Yesterday Paraguay joined the ranks of the Latin American countries tired of the endless corruption of the traditional political parties in the region and the huge inequalities brought on by years of IMF managed economic approaches when they elected former Roman Catholic bishop Fernando Lugo.
Now you can sure the Oppenheimer and his fellow travelers will be warning against reckless populism that this election result surely demonstrates. Stepping up to the plate today is Latin Business Chronicle:
First and foremost, Lugo should realize that Paraguay's status as the poorest nation in South America is not due to Capitalism, but rather the lack of true free markets.
Besides being an empty cliche devoid of any actual specific policy advice (usually done on purpose because detailing the policies would show how little they differ from the disaster of the 1990s which led to devastating poverty, unemployment and economic instability), it is also presented without any actual evidence.
The article calls for a plan similar to Chile's and pleads to avoid following in Chavez's footsteps (couldn't see that coming, could you?) The article notes the very low rate of foreign investment in Paraguay and states that this is cause of all the underdevelopment. We know though from experience that foreign investment alone is not sufficient to develop a country. Local governments get precious little of the profits made from this investment as most of the profits are repatriated. Certainly in terms of employment and tax collection (from workers) expanding business by increased foreign investment can be a boon. But these so-called free markets that folks like those at Latin Business Chronicle call for are really a means to depress wages, limit union activity and eliminate regulations for business, especially regarding the environment and workers' safety. The best case scenario usually is an expansion of the middle class while the poor' needs are never met. In the end a near or complete economic collapse is likely because the money that came into the country will leave just as quickly at the first sign of economic or political trouble. As almost always is the case you are left wondering where the social investment is going to come from?
We've seen this story a thousand times. It won't.
And for those who have only relied on traditional media to evaluate Venezuela's and Chile's economic performance I recommend this article by Mark Tuner from last December. He opens up by asking:
Here is a quiz for you: Which South American nation:
a) depends on one single product for the majority of its exports?
b) derives 35% of its total GDP from said product?
c) has relied on the sharp rise in world market prices for its product to fuel growth?
d) has not added significantly to its international currency reserves in the period?
e) is often lauded as the LatAm model economy by world peers?
f) may possibly be worried about forward macro effects of the recent drop of over 20% in world market prices for its main product?
If you guessed Venezuela then began to doubt your choice, this analyst would not be at all surprised. The answer is Chile, and the major product in question is copper.
Turner also notes, unsurprisingly given how the business elite are usually enamored with Chile, that Chile's inflation rate is much lower than Venezuela. But much more importantly he also notes - again unsurprisingly given Venezuela's greater concern over the well being of all its population - how despite the much higher inflation rate in Venezuela real salaries there have exceeded the rate of inflation so people actually can purchase more. In Chile, despite the low inflation rate, salaries have failed to keep pace. But then again low inflation combined with low salaries is an investor's dream. Let them eat cake.
Turner notes how international reserves have greatly expanded in Venezuela whereas in Chile they have remained the same despite very high copper prices. Venezuela, Turner adds, has also done better in combating unemployment. He says:
Politically, Chile has been coming under greater pressure from its populace to spend more of its copper windfall. Polls suggest that two out of three Chileans want its government to relax the saving rules with the IMF and spend more of the windfall on social projects. This makes sense in a country that is ostensibly prosperous, but in fact runs the second highest level of social inequality in the LatAm region.
But...but.... social projects? Those aren't free markets!!
And by the way, Venezuela's record of economic growth has been outstanding the last 5 years. Of course you would never know that if you, say, relied on, the Miami Herald for your information. If you'd like another, much more accurate depiction of Venezuela today you can check this Mark Weisbrot article out [links to the actual study].
"The Venezuelan economy has been booming for five consecutive years now, with the poverty rate cut by more than half and real (inflation-adjusted) GDP increasing by more than 87 percent, with very little of that in oil," said Weisbrot.
"Real social spending per person has also tripled, with increased access to subsidized food, health care, and education for the poor. There really shouldn't be any question about these basic issues, and this debate should make that clear."
The paper also shows that the amount of poverty reduction accomplished in Venezuela during the current economic expansion, relative to the growth that has occurred, compares quite favorably to other countries - contrary to one of the main allegations in the Foreign Affairs article
Oh it seems that despite conservative critics claim's of reckless social spending by Chavez the year ended with a budget surplus.
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