That Chavez thing is over

This is good news for Latin America. It shows that political societies have evolved to the point where most people realise that, in a globalised world, they have to stick to a reformist path. Consider the maturation of Alan Garcia in Peru, who in his first stint as president let government spending run out of control, launched a disastrous attempt to nationalise the banking sector and left office in 1990 with the economy in crisis. In the run-up to elections, he promised to promote foreign investment, free trade and macroeconomic stability. That had inspired Chavez to hurl invectives at Garcia in an effort to help his left-wing challenger, Ollanta Humala. But Peruvian voters were unimpressed.

In Mexico, ruling-party candidate Felipe Calderon’s team has pressed the claim that if leftist Mexico City Mayor Andres Manuel Lopez Obrador is elected, he would undermine the country’s economic stability by following Chavez’s ‘‘irresponsible’’ playbook. Calderon, too, has unexpectedly surged in the polls.

The same basic story line played out in Colombia, where a firmly right-of-centre leader won the re-election on May 28. President Uribe is getting credit for engineering an economic revival, powered by domestic demand, and improving the investment climate by cracking down hard on drug cartels. He has helped cut the government deficit from 6 percent of GDP in the late ’90s to 1.4 percent and has promised to rationalise the tax structure. Brazil’s Lula has followed a different ideological trajectory, moving from champion of labour to advocate of fiscal responsibility, but the result will likely be the same when voters go to the polls later this year: a second term for a mainstream candidate.

The victory of incumbents is not particularly surprising, since Latin America is enjoying one of its best economic phases ever. Economic growth is likely to average 4.5 to 5 percent this year, spurred by the region’s biggest export: commodities. Latin American equity markets have been among the world’s top performers over the past three years, rising by 275 percent on average in dollar terms. Inflation in most countries has fallen to single-digit levels and the regin is now running a current account balance.

That’s the big picture. But with Chavez grabbing headlines, the exceptional case of Bolivia—where economic growth was badly managed by Morales’ predecessors—has become central. Brazil’s $800 billion economy is the largest in Latin America, 80 times larger than Bolivia’s, and its stability is far more typical of the region. Yet Bolivia is now widely discussed as the important bellwether. Go figure.

Chavez’s ambition to become a dominant regional figure in the image of his idol, Simon Bolivar, is legendary. His role in Bolivia’s turn to the left— and in the Mexico and Peru elections—all play into this self-image. His foes in the Peru elections have won and if they triumph in Mexico, he will be pushed to the fringe, marginalised. Much to the disappointment of the romantics, the Chavez road would have led nowhere.

And Latin America will be better off for it. Despite its recent economic successes, the region is still falling behind Eastern Europe and Asia, and needs to aim for even faster growth. Its economies must become less dependent on natural resources in order to raise per capita incomes and address sharp income inequality. All that is more likely to be achieved by strengthening domestic institutions and carrying out microeconomic reform than by selling people a new utopian dream.

RUCHIR SHARMA

The writer is a co-head of global emerging markets at Morgan Stanley Investment Management