(Bloomberg Opinion) -- The Cold War may have ended three decades ago, but in Latin America old conceits refuse to die. Consider the local reaction to last Sunday’s presidential election in Bolivia, in which partisans of socialist party candidate Luis Arce hailed his victory as a blow to neoliberalism and fascism and the possible return of the Latin American pink tide.
Hold that thought.
Yes, Arce is the standard-bearer for Movement Toward Socialism, or MAS, the party that ruled Bolivia from 2006 to late 2019. He was handpicked to run by former populist Evo Morales, whom he served as finance minister for all but two of those years. Yet he has neither the street cachet nor the tendentiousness of his former boss, who was pushed from power last year after his constitution-shredding gambit to extend his mandate and an election marred by irregularities.
Moreover, the Bolivia that Arce will govern is far from the economic juggernaut Morales commanded during the commodities boom. Coronavirus has clobbered the country. Set to shrink by 7.9% this year, its economy is hurtling toward a balance of payments crisis. The fiscal deficit could top 12.8% of gross domestic product (versus 8.2% for Colombia, 10% in Argentina and 10.4% on average for emerging markets). Total public debt will hit 74% of gross domestic product, nearly double the figure (39%) in 2015, the Economist Intelligence Unit reported.
The markets that Arce surfed during the commodities boom, which made Bolivia an exemplar of growth in a deadbeat continent, are now hostile. Bolivia’s bonds cratered after the election, falling to a seven-month low, signaling investor skepticism.
This was not neoliberal revanche but an unsubtle reminder that running a big state on empty is a dead end. The boliviano, the national currency, which has not budged from its artificial high of around 7 to the dollar since 2011, has made imports risibly cheap and exports uncompetitive. The price of natural gas, the country’s signature export, plunged 36% in 2016 and hasn’t recovered.
Bolivia has tried to plug the hole with foreign reserves, which have tumbled year after year since 2014. “Bolivia can no longer count on natural gas revenue to balance its fiscal deficit in the medium term,” said EIU analyst Rodrigo Riaza. The new government “will need to make hugely unpopular economic policy decisions in the context of a deeply polarized political environment and a reeling economy.”
A middle-class intellectual from La Paz with a degree from the University of Warwick, Arce is better known for quoting Marxist encomiums than following them. He made a career at Bolivia’s Central Bank, serving center-right governments for which fiscal parsimony, free trade and private enterprise were gospel. He was an important, if not always effective, foil for Morales’s fiscal incontinence.
That experience will be handy, since Bolivia can no longer rely on yesterday’s seller’s market or the appetite of frontier investors. Argentina and Brazil, onetime captive customers for Bolivia’s natural gas, have scaled back imports due to recession while also ramping up their own output.
But whether Arce has the political chops to govern effectively is another matter. Although MAS and its allies are expected to dominate congress (the ballots are still being tallied), Arce’s administration is unlikely to win the supermajority necessary to amend the constitution or appoint supreme court justices, two of Morales’s favorite expedients. A government used to setting the terms of political debate will have to seek consensus.
Conciliation may be necessary, but it is far from guaranteed. Bolivians are cloven along ideological and ethnic fault lines: Those loyal to Morales saw his fall as the work of a coup; his foes saw it as karma. The ruling party itself is a poncho covering a variety of ideological tendencies, the most strident of which emanate from Morales’s followers. Will Arce take his cues from the sidelined strongman, or follow the path of Lenin Moreno, the moderate Ecuadoran leader who succeeded pink tide supremo Rafael Correa only to turn on him once elected? Or will his trajectory mirror that of Alberto Fernandez, who partnered with the willful former Argentine president Cristina Fernandez de Kirchner and has struggled for ascendancy ever since?
Encouragingly, the election that many feared would reprise last year’s explosion of acrimony and violence was admirably civil, with challengers and interim President Jeanine Añez quickly recognizing Arce’s victory. His strong showing in key cities — outpolling Morales’s 2019 campaign in La Paz, Oruro and Cochabamba — also indicated he has a following of his own. And Arce apparently got the memo on conciliation: He has appealed for “a government of national unity.”
If his polarized compatriots heed that call, the country could become not so much the bellwether for a resurgent Latin American pink tide as a cautionary tale for pauperized democracy. Economic constraints could keep the new government in La Paz from falling into last decade’s rabbit holes of profligate ambition and political adventure. A little less hubris and more fiscal realism could go a long way in Bolivia and beyond.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mac Margolis is a Bloomberg Opinion columnist covering Latin and South America. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.”
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