In his autobiography, The accidental president, F.H. Cardoso[1]
recalls an Ibero-American summit held in Havana in 1999. At the luncheon attended by heads of state
only, after copious libations, one guest suddenly stood up and addressed their host:
-
“Damn it, Fidel, What are you going to do about this lousy, piece-of-shit
island of yours?
Castro’s jaw dropped.
-“We’re
sick of apologizing for you all the time, Fidel…It’s getting embarrassing…What
are you going to do?”
Six or seven other heads of state out of the dozen
present took turn making similarly heated challenges. According to F.H Cardoso, this was all done
“with relatively good humor” but the message was serious. Castro responded with a pirouette and the
conversation moved on.
Two things are fascinating about this anecdote: one
is that President Cardoso, himself a Latin and a highly talented sociologist,
went on to write that despite their leftist leanings, leaders such as N. Kirchner,
E. Morales, and yes, even H. Chavez, would reject the Cuban model and find that
they had no alternative but that of working with the capitalist free-market
system. Another is that F. H. Cardoso
thought that “Chavez’ eccentricities were intended to appeal to his domestic
audience and not an expression of ideology”.
He proved wrong on both counts.
Fast forward to April 28, 2014 and an article
authored by Moises Naim[2]
in the Financial Times. In it, M. Naim
detailed the enormous influence that Cuba has gained in the economy, external
trade, internal security, social programs and the oil industry of Venezuela. He ends up with another telling anecdote by
recalling what the minister of defense of a Latin American country told him:
-“During a
meeting with high-ranking Venezuelan officers we reached several agreements on
cooperation and other matters. Then three advisers with a distinctive Cuban
accent joined the meeting and proceeded to change all we had agreed. The Venezuelan generals were clearly
embarrassed but didn’t say a word…Clearly the Cubans run the show”.
What happened?
How did such a well informed and intelligent man as F. H. Cardoso got it
wrong? How did Cuba not only survive but
attain its highest level of regional influence and power ever? What does it say about the future of Latin
America and the risk factors for investors?
In my view, one has to start with two fundamental
factors.
The first is the boom in commodity demand which
started in late 2003. The following
table shows how much commodity prices have risen since then:
12/03
to 6/08
|
12/03
to 12/13
|
|
Copper
|
270%
|
220%
|
Iron
Ore
|
340%
|
860%
|
Thermal
Coal, Australia
|
370%
|
150%
|
Gold
|
110%
|
200%
|
Crude
Oil, Brent
|
340%
|
270%
|
Beef
|
20%
|
75%
|
Wheat
|
110%
|
66%
|
In many Latin American countries, the resulting
profit windfalls largely accrued to government owned or controlled companies. This helped populist sitting presidents to consolidate their hold on power by distributing monies via subsidies and/or by
greatly increasing the public sector headcounts. The temptation to access all that money even
led some governments to (re)nationalize or expropriate foreign company owners. In sum, the commodity boom, paradoxically,
helped consolidate the power of sitting, left-leaning, presidents and diminished
the need to foster competitive and growing private sectors.
The second factor is one that some people are driven
by a strong, unbending, ideology.
Generally, such radical views are adhered to, more or less openly,
throughout adult life. This is why it is
important to research the writings of upcoming politicians, particularly those
produced in their youth: such writings are often less guarded than later ones
and thus more enlightening.
To ideological leaders, transforming society, even
at a great cost, is more important than incrementally improving the economy;
and since they already know the Truth, there is no point diluting it or
delaying its coming through the vagaries of the democratic process. It is no wonder that a liberal and pragmatic
statesman like Cardoso would find such thinking alien and therefore unlikely to
succeed[3].
Hugo Chavez was the best example of an
ideological, transformational leader, who also was in the best position to
capitalize on the commodity boom.
But commodity booms and populist leaders do not
fully explain the resurgence of Cuba in Latin America. There again, we should look at this issue on
two levels: Venezuela and the region.
Cuba had long eyed the oil riches of Venezuela,
reportedly since the early 1960s[4]. That interest, together with a shared ideology
and the personalities of Fidel Castro and Hugo Chavez, essentially explains the
extraordinarily close association – some might call it symbiosis – between Cuba
and Venezuela. The tangible benefits for
Cuba have considerable: total 2008 annual Venezuelan aid to Cuba has been
estimated at about $10 billion[5].
Cuba’s regional resurgence has been helped by the financial
largesse of Hugo Chavez as well as his staunch personal support; the Venezuelan
president was after all from a younger generation, like Nestor Kirchner, Rafael
Correa and Evo Morales; but unlike them, he was charismatic and had a big
checkbook. For those in Latin America in
search of an anti-US, anti-liberalism standard bearer, Hugo Chavez was thus a
fresher face and carried less baggage than Fidel Castro.
Looking ahead, the future of Latin America is less
bright than imagined during the commodity boom of the last decade, but it is
not uniform across the region.
As we already noted, money from higher commodity
prices helped populist leaders consolidate their hold on power. This lever is no longer available. But others remain: demography, where most
countries have very young populations; better organization, where progressive
or leftwing parties have proven more effective at rallying votes than their
more conservative opponents; finally, culture, which changes only very slowly. Add to these factors a certain anti-American
sentiment, which is never far under the surface in Latin America.
