice-president has brought attention back to the human rights abuses of the 1976–83 “dirty war.” Villaruel has long pressed for reviving the cases of hostage-taking and murders by militant left-wing organizations, such as the Montoneros and the Ejército Revolucionário del Pueblo (ERP, People’s Revolutionary Army). Their attacks on the military and businesspeople in the 1960s and 1970s strove to bring “socialist revolutionary” change to Argentina. Such quixotic objectives matched those of other militant organizations in Europe and North America at the time, although they gained more traction in Argentina.

Many of the left-wing militants were part of the multitentacled Peronist movement and were even encouraged in their violent acts by Juan Perón in exile. Perón led a short-lived government after he returned to Argentina in 1973. It morphed after his death in 1974 into a military dictatorship overseen by his third wife Isabel. The “armed struggle” waged by the Montoneros and ERP provoked the military regime’s counterattack after the 1976 coup. Between 1976 and 1983, some 5,000 people were kidnapped, tortured and killed by the military’s security services, and about 30,000 disappeared, according to human rights organizations. The diplomat described the military regime of that era as “the worst thing that has happened in our history.”

Villaruel has disputed the number of kidnappings, disappearances and deaths as published by Argentina’s Truth and Reconciliation Commission. She insists that the crimes of the left-wing guerrillas were minimized. Her attempt to reopen the debate on the dirty war emboldened some Argentines who resented the commission’s investigative work and supported the many military officers convicted in criminal trials. Following Milei’s election, green Ford Falcons provocatively appeared in many public spaces, conveying what looked like a sinister message. During the dirty war, individual Argentines – often with no discernible link to politics – were kidnapped in broad daylight and hustled into the back seats and trunks of green Ford Falcons.

The Truth and Reconciliation Commission was the great predecessor and inspiration of many such projects to investigate human rights abuses elsewhere. Expertise in research, including forensic investigations that informed the commission’s work, has been a key feature of Argentina’s international brand. It is generally acknowledged that Argentina’s international diplomacy has been successful in promoting this expertise. Whether it remains part of Argentina’s soft diplomacy may become less important, though, than other changes in Milei’s foreign policy.

The thrust of Milei’s foreign policy is winning approval in Washington, and as he pursues his economic program the goodwill generated may weigh favourably with U.S. representatives in international financial institutions that must approve any debt restructuring. Milei’s “pro-Western” tack sharply distinguishes Argentina from its Latin American neighbours. Most significantly, Milei has withdrawn Argentina’s application for membership in the BRICS (Brazil, Russia, India, China, South Africa) alliance. He has strengthened ties with Washington and has expressed strong support for Israel.

In a visit to Israel, his first trip abroad as President, he prayed reverently at Jerusalem’s Western Wall. He has expressed an affinity for Judaism that seems to go beyond just diplomatic calculation, reflecting a certain mysticism. His stance is significant, given the antisemitism that once infected a segment of Argentina’s conservative elites. Furthermore, his department of justice is reinitiating a criminal case against former Iranian diplomats implicated in the 1994 bombing of a Jewish community centre, the Asociación Mutual Israelíta Argentina, in Buenos Aires. Previous Peronist regimes blocked investigations, formally ignoring an Interpol “red alert” to arrest and try the Iranian operatives.

The Missing Formula

Foreign visitors to Argentina have often minimized the hardships of its stumbling economy. They pass time in patios and confiterías of the fashionable and trendy Recoleta and Palermo barrios where life goes on at a leisurely pace. Stories abound of how Argentines sequester their wealth abroad and supplement their incomes with careful withdrawals in U.S. currency when needed. The gleaming office towers that rise on the banks of the Rio de la Plata at Puerto Madero seem evidence of a thriving business community. Despite years of economic struggle, Argentina still has Latin America’s third largest economy; much of its population is highly educated and its international reputation warrants a seat at the G20, Latin America’s only member after Mexico.

But an hour-long stroll along the three-kilometre length of Buenos Aires’s Avenida Nueve de Julio (Ninth of July), one of the world’s great central thoroughfares, tells a different story. Stretches of architectural grandeur contrast with neglected structures and empty lots. And just beyond Nueve de Julio’s northernmost terminus sprawls Barrio Padre Mugica, a semiformal congregation of do-it-yourself housing occupied by some 40,000 of the city’s poor. The city’s geography serves as a metaphor for Argentina’s years-long struggle to pursue – but never catch up with – the dreams of its past. Inequality has been rising for years; the middle class has been shrinking; and the struggles of the poor have become more arduous, painful and persistent.

Milei’s radicalism offers no assurance of success, and astute gamblers would not give him favourable odds. Argentina’s perennial economic crises cry out for a mix of effective policy and public mobilization. The way forward demands great creativity of politics and economics. To date, there is no clear model to draw on. Market-based solutions need to be combined with sufficient social supports and a compelling national narrative that includes some readiness to sacrifice.

Until that formula is found, Argentina remains mired in purgatory, a state of yearning reminiscent of the country’s renowned tango songs – always full of aspiration but never fulfilment. In one of legendary singer Carlos Gardel’s biggest hits, the protagonist compares his pursuit of love to the races that his champion stallion always loses “por una cabeza” – by a head. “What does it matter to lose by a head a thousand times – only to have lived?” Can Argentina ever break away from this melancholy refrain?

Photo taken at the Fourth summit of the Pacific Alliance. Via ESO, Wikimedia Commons.

Not so long ago, open markets and free trade were considered the recipe for greater prosperity and, yes, even greater political freedom. That vision, notwithstanding its arguable merits, seems to have passed. Canada penned its support for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership on October 29, 2018. The 16-nation commitment to the CPTPP goes on, although it is overshadowed by the now dirigiste stance of Joe Biden’s America and growing anxieties over security in relation to Xi Jinping’s China. Neither country is a CPTPP member. The Trump administration withdrew from the final negotiations and the Biden administration has stayed aloof. China, initially excluded from the project, has made a bid to join, but its motives are suspect and its adherence to past trade agreements is dubious.

The unwieldy title – “comprehensive and progressive” – was itself a sign of trouble, as though its signatories were, in the Shakespearean formulation, “protesting too much.” Certainly the “progressive” epithet was a concession to Canada, which in the opening years of the Justin Trudeau government was keen to show that trade agreements could accommodate environmental, labour and gender issues. The “comprehensive” part was to signal that the agreement, for the first time, incorporated such modern phenomena as e-commerce. Will these lofty goals generate, in 2023, any genuine effort among the 16 countries to realize the treaty’s potential? Or, instead, will they abandon open markets and seek to protect their domestic ones? The jury is out.

Running beside the CPTPP, a separate but related drama saw Chile, Colombia, Mexico and Peru forge closer economic ties in the pact known as the Pacific Alliance. As conceived, the Pacific Alliance seeks to build stronger trade and investment ties among the four Latin American countries, including the establishment of an integrated stock exchange, MILA (Mercado Integrado Latinoamericano). The Pacific Alliance is the latest in a string of hemispheric initiatives, all of which fell short of their early promise – whether Mercosur, whose members Argentina, Brazil, Uruguay and Paraguay form a largely protectionist customs union, or the grander Free Trade Agreement of the Americas, whose negotiations ground to a halt after a large antiglobalization protest at the 2001 Summit of the Americas in Quebec City. The Americas Partnership for Economic Prosperity (APEP) was added to this alphabet soup by President Biden at the 2022 Summit of the Americas and has won the adherence of Barbados, Canada, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, Mexico, Panama, Peru and Uruguay. But APEP’S focus on environmental sustainability and workers’ rights is, at this stage, more hortatory than substantive.

