Latin American’s ‘New Left’ In Crises As the ‘Free Market’ Collapses

The uniformity of the collapse of Latin American economies raises important questions about the changes and claims of independence, decoupling and post-liberal models, which many regime leaders, ideologues and progressive US-European Latin American writers made over the past several years.

Latin America is entering a period of profound economic
recession, financial crises, collapsing stock market quotations, prices, deep
devaluation of its currencies, growing unemployment, declining revenues and the
prospect of a prolonged socio-economic recession. The economic breakdown, which is still unfolding, affects
the entire political spectrum, extending from the far-right Uribe
regime in Colombia to the social-liberal Chilean and Brazilian governments of Bachelet and Lula da Silva to the
‘center-left' regimes of Evo Morales in Bolivia and Rafael Correa in Ecuador
and even to the leftist government of Hugo Chavez.

It is not surprising to see that rightist regimes[1],
embracing neo-liberal doctrines and deeply enmeshed in free trade agreements
with the US, following its path to economic collapse. The deepening crisis has affected, with equal or
greater force, the so-called ‘center-left' regimes of Brazil, Ecuador,
Argentina, Bolivia and Nicaragua.

The uniformity of the collapse of Latin American
economies raises important questions about the changes and claims of
independence, decoupling and post-liberal models, which many regime leaders,
ideologues and progressive US-European Latin American writers made over the
past several years.

The collapse of what some writers have referred to as Latin
America's ‘pink tide' and other more exuberant publicists referred to as the
new ‘revolutionary regimes' (and other more prudent analysts called the
‘post-neo-liberal' democracies) raises serious questions about the
emergence of a new dynamic heterodox model no longer subordinated to the

The simultaneous economic crises in Latin America and
US/Europe call into question the degree of structural changes that were
implemented by the center-left Latin American regimes. More specifically, the breakdown
focuses attention on the continuities in financial systems, trade
patterns, productive structure and free trade policies with their predecessor
neo-liberal regimes
. The
claims of ‘de-coupling' put forth by the pundits of the center-left have been
proven to be without substance.

Faced with the collapse of the center-left economies, their
former ideological cheerleaders have alternated between a deafening silence and
avoidance of any structural explanations, and/or to simply project ‘blame' on
the ‘casino capitalism' of the US.
The latter posture begs the question of the center-left regimes' domestic
policies which
opened their economies and made them
excessively vulnerable to Wall Street speculation. Up to the recent collapse, the intellectual defenders of the
‘center-left' had little to say about the Wall Street linkages, busying
themselves with the temporary high growth rates, which they attributed to the
‘new heterodox model'.

The problem avoidance and external finger pointing adopted
by the ideologues of the ‘New Latin American Left' reflects a fundamental
misunderstanding or ignorance of what was really going on within these
countries. They substituted
emotional gratification at rhetoric flourishes and symbolic changes and
privileged invitations to private soirees with the ‘center-left' presidents
over hard analyses of substantive policies and structural continuities. Disentangling illusions from reality is
the first step to coming to terms with the existing collapse affecting the
region and the disastrous consequences for the great majority of wage, salaried
and informal workers and peasants.

The ‘New Latin American Left' (According to Its

Despite the extensive and, in some cases, profound
differences in social structure, levels of economic development and sheer
wealth among Latin America's ‘center-left' regimes[2]
– their publicists, advocates and adversaries claimed they were breaking
with neo-liberalism and pursuing a vastly different socio-economic model, a
break with the past, a heterodox economic strategy which combined ‘market' and
‘state' in pursuit of what some claimed was ‘Twenty-First Century Socialism'.

