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Still Poor, Latin Americans Protest Push for Open Markets

By JUAN FORERO

AREQUIPA, Peru, July 13 The protest that shook this colonial city last month was very much like others in Latin America recently. There were Marxists shouting 60's-era slogans, and hard-bitten unionists. But there was also Fanny Puntaca, 64, a shopkeeper and grandmother of six.

Though she had never before protested, Ms. Puntaca said, she could not bear to see a Belgian company buy what she called "our wealth" the region's two state-owned electrical generators. So armed with a metal pot to bang, she joined neighbors in a demonstration so unyielding that it forced President Alejandro Toledo to declare a state of emergency here, suspend the $167 million sale and eventually shake up his cabinet.

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"I had to fight," Ms. Puntaca said proudly. "The government was going to sell our companies and enrich another country. This was my voice, my protest."

Across Latin America, millions of others are also letting their voices be heard. A popular and political ground swell is building from the Andes to Argentina against the decade-old experiment with free-market capitalism. The reforms that have shrunk the state and opened markets to foreign competition, many believe, have enriched corrupt officials and faceless multinationals, and failed to better their lives.

Sometimes-violent protests in recent weeks have derailed the sale of state-owned companies worth hundreds of millions of dollars. The unrest has made potential investors jittery, and whipsawed governments already weakened by recession.

The backlash has given rise to leftist politicians who have combined pocketbook issues and economic nationalism to explosive effect. Today the market reforms ushered in by American-trained economists after the global collapse of Communism are facing their greatest challenge in the upheavals sweeping the region.

"The most worrying reading is that perhaps we have come to the end of an era," said Rafael de la Fuente, chief Latin American economist for BNP Paribas in New York. "That we are closing the door on what was an unsuccessful attempt at orthodox economic reforms at the end of the 90's."

For a time the policies worked, and many economists and politicians say they still do. The reforms increased competition and fueled growth. Stratospheric inflation rates fell back to earth. Bloated bureaucracies were replaced with efficient companies that created jobs.

The formula helped give Chile the most robust economy in Latin America. In Mexico exports quintupled in a dozen years. In Bolivia, poverty fell from 86 percent of the population in the 70's to 58.6 percent today.

Still, the broad prosperity that was promised remains a dream for many Latin Americans. Today those same reforms are equated with unemployment and layoffs from both public and private companies, as well as recessions that have hamstrung economies.

"We privatized and we do not have less poverty, less unemployment," said Juan Manuel Guillén, the mayor of Arequipa and a leader in the antiprivatization movement here. "On the contrary. We have more poverty and unemployment. We are not debating theoretically here. We are looking at reality."

Indeed, 44 percent of Latin Americans still live in poverty, and the number of unemployed workers has more than doubled in a decade. Tens of millions of others in some countries up to 70 percent of all workers toil in the region's vast informal economy, as street vendors, for instance, barely making ends meet. Economic growth has been essentially flat for the last five years.

Popular perceptions revealed in street protests, opinion polls and ballot boxes are clearly shifting against the economic prescriptions for open markets, less government and tighter budgets that American officials and international financial institutions have preferred.

A regional survey supported by the Inter-American Development Bank found last year that 63 percent of respondents across 17 countries in the region said that privatization had not been beneficial.

"It's an emotional populist attitude people have," said Larry Birns, director of the Council on Hemispheric Affairs, a Washington-based policy analysis group. "It may not be reasoned, but it's real, and it's explosive and it's not going to be easily contained by coming up with arguments that free trade is the wave of the future."

In Brazil, South America's largest country and its economic engine, revulsion with American-led market orthodoxy has fueled strong support for the labor leader Luiz Inácio da Silva, known as Lula, who is now the front-runner in the October presidential election, to the chagrin of worried financial markets.

In Paraguay protests last month blocked the $400 million sale of the state phone company by President Luis González Macchi, whose government has been dogged by a dismal economy and corruption charges. [This week deadly demonstrations led the president to declare a state of emergency.]