Putting money on the one horse that had a chance among these lame contenders, Canada made relations with the Pacific Alliance one of the larger planks in its Latin America policy. Canada identified the unified market as providing broader opportunities for two-way trade and investment. Its governments are also seen as natural allies for promoting democratic governance and strengthening human rights. It helped that Canada already had a bilateral free trade agreement with each of the member countries. Canada went so far as to obtain associate membership in the Alliance and began exploring greater cooperation, particularly in the area of education and skills training. The Canadian government’s confidence helped stimulate major private-sector initiatives. Scotiabank, which has had a significant presence in Latin America for years, supercharged its strategy by announcing that it would bring special focus to the countries of the Pacific Alliance. The Toronto Stock Exchange entered an agreement with Chile’s Santiago Stock Exchange to open double listings, meaning that TSX and MILA would gain access to each other’s capital markets.

Heady ambitions have been shaken by the abrupt shift away from the liberal international consensus toward a more protectionist and self-interested policy terrain. Canadian diplomats, who injected considerable energy into forging ties a few years ago, now believe that decay has set in. President Andrés Manuel López Obrador of Mexico has no fervent attachment to the Pacific Alliance’s liberalizing vision. Canadian International Trade Minister Mary Ng struggled to remind Mexico that preferential policies favouring Mexico’s oil and gas sector contravened commitments made under the Canada–United States–Mexico Free Trade Agreement (CUSMA), the successor to NAFTA.

Nor was former Peruvian President Pedro Castillo, chair of the Alliance summit last year but removed from office by Peru’s Congress, a natural free trade champion. Regional integration initiatives are on the back burner for Castillo’s replacement, Dina Boluarte, who is struggling to respond to violent uprisings in Peru’s hinterland. Similar disruptions had already afflicted Chile and Colombia. Between October 2019 and March 2020, Chile was rent by violent protests in the Estallido Social (Social Outburst). An unsuccessful constitutional reform process served as a shock absorber, as did the election of President Gabriel Boric, a onetime social activist.

In Colombia, protests were extensive but less violent than in Peru and Chile. They roiled the country from April 2021, focused on taxation and economic inequality. In 2022, Colombians elected Gustavo Petro, a former guerrilla leader and later mayor of Bogotá, the first leftist to occupy the presidency. One of Petro’s first actions on the trade front was to sign a bilateral investment treaty with Venezuela, casting a weak lifeline to a regime whose economic incompetence and political repression have drawn international condemnation and flooded Colombia with desperate refugees. None of these developments has served to put momentum into the Pacific Alliance. The political configuration of forces that brought the pact into being has changed fundamentally.

Pessimism reigns. Yet counterintuitively, the Pacific Alliance economies continue to grow, as do the average incomes of their people. World Bank statistics of per capita GDP by purchasing power parity in 2017 US dollars show that Chile stood at $25,400 USD in 2020, up from $21,200 in 2010. Comparable figures for Mexico are $19,100 vs. $18,000; Colombia $14,600 vs. $11,900 and Peru $12,500 vs. $10,000 (all USD). Similarly, income inequality as measured by the Gini coefficient has fallen over the last decade in all four countries, slightly in Colombia from 55.9 to 54.2 and significantly in Peru from 55.1 to 43.8. (Under the Gini coefficient, the equal distribution of all wealth registers as 0, while the complete concentration of wealth in one person’s hands would be 100.) The outbreak of public protests and the shift to more leftist administrations during a period of rising wealth and falling inequality runs against normal expectations.

In a major contribution to economic sociology, University of Colorado professor Andy Baker undertook a study of the link between policy reforms and economic behaviour in selected Latin American countries, the findings of which were published in his The Market and the Masses in Latin America in 2010.¹ What Baker discovered was a gradually richer population increasing their purchases of consumer goods, spurred not only by rising incomes but also by falling prices occasioned by cheaper imports. In line with their higher level of consumption, Latin Americans increasingly saw themselves not as defenders of jobs in protected national industries but as consumers eager to improve their material standard of living. In probing the discontents of the time, Baker found no resentment of trade policy, but rather objections to domestic privatization of services once considered public.

Although a decade has passed, his findings resonate with the timbre of more recent public protests. There was no greater underlying grievance in the Chilean protests than the perceived poor returns of the privately operated pension companies. In Peru, regional alienation of Andean people fuelled anger against the central government. Open markets and trade have not figured in as part of the discourse.

This is not to ignore very serious challenges that these countries face. American Markets Intelligence (AMI), a business-backed think tank which includes among its sponsors Scotiabank and ATCO, is candid about the business climate. Among the “threats” in a SWOT analysis (strengths, weaknesses, opportunities, threats), it identifies an exodus of affluent individuals from Chile, Peru and Colombia, spurred by the rising security risks associated with the social unrest. And improvements in the Gini coefficient notwithstanding, AMI considers that the bottom half of the income pyramid is still weak.

Yet the consumer market remains strong. The expansion of Scotiabank as a retail bank with consumer branches throughout the region is a testament to its confidence in future prospects for the populace at large. Scotiabank has the fifth largest retail bank in Chile, the sixth in Colombia and the third in Peru and Mexico. Shareholders seem convinced that the company has made a promising commercial gamble. The strength of the retail market in the Pacific Alliance countries is exemplified by the dominance of regional commercial chains in the market, the top five merchandisers being FEMSA Comercio (Mexico), Cencosud (Chile), Falabella (Chile), Grupo Coppel (Mexico) and Organización Soriana (Mexico), together generating $46.32 billion USD in annual sales. Symbolic of the power of this sector in the Pacific Alliance is the Cencosud-owned Costanera Tower, the second-highest building in Latin America. Set atop a large multistorey shopping centre, it punctuates the skyline of Santiago, Chile.

Since the Alliance is a Pacific organization, its relationship with China calls for examination, especially in the fractious atmosphere of the current United States–China relationship. Driven by the strength of their commodities, Chile and Peru maintain strong trade surpluses with China, their number one export market. Colombia and Mexico run large trade deficits, due to imports of office and consumer goods, machinery, vehicles and a variety of business and consumer products. For Colombia and Mexico, China is respectively their second and third export markets.

The trade relationships of Chile and Peru are matched by high levels of Chinese investment, $16 billion in the case of Chile, $30 billion for Peru. Comparable levels are much lower in the case of Mexico at $385 million and Colombia at $292 million (all USD). One of the largest of those investments is being made to build a large port facility in Chancay, Peru, one of the few major Belt and Road Initiative (BRI) projects within the Pacific Alliance countries. Indications following the recent meeting of the 20th National Congress of the Chinese Communist Party are that Xi Jinping envisions a reduction in Chinese infrastructure investment in the context of the Belt and Road Initiative. This implies a likely slowdown in offshore investment in Latin America. Among China’s concerns is the magnitude of its liability incurred around some of its BRI loans and investments – in the case of Latin America the $30 billion it has sunk in Peruvian projects. Withdrawal from the market could offer an opening for new initiatives from others.

Canada’s $47.3 billion USD investment in the Pacific Alliance countries slightly exceeds the Chinese total of $46.7 billion. Given the proportionate sizes of our respective economies, Canada’s presence in the Pacific Alliance market is an evident strength. This is a presence that enables considerable Canadian influence in the region and justifies Canada’s effort to make the relationship a priority.