This line of argument defined the ‘novelty' of the new
center-left by identifying twelve areas of ‘transformation' or change. The ‘new center-left' ideologues argued
that, in contrast to the previous neo-liberal regimes (NLR), the center-left
regimes (CLR):

Adopted a new more socially responsive economic model
that pursued ‘mass inclusion', cultural diversity and social justice;

Put an end to ‘free market neo-liberalism' and replaced
it with a ‘state-market model';

Began a process of ‘social transformation' (Argentina),
a ‘democratic and cultural revolution' (Bolivia), ‘twenty-first century
socialism' (Ecuador), and a process of long-term high growth based on fiscal
responsibility and social justice (Brazil);

Ended discrimination and exploitation of the indigenous
people (Brazil and Ecuador) and empowered the Indian communities (Bolivia);

Moved to replace dependence on the Western markets and
ended Wall Street domination through the pursuit of regional integration;

Developed regional political and economic organizations
like ALBA, UNASUR and PETROCARIBE, which marked the construction of a new
independent alternative regional economic architecture;

Promoted a new kind of participatory democracy in which
the popular classes had a bigger direct say in the formulation of government

Developed diversified markets, especially with Asia
(China particularly), Europe and the Middle East based on greater economic
independence, effectively ‘decoupling' from the US economy and ending US

Accumulated vast foreign reserves (tens of billions)
based on promotion of an agro-mineral export strategy, thus creating long-term
insurance against future downward movements in the prices and demand for export

10. Amassed
large-scale budget surpluses through fiscal discipline and avoidance of
‘populist' spending on large social and infrastructure programs;

11. Pursued
policies favoring greater social equality of opportunity, pro-labor income
policies, easy credit, increased consumer imports and increased spending on
food programs for pensioners, children and the poor;

12. Formed
public-private partnerships between the state and foreign multinationals
replacing foreign domination by equal partners and increasing benefits to the
home country.

to the promoters of the ‘center-left' regimes, the ‘proof' of the progressive,
sustainable and dynamic character of these regimes was demonstrated by the
period between 2005-2007 where high growth, high income, budget and trade
surpluses and repeated electoral victories were the norm.

End of an Illusion:
2008 The Year of Reckoning

The success claimed by the center-left regimes (CLR) and
their apologists were based on an entirely false set of assumptions and
temporary and volatile set of structural relations with regard to trade,
investment and financial linkages.
When the onset of the financial collapse and economic recession first
struck the US and Europe, the first response of the CLR was to deny that the
crisis would affect their economies.
For example, President Lula da Silva of Brazil
at first blamed the ‘casino capitalism' of the US and claimed that the
Brazilian economy under his rule was healthy, protected by large reserves and
would be hardly affected. As the
effects of the financial breakdown and economic recession in Europe and Wall
Street deepened and spread to Latin America, the CLR regimes and their
intellectual defenders adopted a different posture. On the one hand they sought to deflect all the blame to the
US financial system and thus avoid facing the structural weaknesses of their
economic policies. On the other
hand some writers looked to some of the recent regional organizations, like Bancosur and ALBA, as alternative sources for salvation or
as mechanisms to ameliorate the effects of the crisis. Neither the CLR nor their intellectual
defenders have demonstrated any willingness to confront the structural
weaknesses and vulnerabilities of their socio-economic strategies over the past
half decade. More specifically the
CLR and their defenders refused to admit that the claims of ‘change', and
construction of 21st Century Socialism were in fact built on illusory

The spread of the crisis from the US-Europe to Latin America
is a result of the CLR's continuities of the neo-liberal
, the maintenance of the same ruling economic classes and the
pursuit of economic strategies dependent on inflows of speculative capital,
debt financing and the agro-mineral export elites.[3]

Despite the rhetoric of ‘21st Century Socialism'
(Chavez in Venezuela, Morales in Bolivia, Correa in Ecuador and Ortega in
Nicaragua), ‘independent model' (Lula Da Silva in
Brazil), and the ‘social-liberal' model (Bachelet in
Chile and Vazquez in Uruguay), the above-mentioned regimes retained and even
deepened the principal structural features and policies of the neo-liberal
. They remained highly
dependent on the global market: in fact they all accentuated its worst features
by emphasizing primary goods exports (agro-mining commodities) to take
advantage of the temporary spike in prices. As a result they vastly increased their vulnerability to
external shocks. With the onset of
the world recession in 2008, the collapse of demand put an end to the big trade
surpluses and provoked a big slide in all the related economic factors: Foreign reserves plummeted. Government revenues based on export
taxes declined precipitously.
Local currency was devalued as both foreign and domestic investors fled
to what they perceived as stronger currencies and safe havens.

