When Peruvian-born Nobel Prize winner Mario Vargas Llosa told me in a public interview in front of 300 newspaper editors last weekend that “corruption is the biggest threat to Latin American democracies,” my first reaction was to think that it was an exaggeration. But, on second thought, he may be right.
At first, when Vargas Llosa made that comment during the interview at the annual meeting of the Inter American Press Association in Charleston, South Carolina, I thought that other problems — such as Latin America’s excessive dependence on commodity exports, drug-related violence, lack of competitiveness, and dismal education and innovation standards — are just as serious problems for the region as corruption.
But Vargas Llosa’s explanation, citing the case of Brazil, made a convincing case that — at least in the short run — corruption may be the region’s No. 1 problem.
“Brazil’s case is very interesting because Brazil was a country that seemed to have taken off, that looked like an emerging power. And suddenly, what is it that put an end to that, and set Brazil backwards? It’s corruption, which peaked during a government that the rest of the world was seeing as a model government, that of (Luiz Inácio) Lula da Silva,” he said.
Brazil wasn’t hit by a devastating economic blow from abroad, nor suffered a natural disaster. Its economy collapsed this year amid a growing political scandal over the national Petrobras oil company’s kickbacks to leading ruling party politicians. The $800 million scandal, which took place during Lula’s presidency, when current President Dilma Rousseff was a member of the Petrobras board, has triggered massive protests across the country.
“Today, investors are fleeing,” Vargas Llosa said. “They don’t want to invest a cent in Brazil. And it’s because of corruption.”
Indeed, new economic projections released by the International Monetary Fund this week show that Brazil’s economy has plummeted since the anti-corruption protests started. The IMF forecast that Brazil’s economy will show a negative growth of 3 percent this year.
Vargas Llosa didn’t mention other countries, but the same could be said about Mexico. Only a year and a half ago, Mexico was proclaimed as one of the world’s most promising emerging economies. The country’s energy reform to open up its oil industry to foreign investors, plus bold education and fiscal reforms, seemed headed to produce annual growth rates of over 5 percent.
But then, all of a sudden, a series of corruption and human rights scandals shook the country, creating a climate of gloom and doom.
The September 2014 disappearance of 43 student activists in the town of Iguala and the purchase of a $7 million mansion by first lady Angelica Rivero led to a national feeling of political disenchantment that is slowing down investments. The IMF now estimates that Mexico will grow by only 2.3 percent this year.
A similar phenomenon is happening in Chile, which was growing at 5 percent annually until recently. A land purchase corruption scandal involving President Michelle Bachelet’s son — alongside government education and fiscal reforms that were strongly resisted by the business community — have slowed economic growth to a projected 2.3 percent this year.
And then, there are the cases of Venezuela and Argentina, the region’s champions of corruption, where a combination of disastrous government policies and rampant stealing will lead to some of Latin America’s worst economic performances. The IMF projects that Venezuela will have a negative growth of 10 percent this year — one of the world’s worst — and Argentina’s economy will barely grow by 0.4 percent.
My opinion: In the long run, Latin America’s biggest challenge is becoming more competitive in the world economy by among other things diversifying its exports and improving its poor education and innovation standards. But in the short run, Vargas Llosa is right — corruption is the biggest threat to the region.