While the political attention paid to the Pacific Alliance by its own governments may be waning for the moment, the economic climate may also be propelling their economies in positive directions. The existing openness of the markets and the commitments made over more than a decade to strengthen their integration have created a path dependency that may not quickly lose steam.

In an article in the Globe and Mail in March, Steve Verheul, recently retired as one of Canada’s top trade negotiators, made an appeal for a continued commitment to trade agreements despite negative headwinds.² Having been lead negotiator of the CUSMA in which Canada successfully parried the Trump administration’s efforts to eviscerate NAFTA, Verheul is not one to throw in the towel. In his view, the time is right to move forward on the “progressive” elements of the Trudeau government’s trade agenda in an earnest, not merely proclamatory, way: “We would serve ourselves well if we could bring concrete, workable ideas for new approaches to trade rules to the table.” Countries “tackling climate change and improving labour standards at potential cost,” he wrote, “should not have their competitiveness undermined by countries that are allowed to evade these … responsibilities.”

As unpromising as the situation looks currently, Canada should persist in its efforts regarding the Pacific Alliance. Persistence today could bring success tomorrow. Today’s governments sceptical of the benefits of openness may discover that their interest still lies in that direction. And other political actors may come to the fore in countries that, despite some dangers and doubts, are still democratic polities. After all, knocking on the door of the Pacific Alliance can be found Ecuador, whose new President, Guillermo Lasso, is an enthusiastic advocate of free trade principles. As Professor Baker pointed out in his 2010 sociological study, none of the left-leaning administrations of that era chose to close off the borders that gave their citizens access to an improved standard of living through open trade.

Continue reading “Is There Still Some Life in Free Trade?” →

Putin shakes hands with Cyril Ramaphosa at 2018 BRICS Summit. Via Wikimedia Commons.

The day after the launch of Vladimir Putin’s “special military operation” in Ukraine, South Africa’s Foreign Minister Naledi Pandor urged that Ukraine’s sovereignty be respected. Even that less-than-assertive declaration, constructed in the passive voice, was quickly superseded. The country’s presidency and African National Congress (ANC) leadership dropped any reference to violation of sovereignty, calling instead for Ukraine and Russia to negotiate differences. Neither statement explicitly condemned the invasion. Minister in the Presidency Mondli Gungubele – President Cyril Ramaphosa’s spokesperson – told cabinet that “it is the stance of this country that we will always prefer peaceful solutions. We will always be opposed to any conflict that leads to loss of life. We are not prepared to say anything beyond that.”

The contradiction between the governing ANC’s past engagement in armed struggle and this purported international pacifism has been common over the years. The ANC likes to stress the success of its nonviolent, final-stage negotiations to end the old apartheid regime and establish the democratic Rainbow Nation. It extends that emphasis to regional conflicts. No matter what the uprising or confrontation in recent years – Zimbabwe, Côte d’Ivoire, Mali and Libya being prominent examples – South Africa has invariably called for talks, not enforcement by sanctions or military intervention.

The evening after issuing their statements on Ukraine, South African officials continued diplomatic business as usual. Defence Minister Thandi Modisi attended a reception at the residence of Russian Ambassador Ilya Rogachev to commemorate Russia’s “Defender of the Fatherland Day,” an occasion honouring Russia’s military veterans.¹ (Weeks later, the irony is that there are now more veterans, and also many more dead ones.)

South Africa kept to its accommodating stance when, on March 2, it abstained on the United Nations General Assembly resolution condemning Russia’s invasion. The resolution passed by an overwhelming vote of 141 to 5. South Africa was joined in its abstention by some fellow members of the Southern Africa Development Community (SADC), including Angola, Namibia, Mozambique, Zimbabwe, Eswatini and Madagascar. (SADC members Congo, Botswana, Zambia, Lesotho and Mauritius supported the resolution. The only African country overtly backing Russia was the grindingly oppressive and self-isolating regime of Eritrea.)

South Africa continued to curry favour on March 24 when its UN delegation offered a resolution on humanitarian aid to Ukraine that made no mention of Russia as the instigator of the crisis. It failed to win the needed support to be put to a vote. On April 7, doubling down on its kid-gloves approach, South Africa abstained from voting to expel Russia from the UN’s Human Rights Council.

Where should one look to find the basis for South Africa’s tolerance of Russia’s military aggression? How is it possible that a country so successfully founded on exemplary acts of moral leadership, epitomized in the many conciliatory acts of the revered Nelson Mandela, could condone Russia’s brutality?

Modest economic ties

There is no doubt that South Africa has been diligent in fostering good relations with Moscow for many years, most prominently through the forum of the BRICS. South Africa joined the BRICS association of emerging economies in 2010 – the acronym stands for Brazil, Russia, India, China and South Africa, its member states,. The term BRIC was originally coined in 2001 by then-Chairman of Goldman Sachs Asset Management Jim O’Neill to identify the emerging markets that in his estimation would be future investment destinations of exceptional growth.

It is ironic that a gleam in a market manager’s eye would become an aspiring geopolitical organization.

For South Africa, which pleaded to be admitted to the club, the BRICS was seen as a platform for international dialogue and economic cooperation. Pretoria puts considerable energy into the BRICS process. Most prominently, that entails hosting one summit of BRICS heads of state every five years, most recently in Johannesburg in 2018.

The highest-profile BRICS initiative to date has been the establishment of the New Development Bank (NDB), conceived as an agency to finance projects for its members and other developing economies. Since the bank’s inception, South Africa has been the beneficiary of at least 10 proposed financing deals, but many of these became mired in the network of corruption associated with regime of President Jacob Zuma (2009–18). The corruption was spectacularly exposed by the investigative commission set up by President Ramaphosa under South African judge Ray Zondo, who has since been appointed the country’s chief justice.

The largest NDB loans, totalling about $1.2 billion, were to the state electricity company Eskom and transportation company Transnet. Although part of the Eskom loan was to finance sustainable energy projects in a system dominated by coal-fired plants, Zuma intended to use some funds to support a $100 billion project to upgrade and expand South Africa’s nuclear power plants using Russian technology. To concoct the deal, Zuma evaded a range of regulatory and fiduciary safeguards. The deal is now defunct after a public controversy that contributed to Zuma’s removal from office.

Still active though are Transnet’s efforts to expand the port of Durban to accommodate greater oil imports. The establishment of liquefied natural gas import facilities is also being considered by the special economic zone Coega in the Eastern Cape province and at Richards Bay in KwaZulu Natal. Although these developments would be long-term and remain uncertain, Russia is frequently mentioned as a supplier to such facilities.

The BRICS relationship notwithstanding, South Africa’s trade with Russia is modest in comparison to that with other world economies. South Africa exported $515 million in goods to Russia in 2021, importing $772 million in return. That is only slightly larger than South Africa’s trade with Canada, a country with one quarter Russia’s population, and is dwarfed by its trade with its three largest trading partners, the European Union, China and the United States, each of which runs into the tens of billions of dollars.²

Russia has been sharpening its geopolitical influence in Africa. Putin declared that Africa was a foreign policy priority at a 2019 Russia-Africa summit of business and political leaders at the Black Sea resort of Sochi. Russian state-backed companies have been involved in mineral developments, including in South Africa’s neighbour Namibia. Various news reports say that Russia is seeking to build a facility at Sudan’s main seaport, a logistics centre in Eritrea and a military base in the Central African Republic. It has also been increasing arms exports to Africa, although its largest clients are the Mediterranean states of Algeria and Egypt. Among SADC states, only Angola is a large importer of Russian arms, buying about $500 million (USD) in equipment in 2021.³

Russia’s most visible activity has been that of armed mercenaries of the Wagner Group. This private military company is owned by Yevgeny Viktorovich Prigozhin, sometimes referred to as Putin’s “chef” since his association with the Russian president arose from contracts to provide food and catering services to many Russian government events.