All of the CLR based their development strategies on a
strategic partnership between the nationalist capitalist class, the state and
foreign investors contrary to the populist-nationalist imagery of Western
intellectuals. At the very onset
of the financial collapse, foreign capital began its massive flight outwards
and upwards driving down the stock markets in Brazil and Argentina by over 50%
and forcing a de facto devaluation as local savers and investors converted
local currency into dollars, euros and yen. With the onset of the recession in the
real economies of the EU and the US, national capitalists and financial elites
responded by reducing investment in the productive sectors anticipating a sharp
decline in demand for their primary commodity exports. This provoked a multiplier effect in
satellite and related domestic manufacturing and service industries.

The double exposure to financial shocks and world recession
was a direct result of the one-sided export market policies pursued by the
CLR. The leaders of the CLR paid
lip service to ‘regional integration' (ALBA, MERCOSUR, UNASUR), even setting up
an entire administrative structure and initially investing marginal resources
to the effort. The regional
rhetoric was dwarfed by the ongoing and growing ‘integration' in the world
market, which remained the motor force of their growth. Given their deep involvement in the
primary commodity boom, the regimes maximized the importance of markets outside
of the Latin American region. With
the downturn, even the regional integration scheme (MERCOSUR) faces
disintegration as Argentina turns protectionist.

The temporary trade and budget surpluses were used to
further deepen the primary sector expansion (expanding infrastructure to and
from productive sites to shipping centers on the coast), increase the wealth of
the agro-mineral elites, and encourage a huge influx of speculative investors
who inflated stock valuations (doubling and tripling prices in the course of
two and three years: Price/earnings ratios reached bubble proportions.

The reactionary/retrograde model of the CLR, built on the ‘primarization' of the economy and the boom in speculative
investment, was ignored by almost all Western intellectuals who were dazzled by
and chose to focus on marginal ‘populist' measures: Lula's $30 dollar (45 Reales) monthly food basket for 10 million poor families
(who became part of his electoral client machine in the Northeast); Kirchner's
promotion of human rights and 150 Peso ($50 USD) monthly unemployment benefit;
Evo Morrales cultural indigenismo
and ‘joint ventures' with the international oil and gas companies (falsely
dubbed ‘nationalization') and Rafael Correa's declarations in favor of 21st
Century Socialism and increased social spending.

The ideologues of the CLR failed to analyze the fact that
these marginal increases in social spending took place within a
socio-economic and political framework, which retained all the structural
features of a neo-liberal economy
With the collapse of overseas primary commodity prices, the first
reductions in government programs are directed at…the poverty programs that
provided a fig leaf to the rapacious speculator-agro-mineral driven economic
model. The entire ‘left spectrum'
ignored the fact that the balance of payments and budget surpluses, which
funded social reforms, were dependent on the inflow of ‘hot money'. The latter,
by its nature, enters easily and flees rapidly, particularly in response to any
adversity in their ‘home market', not to mention in the face of a worldwide
financial crash. Thus the already
meager social measures adopted by the CLR were fragile to begin with, highly
dependent on the volatile behavior of highly speculative capital and world

The claim of the CLR that Latin America was de-coupling from
the US market, through greater ties with Asia (China, Korea, Japan and India)
and developing into a world power (as part of the BRIC bloc – Brazil,
Russia, India and China) has been demonstrated to be false. Brazil's agro-mineral exports to Asia
were highly dependent on world prices determined by demand from the US,
EU as well as many other regions and countries. The deep world recession and credit collapse has profoundly
affected Asia's exports to the US and EU, which, in turn, has led to a
decline of Latin America's primary exports to Asia. None of the Asian countries can maintain their commodity
imports from Latin America because they are not able to substitute domestic
demand. The class polarities and
class rigidities in China limit mass consumption.

