Latin Test

So far, 2002 is proving a dismal year for Latin America. Argentina's economy is melting down. Venezuela's political crisis is deepening and Colombia's civil conflict has become bloodier. After a decade of market-friendly reforms in the region, support for the Washington consensus is disintegrating and populists are gaining ground in many countries.

Wall Street is worried that this political contagion could soon reach Brazil, the region's biggest economy, where there are fears that a weak, minority leftwing government could be voted into power in October's general elections. Despairing of change and frightened by rising crime and violence, much of it drugs-related, thousands of Latin Americans are emigrating to North America and Europe.

The US administration's capacity to influence these events is clearly limited. The attacks of September 11 and the war in Afghanistan have reduced the relative importance of Latin America's problems. There is little enthusiasm in Congress for deeper involvement and it would not be right to bail out Argentina before Argentine politicians sort out the country's financial system and long-running fiscal problems. Unless Argentina can put a viable economic programme in place - something it has repeatedly failed to do - there is no point in providing further funds.

Even so, in some ways Washington's policies have made matters worse. The extension of extra subsidies to US farmers clearly hits the export prospects of competitive agricultural producers such as Brazil and Argentina. Moreover, America's steel tariffs and the farm bill both send the wrong message to Latin America, undermining the position of reformist politicians who have struggled to liberalise their countries' trade regimes. Too often, the US has been slow to recognise how its actions can provide ammunition for populist politicians south of the Rio Grande.

Matters have been complicated by some clumsy diplomacy. For example, the US was too quick to welcome the new Venezuelan government that briefly took office last month after President Hugo Chávez was temporarily ousted. And it is perceived to be unwilling to consult potential allies in the region on its policies.

A change is needed. The administration needs to redouble efforts to win fast-track negotiating authority in Congress - unencumbered by preconditions - in order to rekindle hopes that the Free Trade Area of the Americas can be put into effect before the 2005 deadline.

It needs to recognise that the collapse of Argentina could pose future security problems. It needs to work more actively with countries such as Brazil to help Argentina put into place a viable and sustainable economic programme.

In short, it needs to exercise leadership. Failure to do so will increase the risk of even greater disorder and chaos.