In a series of armed conflicts during the past decade and more, the Wagner Group has sent mercenaries to Libya, Sudan, Mozambique, Madagascar, the Central African Republic and Mali. In Madagascar, political operatives of the Wagner Group were involved in efforts to influence the 2018 presidential election. Wagner’s efforts to stem an Islamist rebellion in Mozambique failed. Pretoria, alarmed that the uprising would cut off natural gas fields, intervened with Rwanda and eight other African countries to drive the Islamists out of populated centres. With the exception of Libya, where the Wagner Group had intervened to support rebels, UN delegations from all the countries just mentioned abstained from the UN vote condemning Russia’s invasion.

Perspectives from the cocktail circuit

Do the BRICS alliance, a modest trade relationship and Russian military ambitions sufficiently explain South Africa’s enduring fealty to Moscow? On the much-maligned cocktail circuit during a four-year diplomatic assignment to the Canadian high commission in South Africa, I was offered some interesting perspectives.

In 2012, I attended a reception commemorating Angola’s armed forces day. In a stern atmosphere in the otherwise plush Sheraton Hotel, green-uniformed military attachés exchanged greetings before displays of the Angolan flag bearing the cogwheel and machete emblem reminiscent of the hammer and sickle. The Angolan ambassador spoke with pride of the 1987–88 Battle of Cuito Cuanavale, where the MPLA (Popular Movement for the Liberation of Angola), with its Cuban, Russian and Vietnamese allies, confronted the opposing UNITA guerrilla army and apartheid-era South African forces. The fiercely fought battle was a key event leading to the independence of Namibia and a milestone on the road to the end of South African apartheid.

For diplomats from the so-called five-eyes countries – the United States, the United Kingdom, Canada, Australia and New Zealand – and the countries of the European Union, this narrative was an arresting reminder of recent history seen through a quite different lens. According to this telling, the transition of South Africa into the vaunted Rainbow Nation was not in the much-acclaimed peaceful handover but in the success of a decades-long armed struggle. That struggle swept up most of the nations that now make up the SADC, especially Angola, Namibia, Mozambique and Zimbabwe.

Within the boundaries of South Africa itself, freedom was achieved by a “people’s war” that brought violence to South African communities. Attacks on local leaders were to make the country “ungovernable” – much of this fomented by Nelson Mandela’s Umkhonto we Sizwe (Spear of the Nation), the armed wing of the ANC.

Evocations of past revolutionary glory are not uncommon in South Africa. Receptions honouring Cuba’s independence day on October 10 generally attract one of the largest contingents of leading politicians and officials. Cuba’s military expeditions to Angola starting in 1975 and deploying 35,000 troops equipped with Soviet weaponry, including the Grad and Uragan multiple rocket launchers, are cherished in valiant memory.

Sometimes the story of international solidarity makes for odd dissonances. During events hosted by the embassy of the Czech Republic, South African politicians pay tribute to the military training and materiel provided by Czechoslovakia’s Communist regime. Today’s Czech representatives are the successors of those who struggled to overthrow their Communist masters, but both sides gently elide that reality in their mutual diplomatic fur-grooming.

ANC conferences are often punctuated by on-floor demonstrations in song and dance, most often in Zulu or Xhosa. S’thembiso Msomi, former editor of the Sowetan and now editor of Johannesburg’s Sunday Times, recently commented on the several occasions that he has heard ANC veterans of the anti-apartheid struggle waxing nostalgic about their training in exile: Soviet people / Lovely people / Here we are far from home / We will miss you / We shall love you / For the things you’ve done for us.

Among ANC members, personal links with Russia are common. For example, South Africa’s Deputy Vice-President David Mabuza visited Russia for six weeks in 2021, purportedly to receive medical treatment. While Premier of Mpumulanga province, he was allegedly poisoned during a period of political conflict that included a spate of assassinations within ANC ranks. (Levels of violence within South African politics are rarely reported outside the country and even within are somehow sidebarred as aberrant, but incidents are frequent and shocking.)

The South African official opposition wonders why Mabuza could not obtain necessary treatment in South Africa, which has renowned – if poorly distributed – medical services. The opposition does not believe his sojourn in Moscow has ever been adequately explained.

No BRICS annual summit ends without a photo of Cyril Ramaphosa in smiling dialogue with Vladimir Putin. And of course, there is the institutional history of the ANC itself and its formal – and continuing – alliance with the South African Communist Party. Following Mandela’s death in 2014, it was revealed that he had been a member of the party’s central committee, his evasions on that score during his life notwithstanding.

Struggle nostalgia

In Sapiens: A Brief History of Humankind, Yuval Noah Harari argues that the supreme organizing principle of civilization is humans’ ability to construct unifying myths. People will cooperate around a multiplicity of tasks when they share a common motivating vision. In analyzing the behaviour of states on the international stage, we look for explanations based on national self-interest, but we are mistaken in believing that the national self-interest is always obvious even to the government concerned. It is also true that myths outlive their usefulness, and dogmatic attachment to them can be terribly damaging.

Such is the case with South Africa. Critics of the ANC government’s foreign policy say it is weighed down by struggle nostalgia. The ANC’s leadership seems to be unable to set aside the allegiances of its historic past, to adjust its sights and to notice that Putin’s Russia is not the bastion of international solidarity and liberation the Soviet Union was once perceived to be.

How delusional is it that a country whose greatest commercial and economic ties are with the West should be so eager to cultivate Russia and be so solicitous toward Russia’s leadership? Has South Africa made the decision simply to follow the lead of China, the dominant BRICS partner, in shrugging off Russia’s war? South Africa’s relations with China are at least substantial, although still dwarfed by its ties with the EU, the U.K. and the United States, not to mention Australia and New Zealand, where in addition to economic ties, sports (rugby and cricket) and cultural links are strong. No, given the variety of instruments in South Africa’s international orchestra, it’s odd in the extreme that it turns so insistently to a single, dull Russian string.

South Africa is a country from which moral leadership could be expected, and respected. Official declarations do not usually result in immediate or significant or tangible actions. But South African condemnation of the invasion of Ukraine would certainly sting Russia, and even more so if other holdout SADC members joined in. And participation in sanctions would further reduce Russia’s opportunities to find alternative markets for its products – arms, energy, grains – and investments. But the Ramaphosa government is so dug into its pro-Russia stance that an about-face at this stage is almost unimaginable.

Continue reading “Why Does South Africa Pluck its Russian String?” →

What is one to make of Juan Guaidó’s self-acclamation as the legitimate president of Venezuela? Certainly it was audacious and daring. Guaidó put himself in personal jeopardy by assuming the presidential mantle based on the support of the National Assembly, where the opposition to Nicolás Maduro’s “Bolivarian socialist” presidency commands an overwhelming majority. Other recent opposition leaders are either in jail under trying conditions or under house arrest.

His auto-election was clearly a startling political act, attracting national attention and international approval from a broad swath of foreign governments, including Canada as a member of the Lima group of mostly democratic nations of the Americas. Support also came from the United States and leading European Union members, including France and Germany. Mexico, a Lima group member, has chosen neutrality under the newly elected administration of Andrés Manuel López Obrador.

