Bush's Lost Continent

Washington's bursts of interest in Latin America rarely last long. Spanish-speaking George W. Bush came into office billing himself as the region's mejor amigo in the new "Century of the Americas." Yet when it came to Latin America's economic travails, Bush adhered to the principle of tough love: no more bailouts. South Americans, however, weren't prepared for the jibe they got from Treasury Secretary Paul O'Neill just before a visit to the continent. Even as a parade of U.S. CEOs stood accused of corruption, O'Neill remarked that Washington shouldn't help save the region's debt-choked economies because the money might wind up in Swiss bank accounts. His quip sent Brazil's faltering currency, the real, into free fall.

Once O'Neill saw South America's financial chaos up close during that quick tour of battered Brazil, Uruguay and Argentina, he wasn't so flip. Before he reached home, the Bush Administration surprised everyone by signing off on a $30 billion International Monetary Fund (IMF) rescue loan for Brazil, which began to restore stability. O'Neill gave tiny Uruguay $1.5 billion from the U.S. Treasury to stop a run on that country's banks. Now even profligate, bankrupt Argentina, which has sunk into bottomless recession through corruption and misguided policies, hopes to get in on the aid, though O'Neill has promised it nothing.

The abrupt policy change followed a familiar pattern for the Bush team: resist, resist, resist--especially if Bill Clinton championed it--then relent when reality intrudes. Brazil, with Latin America's No. 1 economy and the world's ninth largest, was simply too big to fail. The fallout would have rocked Wall Street, where major U.S. banks and businesses have huge exposure--more than $100 billion in loans and investments. While diehard ideologues cried betrayal, the business-first wing of the G.O.P. was delighted by the Administration's about-face. "The bank stocks are all up," said a Republican operative. "It helped add to the feeling that we might be out of the woods."

Politics was the bottom line, after all. Investors set off Brazil's crisis out of fear that the two leftist candidates leading in presidential election polls would reverse the country's laudable efforts to adopt free-market reforms. A Brazilian default could upset the tenuous U.S. recovery and cost U.S. Republicans in November's congressional elections. That vote also coincides with the start of new negotiations for a giant hemispheric free-trade pact. If Brazil's economy continues to melt down, those talks will implode, causing Bush political embarrassment.

The Administration's overdue attention to the region--the U.S.'s No. 1 export market--comes as the U.S. economic model that most Latin American nations adopted at Washington's behest a decade ago has been failing. Despite rosy promises that open markets and budget austerity would improve living standards for all, more of the region's 500 million people are stuck in poverty, and its economies look more like Global Crossing than the global players they aspired to be. The sense that Washington was losing influence in Latin America deepened last week when Marxist guerrillas fired mortar shells in Bogota, killing 20, during President Alvaro Uribe's inauguration.