In Bolivia the country's political landscape was redrawn this month when Evo Morales, an indigenous leader who promised to nationalize industries, finished second among 11 candidates for president.

This spring, the sale of 17 electricity distributors in Ecuador fell through in the face of political resistance, a blow to a country that has adopted the dollar as its currency and is heavily dependent on foreign investment.

Meanwhile, in Venezuela, President Hugo Chávez's left-leaning government has been intent on scaling back reforms, exacerbating the divisions that led to his brief ouster in April.

The backlash in many of these countries gathered momentum with the economic meltdown in Argentina, which forced a change of presidents after widespread rioting in December.

While the causes are multifold, many Argentines blame the debacle on a combination of corrupt politicians and the government's adherence to economic prescriptions from abroad that have left the country with $141 billion in public debt, the banking system in ruins and one in five people unemployed.

Argentines now look for possible salvation from Elisa Carrio, a corruption fighter in Congress who has been scathing in her criticism of the International Monetary Fund. She is now the early favorite in the upcoming presidential election.

"This has created the backlash because now there's a debate all around Latin America," said Pedro Pablo Kuczynski, Peru's former economy minister and a favorite of Wall Street who resigned under pressure last week. "Everywhere you look, people say, `The guys followed the model and they're in the soup. So obviously the model does not work.' "

The backlash comes as foreign direct investment in Latin America has fallen steeply, dropping from $105 billion in 1999 to $80 billion in 2001. A big reason for the decline is that many big-ticket sales of state companies to private investors have already been completed. But economists like Mr. Kuczynski, who say market reforms must continue for capital-poor Latin economies to progress, are worried.

Bolivia, for instance, was an early convert along with Chile in the 1990's to what is called the neoliberal model. It reined in loose monetary policies and shrank the government by unloading dozens of state-owned companies to private international investors. The results, particularly in taming inflation and reducing poverty, were impressive.

But in one of Latin America's poorest nations, it is hard for Bolivian officials to talk about progress to the wide portion of the population that continues to live in grinding poverty and feels that entitlements the government once provided in the form of subsidized rates for water and electricity have been stripped away.

The better services that have accompanied the sale of state enterprises have left many indifferent, particularly in impoverished areas where residents had invested their own money and sweat to string up electrical lines or put in water pipes and drainage.

"Clearly if you're poor and have no water, sewage and live in a rural area, having three long distance telephone companies when you have no phone lines doesn't make a bean of difference," Bolivia's president, Jorge Quiroga, acknowledged in an interview.

In Peru the resistance to privatization and market reforms is especially pronounced and, for its government, puzzling.

Unlike most of Latin America, the economy here has steadily grown since Mr. Toledo's election in June 2001 as the government has continued sales of assets begun during the decade-long rule of Alberto K. Fujimori.

Government officials say the program has been successful. Phone installation, which used to take years and cost $1,500 or more, now costs $50 and takes a day or two. Electrical service, once shoddy and limited, has spread across the country.

The privatization of mines, which is nearly complete, has improved efficiency and output so much that employment in that sector and related activities has increased to more than 60,000 today from 42,000 in 1993.

But government belt-tightening also led to widespread layoffs. Mr. Toledo's government has been hit hard by protests and popular discontent, much of it fueled by its inability to alleviate poverty. Many have blamed the privatizations, seeing them as a vestige of the corruption-riddled presidency of Mr. Fujimori, who is now in exile in Japan.

Here in Arequipa, where the economy was already limping, when word came that the government was about to sell the two state-owned electric companies, Egasa and Egesur, people recalled that Mr. Toledo had campaigned on a pledge never to sell the companies to private owners.

It did not matter that the government promised Arequipa half the sale price, and that the investor, the Brussels-based Tractebel S.A., would invest tens of millions of dollars more to improve services.

The promises were not believed. Soon the workers federation, neighborhood organizations and university students organized protests, suspecting that higher electricity costs and layoffs were on the way.

"Thanks to our fight, our perseverance, the government backed down," Alejandro Pacheco, a leader in the protests here, told a roomful of supporters this week. "Now we need to do this in the rest of Peru."