On the other hand Cuba, which has provided security personnel to prop up Maduro, has condemned Guaidó’s move. Predictably, so have Bolivia and Nicaragua, with “socialist” orientations similar to Maduro’s. Also on Maduro’s side are Russia and China, which support his regime with loans backed by Venezuela’s oil sales. This drawing of lines between world powers has perilously thrust Venezuela’s crisis into a higher orbit of international geopolitics.

Still, Guaido’s declaration bolstered a resistance to Maduro that seemed to have faltered as Venezuela’s social and economic situation continued to decline unchecked. His move was a strategic parry to break a deadlock, inject momentum into the opposition’s campaign against Maduro’s authoritarian regime and clear a way forward to a resolution of Venezuela’s political crisis.

Perhaps all that needs to be judged is whether his move was feckless or strategically effective. But ultimately if it is to succeed, his interim presidency must be founded on some legitimate constitutional claim on which to chart a future course. For the self-acclamation to become a founding moment, it needs a credible narrative that calls on the historical continuity of Venezuela’s democratic traditions.

Venezuela’s Winding Constitutional Path

The development of Venezuela’s constitution has never followed a strictly evolutionary path. It enjoyed some mid-20th-century stability and then careened erratically into disruptive experimentation after 1998. The date on which Venezuela’s democracy was founded is clear: January 23, 1958, when overwhelming opposition forced military ruler Marcos Pérez Jiménez to flee the country. The ouster of Pérez Jiménez opened the way to national elections of December 5, 1958, and the victory of the social democratic Acción Democrática (AD) led by Rómulo Betancourt.

For the following three decades, and through successive elections, power was transferred with some regularity between AD and its rival, the centre-right, Christian democrat–inspired Comité de Organización Polítical Electoral Independiente (COPEI). The first two decades of this period were characterized by rising national wealth from oil income, which accelerated after 1973 with the international boom in oil prices. During this era, Venezuela was considered a democratic – and economically successful – exception among Latin American nations, most of which were governed by military dictatorships.

When the Organization of Petroleum Exporting Countries (OPEC), of which Venezuela was a founding member, lost its grip on world oil prices in 1982, the Venezuelan economy faltered. Petroleum exports were by far the largest source of Venezuelans’ income, and the oil price decline of more than 50 per cent had severe economic consequences for Venezuela. The Venezuelan government had launched major social spending and infrastructure programs which it found difficult to sustain in the face of the price drop. The relative hardship of the 1980s produced a deep disaffection with the two traditional governing parties and led to growing social unrest. This was the climate that led to the entry on the political scene of Lieutenant Colonel Hugo Chávez who memorably asked, “What good is a democracy that doesn’t let you eat?”

The constitutional line of continuity becomes contorted with Chávez, whose radical constitutional changes favoured executive powers over judicial or legislative checks and balances. The very act which brought the soldier to public attention was unconstitutional by definition: an attempted coup he led on February 4, 1992. The attempt failed, and Chávez was jailed for two years. During the 1993 presidential election campaign Rafael Caldera, who had served a previous term as president under the COPEI banner, won support from poorer Venezuelans by calling for the coup leader’s release. After winning the election Caldera made good on his promise and freed Chávez, who then organized his own political movement, capitalizing on public frustration with mainstream political parties.

Chávez was elected president on December 6, 1998, and promptly called a consultative referendum to establish a constituent assembly to draft a new constitution. What followed until his death in 2013 was a series of constitutional initiatives and reforms in electoral laws that served to concentrate the president’s powers and undermine the ability of opposition parties to challenge Chávez’s authority. Yet throughout this period, it can still be argued that Chávez’s regime enjoyed formal legitimacy since it adhered to a constitutional path. In this context, what is key for the current state of play in Venezuela is Chávez’s 1999 constitution, which did away with a bicameral Congress in favour of a single National Assembly. That body has endured until today. We will return shortly to this in further probing Guaidó’s claim to the presidency.

Chávez was challenged consistently in his early years in power, barely surviving an oil strike led by the senior managers of the state-owned oil company, Petróleos de Venezuela S.A. (PDVSA), and winning a narrow majority in a recall referendum – a measure that was also part of the 1999 constitution. But with time, and particularly with the resumption of higher world oil prices, he was able to cement power through state spending and narrow the opposition’s manoeuvring room through, for example, increasing his control of the Supreme Court and the national election commission. The erosion of checks and balances in the Venezuelan system so discouraged the opposition that many parties refused to participate in elections in the early 2000s. But they returned to the field in the elections of 2006 and 2008, and although the results still massively favoured Chávez, opposition politicians maintained a space as official rivals to the Chávez regime.

The story of Chávez is much more than successful constitutional stratagems. Large expenditures that increased the poorest Venezuelans’ incomes through direct transfer payments were significant – and affordable during a period of high oil prices. They came not only from the state as such, but also were funded by the state oil company, to the point that in later years PDVSA drew down its own budget for maintenance, exploration and innovation. This would have serious consequences down the road.

Vital to Chávez’s power was the charismatic hold he had on many voters, especially among the country’s poorer sectors. In his 2015 novel Patria o muerte (Fatherland or Death), Venezuelan writer Alberto Barrera Tyszka captures the atmosphere at a rally in Chávez’s llanos, or prairie, home state of Barinas, at a time when it was known that he was being treated for cancer:

He was asking for his life … to keep struggling for the people. It was difficult to determine if he was making the most emotional and authentic confession of his existence or delivering a powerful election stump speech. Perhaps both … Everything he was saying appeared to be pulled from a detailed and rigorous program. Everything at the same time seemed to be utterly spontaneous … The people listening were deeply moved, tearful. What he was saying was the truth, an emotional truth, unblemished. That was charisma.¹

While others were less impressed with Chávez’s oratorical skills (Spain’s King Juan Carlos famously interrupted him during the Ibero-American Summit in Chile in 2007 to ask “¿Por que no te callas?”, that is, “Why don’t you shut up?”), the chavista constitution worked when backed by the comandante’s charismatic glue. It became more vulnerable upon his death on March 5, 2013, and his replacement by the far less compelling and far less shrewd Nicolás Maduro.

The Maduro Regime and its Opponents

In establishing the basis of Juan Guaidó’s claim to the Venezuelan presidency, the result of the 2015 election for the National Assembly is pivotal. The opposition alliance won 109 seats with 56.2 per cent of the vote, compared to 55 seats with 40.9 per cent for the government. Voter turnout was 74.17 per cent. Maduro’s response to the government’s defeat prompted exceptionally devious detours in constitutional reform. He decided initially to strip the Assembly’s powers by giving them on an interim basis to the Supreme Court. He organized the election of a new constituent assembly, which was boycotted by the opposition, since the new body was intended to sideline the legitimately elected Assembly. And he banned opposition parties and leaders from participating in the 2018 presidential election. These measures were a clear attempt to circumvent the will of the majority of Venezuelan voters who had delivered a massive vote of nonconfidence in the regime.

