Neoliberal reform began in Augusto Pinochet’s authoritarian Chile in the 1970s and then swept across much of newly democratic Latin America in the late 1980s and 1990s. The sale of government-owned companies attracted investors from around the world. Today, Spain’s Telefonica plays an important role in telecommunications markets in the region. HSBC, Banco Santander, BankBoston and Citibank, among other foreign banks, are now prominent.

Realists on the Balconies
Countless other companies thrive with the backing of foreign investment. Likewise, domestic firms benefit from the new business environment, a fact that ties the hands of new populist governments in many ways. Although critics point out that much of the region’s population has not benefited from economic liberalization, stronger ties to international product markets have, in fact, created new business and employment opportunities and new export interests in much of Latin America.

Admittedly, the rate of Latin American privatizations has slowed dramatically from its peak in the 1990s. Yet there has been little movement by populists to undo the efforts of neoliberal reformers, who opened Latin American markets to imports and capital flows, and successfully privatized many government-owned companies.

PRESENT-DAY perceptions of the benefits and costs of radical populist policies might shift a good deal when the current global commodities cycle hits an inflection point.

The neopopulists are also acutely aware that the original populists came to sorry ends. Their radical economic policies were not sustainable. Per—n, Latin America’s most celebrated populist leader, was undone in 1955, not just by the country’s military, but also by the shortcomings of his economic policies. Today, with vigorous competition in the region’s democratic political systems, economic viability is crucial to political survival.

Openness has accelerated the transfer of technology from abroad and has raised productivity, competitiveness and profits. Corporate governance is improving in many countries, as are government finances, so that firms and states alike are able to secure credit at a lower cost. Foreign investors in Latin America have demanded less of a risk premium of late. The political theater of neopopulism thus stands alongside remarkable economic conditions, at least for the time being. Brazil is in its third year of superlative stock market performance. Rates of return (in dollars) for 2005 on the stock markets in Argentina, Colombia, Peru and especially Venezuela were well into double digits. Inflation is relatively tame under the new populists, especially by historical standards. Fiscal discipline is thus far strong. Argentina and Brazil have settled their accounts with the IMF.

Despite such promising signs, relationships between the Bush administration and the leftist-populist leaders of the region have been tense. There is some frustration throughout Latin America, not with the U.S. role in the region, but rather a lack of U.S. engagement. In the post-9/11 world, Latin America has simply not figured prominently in U.S. foreign policy. Other than the verbal sparring between Venezuela’s Chavez and Washington, the most contentious issue between the governments of the region and the U.S. has been international trade. Indeed, many observers believe that trade policy is the one area where the neopopulists have most visibly pursued their goals. Trade is a thorny question in most of Latin America, and the populist-led countries of South America have actively opposed the creation of the Free Trade Area of the Americas. But this anti-trade bias may be more superficial than real. Brazil’s obstructionism in global trade talks has been motivated more by its goal of seeing the U.S. and European governments reduce their agricultural subsidies than by any sort of a blind opposition to trade. In any case, disputes over trade have not created any stinging backlash against American-owned firms, nor even U.S. products exported to Latin America.

Indeed, exports are crucial to the region’s economic success. Strong export earnings helped speed Argentina’s recovery from default and recession. Soaring stock markets, low levels of country risk in debt markets, higher business profits, expanding GDP and rising employment throughout the region have been driven in good part by exports to Asia.

This context has made it easier for populists to put (and keep) their fiscal and macroeconomic houses in order. A prudent measure on the part of the region’s governments would be to remedy underlying problems of a more microeconomic nature, so that economic expansion might prove more sustainable and more robust. But they have made little or no progress toward removing institutional obstacles to growth: strengthening their property rights–the shortcomings of which now undermine local capital markets and investment; improving woefully inadequate public education; reducing crime and violence; and addressing the sad toll inflicted by bloated bureaucracy. If and when economic times turn tough, more radical economic policies might hold greater political appeal. And if neopopulist rhetoric becomes economic policy, and the new populism starts to more closely resemble the old populism of Vargas, Cárdenas and Peron, foreign investors will need to look elsewhere.

Photography © David Mercado/Reuters/Corbis.