Democratic reform demands parallel social, economic changes in Latin America

Democratic reform in Latin America can succeed only if poverty, inequality and social exclusion are tackled throughout the region too, Peru's former President Alejandro Toledo said last week in Cubberley Auditorium.

"Political democracy makes very little sense if not accompanied by social and economic democracy at the micro, micro level," Toledo told political science Professor Larry Diamond during the onstage discussion Oct. 16 titled "Can Democracy Reach the Poor? A Presidential Perspective on Education, Poverty and Democracy in Latin America."

"If we're able to reduce poverty, inequality and social exclusion by having the courage to invest more and better in nutrition, health, education and better jobs, then we can build better in the region," Toledo said. "Then people will begin to recover faith in democracy again."

During the last quarter-century, Latin America has made "astonishing progress" toward democracy, Diamond said at the opening of the hour-long conversation with Toledo. But that movement has been accompanied with high levels of public dissatisfaction about the way democracy works in the region.

According to the polling firm Latinobarometro, Diamond said, three-quarters of Latin Americans understand that democracy may have its own problems but that it is the best system of government available. At the same time, politicians are not providing a level of democracy, good governance and social justice that people want. "Seventy percent of Latin Americans see little or no equality before their countries' laws," Diamond said. "Over two-thirds say government serves the interests of powerful groups and, as a result, there is very little confidence in politicians, in institutions."

Toledo, who rose from an impoverished shoeshine boy to become Peru's first president of Indian descent, is the Payne Distinguished Visiting Lecturer at the Freeman Spogli Institute for International Studies. In 2006, after stepping down from the five-year presidency, he was a fellow at the Center for Advanced Study in the Behavioral Sciences. Both Toledo and Diamond, a senior fellow at the Hoover Institution, are Stanford alumni.

Toledo, an economist with a doctorate in education, left academia in 1995 to enter the gritty world of politics in Peru. "With all due respect to academicians, I decided to break the windows of academia to go into the dangerous field of making decisions," he said.

As president, Diamond said, Toledo introduced important economic reforms. He shrank Peru's fiscal deficit, reduced non-performing loans in the banking sector by 80 percent and reduced absolute poverty by one-quarter. During Toledo's presidency, Peru's economy grew an average of 6 percent, one of the highest growth rates in Latin America. And today, as the economy diversifies to include export crops such as grapes, mangos and asparagus destined for expanding markets in India and China, the region is no longer as vulnerable to market price fluctuations related to the traditional exports of metals, oil and gas.

"However, this great opportunity is not free of major challenges that we have the capacity to overcome if we adopt a state policy of justice for all," Toledo said. "Part of the challenge is to reduce poverty in the region. It is inconceivable that in a region of 500 million people, 40 percent live below the poverty line, and 18 percent live under the extreme poverty line."

Although Africa is the poorest continent, he said, Latin America has the greatest economic inequality. "If we are able to reduce poverty, reduce inequality and eliminate social exclusion, I'm sure we can make progress to take advantage of this enormous opportunity to make a jump to reach that preferential place in the world economy," he said. "If we can do that, we can reach sustained rates of economic growth."

As president, Toledo instituted a program called "Juntos" ("Together"), a direct conditional subsidy that was aimed at helping the poorest families in rural areas. "The IMF went bananas," Toledo said. "My finance minister said this is going to create a fiscal deficit: 'You're going to destroy everything.'" But Toledo went ahead with a pilot project in the state of Ayacucho, where communities helped to identify the female heads of the poorest households. In so doing, Toledo said, the program revealed that 20 percent of the target population did not formally exist because they had no documentation—a discovery that he said rendered official macroeconomic analyses invalid.

In return for requiring that Juntos clients obtain pre- and post-natal checkups, vaccinate their children and send them to school, the women received the equivalent of $30 to invest in promoting their economic self-sufficiency. "I don't know why the people who give this Nobel Prize in economics have not discovered yet that the best economists in the world are the poor women of the world," Toledo said. "They repay their loans more promptly than big corporations."

Women were also given a whistle they were instructed to use if men in their household tried to take the funds away. "Extreme poverty is associated with high consumption of alcohol," Toledo said. "We told the women, 'If one drunk comes, you blow the whistle and all the women of the town come out and beat the hell out of the man.'"

Juntos was so successful that it was expanded throughout Peru, received support from the International Monetary Fund and the World Bank and has been continued by the current government. While Toledo stressed the importance of managing economic growth responsibly and investing in education, he said short-term solutions such as Juntos are needed in a country like Peru. "These are people in extreme poverty who can't wait while we invest in human capital, which takes 18 years," he said. "By then, they're dead."

In his post-presidential life, Toledo has established the Global Center for Development and Democracy, which studies the interrelationship between poverty, inequality and the future of democratic governance. Toledo also is working with former leaders in Latin America to address such issues across the continent, Diamond said. "I believe [Toledo] will use his post-presidency as creatively as Jimmy Carter has since he left his presidency," he said.