Latin America did not ‘de-couple' – it was part of a
global chain, which tied it to the vagaries of the US and EU economies. The attempts by Brazil's President Lula
to blame Brazil's crises on US ‘casino capitalism' in order to deflect
criticism from his policies of deep structural dependency on primary commodity
exports and hot money is besides the point: The Brazilian regime's policies opened the door wide to the
full adverse effects of the downfall of US speculative capital.

None of the CLR deviated from the neo-liberal ‘export model'
nor did they make any effort to dynamize the
domestic market or mass consumption via redistributive policies. Industrialization was subordinated to
commodity exports. Urban incomes
between capital/labor favored profits over wages. Interest and royalties
remained highly skewed in favor of capital thus weakening domestic demand. Support of the agro-export elite and
the rejection of agrarian reform, undermined the domestic purchasing power of
millions of landless and subsistence peasants, rural laborers and small
farmers. Tax subsidies and
incentives, not progressive taxation, eliminated the possibility of rebuilding
social services (public health, education, pension and social security
programs), which could have expanded domestic production and investment. The CLR did not invest in a production
grid linking complementary internal regions and economic sectors. The CLR's
investments linked local domestic sites to ports connected to overseas

The CLR strategies weakened their domestic markets relative
to the big push toward exports thus avoiding structural changes. This emphasis on social payments was
contingent on the performance of the agro-mineral export sector of the big
bourgeoisie. Even their ‘social
transfers' have proved to be unsustainable. Without the meager poverty programs there is little to
distinguish the CLR from their traditional neo-liberal predecessors.

During the boom in commodity prices several CLR regimes,
namely Brazil and Argentina, diverted billions of dollars in earnings to early
pay-offs of their debts to the IMF and other official lenders, claiming this
‘freed' them to pursue ‘independent policies'. In fact the IMF was very happy to re-capitalize their
treasury while the levels of poverty continued at alarming levels and public
facilities, like housing, transport, schools and hospitals deteriorated. While some aspects of foreign external
debt declined, others, mainly private foreign debt in dollars and Euros,
skyrocketed, encouraged by the CLR.
Given the regimes' high domestic interest rates, foreign overseas
borrowing by domestic businesses rose precipitously and foreign speculators,
lenders and overseas subsidiaries of US and EU banks loosened lending
standards. With the financial crash in the US and EU, foreign flows of capital
dried up and short-term notes were called. Foreign inflows turned into massive outflows, driving down
the value of the currency. The
Brazilian and Argentine stock markets fell by over 50% in less than 5 months
(June-October 2008) and the credit crunch began to squeeze investment.

The crash in commodity prices, deeply affected state
revenues as prices for copper declined by 60% (from $9,000 USD a ton in June
2008 to $3,900 USD in October 2008 and oil fell from $147 USD a barrel to $64
USD during the same period). What
is worse, the decrease in the CLR's foreign debt was
matched by a vast increase in domestic debt – that is borrowing from
foreign banks' subsidiaries and local financial groups. The latter lent to the regimes by
borrowing from overseas banks and thus the entire credit/finance chain
continued to depend on private financial institutions in the US and
Europe. Rather than reflect a
break with the financial dependence of the past neo-liberal regimes, the
CLR reproduced it via local intermediaries. Combined with the collapse of commodity prices, the
financial crisis revealed the abject integration and subordination of the CLR
to the empire-centered marketplace.
The sustained fall in stock prices and the massive flight from local
currencies to dollars revealed the entire precariousness and profoundly
‘liberal' nature of the CLR economic policies.

