The political climate in Latin America is once again heating up and gaining momentum. On the surface, the region’s economy looks strong. Low interest rates, high prices of raw materials, and a growth rate comparable to that of Asian countries are boosting the region. Liquidity is sloshing around emerging markets, with investors attracted by higher yields. Meanwhile, China is buying huge quantities of soy, iron, and copper from Latin America while oil and gas prices are skyrocketing. The combination of all these factors means that for the first time in nearly half a century, the region experienced synchronized growth during four successive years between 2003 and 2006. Strong growth is forecasted for 2007.

In spite of all this economic growth, the cocktail of poverty and social discontent have led to anti-globalization policies as underlined by the recent accession of Evo Morales to the presidency of Bolivia and Rafael Correa in Ecuador. Over the last half-decade, street protests have driven presidents from office in Argentina, Bolivia, Ecuador, and Peru. In 2006, nearly a dozen countries celebrated presidential elections. Once again, Latin America faced a critical juncture with left-center coalitions running for presidencies and several winning their respective elections. From Nicaragua to Argentina, left-center governments have been on the rise.

However, if one takes recent decades into perspective, what really stands out are the profound, yet less noisy transformations that are taking place in other countries of the region. Most notably for the last quarter-century, Latin America has been searching for ways to grow through pragmatic economic policies. It is inventing and creating institutional masts, looking for monetary and fiscal anchors, and it is doing all this outside the predetermined paths of any rigid ideological model. These experiences are particularly relevant in three major countries of the region: Chile, Mexico, and Brazil.

The example of Chile

In January 2006, the Chileans celebrated presidential elections. They elected, for the first time in their history, a woman as president of the country. Long held up as a pioneer of economic transformation, Chile pioneered once again another change in Latin America, as Ms. Michelle Bachelet became the first popularly elected female president in the region. This, however, is not the only development worth celebrating: recent years have seen profound and subtle transformation in Chile and in Latin America stemming from the surge of economic pragmatism. What really stands out in the region are these profound transformations that give rise to what Albert Hirschman would call a "bias for hope" rather than fracasomanía (failure syndrome).

The Chilean example is, from this point of view, exemplary (and perhaps unique), as the privatization of pension funds remained within the framework of a regulation of top-quality institutional craftsmanship. These reforms and policies of economic pragmatism, which date from the early eighties, were combined with an extremely well-balanced approach to privatization and regulation. Funds produced high yields and tried to compensate the low savings rates in the economies of the region, and also addressed the informalities of the job markets. Year after year, the system was modified and adjusted in order to improve its performance. Today, the Chilean regulation body, the Superintendencia, is one of the most credible, technically prestigious, and esteemed institutions in the country, making it a strong institutional mast.

This reform, above all, symbolizes the profound changes that Chile underwent over the last several decades. For a further look at this argument, see my last book, Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free-Marketeers. In the seventies, many social and liberal revolutions occurred, all looking to implement rigid paradigms invented in other hemispheres. The "Good Neo-Liberal" was nothing more than another side to the "Good Revolutionary," both of them coinciding in their search for impossible economic policies. In the eighties and especially in the nineties, economic pragmatism prevailed. With the return to democracy, there could have been a temptation to create yet another model and break with the previous regime. However, this was not the case, and Chilean democrats decided to carry on with the reforms already underway and tried to combine monetary and fiscal orthodoxy with social reforms and balanced growth. After 1989—the year democracy returned—assets in the pension system shot up while reforms were not cancelled, but rather intensified and adapted.

Put another way, the great lesson to be learned from Chile is the extraordinary combination of pragmatism and continuity, the emergence of possibilism, and a new style of structuring the political economy. In Chile, year after year, both privatization reforms and fine-tuning regulations have been combined. Intensively involved in the world market economy, Chileans also opened their market and multiplied their free trade agreements with countries around the world. This market-friendly policy has also been combined with capital controls (the famous encaje set in 1991 to smooth the inflows of hot money). While the private sector has been moving, also expanding abroad towards other emerging markets, the biggest Chilean company remained a public one. Codelco, the Chilean state-controlled copper giant, is the most important asset of the country, providing 15 percent of the national budget and accounting for nearly 5 percent of the country’s GDP. Today, this world leader still accounts for 30 percent of the world’s copper production and 20 percent of Chile’s total exports.

This pragmatic combination, as experienced in Chile, is not singular. Other countries in the region have also developed pragmatic and gradualist policies, including the two economic giants of Latin America, Mexico and Brazil.

The example of Mexico

In Mexico, pragmatism shone through in the mid-1990s with the signing of a free trade agreement with the United States. For the first time in history, a country from the South signed a free trade accord with a country from the North. Hooking up with an economic powerhouse and the world’s leading democracy was a key undertaking for Mexico. In a manner analogous to Spain’s relationship with the European Union, the process allowed the economy to benefit from an anchor of external credibility. In 2000, the country successfully underwent a change of government without an economic crisis. This event was unheard prior to then; the cycle of political change every six years had previously been accompanied by financial turbulence. Throughout the past decade, Mexico also achieved what no other country in the region had managed to do until then: lift the spell of deceptive economic prosperity, cast by the political cycle.