U.S. POLICY FUELS POPULISM IN SOUTH AMERICA

Bolivia's Socialist presidential candidate Evo Morales says that the U.S.
ambassador in La Paz, Manuel Rocha, has been a marvelous "campaign
manager." That's because Mr. Morales, who wants to toss the U.S. Drug
Enforcement Agency out of Bolivia and reestablish coca growing as a legal
business, was a long shot in the polls until Mr. Rocha publicly denounced
his candidacy. A Morales victory, Mr. Rocha warned Bolivians, could mean an
end to U.S. aid. The electorate read that as Yankee bullying and responded
with nationalist pride at the ballot box. Mr. Morales was the prime
beneficiary.

In the June 30 elections Mr. Morales edged out a former army captain to
place second, with just under 21% of the vote, behind former president
Gonzalo Sanchez de Losada with just over 22%. According to Bolivian law,
when no candidate wins more than 50% of the votes, the top two finishers
compete in a runoff in congress. That's slated for the first week of
August. Depending on how party coalitions line-up there is a chance Mr.
Morales, who began his career in politics as a peasant leader of the coca
growers in Bolivia's Chapare region, could prevail. Even if he doesn't, his
party is now the second largest in congress.

Win or lose, Mr. Morales' second place finish is worth examining. As the
vitriolic spokesman of the rising left in a country that has made not an
insignificant effort at reform in the last decade, he personifies what
Latin Americanists like to call the "backlash" against economic
liberalization. In doing so he brings to light the costs of failed U.S.
policy in the region.

That policy largely consists of a drug war aimed at peasant coca growers,
regular but empty promises of trade expansion and a constant flow of
international aid that chiefly serves to prop up corrupt public officials
and defend the status quo. The Washington consensus applauded the sale of
state utility companies to private monopolies, even though that once again
left the region's poor at the pricing mercy of the traditional elite. It's
not surprising that Mr. Morales' socialist, anti-American, anti-capitalist
coca caucus is being heard. If the U.S. doesn't like it, it should think
hard about why the Latin American electorate seems to.

Mr. Morales likes to chew coca leaf, a centuries-old tradition of the
indigenous Bolivians he leads, and he likes to denigrate the "yanqui," a
decades-old tradition of Bolivia's left. He has even accused the U.S.
embassy of a plot to assassinate him. The third leg supporting his
socialist platform is demagoguery against the "neo-liberal" economic model.
His party says it wants to reverse the decree that launched the
government's market reforms, cancel the privatization of state companies
and forgive the bank debts of small borrowers. He also wants to end coca
eradication, on the grounds that crop substitution has failed to support
former coca-growing families. Given Bolivia's intractable poverty and
corruption it's not hard to understand why he has a following.

Like Venezuela's President Hugo Chavez, an aficionado of Fidel Castro, and
Brazilian presidential candidate Inacio "Lula" da Silva, Mr. Morales
promises to avenge the harm done to Bolivians in a decade of so-called
market economics. His raison d'etre mirrors that of his ideological
brethren in Arequipa, Peru, who last month managed, by violent street
protests, to derail the privatization of two state electricity companies.
In Argentina, financial collapse has left stunned Argentines echoing his
view that globalization is savage and senseless.

Yet what passes for a surge in leftist ideology around the region is hardly
a popular plea for a return to the legacy of the left, fiscal profligacy,
hyperinflation, economic isolation, decrepit state utility companies and
heavy regulation that stifles entrepreneurial activity. Rather, it seems a
reflection of intense frustration with corruption, mercantilism and above
all dashed economic hopes. Bolivia's socialists are making a comeback with
the anger vote but like the rest of the region's left, they are short on
productive ideas.

The last time the radical left won power in Bolivia was in 1982. By 1985
roaring hyperinflation reached 23,500%. Gross domestic product growth
averaged -1.4% from 1980 to 1985. A fiscal and monetary stabilization plan
in the second half of the decade pulled the country out of its death
spiral. Inflation dropped sharply. Mr. Sanchez de Losada was elected to his
first term in 1989 and presided over a massive privatization program. By
1998 inflation was below 5%. For much of the 1990s gross domestic product
growth averaged better than 4%. Per capita income was around $600 in 1985
but by 1998 it was nearly $1000.

But then reform stalled, as did advances in living standards. Per capita
income is still just below $1,000 and two-thirds of the population is stuck
below the poverty line. Bolivians, told that their country has liberalized,
could hardly be expected to embrace the model.

It's obvious that Bolivia's reforms, while seemingly dramatic, fell far
short of what was needed. As the World Bank says, there is "insufficient
investment, weak institutional capacity and entrenched vested interests."
The Heritage Foundation/Wall Street Journal 2002 Index of Economic Freedom
notes a low level of private-property rights protection. Officially, trade
barriers are low but the heavy volume of contraband is a sure sign of too
many open palms at legal entry points and over-regulation.

Mr. Morales's coca-growing goals shouldn't worry the U.S. If coca
production goes up in Bolivia, it will go down in Colombia. Supply to
Americans will remain constant as long as they want to shove cocaine up
their noses. But his economic logic should be a concern. The radicalized
left, as it has in Venezuela, could cause a spike in the misery index.

The U.S. has at its disposal the tools to disarm Latin America's class
warriors who preach hatred and pack the potential to destabilize the
region. It's called trade leadership. By seriously engaging Latin
entrepreneurs in trade, the U.S. could spread the values of liberty and
creativity. Its current policy of turning a deaf ear to trade needs while
lecturing coca-growers on the evils of cocaine and funneling "aid" through
corrupt bureaucracies is only a prescription for empowering the likes of
Mr. Morales.