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A Critical Moment for Latin America

Jaime Daremblum

We are now less than two weeks away from an election that could either save or destroy what remains of Venezuelan democracy.

Hugo Chávez has already acquired near dictatorial control over Venezuela’s public institutions. He has already established an iron grip over most broadcast media content. And he has already created a heavily armed pro-government militia that is tasked with defending his Bolivarian revolution.

Yet despite all these obstacles, opposition presidential candidate Henrique Capriles has been able to mount a serious challenge. As of late August, the 40-year-old Capriles led Chávez by roughly 2 percentage points (48.1 percent against 46.2 percent) in polling conducted by the Caracas-based firm Consultores 21. “If we were to make a linear projection for the election,” Consultores 21 president Luis Christiansen told an audience in New York last week, “it would be that Capriles will maintain an advantage of 2.5 percent over Chávez.”

Of course, even if Capriles garnered a majority of the vote, Chávez might simply pull an Ahmadinejad and steal the electionin which case, Venezuela could easily descend into post-election street violence. “The closer the race, the greater the temptation for Chávez to cheat,“ writes Heritage Foundation scholar Ray Walser.

Concerns over possible election fraud are well founded. In 2010, Henry Rangel Silva, a fierce Chávez loyalist and the current Venezuelan defense minister, declared that “the armed forces are not going to accept” an opposition-led government. Meanwhile, Barinas state governor Adán Chávez, Hugo’s brother, has emphasized that there is more than one way to preserve the Bolivarian revolution: “It would be inexcusable to limit ourselves to only the electoral and not see other forms of struggle, including the armed struggle,” he said last year. Venezuela is already among the “top four or five” most murderous countries in the world, according to a study by Venezuelan criminologist Luis Bravo, and senior military officials are heavily involved in the drug trade.

A Chávez victory would be a devastating setback for democracy and the rule of law, and it would push Venezuela closer to a financial catastrophe. Indeed, Morgan Stanley analyst Daniel Volberg has projected that Chávez’s economic and fiscal policies “may be taking Venezuela towards a crisis and potentially even a debt event that could come as early as the second half of 2013.”

Venezuela is not the only large Latin American nation that is entering a critically important period. In Colombia, President Juan Manuel Santos has launched peace negotiations with the FARC, a narco-trafficking terrorist organization that has been at war with the Colombian state since the mid-1960s. His predecessor, Álvaro Uribe, has warned that these negotiatons carry a high risk: “We all want peace, but there can’t be a negotiation while the terrorists are continuing their criminal activities,” Uribe recently told Reuters. “It creates investor panic and in turn creates difficulties in financing social policy.”

The last major peace talks between Bogotá and the FARC began in 1999 and ended disastrously in 2002, with the guerrillas ramping up their violent attacks. If the current talks fail, Colombia could encounter a fresh wave of bloodshed. But if they succeed, the nation would receive a massive economic boost. In an interview last week with Bloomberg News, Colombian finance minister Mauricio Cárdenas predicted that a successful peace deal with the FARC could enable his country to grow at an annual pace of 6-7 percent “for decades.” Even without such a deal, Cárdenas said, Colombia could still achieve a long-term growth rate of 4.5-5 percent. After all, the FARC has been greatly weakened since 2002, and its ongoing activities have not prevented Colombia from enjoying an economic boom. (There is a good reason why investors view the South American nation as a potential “tiger economy.”)

In Mexico, President Felipe Calderón is set to leave office in December, and he will be replaced by Enrique Peña Nieto, who represents the same party that ruled Mexico autocratically for 71 years. Many Mexicans are nervous that the Institutional Revolutionary Party (PRI) hasn’t really changed its political character since losing power in 2000. They will be looking for Peña Nieto to affirm, unequivocally, the PRI’s commitment to democracy.

As I wrote in this space before the July 1 presidential election, the PRI of Peña Nieto is not the same PRI that ruled Mexico for most of the 20th century. It is “truly different,” in the words of former U.S. ambassador to Mexico James R. Jones. Yet many PRI dinosaurs are nostalgic for the old system, in which a “perfect dictatorship“ made corrupt deals with drug cartels. We will soon find out whether Peña Nieto, 46, is serious about continuing President Calderón’s security policies in hopes of reducing drug-related violence. We will also find out whether he is serious about opening up the reforming Mexican labor markets and state oil monopoly. Such reforms would improve Mexican competitiveness and help close the GDP gap with Brazil, a country that has been celebrated for its economic rise but is now dealing with a sharp slowdown. (Last month, President Dilma Rousseff introduced a $66 billion stimulus package.)

Finally, there is Argentina, where President Cristina Kirchner seems determined to wreck Latin America’s third-largest economy. It is experiencing 25 percent inflation and enormous capital flight, and the government’s strict currency controls are causing major economic distortions. Argentine GDP shrank by 0.8 percent in the second quarter of 2012 (compared with the first quarter), and the International Monetary Fund has threatened to censure the country unless Kirchner stops doctoring official economic data.

“Even as evidence of economic crisis continues to mountthe latest sign being that supermarket shoppers are limited to one bottle of cooking oil per customerthe government gives no indication of concern,” writes investor Sin-ming Shaw. Kirchner continues to embrace Chávez-style economic policies and wage war on the opposition media. For example, her government has told Grupo Clarín, the country’s biggest media conglomerate, that December 7 is the deadline for selling most of its broadcast outlets to comply with a 2009 law that dramatically reduced press freedom. She is increasingly unpopular, and Argentines have been filling the streets to vent their frustrations.

Unless Kirchner changes course—and soon—it is hard to imagine how Argentina will avoid disaster.

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