As the Venezuelan Pactolus has shrunk, smaller countries
such as Bolivia and Ecuador have toned down their anti-investor policies. But large countries will not change so
smoothly or quickly: faced with critical
economic and financial challenges, Argentina has made some key cabinet changes
and tried to steer a more pragmatic course.
The Argentine political scene is lively and resilient, and the
opposition(s) does count on recognizable leaders; while Peronism is ingrained
in the culture, local conditions allow for political alternance.
Brazil is much bigger, population-wise, and while
culturally more diverse, it is less fractious.
Over time, the PT - the governing political party – has evolved,
drifting from its trade union roots to incorporate more left-wing political activists less interested in working within the liberal system than in getting rid of it. That drift, combined with poor macro-economic
performance and the vicissitudes inherent to a long stay in power, have sapped
its national support. The opposition
parties have brought to light a series of large and embarrassing scandals. But while some change for the better is to be
expected in economic policy, the absence of a single and popular opposition presidential
candidate, and therefore of a coherent message, dampens hopes for major
progress.
Colombia is facing its own challenge, namely, what
to do with the FARC. Unlike its
predecessor, President Santos decided to accept a peace negotiation in Havana
and has relaxed the pressure on these armed groups. The results so far are poor: as measured by
attacks on pipelines, domestic security has clearly worsened, and these attacks
are taking a heavy economic and financial toll on the oil and gas sector, the
most important contributor to national exports.
There is little popular support to let the FARC rejoin political life as
a party, or to pardon its leaders.
Finally, it is difficult to imagine that Cuba and Venezuela, the
facilitators of the peace negotiation, will want any outcome other than a
favorable one to the FARC, putting them at odds with the vast majority of the
population. The economy of Colombia
remains robust, but, in my view, has become more fragile. Peace may still be found with the FARC, but I
think that it will be after stepped up military efforts to improve security and
weaken the rebel groups.
Chile is following its traditional contra-cyclical
path, trending downward as Brazil and Argentina appear on the verge of trending
up. I have reviewed in earlier notes what
is troublesome with Chilean politics today, namely a turn towards more
populism, less dialogue across the aisles and economic policies which are not pro-growth.
As for Peru, it has been the Rodney Dangerfield of
Latin America, posting impressive and consistent economic growth. A fiery candidate, Ollanta Humala has proven
to be a pragmatic president and the initial skeptics (including me) wrong. Besides its very large mining industry, Peru
has developed a competitive agricultural sector and boosted oil and gas
exploration and production. Its
long-term economic success is finally being recognized and should continue so long
as successive governments keep finding the right balance between growth and
income redistribution.
What about Cuba?
Hugo Chavez is no longer here to bolster its elderly historical leaders
and Venezuela is no longer financially able to prop up its economy to the
extent it did a few years ago. Preferential
oil shipments from Venezuela have reportedly been reduced by one third since
2008. Latin American leaders have not
publicly criticized the Cuban security and military interference in Venezuela,
but it is unlikely that they support it, especially when there is no strong
Venezuelan presidential figure to make it appear less threatening.
Besides the potential political backlash, should
Brazil and Argentina elect centrist presidents, Cuba faces a greater headache
which is how it manages its symbiotic relation with Venezuela. 30,000 to 50,000 Cuban security, military,
medical, IT, trade and other staff are reportedly in Venezuela. These people live in a freer, richer country
where corruption is rampant. How will
they react? If history is any guide,
from Alexander the Great to Ancient Rome to Victorian England, military
victors, once they turn occupiers, tend to absorb the culture of the
conquered. Can Cuba repatriate these
tens of thousands of men and women without risk? And until it does, or doesn’t, how can it
manage its close involvement with Venezuela?
Another growing headache is the continuing popular protests
and their violent repression in Venezuela.
As shown on social media, this repression appears to be carried out by
local police and militia units. But if
the protests escalate, there inevitably will be a risk of a loss of control by
the Venezuelan government and the temptation to step up the violence. What will Cuba do?
Finally, neither the Chavista movement nor the
opposition is united, so that the political and power dynamics are fluid, to
say the least. Until it can secure an
alternative path, Cuba must preserve whatever manna Venezuela sends its way,
which means that, as the Venezuelan economy worsens, Cuba must get more
involved into local affairs, with the attending risks already mentioned. In the end, I believe that Cuba will join- or fall into - the NAFTA orbit, because it is
its most natural trajectory, geographically, historically, economically and
strategically. When it does, a page will
be turned in Latin America.
[1] President of
Brazil from 1995 to 2002.
[2] Former
Venezuelan minister of industry and trade.
[3] To his credit,
F. H. Cardoso stopped all contacts with Fidel Castro when the latter cracked
down on dissidents in 2003.
[4] According to
British historian Hugh Thomas, Fidel Castro met with Venezuelan president R.
Betancourt and asked for a $300 million loan and oil assistance package, both
of which were refused.
[5] Special Report
on South South Cooperation 2010 by Carlos Antonio Romero.