The CLR regimes diverted the major part of their windfall
profits to building up their foreign reserves to attract foreign loans, credit
and investors and to cushion the effects of a downturn in the economy rather
than in large-scale investments in human resources and the domestic
market. As a result, the foreign
reserves provide a temporary lifesaver in the face of the decline in
revenues from export earnings.
Nonetheless, the regimes are using the foreign reserves to keep afloat
the private banking system and to pacify panic-stricken investors seeking to
convert local currency into dollars and euros. As the reserves are depleted, the CLR
are resorting to class-selective reactionary fiscal policies. Once again the negative impact of the
financial panic reveals another negative (‘liberal') component of the CLR
strategy: its dependence on an unregulated stock market highly susceptible to
any downturns in the valuations of commodities and commodity prices.

The CLR economic policies and the major private economic
actors were deeply enmeshed in the world of speculation just as any
‘neo-liberal' regime would be. The
total absence of any popular movement oversight of the CLR policies was a
result of their total exclusion from all governmental positions making economic
decision (Central Bank, Ministers of Economy, Finance, Commerce, Industry,
Agriculture and Mining). The
claims of participatory democracy were revealed to be a total farce. Moreover, the CLR (with the partial
exception of Venezuela) granted ‘autonomy' to the Central Banks, eliminating
Congressional oversight and facilitating closer ties between Central Banks and
the private financial elite.


As the capitalist financial system crashes throughout most
of the world and a global recession spreads from the imperial countries to
Latin America, the leading center-left regimes are not immune to the double
shocks. Because they opted for a
primary commodity export model they are especially exposed and vulnerable
to the rapid fall in world demand and prices. While it is true that conservative fiscal policies allowed
them to build up their foreign reserves, thus providing them with a partial and
temporary cushion to weather the first wave of capital flight and to finance
dollar-denominated debt, it should be remembered that the other side of the
‘prudent fiscal policies' was the neglect of the social problems and
economic diversification.

Poverty reduction, through investment in productive employment, agrarian
reform for landless peasants and the development of the internal market, in the
medium run, could have lessened the impact of the crisis in the North.

The attempts by Lula, Evo Morales and political leaders to
pin the blame entirely on the crises in the imperial countries, ring hollow
after years of their hobnobbing with the economic elite in Davos
and focusing exclusively on trade and investment agreements with MNC, ‘hot
money' from Wall Street and betting on agro-mineral exports. The spread of the crisis in Latin
America, from early 2008 onward, is playing itself out gradually. The high level reserves, the relatively
high prices (despite the 70% decline from record prices), the temporary return
of partial liquidity and the slight loosening of credit in world markets as a
result of over $1.5 Trillion USD injection of public funds by the US and EU has
slowed the fall into an inevitable recession. What is crucial however is not
where Latin America's CLR stand at any given moment in time, but the direction
they are moving and the inherent negative structural features, which are
driving the economies toward a deep recession. As the reserves dwindle and as the agro-mineral elites
disinvest in the face of declining prices, a serious negative multiplier effect
sets in, battering satellite industries and driving dependent sectors into
bankruptcy. Equally important, the
economic recession is leading to deep and widespread state spending cuts. Given the fiscal conservatism built
into the personnel of the key economic ministries and central banks, it is
highly improbable that the CLR will reverse course and run fiscal deficits,
increase large-scale, long-term public investments, restructure their economies
and re-configure the social basis of public policy.

By the end of 2009, Latin America's CLR will feel the full
brunt of the world economic recession, precisely when its depleted foreign reserves
will have further discouraged overseas and local capital investment. No long able to rely on its principal
‘economic motor force', the agro-mineral elite to finance imports and lacking
overseas investment and credits for its exporters and banks, Latin America's CLRs will be confronted with powerful pressures from
below. Workers and employees
losing their jobs, local banks facing bankruptcy, manufacturers closing plants
and indebted consumers and mortgage holders with few assets to sustain demand and
living standards will be on the streets clamoring for state intervention: From
the left and from the right.

