U.S. Needs to Wake Up to Latin America’s Troubles

Everybody from White House officials to lawmakers to corporate leaders is focused on whether economic development can be spurred and democracy installed in Iraq. While that war-torn land occupies so much attention, countries far closer and arguably more important to the United States are suffering decline and neglect.

Conditions are bleak for Latin America. Unemployment is rising. Wages and living standards are falling. And with the economic reversals have come higher school dropout rates and signs that legal and political reforms are being stymied.

One fear is that the region will retreat into the kind of civil strife that has gripped Venezuela, where President Hugo Chavez has gutted the authority of the legislature and courts and given more power to the military. Venezuela’s economic output declined 10% last year and could decline an additional 12% this year, experts say.

The United States, meanwhile, has been inattentive to its neighbors’ troubles even though the ripple effect of the U.S. economic slowdown of the last two years is a principal cause of Latin America’s woes.

More important, as Washington has focused on combating terrorism, fighting the war in Iraq and now rebuilding it, the White House hasn’t pushed the Free Trade Agreement for the Americas that President Bush launched with fanfare early in his term. The big agreement, which was supposed to go into effect in 2005, won’t be taken up seriously by Congress until that year, lobbyists say.

A free-trade pact with Chile, negotiated last year, remains unsigned by Bush, who is said to be peeved at that country’s lack of support in the United Nations’ prewar debates on Iraq.

The political inattention is matched in financial markets, where Latin countries find it difficult to borrow. Because of a lack of investor confidence, “international capital markets have shuttered for Latin America,” says Daniel Kastholm, managing director for the region at Fitch Ratings Service.

The biggest losers in all this are the people of the region, who, like the Iraqis celebrating the fall of Saddam Hussein, simply want steady work, good schools and honest cops on the beat.

“Latin Americans prefer, by a wide margin, democracy to dictatorship,” declares “The Troubled Americas,” a recent report by the Inter-American Dialogue, a Washington-based policy organization composed of leading public and private industry figures throughout the Western Hemisphere.

But the report went on to note that Latin Americans “are dissatisfied with their leaders and with the failure of democracy to meet their most critical demands -- for jobs, education for their children and personal security.”

To ignore Latin America is folly. First off, U.S. trade with Mexico and the countries of Central and South America is almost equal to trade with the far-richer European Union. A decade ago, total U.S. trade with Mexico came to a little more than $100 billion a year, with a small U.S. surplus. Last year, trade was worth more than

$330 billion, with a $10-billion surplus for the United States.

The investments of U.S. industry in Mexico and Brazil now are on a par with investments in France, Germany and Switzerland. And the potential for growth is far greater in Latin America, “a region with 500 million people and $2 trillion of economic activity today,” notes Christof Weber, head of research on the Latin American region for Trust Co. of the West.

But that great promise could turn into a nightmare for the United States if conditions worsen.

“You’ve got to show the world that your own neighborhood is stable and that your ideals work in practice,” says James Jones, a former U.S. ambassador to Mexico who now is a partner in Washington law firm Manatt Phelps & Phillips.

So all that said, what is the outlook?

There are positive signs.

“I think Latin America will recover along with the U.S. economy in the second half of this year,” says Geoffrey Dennis, who manages emerging markets investments for Smith Barney.

Walter Molano, head of

BCP Securities, a Greenwich, Conn., firm that invests in Latin America, concurs. He notes that in Brazil, newly elected Socialist President Luis Inacio Lula da Silva is pushing to make the tax system more efficient and curb pension abuses that favor the old government elite.

“It’s not right-wing or left-wing ideology governing the economy,” Molano says. “It’s voters.”

Now there are indications that the White House may be waking up. President Bush met Friday with the leaders of five Central American democracies that have come through civil war, terrorism and economic collapse. Bush urged the leaders of Guatemala, Honduras, Costa Rica, El Salvador and Nicaragua to sign a free-trade agreement with the U.S.

Such an agreement, says the U.S. trade representative, Robert Zoellick, would be a model, showing the Middle East how to “spread democracy and economic prosperity.”

The trouble is that when it comes to Latin America, such talk has been mostly lip service. The reality is that the Western Hemisphere is at a crucial juncture: Either democracy and economic reforms will flourish, or the United States could face difficulties on its doorstep.

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James Flanigan can be reached at jim.flanigan @latimes.com.