Is political instability threatening -- once again -- to abort the economic recovery Latin America has been patiently awaiting? Not necessarily so, writes Hisham El-Naggar from Buenos Aires Don't look now but Latin America is doing very well indeed -- economically speaking, that is, and all this despite political tension which recently translated into near-rupture between Venezuela and Colombia. After a disastrous decade which ended on a destablising note as one Latin American government after another fell victim to the economic policies blithely dictated by the IMF, economic recovery appears to be at hand. But as political noises continue to point to a certain level of ferment, one might legitimately wonder whether political instability may not pose a threat to improving economic prospects. The star performer -- or soon to be one -- is Brazil. The region's largest economy and the world's eighth largest is set to resume growth as the threat of default recedes. To be sure, social equality is more elusive than ever but President Inàcio Lula da Silva still appears to inspire many of his countrymen with the idea that "zero hunger" is possible. A number of Da Silva's former supporters may have chosen this moment to turn their backs on him but they're just intellectuals -- nothing to worry about in political terms. Brazil's promising prospects in the economic field are an excellent launching pad for the country's ambition to play a leading role on the international stage. Apart from pursuing an independent foreign policy, Brazil is serious about getting a permanent seat on the UN Security Council. And no one is chuckling. Argentina, South America's other colossus, albeit smaller, is also pulling through. The debt swap proposed by the government may or may not provide an immediate solution to the state of default which frightened foreign investors but the country's impressive growth, after default was declared, has proved that there is life after default. Indeed, default is now perceived as having been necessary to save the country from the endless deflationary cycle which Le Monde described as the "slowest derailment in history". Recent events, however, suggest that the struggle to distribute the. as yet, modest fruit of economic recovery is keeping politicians on their toes. Although savers who had been infuriated by the near- confiscation of their bank accounts are no longer prone to demonstrate daily, nor need they, most did rather well. By accepting an advantageous settlement dictated by the government, workers are now claiming a bigger share of the pie. After years of relative quiescence, natural enough in an economy plagued with unemployment, labour unions are striking rather frequently, and often getting favourable wage settlements. The problem is, prices have not been keeping altogether still, suggesting that the gain in purchasing power may be minimal. Here the obvious historic link between political ferment and inflationary spirals returns to haunt Latin American economies. Traditionally, labour movements have struggled for, and often obtained, wage increases which, coupled with monetary laxity by the government, have ended up engendering powerful inflationary forces. These forces so destablised the economy that capital flight, inadequate investment and tax evasion have become the norm. But there is no reason to be pessimistic this time, not yet at any rate. Inflation is under control in both Brazil and Argentina; even though it is not negligible, it appears to be tapering off rather than feeding upon itself. In part, this is due to responsible monetary policy. The lessons of the past have not been lost on both countries' economic policy-makers. In other countries, however, political instability is more alarming. Colombia continues to be trapped in civil strife, and Venezuela continues to suffer from the endless cycle of posturing by the government and the opposition. In neither country has this put an end to economic growth. But the level of tension is unusually high as both countries try to function as democracies. The recent crisis in Colombian-Venezuelan relations is illustrative of the situation. Recently Venezuela has managed to capture the man considered the "foreign minister" of the Revolutionary Armed Forces of Colombia (FARC), the main insurgency movement, by paying a reward to Venezuelans who kidnapped him from his hideout in Venezuelan territory and delivered him to the Colombian authorities. Venezuela, or more specifically its president, Hugo Chavez, hit the roof. Here was a violation of sovereignty typical of colonial episodes of "extraterritorial intervention". Chavez immediately froze ties with the neighbouring country and demanded an apology. The Colombian government, unconditionally supported by the United States which, as luck would have it, cannot abide Chavez and his often anti-American populism, has denied it violated Venezuelan sovereignty and has insisted on its right to offer rewards for dangerous terrorists who threaten its security. Many believe, however, that the episode has received far too much publicity because both sides have an interest in playing it up. Regardless of his high-sounding title, the captured, or kidnapped FARC official is not such a major figure at the operational level, but the Colombian government needs to produce victories lest the continued civil strife be perceived as a defeat. Chavez, on the other hand, scores points domestically by playing the nationalist card, and on this his querulous opposition dare not contradict him. Is political instability threatening to obscure the relatively good economic news in Latin America? Are we witnessing a return to the decade of the 1970s when the threat of political chaos in Latin America was what the news agencies reported above all else? Most likely not. What is most heartening about the countries mentioned is that democracy is still functional to a considerable extent; at any rate, systematic repression is hardly the norm. Public opinion continues to demand economic improvements and at the same time to voice political demands, like social justice and greater security, in a context that can still be considered democratic. Moreover, the economy is far from faltering. The decade may yet turn out well for Latin America. Keep your fingers crossed.
