domingo, 19 de octubre de 2008

A force for good, now

A force for good, now

Sep 25th 2008 | SANTIAGO
From The Economist print edition

A newly streamlined army polishes its democratic credentials

TEN years after General Augusto Pinochet stepped down as commander-in-chief, Chile’s army is at last emerging from the shadow of its murky past. For a quarter of a century it laboured under the baleful influence of the man who came to power in a military coup in 1973, its once proud reputation sullied by the blood of thousands of innocents tortured and murdered under his 17-year dictatorship. The army was unable to start reforming itself until he finally stepped down as its leader another eight years later.

Despite hundreds of court cases (though few convictions so far), many questions about the army’s role in the human-rights abuses remain unanswered. The remains of some 3,000 people killed or “disappeared” by the regime have never been found. Many Chileans still wonder how such a highly disciplined force could have resorted to such appalling violence. “There is a weight of history,” admits José Goñi, Chile’s defence minister. “But the new generation doesn’t have to be held responsible.” Only six of those in the army at the time of the 1973 coup remain in service.

The bad memories are fading

Despite hundreds of court cases (though few convictions so far), many questions about the army’s role in the human-rights abuses remain unanswered. The remains of some 3,000 people killed or “disappeared” by the regime have never been found. Many Chileans still wonder how such a highly disciplined force could have resorted to such appalling violence. “There is a weight of history,” admits José Goñi, Chile’s defence minister. “But the new generation doesn’t have to be held responsible.” Only six of those in the army at the time of the 1973 coup remain in service.

General Óscar Izurieta, the army’s commander, says that the army will not be accepted fully as part of democratic society until questions over its past can finally be laid to rest. The courts have to do their job, he agrees, and it is legitimate for people who suffered at the army’s hands to want to keep the issue open. “But I don’t know if it’s good for them or the country,” he says. “Every day, they put me face to face with a problem of the past.”

The army has tried hard to regain legitimacy over the past decade. It has seized on natural disasters, such as earthquakes, to play an active civil-defence role. It has used its field hospitals to take medical services to remote areas and help the national health service cut waiting lists. And it has sought to reduce its social isolation by such measures as sending cadets from the Santiago military academy to one of the city’s universities for some of their courses.

Some of the excess fat has been shed, too. Currently 40,000-strong, down from around 70,000 in the mid-1990s under Pinochet’s command, it is leaner and more professional. Unpaid military service has been scaled down and, unlike General Pinochet’s conscript-packed army, all national-service places are now filled by volunteers. And under a law passed by Congress this summer their number will drop even further as they are gradually replaced by professional soldiers.

Thanks to record prices for copper, Chile’s main export, and an odd arrangement (predating Mr Pinochet) under which Codelco, the state copper producer, transfers 10% of its export revenues (amounting to $1.4 billion last year) to the armed forces for capital expenditure, there has been money to spend. The finance ministry has the last word, but the army has been able to shop extensively, with acquisitions including German tanks and better electronics. Today, Chile’s is the most modern and best-equipped army in Latin America, says Armen Kouyoumdjian, an adviser to the Stockholm International Peace Research Institute.

But what exactly does the country need such an army for? In the 1970s Chile faced a real threat of war with Argentina and Peru, but relations with both have improved a lot since then. Indeed, Chile’s military ties with Argentina are so close that the two countries have created a joint standby unit for international operations. Although political instability in Bolivia is a worry, the main risk to Chile from that direction—an exodus of Bolivian refugees—is hardly a military problem. On the other hand, having a strong army may help to ensure that relations with Peru stay peaceful. Chile and Peru have had a long-standing dispute over maritime borders, and Ollanta Humala, the Peruvian populist who almost won his country’s most recent presidential election, found it convenient to stir up sentiment against Chile.

For its part, the army emphasises that it is available for international peacekeeping. It is already part of the United Nations force in Haiti—its first significant peacekeeping role. Some Chileans reckon that the army is still bigger than necessary for a peaceful country of only 16m people. But a rational plan for slimming should be based on the needs of the future, not the misdeeds of the past.

viernes, 10 de octubre de 2008

Keeping their fingers crossed

Latin America's economies

Keeping their fingers crossed

From The Economist print edition

In Latin America, the most trenchant opponents of globalised finance look most likely to suffer at its hands

IF ANALOGIES with the Great Depression are scary for Americans, they are hardly less so for Latin Americans. Within a few years of the 1929 stockmarket crash, 16 governments in the region fell to military coups or takeovers by strongmen. In recent years the talk has mostly been of Latin America’s economic independence from its big neighbour in the north (with the exception of Mexico). But on September 29th, the day the House of Representatives in Washington balked at the bail-out, came a reminder of just how close those ties still are. While the Dow Jones dropped by nearly 7% in a day, Brazil’s Bovespa, the region’s biggest stockmarket, tumbled by more than 9%.