Faced with the collapse of the ‘heterodox model' of
neo-liberal ‘primarization' of the economy with
‘modest social transfers', two options are possible for the CLRs: One would involve large-scale bailouts
in order to save dominant financial-agro-mineral elites. The regime could try to impose the
costs on the backs of the workers, urban poor, peasants and public employees
through social cutbacks, firing of public employees, wage reductions and
large-scale reductions in public investments. The second option would involve a revival of import
substitution strategy including public investments in industry accompanying the
nationalization of bankrupt banks and strategic economic sectors and
large-scale shift in state policy from financing the bankrupt agro-exporters to
co-operatives, family farms producing for the domestic market.

The first option would, by necessity, require greater state
repression, in the face of social resistance to cuts in living standards and
would probably lead to the demise of the CLR regimes. The more reactionary right is in the ‘wings' ready to seize
power and confront the burgeoning social movements reacting to the crises.

The second option would require a major shift in the
internal class composition of the CLR regimes, a rupture with existing
political allies and large-scale social mobilization of the ‘popular

The second option would depend on a fragile coalition of
local business groups, manufacturers, debtors, trade unions, left parties and
peasant movements – the emergence of a ‘nationalist-populist' coalition
(NPC) prepared to jettison the agro-mineral export model, to shelve overseas
debt obligations and to pursue deficit financed economic recovery.

However, under the stress of a prolonged world credit
squeeze and recession, the linkages between big and small capital with labor
and subsistence farmers and peasants may dissolve and lead to demands that go
beyond ‘Keynesian' capitalism to the socialization of the economy. The latter option will be favored by
the prolonged and deepening nature of the world recession, the further decline
in foreign trade, the drying up of private credit, the decline of living
standards and the profound and widespread discrediting of capitalism clearly
associated in the public mind with speculative excesses, financial collapse,
lost savings and the bankruptcy of private firms.

A final caveat:
Though the world recession and financial collapse reveals that the
center-left regimes were neither popular, nationalist, nor a break with
neo-liberalism, this does not mean a near term turn to the left – for the
simple reason that the CLR severely undermined independent class mobilizations. Renewed ‘statism'
of the right or left variants and obligatory import substitution policies may
temporarily moderate the worst impacts of the world crisis. However, the failure of Keynesianism
could lead to fascistic repressive ‘restorationist
regimes' or to a radical/socialist solution. In this crisis all political options are ‘open' given the
‘fragmentation' caused by CR regimes and the ‘shock' of the depth of the
crisis. Future political
outcomes are not governed by any speculative notions of ‘grand
historical waves'.
Political outcomes are contingent on the class struggle and the struggle
for state power. The current
unpredictable outcome of social struggle is a result of the lack of preparation
by any left-social movements to take the lead over the wreckage of a world
capitalist breakdown.

[1] As of the
end of 2008, rightist regimes (free market/neo-liberal) would include Calderon
of Mexico, Uribe of Colombia, Alan Garcia of Peru, Tabare Vazquez in Uruguay, Bachelet
in Chile, Fernandez in the Dominican Republic, as well as the governments of
Panama, El Salvador and Guatemala.

[2] The
‘center-left' regimes in Latin America include Lula da
Silva of Brazil, Kirchner of Argentina, Evo Morales of Bolivia, Rafael Correa
of Ecuador and Daniel Ortega of Nicaragua. Venezuela, because of its policies of selective
nationalization and greater social spending is considered a more genuinely
leftist regime. However, its
continued dependence on primary commodity exports (oil) and the US market and
lack of a diversified economy, faces much the same economic crises.

[3] While the
public foreign debt may in some cases have been reduced, the internal public
debt grew exponentially, and private corporate debt financing based on foreign
capital exploded. With the
collapse of the US and EU markets and the drying up of credit, Latin America's
growth was paralyzed and the corporate sector went into crisis.