All these circumstances now cohere to provide the basis for the constitutional argument in favour of Guaidó’s self-acclamation as president. Guaidó’s backers reference Chávez’s 1999 constitution to provide the grounds on which the claim is made. Article 233 obliges the National Assembly to name its leader as president where the president is wholly absent (“ausente en absoluta”) before the date of his swearing-in. Although it is clear that Maduro is not absent in any physical sense, he is in a constitutional sense, Guaidó’s supporters argue, since the Maduro-created constituent assembly that ordered the May 20, 2018, presidential election was in all respects illegitimate. By extension, so was the presidential election itself, boycotted by much of the country. The Maduro-appointed electoral commission reported that voter turnout was only 46 per cent. Of that total, Maduro won 68 per cent, against two opposition candidates who did not participate in the boycott and won 31 per cent between them. The low turnout, the opposition boycott and the eventual rejection of the results by the opposition candidates who did take part cast the presidential election into further disrepute. Ultimately, Guaidó claims, as Maduro, the victor of this unrepresentative ballot, stood on no well-constituted authority, the president-elect was clearly “absent” under the terms of the 1999 constitution.

Further support for Guaidó’s position is drawn from articles 333 and 350 of the constitution. Article 333 is a measure to plainly convey that this foundation document belongs to the people of Venezuela, not to its government. “Every citizen, invested with authority or not, has the duty to collaborate in the reestablishment of effective powers (efectiva vigéncia).” Article 350 is a broader statement of principle relating to the constitution’s support for human rights. Venezuelans “are not to recognize any regime, law or authority that contradicts democratic values, principles and guarantees or impinges upon human rights.”²

President Maduro is hardly going to buckle in the face of constitutional arguments. The country’s growing ungovernability, runaway inflation, shortages of basic foodstuffs and medicines and the flight from the country of millions of Venezuelans will undoubtedly be greater determinants of the Maduro regime’s future. It is also plain that constitutional niceties are easily cast aside in a brute struggle to preserve power. However, Guaidó’s assumed presidency is an important focal point for restoration of both effective government administration and a viable economy when Maduro eventually falters.

Maduro and his supporters have been unrelenting in their attacks on Guaidó, which are founded on their allegation that the congressman is a cat’s paw for “U.S. imperialism.” There is hardly a foot put wrong in Venezuela that is not blamed on this malign force, from the cancer that killed Chávez to the countrywide power failure in March this year. And so it is with Guaidó.

Guaidó is a 36-year-old industrial engineer from the coastal city of Vargas. He is a founding member of the Voluntad Popular (Popular Will), a party affiliated with the Socialist International, the umbrella association for world social democratic parties, including the British Labour Party and, until recently, Canada’s New Democratic Party. He was elected to the National Assembly as an alternate representative in 2010 and won a full seat in the pivotal election of 2015.

The way he is described by Maduro regime defenders is tendentious, to say the least. He is a “the product of more than a decade of assiduous grooming by the U.S. government’s elite regime-change factories.”³ Among his offences was that he was a student in the governance and political management program at George Washington University in Washington, DC. He is also criticized for exercising the right to take part in street protests against the Chávez regime, including opposition to the government’s forced closure of the independently owned television station RC (Radio Caracas) TV.

Among his other offences is being closely associated with the Voluntad Popular leader Leopoldo López, who is being held by the regime under house arrest. López was using his base as an elected mayor of a Caracas municipality to oppose the Maduro regime. (Voluntad Popular was the leading party in the Mesa de Unidad Democrática, or Roundtable for Democracy, the coalition that won the 2015 National Assembly elections). Among López’s suspect connections to the U.S. “regime change factory” are his having been educated at Princeton University and his involvement in National Endowment for Democracy (NED) programs. The NED is a U.S. Congress–funded agency that since 1983 has been involved in the promotion of democracy worldwide, part of the U.S. government’s “soft power” diplomacy under both Democratic and Republican administrations.

Key in the narrative against Guaidó’s claim to the presidency is that a primary motive for opposition to Maduro is the desire of U.S.-based oil companies to take over Venezuela’s petroleum resources. That Venezuela ran a successful state-run oil company, PDVSA, without foreign interference from the late 1970s through to the early Chávez years rather contradicts the view that U.S. multinationals cannot abide state ownership. It is notable, as mentioned above, that PDVSA management sought to protect this national asset from the predations of the Chávez regime, which seriously damaged its profitability and ability to operate in the interests of its supposed owners, the Venezuelan people. It could very well be that PDVSA may need to work with private capital to restore its economic integrity in the future. But despite the vast petroleum resources that Venezuela possesses, it will face a long and difficult adjustment in a world in which international efforts to reduce greenhouse-gas emissions are major factors affecting the industry worldwide. Venezuela’s oil assets, large quantities of which are similar to the heavy oils and oil sands of Alberta, would not be first among the properties sought by international investors.

The assertions of the Maduro regime’s defenders that the country’s economic woes can primarily be laid at the feet of U.S. sanctions do not bear the least scrutiny. Sanctions starting under the Obama administration were primarily aimed at restricting the travel of individuals associated with rights violations and crimes and freezing their assets. The sanctions with greater economic impact, those that force U.S. refiners to refuse Venezuelan shipments, are of recent vintage.

Venezuela’s economy had been suffering for far longer than the imposition of sanctions, and most particularly since the crash of world oil prices in 2015. From 2015 until now, Venezuela’s gross domestic product shrank by approximately 40 per cent, from US$554.2 billion to US$331.0 billion. The fall in the value of the bolivar, the local currency, qualifies as hyperinflation, rising from 3,994 per cent in 2014 to 15,000 per cent in 2018.⁴

The huge loss of income has put deeper stress on an economy that was already hampered, among other things, by domestic price controls, rationing, shortages for important consumer products and a multilevel system of exchange rates that was encouraging capital flight and discouraging investment. All of these measures were introduced over time to mitigate the impact of both public and private spending, domestically and internationally, that exceeded even the once very lucrative oil industry’s ability to generate income. The spending spree that accelerated under Chávez had the corollary of reducing rates of domestic investment, which in turn lowered Venezuela’s ability to generate non-oil domestic income. Rising impoverishment has led to an exodus of an estimated three million people from Venezuela, whose population is currently estimated at 32.8 million.

The path forward in Venezuela is confoundingly uncertain. The level of public opposition manifest in the huge demonstrations against the regime has not resulted in any concessions by Maduro’s so far adamant regime. But as of this writing, these demonstrations still appear to have given Guaidó a degree of protection from Maduro’s security apparatus, although his advisers have not been spared. It has been claimed that there are several hundred political prisoners; Maduro’s recently arrested chief of staff has now joined them.

The international support for Guaidó does put a spotlight on any repressive move contemplated against him, although how the international community might react remains uncertain. Despite less-than-veiled references to possible military intervention by the United States, the perils of such a move in a country as large and deeply politically polarized as Venezuela should deter any folly of that nature. Venezuela is not Grenada or Panama – Libya may be a more pertinent example.

What largely peaceful transitions of power have shown us in exemplary cases, such as South Africa, Brazil, Chile, Poland or Spain, is that they must ultimately involve a controlled surrender by the occupants of power. There is yet little sign of this in Venezuela. But Guaidó’s assumption of the presidency, drawing on the authority of the National Assembly, the last remaining democratic institution in the country, provides a mechanism through which Maduro and his supporters can allow their morally bankrupt authority to be dissolved.

Continue reading “Venezuela’s Duelling Presidents” →

The return of conservative businessman Sebastián Piñera to the Chilean presidency in March 2018 is best understood as a necessary course correction in Chile’s democratic development. The election of Piñera, who had been president from 2010 to 2014, was not the crushing rebuke of the left that his conservative backers had vainly hoped for or, as some might misconstrue it, a sharp turn to the political right. Piñera’s coalition may still harbour a diminishing coterie of supporters of the late dictator Augusto Pinochet, but this election, the seventh consecutive national vote since the end of the dictatorship, proved – if proof was even needed – the strength and durability of Chilean democracy today.

