Leading Article: Economic change in Latin America

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COULD the free-market tide that has swept all before it in Latin America in recent years be on the turn? There have been a number of signs of a backlash against the prevailing economic orthodoxy. The favourite to win yesterday's presidential elections in Venezuela, for example, was a protest candidate, ex-President Rafael Caldera. He has promised to create jobs by reducing taxes, increasing public spending, keeping state control of the crucial oil industry and protecting domestic industries.

Another sign of a changing mood was the opposition victory in last week's Honduran presidential election. The Liberal Party's Roberto Reina was elected on a platform of dismantling the unpopular liberal reforms of President Rafael Callejas.

Several other businessmen-presidents, elected within the past year or so, are in difficulties. Sixto Duran Ballen in Ecuador, Gonzalo Sanchez de Lozada in Bolivia and Juan Carlos Wasmosy in Paraguay are all encountering bitter opposition to their efforts to roll back the frontiers of the state; they would probably lose if there were elections tomorrow.

The gospel of privatisation, foreign investment, balanced budgets and deregulation has worked wonders for several Latin American economies after years of decline. Basket cases such as Peru, Argentina and Mexico have sprung back to life. Inflation has been tamed and public finances restored. Foreign capital poured in as nationalistic politicians and generals gave way to young, foreign-trained technocrats eager to take their countries into the competitive economic mainstream of the Nineties.

But the price has been high. As the World Bank and other agencies have pointed out, too many people have been excluded from the benefits of the boom. A resentful underclass could spell trouble for Latin America's new-found political stability and economic prosperity.

Nowhere is this more apparent than in Venezuela, a founder-member of Opec and the region's most prosperous country. The 77-year- old Mr Caldera has built up a big following by denouncing the corruption and callousness that have left more than a third of the 20 million population in poverty despite rapid economic growth.

If the tide is starting to turn, however, it will not go out overnight. When Chileans vote next Saturday, they will choose between two presidential candidates who both advocate the continuation of free-market policies. Yet the almost certain winner, Eduardo Frei, has also promised massive government spending on health, education and housing.