Uncertain Future for South American Socialism

(International Relations and Security Network, 27/07/2005)

With Julio Cirino in Buenos Aires


The Foro de São Paulo, an annual meeting of leftist thinkers and socialist activists, convened on 5 July to discuss an agenda for promoting a socialist vision for South America. Over 350 individuals representing 150 political parties from 17 Latin American countries and 12 others worldwide - including China, Canada, and Spain - attended the meeting.


In its final declaration, the assembly applauded Venezuelan President Hugo Chavez's attempts to unite the region under the banner of a Bolivarian Revolution and supported the demolition of democratically elected governments in Ecuador and Bolivia. The assembly also joined together to reject neoliberalism as a paradigm for regional economic growth.


But while a rejection of globalization may what impoverished South Americans want to hear, the unpleasant reality is that current ties to the global economy dictate that regional integration - if founded on the pillar of Venezuelan oil revenues - might precipitate yet another wave of economic malaise and an increase in poverty, which could in turn threaten regional security.


The socialist conference confirmed that there is mounting political unity and popularity among leftist thinkers in South America, and that they follow the leadership of one man. Chavez has captured the growing sentiment that capitalism does not work in this part of the world. Neoliberal economics is a paradigm that the region's poor no longer trust.


Many regional governments that are run or influenced by leftist-thinking leaders - such as Venezuela, Bolivia, and Argentina - currently rely on cheap oil and natural gas, provide gross subsidies to keep inefficient producers alive, and maintain jobs for laborers who do not contribute to the gross domestic product (GDP).


These practices reduce capacity to compete in international markets and move South America steadily towards an integration that may slowly strangle the region's ability to compete on a world stage.


Capitalist economics are perceived to have failed, Argentine presidential candidate and former finance minister Ricardo Lopez Murphy told ISN Security Watch.


"We have so many gross subsidies [in Argentina] that no one knows if we are really competitive, in terms of a market economy, or if we are competitive because we receive a lot of subsidies," he said.


The state controls 23 of out of the top 25 employers in the country and provides massive subsidies.

"One of the advantages of [trade] agreements with MercoSur, the European Union, or the Free Trade Agreement of the Americas, is that it forces us to raise our standards and avoid [subsidies] that I believe are not fruitful for our future," he said.


No country in this region can maintain a high level of government spending while servicing internal and external debt - a risky imbalance in an environment of political instability.


Bolivian natural gas resources


Bolivian natural gas resources may bail the economy out of the country's current deplorable state, but that is a long shot considering current political division there.


The current front runner in the Bolivian presidential elections, Jorge Quiroga Ramirez, does not have the support of a critical voting block - the same block that forced Bolivia's former president, Carlos Mesa, out of office earlier this year.


"The Movement Towards Socialism party [MAS] will not support [Quiroga's] presidency," Bolivian indigenous leader and MAS activist Felipe Quispe told ISN Security Watch.


"If [Quiroga], or any politician like him, wins, I am sure he will have the same luck that Gonzalo Sanchez de Losada o Carlos Mesa had," he said, referring to the former president who was forced to flee the country amid mass protests over the handling of Bolivia's natural gas resources.


Without support from the MAS, road blockades in Bolivia will stifle the flow of gas exported from that country.


Left in Chavez's hands


Venezuela's bulging oil revenues have left the region's integration in the hands of Chavez - the only South American leader with a combination of cash and relative political stability to focus on developments beyond his country's borders.


The inflated price of oil and natural gas has allowed Chavez to maintain a high rate of spending throughout the region. His latest maneuver was in Ecuador, where, on 15 July, he confirmed that Venezuela would purchase up to US$500 million of Ecuadorian external debt, help finance Ecuador's 2006 budget, and assist in restructuring the state-owned Petroecuador oil company.


Venezuela assumed the Andean Community's (AnCom) rotating presidency on 18 July. For one year, Chavez will be the AnCom's president pro tempore and will push to install his vision of an Andean energy initiative called Petroandina. That initiative allows buyers to finance up to 50 per cent of the oil they purchase for up to 15 years at 2 per cent annual interest.


Colombia has reason to sign on; its oil production dropped 2.1 per cent from 2003 to 2004, and the country may become a net oil importer by 2007. Reports indicate that Peru is also interested, and Bolivian presidential elections may bring to power a leftist leader who would sign on to the initiative.


In the realm of regional trade integration, Chavez promotes the Bolivarian Alternative for the Americas (ALBA), which focuses on state-run companies, not private enterprise, and competes with the US-backed Free Trade Agreement of the Americas (FTAA).


He also plans to close free trade negotiations with Colombia, Ecuador, and Peru.


ALBA, and the Petroandina plans, will pull the Andean governments closer to Chavez in the next few years. Perhaps more interesting, however, was Chavez's request to make Venezuela a full member of MercoSur at the recent 35th presidential summit in Asuncion, Paraguay. If made a member, MercoSur's de facto leader, Brazil, may have a hard time controlling Chavez's intentions to use the trade group for his personal vision of 21st Century Socialism.


Meanwhile, the presidents of Uruguay and Chile have criticized the MercoSur leadership for a lack of progress.


Paraguay's president announced that membership in MercoSur has hurt his country's economy. And Argentina's leader, Nestor Kirchner, has complained loudly of Brazil's tendency to abandon regional partners in its attempts to be a global player. After 35 presidential meetings since 1991, MercoSur is little more than a hollow institution, demonstrating that the jump from signed documents to action is often not taken by the South American leadership.


Venezuelan oil: enough to make a difference?


Venezuela's oil capital may be enough to make a difference. With some 77 billion barrels in proven reserves, and a claim of up to 370 billion barrels in untapped reserves, Venezuela may have the key that unlocks the region from the bonds of US patronage and free market economics.


Judging from the Foro of São Paulo meeting, Chavez certainly has a region willing to follow his lead. Venezuela's ability to increase oil production, financing, and subsidies, however, may not be enough to carry the region to successful integration and Bolivarian utopia.


Since early 2003, Chavez has asserted that Venezuela's oil production averages near 3.3 million barrels a day (bpd). But Jose Guerra, a former chief economist for Venezuela's Central Bank, claimed in May that Venezuela's oil production had dropped to 1.35 million bpd, a reduction of nearly 60 per cent.


Additionally, Chavez has decided to suspend 32 oilfield contracts awarded to international companies and is demanding some US$2 billion in retroactive income tax payments. Both actions have significantly reduced foreign oil companies' desire to operate in Venezuela. These same companies deliver the Venezuelan government much needed revenue to finance Chavez's regional aspirations.


The answer to imperialist patronage


More than signaling the beginning of a new socialist era in South America, the Foro de São Paulo summit registered a high level of admiration for a man who would claim that regional integration, under Venezuela's leadership and financial might, is the answer to freedom from free market economic practice and "imperialist" patronage.


Yet if the region's leaders are willing to trade market economy for a Bolivarian Revolution led by Chavez, they must place their bets with a man who has a host of domestic problems with oil production that are becoming harder to cover up.


If South America's economy is placed on the pillar of Venezuelan economic might, regional leaders could be setting themselves up for a big fall the moment Chavez is not able to put his money where his mouth is. In that same moment, economic crisis will ripple across an integrated region and the Bolivarian utopia will appear just as far as away as it is now.

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