US FACES HARD POLICY CHOICES AS LATIN AMERICA SIMMERS

NEW YORK -- With their man in La Paz forced into exile, U.S. policymakers
are facing a dicey situation in Bolivia that threatens to spill into
neighboring countries.

A full-blown crisis was averted in the small Andean country over the
weekend when Gonzalo Sanchez de Lozada, a friend of big business with close
ties to Washington, resigned from the presidency and boarded an airplane
for Miami after weeks of increasingly violent protests against his
government that left dozens dead. Local lawmakers named vice president
Carlos Mesa to replace him and Bolivia stepped back, at least temporarily,
from the brink of civil war.

But the protests highlighted a growing exasperation in the poorest corners
of Latin America with free-market policies, many of them spearheaded by the
U.S. under the so-called Washington Consensus that rolled across the region
during the 1990s. They also come at an inopportune time for U.S. President
George W. Bush, whose foreign policy team already has its hands full with
powder kegs in Iraq, North Korea, Afghanistan and other far-flung parts of
the globe.

The free-market reforms, including the privatization of key industries and
knocking down of trade barriers, took hold in Bolivia during the 1990s when
the economy grew at around 4% a year. Since 1999, though, the country of
nine million people has been flirting with a recession and as many as nine
in 10 Bolivians remain in poverty after years of fiscal belt-tightening.

The latest spark for revolt was a government plan to export natural gas
through neighboring Chile to North America, but the unrest also was fanned
by an aggressive U.S. program to eradicate the country's coca crops, the
centuries-old economic lifeblood of many Bolivian farmers that also is used
as a base material for cocaine.

"The scapegoat is a mix of anti-Americanism, anti-free-market reforms,
anti-Chile, anti-big corporations, anti-insiders, anti-World Bank,
anti-International Monetary Fund, anti-everything that represents anything
that comes from outside and seems to be for privileged groups and not for
the people," said Nancy Birdsall, who heads the Center for Global
Development, a Washington think tank.

The upheaval in the Andes has surfaced a few weeks before the U.S. hosts
important meetings in Miami to try and revive stalled negotiations aimed at
bringing 34 countries in the hemisphere under a free trade umbrella.

At the same time, several presidents in Bolivia's neighboring countries are
facing mounting opposition to opening the doors to greater foreign
investment while keeping a lid on social spending. In Peru, President
Alejandro Toledo, a former World Bank employee with free-market leanings,
is languishing with less than 20% support in opinion polls and his
privatization plans have met stiff protest. That opposition is even stiffer
in Ecuador, where the left-leaning President Lucio Gutierrez has watched
his popular backing plunge since floating Washington-backed structural reforms.

In oil-rich Venezuela, meanwhile, the leftist President Hugo Chavez has
been leading a social "revolution," imposing capital controls and taking
verbal swipes at U.S. economic and foreign policy on an almost-daily basis.

With much of the region still angry over what it perceived as the Bush
administration's heavy-handed approach in trying to enlist support for its
invasion of Iraq earlier this year, analysts say Washington has a tough
task ahead if it wants to steer events in Bolivia and neighboring countries
without fueling an even greater backlash.

In the run-up to last year's elections, the U.S. ambassador to Bolivia
warned that Washington would halt aid payments if Evo Morales, the leader
of a coca-leaf growers' union and head of a socialist party, were elected
president. Rather than hurting his popularity, the warning helped spur
Morales' standing in the polls and he came within one percentage point of
defeating Sanchez de Lozada.

The Bush administration's stock in the region also took a dive earlier in
2002, when it quickly threw its support behind the ouster of Venezuela's
Chavez following widespread demonstrations against his rule. The support
proved premature and Washington's pro-democracy credentials were thrown
into question after Chavez, backed by local supporters and the Organization
of American States, was restored to office 48 hours later.

After having spoken loudly and carried a big stick in much of the world in
recent years, Bush's foreign policy team might need to take the opposite
approach in Bolivia and the region in general.

"I think there's a difference between quiet diplomacy and public diplomacy.
This is probably not the time for the U.S. embassy to do anything other
than show its support for the new Bolivian president," said Stephen
Johnson, a Latin American policy analyst at the Heritage Foundation in
Washington.

