As President Bush heads to Latin America on a five-nation tour, one stop he will not make is Venezuela. But Venezuelan President Hugo Chavez’s presence will very much be felt wherever Mr. Bush goes.
Mr. Chavez delights in comparing himself to the legendary Simon Bolivar, a man who has been called “the George Washington of Latin America.” Mr. Chavez is certainly no Simon Bolivar. Instead of building a better society, Mr. Chavez is tapping into a growing frustration in the continent over the widening gap between the rich and poor by placing blame on the United States, foreign investors and multinational companies responsible for much of the region’s recent growth.
Mr. Chavez spreads his oil money and rhetoric about 21st century socialism around the region, tempting Venezuela’s neighbors to thumb their noses at “neoliberalism” and follow the pretender to Mr. Bolivar’s legacy. He hopes that under his tutelage, new leaders in Latin America will repudiate their debt obligations, buck foreign contracts, nationalize foreign assets and side with Mr. Chavez and his brand of fiery anti-American populism-cum-socialism over responsible commercial relationships.
Mr. Chavez has paved the way, expropriating assets and renegotiating foreign energy concessions. At the same time, he has used Venezuela’s coffers to curry favor with other leaders in the region. From providing substantial energy concessions to Cuba to financing joint “Bonds of the South” with Argentina to reduce the regional influence of the International Monetary Fund (IMF), Venezuela has been aggressive in buying friends.
It is disturbing, but perhaps not surprising, that some leaders in Latin America have taken the bait. In 2005, Argentina’s President Nestor Kirchner called the IMF “pathetic,” adding that, “there is life after the IMF, and it’s a good life.”
He then offered international creditors history’s worst deal on $100 billion in defaulted bonds — the largest such default in history — and then repudiated the debts of those who objected. Frozen out of international lending markets, Argentina just this past month signed agreements with Venezuela creating even closer financial links, including a joint issue of $1.5 billion in bonds. The two leaders also teamed up to set up a “Bank of the South” to circumvent the economic reform policies of the IMF and Washington.
Others have threatened to follow suit. Leaders from Bolivia and Ecuador have hinted at their own plans to expropriate property, renegotiate international contracts and default on their foreign debts. On the campaign trail, the newly elected president of Ecuador, Rafael Correa, called his country’s foreign debt “illegitimate,” adding that he might pursue his own “Argentine-style” default.
The mere suggestion of debt restructuring by Mr. Correa is all the more remarkable because Quito actually can afford to service its debt, thanks to solid economic growth and high oil prices. The fact that nonpayment is even considered attests to the appeal of the Chavez-inspired populism that has crept into the region.
But realism has an annoying way of creeping into the policies of even the most revolutionary dreamers. Argentina cannot rely forever on the petro-generosity of President Chavez. It is effectively shut out of global bond markets — should it try to enter, creditors will seize its assets to repay the earlier bond default. And Venezuela’s pockets are simply not large enough to fund Argentina’s ongoing needs in the bond market.
Eventually — most likely after this fall’s presidential campaign — Argentina will need to renegotiate its bond deal. And despite the leftist rhetoric of Ecuador’s President Correa, the country did, in fact, pay its latest debt obligation.
There is no doubt Mr. Chavez’s siren song is tempting, particularly as income disparities grow across the region. But an anti-imperialist alliance with Venezuela is ultimately a fool’s paradise. Venezuela’s soaring budget deficit of $3.8 billion for 2006 and its battered currency — the worst-performing in the world last year — means it cannot continue to fund its “Bolivar” revolution indefinitely.
As Ecuador appears to have done, any country toying with debt restructuring must consider the substantial and long-term costs associated with any debt default — particularly one modeled on the disastrous economic collapse in Argentina.
True economic stability in Latin America will come to countries that play by the rules of the global marketplace. Argentina, Ecuador and their neighbors still have this choice. President Bush is right to steer the continent away from Mr. Chavez. But in order to do so, Washington must better demonstrate the benefits of responsible participation in the global economy before Mr. Chavez’s ambitions become a reality.
Nancy Soderberg, a former U.S. ambassador to the United Nations, is co-chair of the American Task Force Argentina (ATFA).