" Manual of the Perfect Latin American Idiot "> (Plaza & Janes, Madrid, 1996)- written by Cuban novelist Carlos Alberto Montaner, Colombianjournalist Plinio Apuleyo Mendoza and Alvaro Vargas Llosa - has

become a bestseller in Latin America. The book is an attempt, using some humor,

to point out the inability of the political and intellectual classes to

renounce the old myths that, for years have provided the wrong explanations

for Latin America's miseries.

The book challenges a perilous new myth that claims Latin America is

experiencing a free-market revolution. There is a grave danger in the fact that

the courageous but limited experiments in reform - lowering inflation, reducing

the number of state-owned enterprises and showing some hospitality to foreign

investment - are giving rise to powerful populist oppositions and weakening the

case for the free market precisely because they are so incomplete.

Partial reforms and single-minded focus on macroeconomic management, without

commitment to private property, competitive markets and strong judicial and

democratic political institutions, has resulted in mercantilistic systems that

deny the vast majority of people the opportunities and benefits of economic

growth.

The authors explain that private ownership is not a panacea for an economy. In

fact, ill-conceived privatizations have merely replaced public monopolies with

private monopolies, transferring ownership while still protecting markets and

scandalously fueling corruption. One example is telecommunications. Throughout

Latin America, users are suffering high rates and poor service because

telephone companies have been sold as private monopolies. This is especially

obvious in Peru, Mexico and Argentina. Users then wrongly deduce that

capitalism, not a lack of it, is the cause of this abuse. They fail to

understand that this is what happens when you transfer a closed market from

public to private control.

Similar problems occur in a variety of service industries. Public transport in

Buenos Aires is privately owned, for instance, but each route is monopolized

by one company, thereby turning Argentineans against the idea of privatization.

The inadequacies of these privatizations are used by the enemies of reform,

such as the powerful Colombian telephone union, which controls most of the

14,000 workers of Colombian Telecom, the state-owned telephone company. To

defend state ownership and block privatization, the union points out the flaws

of Peru's privatized telephone monopoly.

Protecting these private monopolies has also led to the equally dangerous

perception that liberalization means giving privileges to the rich. Of the 15

Mexicans featured in one business magazine's latest list of the richest people

in the world, there is not one who has not benefited (however legally) from

state-granted privileges. Mexicans, meanwhile, see little reason to bless a

reform process that has left them impoverished and disenfranchised.

Around the continent there are also so-called strategic areas of the economy in

which privatization is not even contemplated. The best example is oil. Consider

the Venezuelans: Despite a phenomenal $250 billion generated in the last 20

years by their state-owned oil company, an estimated 80% of them live below the

poverty line today. And yet even the suggestion of privatizing the Venezuelan

oil industry is met with hysteria, as is the case with oil in Mexico and copper

in Chile.

On the macroeconomic front, some Latin American countries have made bold

changes but have blatantly ignored the importance of institutions - justice,

private property, hard money and democracy. The result is a reform process with

weak foundations that invites disaster.

Lack of institutional reform is wide-spread. Private-property rights are often

either ignored or eschewed by government. During the 1980s, in a silent process,

Peruvian peasants de facto privatized 60% of the land that had been

collectivized by the socialist agrarian reform of the '70s. Yet formal property

titles are still not available for the Peruvian Andes' four million parceleros

(people living on small land parcels).

In Mexico, property rights, a crucial institution in any free society, can

hardly be present under Article 27 of the constitution, which states that "the

nation" is the owner of all the land. The heralded reform of the collectively-

owned ejido, or community farm, has not translated into property rights for

peasants. In Peru, there can be little trust in the country's institutions

after the president himself disbanded the judiciary in a 1992 coup and later

replaced it with a new, politically dependent court. This institution made no

attempt to prevent Peru from becoming, according to a 1996 Amnesty

International report, the country with the most political prisoners in Latin

America (approximately 1,100) after Cuba. Leaving aside the extreme case of

Peru, which Latin country has undertaken a real reform of its justice system?

None. Latin America divorces economic liberty from its essential political and

institutional base.

Latin America has never tried liberal reform. The Latin American idiot instead

has always attributed our failures to conspiracies - the Monroe Doctrine,

United Fruit, the IMF, the World Bank. The latest enemy is neoliberalism - that

is, free-market reform. Once again, the blame is in the wrong place.

Vargas Llosa is London bureau chief for the Spanish newspaper ABC.

Excerpted from the Wall Street Journal Interactive edition of January

3, 1997