TODAY'S LEADERS LOOK TO TOMORROW WORLD HERNANDO DE SOTO LATIN AMERICA NEEDS MORE THAN FREE MARKETS
By Hernando de Soto Jeremy Main De Soto, 48, an ebullient Peruvian entrepreneur, economist, and author (The Other Path), argues that traditional economic development policies won't work without basic governmental and political reform. He talked with Jeremy Main.

(FORTUNE Magazine) – The short-run outlook for Latin America is gloomy. Most countries now have or soon will have democratic governments that understand the need for free- market policies rather than populism and Marxism. But good policies won't work without basic structural reform. All those mechanisms in the U.S. that allow citizens to participate in government and decide how taxes will be used, from public hearings to the General Accounting Office, do not exist in Latin America. We have governments with unlimited power. Politicians, bureaucrats, and a few privileged businessmen make all decisions without accounting to anyone. We have democracy only in the sense that we elect a dictator every five years. Peru has foreign debt of $17 billion, of which $11 billion came from perfectly useless capital projects: hospitals without electricity, refineries + that are not refining, ports with equipment for freezing fish we don't catch, nuclear plants that are not generating anything. They were all built at 50% to 100% above world prices because there was no list of priorities, no bidding, no oversight. If we put our house in order and stopped buying things we don't need and that don't work, we would have enough money not only to pay off our foreign debt, but to finance reasonable development. Because tariffs are the prerogative of the president and his pals, our manufacturers produce inefficiently with high margins. Until the political system changes, American investors in Latin America should spend half their time making sure they have the right political contacts. An investor in the U.S. gets his lawyer to look up the rules, and he knows he is safe because the rules apply to all. In Latin America, since all the rules are rigged anyway, you get a lawyer to create your own rules. You see the president and sign a deal just the way the mercantilists did 300 years ago. You get a sweetheart deal, but you've got to make it while you can because the next man who comes to power will revise the contract. I have more hope for the long term. All of a sudden there are groups of people in Latin America who are willing to stick their necks out and talk against the system, which is a very courageous act. People are talking against the political system in Mexico. In Argentina and Chile they are talking not only good economic policies but also good political policies. What will help us enormously is what is going on in Eastern Europe. People are asking for power. Power is being shared. But I am not sure the new presidents in Latin America are ready for that yet.