There was a time that South America was almost completely isolated from world affairs, despite ranking fourth in area after Asia, Africa and North America and its history has been one of authoritarian rulers, domestic and foreign.  Hernán Cortés and Francisco Pizarro were two conquistadores, for example, whose goals were personal glory and gain as well as to secure the secular authority of the king of Spain and the spiritual influence of the Roman Catholic Church.  In time parts of the continent had large swathes of land that was owned by Spanish, as well as Portuguese, colonists; indigenous populations were either massacred or treated like slaves.   


 The draw of possible wealth (especially in Argentina, Brazil and Venezuela) attracted foreign immigration on a large scale and today South America has a plethora of foreign nationalities.  Although Spain and Portugal are predominant by language and cultural influences, Argentina has had a president of Syrian origin, one Peruvian president was an ethnic Japanese and past presidents of Paraguay and Chile have had, respectively, Hungarian ancestors and British blood. 


Beginning in 1819, independence under Simón Bolívar (whose revolution was helped by Britain to thwart the Spanish) meant that the previous dictatorial control enjoyed by Spanish and Portuguese colonial administrations came to an end.  With the crumbling of the old order a vacuum was created which was exploited by President James Monroe of the United States of America who, in 1823, boldly declared that henceforth the US (which had suffered itself under the yoke of colonialism) would protect all territories south of its border from threats against their sovereignty from nations outside the hemisphere.  Thus the Monroe Doctrine was born: “The American continents, by the free and independent condition which they have assumed and maintained, are henceforth not to be considered as subjects for colonisation by any European powers”.  Critics of US policy have frequently observed that it was not the European powers, ultimately, that Central and South America would find had posed the greatest threat.


The US influence was felt particularly in 1903 when it encouraged Panama to break away from Colombia which it had elected to become a part of when Spanish rule ended in 1821.  The US motives centred on self-interest and one of the overriding reasons was Washington’s realisation that completion of a failed French canal project linking the Atlantic and Pacific oceans would have immense military and commercial benefits; the lack of a quick passage between those two oceans had exacerbated the US navy operations during its, albeit successful, 1898 war with Spain.  The background to Panama’s independence, with its chicanery and intrigue, has been written about extensively, as have Washington’s motives vis á vis the canal, and perhaps the words of Jean de La Bruyère, the French satiric moralist, are most apt:  “Even the best intentioned of great men need a few scoundrels around them; there are some things you cannot ask an honest man to do”. 


In the main, however, US regional involvement would not be significant in any measure for several decades after Monroe’s presidency and in the intervening period that role was left mainly to resilient and talented British businessmen, particularly in Argentina, Bolivia, Brazil and Uruguay.  It was the British who would build much of the infrastructure in South America, including railways and public utilities, and it wasn’t until the second world war that British influence dwindled and continued to do so as its former empire was dismantled.  Meanwhile, between the 1898 Spanish war and its entry into the second world war in 1941, the US was emerging as a great power; by the end of the second world war it had become a superpower.  It was in the intervening period between the first and second world wars that the US would begin to make its presence felt in the continent’s affairs (notably in Nicaragua). 


Seminal Moments and Single Steps


The former British prime minister, Margaret Thatcher, once said that the US was unlike any other country because it was founded upon an idea rather than upon a culture.  If that is so, it needs some fresh ideas on how to deal with countries south of the Rio Grande within the context of its loss of influence.  China’s influence, on the other hand, is palpable in the region (as well as Africa) with its “peaceful rising” policy and it has been suggested that November, 2004, will be viewed by future historians as the seminal moment when China’s economic power changed the global political balance.  That was when Hu Jintao, the president of China, toured Latin America on a commodities shopping spree and, at the same time, made alliances with some governments there that are not particularly comfortable with President Bush. China, in fact, is replicating the approach adopted by the US that helped create successful economies in Taiwan, South Korea and Chile (more later) where sound institutions were established despite harsh dictatorships.  Cuba is one of China’s beneficiaries and along with Venezuela it is helping the island to slowly emerge from an economic wilderness after it lost the sponsorship of the former Soviet Union 15 years ago.

Although the three issues that have primarily concerned the US about its southern neighbours have been immigration (some 50 million Latin Americans live in the US, perhaps 20% of them illegally), trade and drugs, the administration in Washington is also aware of the political challenges caused by the presence of both liberal democracy and populism. 