Even so, the fact that this financial crisis does not have “made in Latin America” stamped on it is cause for modest celebration. In the crises of 1994, 1998 and 2001 Latin America went on a binge, using foreign finance to pay for a huge rise in imports. The mood then changed, foreign money fled and panic ensued. This time many countries have had trade surpluses in recent years, and soaring commodity prices have made government finances look more than respectable (see chart).

Latin American banks also look strong. This is partly because they did not hoover up American mortgage-backed securities, but also because they are not that dependent on foreign credit. Brazil’s banks are an exception: the publicly traded small and medium-sized banks that do depend on foreign funding have had their share prices pummelled over the past week. But even in Brazil, foreign capital accounts for only about 10-20% of bank-funding needs.

Equity markets in Latin America are shallow (apart from in Brazil), which reduces the chances of one path of infection. Credit is more of a concern, particularly for exporters, who are finding foreign lines of credit much harder to acquire. This may be only a temporary blip. But if it endures, companies will turn to domestic lenders instead, leaving less credit to go around. Edmar Bacha of the Banco Itaú, who has seen many crises come and go, says a credit squeeze is now his chief concern.

A bigger future fear, though, is that a global slowdown accompanied by a decline in commodity prices will put government finances under pressure. Chile, which pours money into a big fund (currently around $20 billion) when copper prices are high, and bases its budget on a copper price far below the current spot price, is the only big country in the region where the commodity boom has not been accompanied by a government spending spree. Commodity prices have already fallen back a bit. If they fall much further some countries will be in trouble.

Heading the list of those most vulnerable are countries whose markets have been viewed for some time as badly behaved: Venezuela, Argentina and Ecuador. Venezuela, which has given up producing things that its consumers want, importing them instead on the back of its oil revenues, looks particularly exposed. The same oil revenue has allowed the number of public-sector jobs to more than double since President Hugo Chávez came to power in 1999, and is also underwriting a big new arms deal with Russia. Cutting public spending is an option, but not one which he would wish to contemplate before critical regional elections at the end of November. Even then it may not be easy to switch into austerity mode. Despite a recent increase in the arrests of “foreign imperialist plotters”, Mr Chávez would find it hard to explain away large numbers of people descending onto the streets.

If lower commodity prices lead to lower costs of staple foods, this would provide Argentinians with some relief against their country’s rampaging inflation. But for President Cristina Fernández’s government it would be a different story. It gets 10% of its revenue from export taxes. A fall in commodity prices would squeeze farmers (who already pay a 35% tax on exports) even more and might reignite their recent protests. Ms Fernández might be tempted to make up the shortfall by raiding pension funds. There is also a currency concern. The peso, which has won back trust after its crash in 2001, is backed by high soyabean prices. If these fall, it could lead to a fresh flight to dollars for those able to get them, and misery for everyone else.

For well-behaved countries, such as Mexico, Brazil, Colombia and Peru, things look better. Their governments have balanced their budgets and built up trade surpluses along with dollar reserves. In some places growth is still strong: the latest year-on-year figures show an 8.3% rise in Peru for July, and 6.1% rise in Brazil for the second quarter. Not everyone is convinced by this rosy picture. “Economists who talk about structural shifts on the eve of a cyclical downturn should all be taken outside and shot,” says Gray Newman of Morgan Stanley, a bank.

Meanwhile, Mexico’s age-old linkage to the United States’ economy is already having an effect. In August remittances from Mexicans working north of the border suffered their biggest drop on record. Hopes that Americans will keep buying heroic quantities of Mexican manufactured goods are dimming. And Mexico’s trade balance, boosted by high oil prices, is at risk. Brazil, Latin America’s biggest economy, looks better placed. But commodities account for about half its exports, leaving it, too, vulnerable to a fall in prices.

The biggest difference this time around, it seems, is that those countries that have been most hostile to global capitalism look the most exposed to its changed mood. In the 1930s, the region’s democracies suffered from a crash and a depression made thousands of miles away. Today, it is the elected monarchies ruled by economic populists who have the most to fear.