Jim Lobe

WASHINGTON, Jul 14 2005 (IPS) — While Latin America has been enjoying its best economic performance in years, its democratic institutions and ties to the United States are faltering, according to a new report by the Inter-American Dialogue (IAD), a Washington-based think tank.

The report, the latest in an annual series on trends in the region, warns that the current economic expansion, which reached a 25-year high of nearly six percent last year, may not last much longer because it is based on a "mix of unusually favourable circumstances in the international economy," including low interest rates and high commodity prices sustained by the buoyant economies of China and the United States.

But those conditions may prove fleeting, according to the report, "A Break in the Clouds," which argues that Latin American leaders, including business executives and civil society, should use the relatively good times now to further reform their economies and narrow the gap between rich and poor.

"The economic sunshine has lasted longer than many had thought," said David de Ferranti, a former World Bank vice president for Latin America and the Caribbean and one of the new report’s main authors.

"But there’s a risk that we get lulled into thinking that the good growth can continue. This is the time to take the steps needed," he added, singling out investments in infrastructure and education and improved tax collection as critical.

IAD, whose 100 members include prominent business executives, academics, journalists, and political leaders, including former heads of governments, such as its co-chair, former Brazilian President Fernando Henrique Cardoso, has promoted liberal economic and political reforms, and efforts to reduce the rich-poor divide that has made Latin America the world’s most economically polarised region since it was founded by former U.S. Amb. Sol Linowitz in 1982.

It has also promoted the normalisation of ties between the United States and Cuba.

While it helped rally public and elite opinion behind Latin America’s democratisation and the so-called "Washington Consensus" for economic reform and integration during its first decade or so, the group has become increasingly frustrated by both the slow pace of reform and the weakness of democratic institutions across the region.

They have also expressed growing concern, particularly since the Sep. 11, 2001, attacks on New York and the Pentagon, about the lack of interest shown by the administration of Pres. George W. Bush in pursuing closer relations with Latin America and the re-emergence of anti-U.S. sentiment as a factor in hemispheric ties.

"There was a huge convergence (between the United States and Latin America) at the end of the Cold War," noted IAD president Peter Hakim Thursday. More recently, he added, "there has been a parting of the ways" which he said bodes ill for both sides.

On the economic front, which Hakim described as the "break in the clouds," Latin America’s growth since the end of 2003 represented a dramatic turnabout from six years of slow or no growth at all.

But sustained economic success, according to the report, will require other fundamental changes, "including substantially larger investments in education and infrastructure, systematic efforts to increase national savings and improve tax collection, better designed and managed anti-poverty programs, and new measures to bolster foreign trade and investment.

While some countries, notably Chile, have made important progress, the region as a whole has fallen behind the rest of the world, especially China and India, "on virtually all of these dimensions."

For example, China’s economy, which was one-third the size of Latin America’s in 1994, is now roughly the same size. Absent far-reaching reform and further steps to integrate the region’s economy into the larger world economy, Latin America cannot keep pace.

"If we look at the trend lines, we are very, very concerned," said Carla Hills, former U.S. Trade Representative, who also contributed to the report.

A major step in the right direction would be the conclusion of the Free Trade Agreement for the Americas (FTAA), according to Hills, who initiated the idea under former President George H.W. Bush.

But neither the Bush administration, which is faces an uphill battle in getting the pending Central American Free Trade Agreement (CAFTA) through the U.S. Congress, nor Brazil – the other major hemispheric leader – has shown much interest in making the necessary concessions to conclude it, according to Hakim.

If Latin America’s recent growth performance constitutes the "break in the clouds," according to Michael Shifter, IAD’s vice-president, then the clouds represent the political situation, and "they are getting darker."

Even though democratic parties have shown "remarkable resilience," in part due to the recent economic rebound, the region as a whole "has become more politically unsettled, socially troubled, and difficult to govern" over the past six years, according to the report.

It notes that "Venezuela and Haiti today hardly qualify as democracies", while "in many other Latin American nations – Bolivia, Ecuador, and Nicaragua, for example – democratic rule is precarious and under continuing threat."

While democratic institutions in Brazil and the Southern Cone appear increasingly vigorous and the military has not tried to return to power anywhere except in Haiti, "it’s hard to be upbeat," said Shifter, who noted that insecurity, crime, violence, and drug consumption, as well as trafficking, were all growing as problems that governments were having a hard time addressing.

In this context, the growing divide between the U.S. and Latin America has only served to compound the region’s problems, according to the report, which noted, "Few Latin American governments today view the United States as a reliable partner."

The divide has multiple origins, it said, including the failure of former President Bill Clinton to get congressional approval for negotiating authority for new trade agreements after NAFTA; the souring of many in of Latin America on free-market reforms by the late-1990s, and the shift in U.S. attention to international terrorism, nuclear proliferation and the war in Iraq.

If Bush fails to get Congress to ratify CAFTA, it warns, any hope for a FTAA accord will be dashed, and "Latin American advocates of closer U.S. ties will lose influence across the region, while Washington’s adversaries will gain new ground."