The “centre-right” Piñera, whose allies comprise big and small business, professionals, conservative workers and farmers and the above-mentioned pinochetistas, faces a left-leaning majority in Congress which will influence the direction of his government for his current – and unrenewable – four-year term. This majority is composed not only of his traditional “centre-left” opponents (the Socialists, Party for Democracy, Christian Democrats, etc.), but also a new, more radically inclined left faction, Frente Amplio, or Broad Front, which arose from a variety of student and citizen activist groups over the last decade.

Better economic management with more social equality

Piñera’s predecessor, Michelle Bachelet, championed an agenda that focused on combating Chile’s still deep-seated economic inequality. Bachelet’s opponents liked to characterize her hard-driving reform agenda as a bulldozer and wished to see a tough electoral repudiation. But today Bachelet’s political legacy in some respects appears durable. In effect, Chilean voters chose a more businesslike chief executive to manage the country’s ongoing social welfare agenda. The election can even be seen to counter trends elsewhere in the world. Rather than accentuating extremes, the election has produced a political alignment that balances improved economic management with a desire for more social equality.

From the end of the Pinochet dictatorship in 1990 to the beginning of Bachelet’s second term in 2014 (she had been president from 2006 to 2010), Chile’s economy grew an average of more than 5 per cent annually, and the numbers of those in poverty declined from 40 to approximately 8 per cent of the population. Chile has a growing middle class, but the gap between the richest segment of the population and its poorest, as reflected in the benchmark Gini coefficient, was still pronounced in 2014. Bachelet aimed to tackle what she and her supporters saw as longstanding inequity through education reform, tax restructuring and constitutional change.

None of this was going to be simple. The climate for introducing reforms was not helped by one of Bachelet’s senior ministers who announced intemperately that Bachelet was going to take a retroexcavadora (the marvellously descriptive Spanish word for a backhoe) to the foundations of the post-Pinochet polity. Education reform raised the ire of the owners of the deeply entrenched Chilean private school system. Tax changes, which aimed to shift taxes to the owners of companies rather than the companies themselves, cast a chill over access to capital for corporate reinvestment. And constitutional reform consultations bogged down in paranoia that Bachelet’s ulterior motive was to undermine property rights.

Complicating Bachelet’s difficulties further was the end of the commodities supercycle that had held primary materials prices aloft after the 2008–09 recession, largely fuelled by the continuing economic growth of China. Copper comprises half of Chile’s exports and, coinciding with Bachelet’s election, its price dropped from nearly $4 to about $1.50 per pound. Chile’s economic growth dropped accordingly, to well below 2 per cent annually.

The final deflation of Bachelet’s popularity came with a series of scandals. Her son and daughter-in-law were implicated in a real estate speculation and influence-peddling scandal, and a widespread political fundraising scheme was exposed in which one of Chile’s iconic companies, SQM, suborned virtually every political party with secret campaign contributions.

But for all the government’s travails, and despite the often improvisational manner in which it introduced reforms, the reforms began to take hold and won over important parts of the population. The Chilean primary and secondary school system has three tiers: public schools, which instruct 20 per cent of the student population; state-subsidized private schools, with 65 per cent; and wholly private schools, with 15 per cent. The chief aim of Bachelet’s educational measures was to convert the state-subsidized private schools into public schools and, critically, to remove the burden on middle-class families of the high tuition fees these schools charged. Moreover, lacking the budget revenues to fulfil its promise of free university and college education, Bachelet’s government settled on the interim measure of providing free postsecondary education to 50 per cent of the “most vulnerable” – that is, lowest-income – population.

Despite all manner of administrative upheaval, the upshot of these changes was to extend significant benefits to low- and middle-income Chileans. So well had these changes begun to take hold that Piñera promised early in his election campaign that he would not roll them back. It is a promise that he seems to be honouring.

A major plank of Bachelet’s reforms was to raise Chile’s level of taxation to that of the median in the OECD, of which Chile is the only South American member. Most political actors shared this objective but the controversy surrounding implementation seriously undermined her government’s reputation for administrative competence.

The main measure involved imposition of a tax on business intended to raise revenue equivalent to about 1.5 per cent of Chile’s GDP. But the effect was that the funds once earmarked to support new business activity would instead be used to pay personal income tax bills. This disincentive to investment was at least partly responsible for a sharp decline in Chile’s rate of capital formation during the Bachelet administration.

Piñera remains committed to tax reform but plans to ask Congress to approve a plan that will remove tax on income destined for reinvestment. Characteristic of the readiness in some business circles to ensure that tax adjustments are not seen as a sop to the wealthy, the head of Chile’s small business gremio (representative association) recommended an increase in the top rate of tax on higher-income individuals to 40 per cent from 35 per cent. The centre-left, as well as the centre-right, remains committed to a formal limit on the size of deficit the government can run. Although Bachelet’s finance ministers fiddled at the edges of that rule, allowing net public debt to rise, total government debt currently stands at about 23 per cent of GDP, among the lowest in the OECD.

Bachelet’s proposed major overhaul of the Chilean constitution is effectively a dead letter under Piñera’s administration. There appear to be few who regret setting it aside. Bachelet sought to wrest Chile’s central law from its association with the Pinochet dictatorship. The current constitution is part of the grand bargain that led to the reestablishment of democracy in 1990. Some of its political constraints have already been removed, most importantly rules that had favoured the forces of the centre-right. Elimination of the binominal system was indeed an important factor in the left attaining an effective congressional majority in the current Congress.¹ Beyond this practical amendment, it was difficult to discern what concretely Bachelet wanted to achieve through a wider constitutional reform.

Astonishingly for some, Piñera has actually pursued a progressive social agenda of his own. Before the country went on holidays for the annual Fiestas Patrias (September 18 is Chile’s Independence Day), Piñera coaxed through Congress a law permitting Chileans aged 14 and over legally to declare their own gender. He announced plans to make all private employers offer daycare for preschool children aged two years and older. And he pushed through a law to increase Chile’s minimum wage and establish a schedule for regular raises.

These may represent quick wins in what is likely to remain a challenging social policy scenario. The issue that most mobilized the citizenry in the late innings of Bachelet’s term was the perceived low payouts to beneficiaries of the pension system. Chile’s main pension scheme comprises some six private funds, Administradoras de Fondos de Pensiones (AFPs), to which Chilean workers are required to contribute, with their contributions supplemented by employer payments,. The system was established as part of the Milton Friedman–inspired economic reforms of the Pinochet era. The AFPs were to manage workers’ savings and generate an adequate pension income on retirement.

Workers’ disappointment over the size of pensions for which they are eligible has driven the demonstrations filling the streets of Santiago and other Chilean cities since 2015. On average, the funds are providing a pension equivalent to only about 38 per cent of preretirement earnings. But rather than being attributable to bad management as protestors claim, the low returns are more a reflection of the economic circumstances of the pension holders and of the country as a whole during the period of capital accumulation. Although Chile’s middle class has been growing since the reestablishment of democracy, this growth has been gradual and, for many individuals and families, sporadic. As a result, contributions to AFPs have been variable as well.