Hugo Chávez of Venezuela heads the list of populist presidencies and is encouraged by his closest ally, Fidel Castro, president of Cuba.  This development is a blow to Washington after having spent decades trying to ensure that the region would not have another Cuba. The Cuban president, most importantly, has a Bolívarian influence over Hugo Chávez who has become Washington’s arch-enemy in the region.  When the time comes, who will replace Fidel Castro?  “Leaders should lead”, H.G. Wells once said, “as far as they can and then vanish.  Their ashes should not choke the fire they have lit”.  Doubtless Washington, however, would want the Cuban president’s ashes to extinguish the fire he lit.


George Bush has been adamant that Latin American countries have, in his words, “an obligation to promote and defend” democracy in the region.  Condoleezza Rice, the president’s secretary of state, has put it this way:  “There are clearly some troubled democracies in Latin America”.  There can be no doubt who she was directing most of her comments towards after her attendance last June at the 37th regular session of the Organisation of American States’ General Assembly meeting in Panama at which Ban Ki-moon, the Secretary-General of the United Nations, was also present.  Words were exchanged between Condoleezza Rice and Nicolas Maduro, the Venezuelan foreign minister, after she wanted the OAS members at the meeting to condemn Venezuela’s record of assault on freedom of expression; her only support came from El Salvador.


It would be a mistake, however, for the US to look at South America’s other left-wing governments and identify them with Hugo Chávez because there is an important distinction to be made.  The government headed by Hugo Chávez has more of the characteristics of the military regimes that leftist governments elsewhere in South America vigorously opposed in their fight for democracy.  Their source of inspiration is more likely to have been Adam Smith’s doctrine of free enterprise rather than the revolutionary convictions of the late and legendary Che Guevara, the Argentinean-born doctor who was Fidel Castro’s compadre.

One of those left-wing governments, Chile, in fact, following Augusto Pinochet’s rule, (and partly due to his rule), has become South America’s financial superstar.  GDP per head at purchasing power parity is now much higher than in Argentina or Brazil and during the period between 1985 and 2005 the country’s GDP per head rose from 24 per cent to 40 per cent of US levels, an increase unheard of elsewhere in the continent.  The smooth transition to democracy along with responsible policymaking by elected politicians played, of course, a significant role and today Chile has an enviable reputation for the quality of its political, legal and regulatory institutions.  The World Bank’s Doing Business 2007 report places Chile in 28th place as far as ease of doing business is concerned whereas, in the same category, Argentina and Brazil are, respectively, in 101st and 121stpositions.


Much has been spoken about foreign direct investment into Latin America and just how fickle it can be when economic winds change, its fluidity brought about by the fact that the largest part of it is not invested in infrastructure which requires a long-term commitment.  But what has been less talked about, however, has been the direct investment flowing in the opposite direction. 


Several Latin American companies have entered the international market and there has been a remarkable rise in outward foreign direct investment from the region over the last 5 years.  Annual outflows increased from under US$10 billion in 2003 to nearly $41 billion in 2006 according to the United Nations Economic Commission for Latin America and the Caribbean.  Most of those multinationals (the largest are from Brazil and Mexico) that have sought markets beyond neighbouring countries are in the natural-resources-based sectors (steel, mining and livestock, for example).  Their arrival on the world financial stage is being noticed but still, few have been able to establish strong international brands in the consumer market.  Their governments are not making enough effort, or applying sufficient resources, to research and development which would explain why Asian competitors are ahead in the technology intensive sectors.


In 2005 the stock of outward foreign direct investment from emerging countries, in US$ billions (according to the UN Conference on Trade and Development), was revealing:  Hong Kong topped the list ($470.5bn) with the British Virgin Islands and the Cayman Islands recording, respectively, $123.2bn and $33.7bn.  In Central and South America only Brazil ($71.6bn) surpassed the Cayman Islands – but not the BVI – followed by Mexico ($28bn), Argentina ($22.6bn) and Chile ($21.3bn) and this illustrates the considerable proxy role played by these two Caribbean offshore financial services centres in the international financial arena when compared with Belize and Panama which are the region’s only mainland offshore centres.


This article began by referring to South America’s previous isolation from world affairs and the lure of riches that changed everything.  But not quite everything, because despite the 2006 GDP growth rate for Latin America and the Caribbean being put at 5.3%, the economic inequality, poverty and political divisions still exist.  In order to take its rightful place in the world economy, South America must improve its institutions and education, make markets more flexible and especially ensure that the benefits of growth reach all, not just some, of the population.  The source for inspiration and encouragement should be Chile.

What can the US, notwithstanding its diminishing influence, do for South America that will be constructive?  It can leave the continent to experiment on its own, letting it learn by trial and error, although to do this the US will need to change some ingrained habits.  It can be done, perhaps, by finding its own source of inspiration in an American, Mark Twain:  “Habit is habit and not to be flung out of the window by any man, but coaxed downstairs a step at a time”.