In a statement over the weekend, the U.S. State Department said it
regretted the events that led to the fall of Sanchez de Lozada's
government, and called for Bolivians to "guarantee respect for human life
and the rule of law."

Underscoring how full Washington's plate is, however, at the same time
Sanchez de Lozada was boarding a plane from Miami to Washington, Bush and
several of his top policymakers were in Asia over the weekend trying to
defuse a potential crisis involving North Korea.

The U.S. probably also is reticent to scale back coca eradication efforts
in Bolivia, a program that has been highly successful in reducing the crop
and which should help reduce the flow of illegal drugs northward.

Drug eradication efforts are "kind of the third rail of U.S. Andean
policy," said Russell Crandall, an Andean specialist at Davidson College in
Charlotte, North Carolina.

A little more than a year ago, noted Crandall, USAID was holding up Bolivia
as a model of crop substitution success.

Farmers on the ground, though, insist the program has been a fiasco and
that they're a lot poorer now than they were before the program was introduced.

"The crop substitution program was not very well thought out," agreed the
Heritage Foundation's Johnson, pointing out that many of the replacement
crops thrust on farmers, such as bananas, had no way of reaching markets
because of poor road infrastructure.

In an interview with the Miami Herald, Sanchez de Lozada said he'd asked
Bush during an earlier trip to Washington for $150 million in aid to ensure
political stability, but was turned down.

"I'm not going to say that the problems of my government, or those of
Bolivia, are the fault of the United States. But they could have done a
little more to help us," the newspaper quoted him as saying.

With Capitol Hill analyzing an $87 billion request from the White House to
rebuild Iraq, though, U.S. taxpayers aren't in much of a giving mood, a
fact politicians in Washington are acutely aware of as they prepare for
November 2004 elections.

Many Latin America observers argue throwing money at the problem wouldn't
solve much in the long run, anyway.

The main problem in much of the region, they say, is highly centralized
governments that respond to small, wealthy interests instead of their
overwhelmingly poor constituents.

U.S. policymakers don't appear oblivious to the dangers that lie ahead, as
they risk losing more influence in their own backyard while trying to snuff
out fires in other parts of the world.

Thomas Shannon, the head of Western Hemisphere Affairs at the U.S. National
Security Council, stressed in a presentation to the Americas Society last
week that the Bush administration wants to work closely with Brazil's
President Luiz Inacio Lula da Silva and Argentina's Nestor Kirchner going
forward. The two men were recently elected presidents of South America's
two largest countries, and both have been trying to chart a middle path
that mixes free-market economics with more aggressive social spending.

Bush meanwhile signaled Monday he wants to repair frayed diplomatic
relations with another regional giant, seeking out Mexican President
Vicente Fox at an economic conference in Bangkok in a bid to settle
disputes over immigration and Iraq.

In August, Bush was finally able to secure Senate approval of Roger Noriega
to head Latin American policy at the State Department, a position that had
been unfilled for years.

But analysts say the White House may have to do a lot more than that to
turn back growing anti-U.S. sentiment in many corners of Latin America -
especially if it continues to focus much of its regional attention and
resources on Cuba, where it hopes to dislodge communist ruler Fidel Castro.

Last week, Bush, with an apparent eye on the powerful anti-Castro lobbying
groups in Miami ahead of next year's elections, announced measures to
increase the Caribbean island's political and economic isolation.

"Unless the administration really reviews its Latin American policy and
gives definition that is more than just toughening the line against Cuba,
the administration is going to continue to preside over a real cockpit,"
said Larry Birns, director of the Council on Hemispheric Affairs in Washington.

- -By Mike Esterl, Dow Jones Newswires; 201-938-4026; mike.esterl@dowjones.com

(Charles Roth contributed to this article)

Corrected October 22, 2003 10:52 ET (14:52 GMT)

Since 1999, though, the country of nine million people has been flirting
with recession and as many as nine in 10 Bolivians remain in poverty after
years of fiscal belt-tightening.

(A article published Tuesday at 1921 GMT incorrectly stated that Bolivia
has been in a recession since 1999.)

Updated October 22, 2003 10:46 a.m.