Bush visiting an evolving South America

BUENOS AIRES, Argentina — For a guy with the headaches President Bush faces, quiet time away and a pleasant visit with friends might be just the ticket. Too bad Bush is booked for South America this week.

The Fourth Summit of the Americas will bring Bush into territory that is not quite enemy but far less allied than before. Half the hemisphere's leaders have changed since Bush took office in 2001 promising to make Latin America a priority. The region's politics have changed too.

A resurgent left is reshaping Latin America. This year alone, leftist protests toppled governments in Ecuador and Bolivia. A socialist took power for the first time in Uruguay. And Venezuelan President Hugo Chávez, swimming in oil profits and brimming with bravado, is rallying the region against the United States and its economic prescriptions.

All told, more than 320 million Latin Americans have seen their nations turn to the left in recent years — in Brazil, Argentina, Uruguay, Bolivia, Ecuador, Peru and Venezuela.

Yet this turn is not nearly so dramatic as some had feared and others had hoped. So far, complex economic and political realities have softened Latin America's leftist wave.

"The elections in Uruguay and elsewhere have been a referendum against failed policies. People have started looking for alternatives," said Ernesto Talvi, an economist and executive director of the think tank CERES in Montevideo. "But I don't think they are looking for alternatives that revert us to the failed policies of the past."

During the 1990s and early in this decade, free-market policies — low tariffs, fiscal discipline, privatization — remade Latin American economies. But they failed to significantly reduce poverty or expand the middle class. Poor and working-class voters felt robbed by relentless austerity measures, the loss of state jobs and the cutting of government subsidies.

Leftist precepts that analysts had written off only a decade ago underwent a revival. And so did anti-Americanism. Growing numbers of Latin Americans came to accuse the U.S. of imperialism in foreign policy and of pushing economic policies that enrich the United States and the region's elite at the expense of the masses.

Bush in particular is identified with the policies that have come under criticism. Suspicion from fellow leaders and derision from protesters will greet the American president at the summit, which starts Friday in Argentina. But most of the hemisphere still looks to the United States for leadership, aid and investment.

A few governments have raised tariffs to protect domestic industries, but there has been no wholesale return to protectionism. Social spending is rising, but treasuries remain committed to fiscal discipline. Leaders across the region extol the importance of attracting capital and investment, and last year two nations with left-of-center leaders, Brazil and Chile, recorded the highest percentage increases in foreign investment.

Some left-of-center presidents, such as Brazil's Luiz Inácio Lula da Silva, have even come under criticism for being too conservative.

During his long career as a labor leader and his unlikely slog to the presidency of Brazil, Lula railed against the free-market economic policies that have transformed his nation. But as the elected leader of the world's fifth-most-populous country, Lula is gambling that fiscal discipline and free markets will spur sustained growth, create jobs and provide the revenue his government needs to address Brazil's crushing social inequalities.

This conversion breaks the heart of Lula's leftist allies. But his orthodox policies are credited with stabilizing Brazil's economy — and helping to insulate Lula from an all-out political attack — during a corruption scandal that threatened his government.

That scandal has cost Lula standing and influence in the region. And Chávez has benefited.

Because of the value of Venezuela's oil, Chávez for now can afford to challenge economic liberalism and even chase off some foreign investors. The Venezuela leader has won many fans with his calls for a "Bolivarian revolution" that would restore a large state role to national economies.

But elsewhere the new leftists are wary of isolating their countries from international credit markets and foreign capital. They are searching for a Latin American third way between unfettered capitalism and state-dominated socialism. They see private business as the engine of growth, but they are not content to leave job creation to the unforgiving market. They believe in free trade but want safeguards to make sure trade is fair.

So far, the Latin American third way is being built most convincingly by the market-minded socialists running Chile.

Chile has one of the world's most open economies, according to an annual international survey by the conservative Heritage Foundation. And it is the region's beacon for free traders. The left-of-center government of President Ricardo Lagos has aggressively pursued trade deals with countries in Europe, Asia and North America, and Chile's economy has grown more robustly and consistently than any other in the region.

Trade between Latin America and the United States has grown steadily every year since 2001 and now rests at a historic high. But trade between Chile and the United States has positively soared. A bilateral agreement that went into effect in 2004 between the United States and Chile spurred U.S. exports to that country by 33 percent last year, according to U.S. government statistics.

Chile, however, departs occasionally from orthodox neo-liberalism. It has placed limits on how quickly investors can move money in and out of the country, for example, to encourage long-term direct investment and advance its stated goal of "growth with equity."

At the same time, the Lagos government has expanded social programs. In the past 15 years, Chile has slashed the poverty rate to 18 percent of the population from 40 percent. And by doing so, Chile's leadership has brought voters on the far left more toward the center.

"We are being very aggressive in liberalizing and opening the economy," said Chilean Foreign Minister Ignacio Walker. "But we never lose sight that liberalization is the means and not the ends in itself — the means to achieve equitable and sustainable growth."

Argentina is more complex. President Nestor Kirchner's government flirts with price controls, protectionism, currency manipulation and other state interventions that dismay free marketers. But Kirchner has been far more fiscally conservative than his 1990s predecessors, who became darlings of the financial markets even as Argentina was borrowing its way toward a collapse that threw millions of its citizens into poverty.

"It is impossible to conceive of a country without fiscal discipline, correct administration, the care of reserves," Kirchner told the Buenos Aires newspaper Pagina 12, sounding more like a neo-liberal than a leader of his Peronist party.

Since Argentina defaulted more than three years ago on $100 billion in loans and interest, Kirchner has taken a hard line in dealing with creditors and foreign investors. Economists and other Latin governments are closely watching whether he can hold that hard line while ensuring that Argentina gets the capital it needs to continue its recovery.

Already leftists in Brazil, Ecuador and Bolivia are calling for their nations to follow Argentina's lead. They want to suspend debt payments and force renegotiations on private creditors and multinational lenders. But even left-of-center economists agree that such moves carry great risks. The populism espoused by Chávez and advocated by his followers would severely damage most Latin American economies by shutting them off from foreign investment, economists argue.

Bolivia, where street protests have forced two presidents from office in the past 18 months, is considered particularly worrisome. U.S. officials accuse Chávez and Cuba's Fidel Castro of seeking to use proxies such as coca farmer-turned-opposition leader Evo Morales to turn Bolivia into a Marxist, anti-American state. Even leftists such as Lula and Kirchner, who rely on Bolivia for natural gas, have expressed concerns about a potential economic collapse in Bolivia and the splintering of democratic institutions.

Bush administration officials say a government's political shade is less of an issue than a nation's democratic stability. For one thing, the soundness of institutions matters more to investors than if a government calls itself left or center or right. Foreign investors seek such qualities as consistent and transparent taxes and regulations, and a judicial system not overrun by corruption. The governments that deliver, no matter what their shade, are deemed suitable partners.

"I am certainly not worried about the rise of left-of-center governments," U.S. Secretary of State Condoleezza Rice declared before the June summit of the Organization of American States.

But in an interview with the Miami Herald that was released by the State Department, Rice made it clear that not all left-of-center governments were viewed the same way. She offered indirect if not exactly veiled criticism of Chávez.

And she praised the Brazilians under Lula: "They have been absolutely committed to a social agenda ... but doing it in a way that is responsible economically."