Latin America's new leaders seek antidote to US `fiscal medicine'

Latin America replaced military dictatorships with democratic governments in the 1980s and embraced free-market reform over state-led economic experiments. The initial results were impressive, as hyperinflation disappeared, foreign investment flowed and a new-found confidence was evident, with business booming across the continent.

Argentina's flamboyant President Carlos Menem (1989-99) and Mexico's President Carlos Salinas (1988-94) were the golden boys of the unfettered free market era, who applied fiscal "medicine" with maximum zeal.

Mr Menem sold off state companies, stabilised the currency and attracted foreign investment worth $50 billion.

The medicine failed, however, as an estimated 1,000 Argentinians a day joined the ranks of the poor, 28,000 small and medium-size companies folded, and external debt almost doubled.

Meanwhile, Mr Salinas left office in Mexico amidst widespread corruption, armed rebellion and ruling party divisions, along with a drop in living standards to pre-1950 levels.

The immediate political fallout across the Americas has been the election of a new wave of centre-left governments promising free market rules with an emphasis on social reform.

Chilean voters elected socialist President Ricardo Lagos last December, while Argentina opted for Fernando de la Rua, presiding over a governing alliance with the centre-left Frepaso (Front for a Country of Solidarity).

President De La Rua has pledged to create jobs and fight corruption, but he first adopted an austerity package that cut social spending, resulting in violent protests.

The Argentinian President walks a tightrope between fiscal rectitude and growing impatience at the economic crisis.

In Mexico the ruling Institutional Revolutionary Party (PRI) was ousted after 71 years in power, ushering conservative businessman Vicente Fox into office. Mr Fox has already begun to shift ground from the right to the centre of the political spectrum, promising to double the education budget and stimulate domestic industry to create 1.3 million jobs.

In Peru, President Alberto Fujimori sought to bridge the gap between market reform and political unrest by shutting down congress and muzzling the press, winning recent elections to a third term in office only through massive fraud.

But in Venezuela, a more radical project is under way, led by former coup leader Hugo Chavez, who swept into power in December 1998 promising a peaceful democratic revolution to redress social inequality.

President Chavez convened a constitutional assembly where elected delegates rewrote the Magna Carta, guided by the principle that "social needs" should take precedence over the right to unlimited business profits.

Last Sunday he stood for re-election in conditions which can only be described as catastrophic: declining foreign investment; 20 per cent unemployment; terrifying crime levels and zero job creation. A saner man would have taken the first flight out of the country.

But President Chavez romped home, winning 60 per cent of the vote, his coalition allies securing 97 out of 165 seats in congress and over half the state governorships.

Mr Chavez has an ambitious vision of a new country, a ten-year plan in which rural development would replace urban overcrowding and windfall oil revenues would fund sustainable health, education and agricultural initiatives.

Recent harsh experience makes the Venezuelan experiment all the more vital for the continent, as it contains the seeds of survival for the regions - evolving market-oriented society, incorporating urban poor, rural peasantry, the informal business sector, property owners and even big business.

Chilean President Ricardo Lagos has won similar consensus in trying to heal the wounds of the past, standing aside as the judicial system moves toward a possible trial for former dictator Augusto Pinochet. On the economic front the prevailing consensus over free market reforms has not prevented the governing Chilean coalition from imposing state controls on short-term speculative investment, which depresses the currency and prompts capital flight.

The twin tendencies in the post-market era fall into two categories - the centre-left reformists in Chile, Argentina and Mexico, and the more radical vision embodied by Hugo Chavez. While President Chavez stands alone in the region, there are signs of growing support for Chavez-style political solutions in the Andes.

In Ecuador last January, indigenous protesters joined rebellious army officers to overthrow discredited President Jamil Mahuad, but constitutional rule prevailed and his Vice-President, Gustavo Noboa, was sworn into office.

Opinion polls suggest the indigenous and army coup leaders would sweep into office should they run for office in next year's elections. In Bolivia, President Hugo Banzer's fragile government almost collapsed in April, when a rise in water charges was greeted by rebellion. The government was forced to cancel the water privatisation deal and compensate families of protesters killed by army snipers, a hint that the centre may not hold indefinitely.

In Mexico the Zapatista rebel movement, which launched an armed rebellion in 1994, has established 32 autonomous districts where occupied ranch land is parcelled out to dozens of new communities, with maize, beans, coffee and fruit planted in the shadow of a hostile military occupation.

The return to small-scale subsistence agriculture combined with the export of excess coffee and honey production is a microcosm of the Venezuelan experiment, permitting the survival of communities struggling to find a productive role in the global economy.

The resurgence of left-wing nationalist movements, (Venezuela, Ecuador and Bolivia), combined with reformist social democrats in Argentina, Mexico and Chile, offers hope in the coming decade. But politicians face stiff opposition from global trade blocs who benefit massively from the current model of exclusion. In the future the "Washington consensus", meaning macroeconomic stability above all else, will be challenged by the projected "Bolivarian consensus", led by President Chavez.

This favours regional trade integration, increased citizen control over democratic institutions and the stimulation of production of domestic food and industry - goals shared by new governments in Mexico, Chile and Argentina.