The depth of this expectations gap is one of the key challenges Piñera faces. On this issue there are parallels with the Canada Pension Plan (CPP). Initial actuarial projections made in the 1960s were wildly overoptimistic about the payroll tax required to underwrite promised CPP benefits. For many years, Canadian politicians avoided the politically painful choice of reducing benefits or increasing the required payroll tax. It is unclear at this time how Piñera will manage his pension problem. In the absence of a well-articulated plan to secure the livelihoods of older citizens, social unrest could severely damage his presidency in the same manner as student demonstrations demanding education reform did during his 2010–14 term.

Piñera’s economic managers have been quick to underline the resurgence of the Chilean economy since his reelection. Bachelet’s finance ministers denied that the tepid growth during her presidency had anything to do with poor management. As copper prices gradually rose throughout her four-year term, they eagerly pointed to las verdes brotes (the green buds) of imminent growth. But those buds never opened. From an average below 2 per cent, GDP growth in the last two quarters has surged above 5 per cent. Clearly, the arrival of Piñera in power has lifted business confidence and opened some investors’ coffers.

Unfortunately, unemployment rates have not begun to fall. The rate was 7.3 per cent in August, the highest since 2011. The persistently high unemployment rate in the face of GDP growth is partly attributable to more people entering the job market. There has been growth in numbers employed, but largely in self-employment, where average monthly income is $772, well below average salaried income of $1,047. Piñera is faced with managing a growing economy that nonetheless has weak formal employment growth, a phenomenon not exclusive to Chile. It is a worldwide trend in developed economies, the upshot of which is the worsening of existing earnings inequality.

To increase economic efficiency and spur growth in Latin America, democratic and market-oriented countries including Chile, Mexico, Peru and Colombia established the Pacific Alliance in 2011 providing for the free movement of capital and labour among member countries. Although Chile’s growth under Bachelet lagged the rest of the region, investors still point to Chile’s advantages over its partners. Mexico’s gangster-driven crime gives it one of the world’s highest murder rates, and its recent election of the populist Andrés Manuel López Obrador has cast uncertainty over its future economic management. Colombia is now led by a government that is openly sceptical of the peace agreement with the once-revolutionary Fuerzas Armadas Revolucionarias de Colombia (FARC) and has still not settled with another revolutionary group, the Ejército de Liberación Nacional (ELN). Peru’s political class has been damaged by its association with the bribery scandal surrounding Brazil’s Odebrecht business conglomerate. The current president, Martín Vizcarra, is hampered by the congressional Fujimoristas, members of the populist authoritarian party created by ex-president Alberto Fujimori, who was convicted for crimes in office and remains in jail.

The challenges of Chile’s Pacific Alliance partners are exceeded by those of Chile’s larger neighbours. Argentine President Mauricio Macri’s market-oriented reforms have begun to run up against his country’s chronic indebtedness and limits to Argentinians’ patience for fiscal austerity. Brazil has been deeply torn by the cancerous corruption that has afflicted much of its political class. With the election of Jair Bolsonaro, it has cast its lot with a return to authoritarianism. Other external problems have induced a recent wave of immigration from Haiti and Venezuela, which carries the mixed blessing of increasing Chile’s labour force but also complicating social integration. Overall, Chile’s status as a peaceful, well-ordered and stable democracy committed to a market economy supported by social welfare and reform stands out in Latin America.

Moderating a difficult dialogue

Chile’s international brand has never escaped the negative aura associated with the military coup of September 11, 1973, and Augusto Pinochet’s subsequent murderous dictatorship. It appears that no news story about Chile can capture headlines in North America or Europe without a necessary reference to that period, which ended 28 years ago. For instance, this headline in Telesur on May 27, 2017: “Over 2 million people protest Chile’s Pinochet-era’s pension system.” It is not wrong to underline how Chile is still in some respects under the “shadow of the dictator,” to borrow the title of the 2008 book written by Bachelet’s exceptionally capable foreign minister Heraldo Muñoz. Hardly a day goes by in Chile without a pointed reminder of that era. One day a crowd may gather outside offices in Chile’s modern business district protesting that the company president was implicated in the torture and disappearance of political prisoners but has not faced justice. Elsewhere the families of imprisoned generals protest that their fathers or uncles have done enough time behind bars and should be allowed to live their final, infirm days in the family home.

What is perhaps misunderstood is the manner in which Chile has managed this legacy within a mostly open and frank dialogue that represents reconciliation in action – imperfect as it inevitably will be. Like all democratic presidents before him, Piñera carries the burden of playing the role of moderator of this dialogue. In this role, he does not carry Bachelet’s credentials. She was a leftist militant supportive of Salvador Allende’s government whose father, a pro-Allende military officer in an executive role, died after torture. Bachelet, after herself being detained, went into exile but returned during the dictatorship to serve as a doctor, administering often to regime victims, and work secretly with the underground resistance. Piñera, on the other hand, founded his business empire after the coup on the castoffs of Allende’s nationalized businesses. However, unlike many of his associates, he does have the redeeming attribute of having supported the No side in the vote against the prolongation of the dictatorship, which led to the negotiations to reestablish democracy.

As much as the torture and murder of the Pinochet regime are condemned by the vast majority of Chileans, they are still divided on the responsibility of Allende and his supporters in provoking the military reaction. Roberto Ampuero, who is now Piñera’s foreign minister, was a communist militant during the Allende regime and fled into exile first in Cuba and then East Germany after the coup. In 2015, along with another Allende-era militant, Mauricio Rojas, Ampuero published a book called Diálogo de conversos (A converts’ dialogue), in which they castigated their own and their compatriots’ rash calls for a violent overthrow of Chile’s wealthy classes.

In the book, Ampuero describes demonstrations in which he and others sporting helmets marched through residential neighbourhoods chanting “Momios up against the wall; their women to the mattress” (momios, or mummies, is Chilean slang for right-wing conservatives):

There were people frightened to death to see thousands of guys with flags, canes and nooses, shouting “Expropriate, expropriate. It’s the popular will.” … This was us as a country before the coup and because of this, what happened later, happened. And I say this without condoning a single violation of human rights suffered under the dictatorship. But we have to be honest till it hurts: we wanted to frighten the momios and the soldiers, and later we became aware that fear, resentment and hatred were accumulating on the other side. It’s clear today, many, on one side or the other, avoid responsibility; they prefer to assume the role of victims, and they prefer to paint the division and the polarization as though they fell from the skies the night after September 11.

In appointing Ampuero foreign minister, Piñera endorsed this perspective. He did backtrack slightly after appointing Rojas, and then accepting his resignation, as minister of culture.² However, in his statement on the anniversary of September 11, Piñera effectively articulated the two writers’ point of view: “Our democracy was very ill; September 11 was not a sudden death.” The reaction of the left to Piñera’s statement was negative, its spokespersons pronouncing that they were not prepared to condone those who “relativize and justify” Pinochet’s regime. The debate will continue as long as there are living witnesses of that era, and undoubtedly even longer. But it is a free discussion and not suppressed.

Epilogue

On June 1, 2017, a bright autumn day in Valparaíso, then-President Bachelet gave her final presidential message to the Chilean Congress, her last opportunity to defend her government’s record before the November elections. By then it was clear that her would-be successor, Alejandro Guiller, would fail in his bid for the presidency. Nevertheless, she proclaimed, “Governments will change, but history driven by the force of an entire country cannot be held back.”

She was not wrong. The centre-left’s presidential candidate was repudiated, but the congressional leftist majority requires Piñera to be flexible. He seems to have taken on the challenge: while rebooting the economy, he seeks to satisfy the majority’s desire for more social equality.

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