Significant changes have been taking place in the political landscape in Latin American in the past decade that will have lasting and profound consequences in the region. This new political order could have at least three downside risks:
1. President Chavez is moving the region away from its democratic moorings into an aberrant kind of socialism.
2. A region that has lived peacefully now faces instability and uncertainty.
3. Foreign investment may eventually dry up, placing some countries in the region in a very difficult economic predicament.
This new political order, unfortunately, will have a dramatically negative impact on how credit should be managed in the region.
Chavez's Anti-capitalist Crusade
The election of Hugo Chavez as president of Venezuela in April 1999 can be considered the beginning of the political change in the region from its democratic roots to a new order of self-defined autocratic socialism (Bolivarian Alternative). Under the mentorship of Fidel Castro, he began to influence the political environment of the region. Even though he had modest results at the outset, the recent surge in oil prices has provided Chavez, particularly in the past two years, a robust revenue stream. That largesse has allowed him to play a more active role in his quest to move Latin America to the left, a role in which he passes himself off as the new liberator of Latin America with his Bolivarian Alternative. In the process, he has been able to convince a small number of leaders in Latin America to join him on his anti-capitalist crusade, often targeting the U.S. in particular as an evil empire and an imperialistic country in his weekly television appearances.
Chavez's main objective is to replace right wing democracies with a new kind of socialism and, of course, to distance the region from the United States. By using unorthodox methods, Chavez has been able to form rather unique and strong alliances in the region. This is one of the first times, if not the first time, in Latin America that a political figure of one country has brazenly interfered with the internal political processes of another country by either openly criticizing a candidate of the opposition or by funding the presidential campaigns of his future allies. Any political figure in Latin America that does not agree with his ideology automatically becomes the target of his acerbic remarks.
Since Chavez came to power, nine Latin American countries have elected leftist governments: Argentina, Bolivia, Brazil, Ecuador, Chile, Guatemala, Nicaragua, Paraguay and Uruguay. Bolivia, Ecuador and Nicaragua seem to ally more closely with Venezuela's strong anti-American socialist platform. Of the remaining countries, Argentina appears to be Venezuela's closest ally as evidenced by the large purchases of its commercial paper and allegations that Chavez's political machine contributed to the presidential campaign of Cristina Fernandez de Kirchner. Brazil and Chile keep their distance from Venezuela and advocate free-trade policies among other things, which are not concordant with Venezuela's foreign policies and international business practices. Colombia, El Salvador, Mexico, Panama and Peru are right-leaning countries with relatively close ties to the U.S. and thus, by default, the recipients of Chavez's often insulting rhetoric. The recent incident involving Colombia and Ecuador, for example, was overplayed by Chavez with the purpose of creating a major confrontation that initially did not exist. In the end, common sense prevailed and the threat of a potential military incident was resolved without major consequences. But for how long can the region avoid an armed conflict?
Making Friends, Influencing Neighbors
The effort to implant socialism in the region has not been limited to the larger economies of the continent. Venezuela, through its Petrocaribe initiative, is making overtures to Caribbean and Central American countries. …