Populism and oil prices may rise and fall together

Posted on Thu, Sep. 14, 2006

THE OPPENHEIMER REPORT
Populism and oil prices may rise and fall together

Andres Oppenheimer

aoppenheimer@MiamiHerald.com

There are two ways of reading today's headlines about Latin America: You
can say that this week's Movement of Non-Aligned Nations meeting in
Havana illustrates the triumphal return of radical leftist regimes in
the region, or you can say that it marks the beginning of their end.

Before I tell you which of the two I think it is, let's look at the facts:

CUBA LEADS SUMMIT

Cuba's hosting of the 14th meeting of the 118-member Movement of
Non-Aligned Nations this week puts Cuba at center stage in the world's
political arena. More than 50 leaders, including Iranian President
Mahmoud Ahmadinejad, Indian Prime Minister Manmohan Singh and Venezuelan
President Hugo Chávez, are scheduled to attend.

In addition to discussing support for Iran's nuclear energy programs and
denouncing U.S. foreign policy, the meeting will be a key opportunity
for Venezuela's Chávez to gather support for his bid to obtain a
nonpermanent seat at the United Nations Security Council at the U.N.
General Assembly meeting later this month.

Cuba's hosting of the summit, and its chairmanship of the movement for
the next three years, will be seen by many as a symbol in itself. Cuba
hosted the summit in 1979, at the peak of its international clout.

Today, after the recent signing of a Cuba-Venezuela-Bolivia ''People's
Trade Agreement'' and the possibility that upcoming elections in
Nicaragua and Ecuador before the end of the year could result in an
expansion of that bloc, many analysts will see Cuba as rising from the
ashes to become the moral leader of a new set of radical leftist
countries now led by oil-rich Venezuela.

'REVOLUTION' EXPANDS

Simultaneously, Venezuela and Bolivia have taken new steps toward
''revolutionary'' rule -- or totalitarian rule, depending on where you
stand -- in recent days.

Chávez has proposed changing once again the Venezuelan Constitution to
allow his indefinite reelection. And in Bolivia, President Evo Morales,
in what oppositionists say is a de facto coup d'etat, is trying to
change the voting rules and expand the powers of a recently elected
Constitutional Assembly, to get full control of the Constitution
drafting process.

Putting all these pieces together, one could speculate that the
Cuba-VenezuelaBolivia club of radical leftist countries is at its
heyday, and that this week's meeting in Havana will further strengthen
it by forging new alliances with Middle Eastern players such as Iran and
Syria.

But there is another way of looking at this week's headlines. Many
experts, such as Harvard University professor Ricardo Hausmann, say
there is a connection between high commodity prices and the shift toward
radical populism in Latin America. And they note that the current cycle
of high commodity prices may be coming to an end.

Hausmann said at a recent meeting of the Woodrow Wilson International
Center in Washington that in hard times, when investment opportunities
are limited, Latin American voters tend to elect candidates who can
guarantee economic stability and a good investment climate.

Conversely, when commodity prices are high, countries have a tendency to
focus less on the future and to distribute assets for immediate
political gain, often coupled with a resurgence of nationalist rhetoric
and efforts to project power internationally.

COMMODITIES DROP

This week, some of the top stories in newspapers' business pages
reported a steep decline in commodity prices. Oil prices fell from $78 a
barrel in August to $64, while sugar prices have fallen by 40 percent
over the past seven months, and soybean prices have dropped 15 percent
over the past two months.

While some economists say these are technical price variations, often
due to political crises such as war in the Middle East, others say
commodity prices will continue falling because of a general deceleration
in U.S. and world economic growth.

My opinion: I tend to agree that there is a link between high commodity
prices, populism, authoritarian rule (and long-term poverty, I would
add). But I'm not so sure that the current drop in commodity prices is
the beginning of a downward cycle that will last several years.

If I'm wrong, keep the picture of the closing ceremony at this week's
meeting in Havana -- it could go down in history as the end of a
short-lived resurgence of radical populism that was directly linked to
the prices of oil.

http://www.miami.com/mld/miamiherald/news/columnists/15513496.htm