Venezuela: Reform Not the Culprit

The Global Economy

SHOCK waves spread rapidly across Latin America when Venezuela troops stormed the presidential palace on Feb. 4 in a very nearly successful attempt to assassinate President Carlos Andres Perez. Venezuela, after all, could boast uninterrupted democratic rule since 1958, the longest stretch of any country in South America.

For the past two years, Venezuela had also enjoyed the highest rates of economic growth of any country in the Americas. Moreover, almost everyone had thought that Venezuela's Army, which spearheaded the attempted takeover of power, was securely under civilian authority. If democracy was under siege in Venezuela, it could hardly be considered safe anywhere in Latin America.

Blame for Venezuela's troubles was quickly placed on the country's economic reform program, supported by the International Monetary Fund. It called for sharp cutbacks in government subsidies, for market-determined prices, and for relaxed import restrictions. Such adjustments, in the absence of strong social safety nets, worsened inequities and imposed new hardships on much of the middle class and poor. Many analysts quickly concluded that the resulting widespread anger and desperation emboldened an alrea dy restive military, unhappy with continuing cuts in its own budgets.

The argument appeared to be at least partially confirmed last week when President Perez, while pledging to sustain his economic reform program, also announced sizable reductions in petroleum and food prices, among other measures intended to ease the pain of reform.

This explanation of the Venezuela coup attempt, if it is correct, would suggest that governments cannot easily build democracy at the same time they are turning to market-based economics. It would further suggest that fragile democracies - not only in Latin America, but also in Eastern Europe and the republics of the former Soviet Union - may have to choose between free politics and free markets.

But the world is not that simple - nor is Venezuela. Declining living standards and rising inequality were certainly part - but not the most important part - of the explanation for the attempted overthrow.

The fact is, every Latin American country has had to confront painful economic adjustments and harsh austerity in the past decade (in most, far more severe and prolonged than in Venezuela). Yet civilian rule has not been seriously challenged, at least so far, in any other of the region's major countries.

MARKET economic reforms and accompanying austerity do not automatically lead to political trouble. What is critical is the skill and sensitivity with which such programs are carried out - whether they are managed credibly and fairly, and whether they inspire confidence in a nation's institutions and leaders. Politics, not economics, is the key - and in Venezuela the political leadership fell short. Perez neglected to use his impressive leadership talents to mobilize support for his programs. He did not b uild broad-based coalitions among those who stood to benefit, nor was enough done to cushion the blow among those who would be adversely affected. Compounding the problem, his government appeared unwilling or unable to deal with the corruption that plagues Venezuelan politics and society.

The wrong lesson to draw from recent events in Venezuela is that democratic practice is incompatible with tough economic reform or free-market development. The right lessons, however, may be even more sobering:

First, democratic rule is not fully secure in any Latin American country. The trend toward democracy in the region and worldwide is encouraging, but it is too early to celebrate its "triumph." By themselves, elections do not guarantee democratic stability; elected governments must become more accessible, accountable, and efficient.

Second, it is also too early to celebrate the "triumph" of free markets. There is a growing consensus among economists, business leaders, and many politicians in Latin America and worldwide that market-oriented, trade-emphasizing development strategies work best to produce economic growth. To convince the wider public, economic policies must be perceived as fairly designed and fairly implemented.

Third, it must be understood that economics is not merely a technical science. Economic decisions are at the heart of politics everywhere, and those decisions must reflect and balance the interests - material and psychological - of many groups. Economic reform, in short, must always be managed politically.

The bitter truth is that democratic governance and economic reform will suffer reversals not only in Venezuela but in many development and formerly socialist nations. But that is no good reason to give up on either market economics or democratic politics - or blame the failure of one on the other.