Krugman does Latin America

In a somewhat roundabout way, Paul Krugman manages to discuss Latin America while dissing Wolfowitz as the U.S. nominee for president of the World Bank. He notes that many countries are likely to have little faith in the leadership of Wolfowitz, given his involvement in "America's largest foreign aid and economic development project since the Marshall Plan"--the Iraq reconstruction effort. Krugman writes that U.S. officials seemed more interested in installing a regime of privatization than in elections, at the same time that "dogmatic views about the universal superiority of free markets have been losing ground around the world:"

Latin Americans are the most disillusioned. Through much of the 1990's, they bought into the "Washington consensus" - which we should note came from Clinton administration officials as well as from Wall Street economists and conservative think tanks - which said that privatization, deregulation and free trade would lead to economic takeoff. Instead, growth remained sluggish, inequality increased, and the region was struck by a series of economic crises.

The result has been the rise of governments that, to varying degrees, reject policies they perceive as made in America. Venezuela's leader is the most obstreperous. But the most dramatic example of the backlash is Argentina, once the darling of Wall Street and the think tanks. Today, after a devastating recession, the country is run by a populist who often blames foreigners for the country's economic problems, and has forced Argentina's foreign creditors to accept a settlement that gives them only 32 cents on the dollar.

And the backlash has reached our closest neighbor. Mexico's current president, Vicente Fox, a former Coca-Cola executive, is a firm believer in free markets. But his administration is widely considered a failure. Meanwhile, Mexico City's leftist mayor, Manuel López Obrador, has become immensely popular. And his populist rhetoric has raised fears that if he becomes president he will roll back the free-market and free-trade policies of the past two decades.

Mr. Fox is trying to use a minor violation of the law to keep Mr. López off the presidential ballot. If he succeeds, many Mexicans will believe that democracy was sacrificed on the altar of foreign capital.

Not long ago, the growing alienation of Latin America from the United States would have been considered a major foreign policy setback. So much has gone wrong lately that we've defined disaster down, but it's still not a good thing.