MORALES'S MISTAKE.(neoliberalism in Bolivia for economic reform)

Twenty years ago, a radical economic experiment began in Latin America. With economies beleaguered by foreign debt and runaway inflation, many of the region's politicians decided that salvation lay in a program of market-friendly reforms that became known as the Washington Consensus--privatization of state-owned businesses, balanced budgets (usually achieved by cutting social spending), free trade, and openness to foreign investment. Reform, the promise went, would lead to prosperity.

The reforms happened. The prosperity didn't. And so, in Latin America, it's a time of backlash. In recent years, voters in Brazil, Uruguay, and Venezuela have elected leaders with avowedly leftist politics and a vehement rhetorical opposition to Washington Consensus economics (also known as neoliberalism). The latest evidence of this shift came several weeks ago, when Bolivia elected Evo Morales, a forty-six-year-old Aymara Indian, as President. In almost every way, Morales represents a clean break with the past: he's the first indigenous President of Bolivia; he's a former leader of the country's cocaleros, or coca-leaf growers, and has promised to decriminalize coca growing; his party is called the Movement Toward Socialism; and he has called for the re-nationalization of the country's lucrative natural-gas resources. Like Hugo Chavez, the President of Venezuela, Morales is openly hostile to the United States, speaking freely of the need to resist "U.S. imperialism." Not surprisingly, the Bush Administration has tried to dismiss Morales as a kind of unholy combination of Pablo Escobar and Fidel Castro. But his ability to win a solid majority in a country where politics has traditionally been dominated by a small, ethnically homogeneous elite shows just how badly neoliberalism has failed in the region.

Neoliberalism actually enjoyed a strong start in Bolivia. In 1985, when inflation was running at twenty-five thousand per cent, the country instituted a campaign of "shock therapy," eliminating price controls, slashing government spending, and removing barriers to trade. The changes stopped the hyperinflation almost overnight, and got the economy growing again. In the years that followed, Bolivia deregulated its banks, reformed its tax system, privatized its five biggest state-owned companies, and tried to attract more foreign investment. But during the past fifteen years the country's per-capita economic growth has been just 0.5 per cent a year, and today half of all Bolivians live on less than two dollars a day. Bolivia has always been a very poor country with a few very rich people, but inequality has worsened, with the elite skimming off most of the little wealth that has been created. The immense gap between what neoliberal reforms promised and what they delivered has inevitably left people feeling cheated and angry.

Neoliberalism failed in Bolivia because a macroeconomic checklist ...