Quiet Success in South America

Yet booming commodity exports explain only part of Uruguay’s economic success. Its chief advantages are strong economic fundamentals, political stability, a relatively large middle class, and a relatively good education system. The 2011 Wall Street Journal/Heritage Foundation Index of Economic Freedom gives Uruguay the third-highest score in Latin America and the Caribbean. For that matter, Uruguay boasts the top ranking in the first-ever Latin Education Index produced by the Latin Business Chronicle, and it is also the highest-ranked Latin American country in the 2011 Legatum Prosperity Index.

Whereas Uruguay is a middle-class nation that ranks 48th out of 187 countries and territories in the 2011 United Nations Human Development Index, Paraguay is a much poorer nation that ranks 107th. Last year, however, it posted the second-fastest economic growth rate in the entire world (15 percent), behind only oil-rich Qatar, thanks to a record soybean crop. According to the World Bank, Paraguayan exports increased by 43 percent between 2009 and 2010, with soybean exports jumping by a remarkable 102 percent and meat exports growing by 59 percent. But as with Uruguay, farm exports aren’t the sole explanation of its recent economic achievements: The International Monetary Fund has determined that Paraguay’s 2010 growth “was driven by a broad-based economic expansion and not only by the historically large agricultural sector boom.” Standard & Poor’s upgraded its credit status a few months ago, following the completion of a key bilateral energy deal with Brazil. (It received a rating boost from Moody’s in late 2010.) The U.S. Agency for International Development affirms that Paraguay “has improved the management of the economy, reduced the domestic debt, strengthened the customs service, and improved the tax system.”

To be sure, the country still suffers from rampant corruption, fragile public institutions, and severe social inequalities, and its southern border region near Argentina and Brazil (part of the the so-called Triple Frontier) is a lawless, Wild West–type area that serves as a magnet for terrorists and other criminal organizations. As the WikiLeaks cables showed, Washington is worried that Islamic militants and Iranian agents are operating in Paraguay. Meanwhile, on the economic front, there are concerns that both Paraguay and Uruguay are overheating. Policymakers will have to address rising inflation before it becomes a serious problem.

Here is perhaps the most interesting aspect of the story: For their entire modern history, Uruguay and Paraguay were ruled by either non-leftist democratic governments or right-wing military dictatorships, yet their recent economic success has come under social democrats. Uruguay has had a social-democratic president since 2005, and Paraguay has had one since 2008. These leaders -- Tabaré Vázquez and José Mujica in Uruguay, and Fernando Lugo in Paraguay -- have demonstrated that there is more than one brand of leftist in Latin America. Presidents Vázquez, Mujica, and Lugo have all governed in a moderate, pragmatic manner, without any of the radicalism we have seen in Venezuela. They provide firm evidence that, as I have written elsewhere (here and here, for example), Hugo Chávez is losing the ideological war in the Western Hemisphere.

(Spanish translation of this article can be found here.)