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It is a myth that Latin America has undergone a capitalist revolution, says Peruvian observer Alvaro Vargas Llosa. Some governments have lowered inflation, experimented with selling state enterprises and are encouraging foreign investment -- but even though property and businesses are privately owned, the state controls the economy, dispenses privileges and protects markets.

Vargas Llosa argues that free market liberalization is being discredited by association with privileges for the rich, political corruption and the economic hardship of half-hearted reforms.

• In Argentina, despite the market reforms of Carlos Menem's government, public spending has doubled in the 1990s.

• Rather than cutting government's share of the economy, rising taxes and prices are being used to reduce the government deficit.

• Unions in Colombia use the poor service and high prices of privatized, monopoly telephone companies in Argentina and Peru to argue against selling Colombia's telephone and energy companies.

• Of the 15 wealthiest Mexicans featured in Fortune's list of the richest people in the world, all have benefited from state-granted privileges.

• Despite reforms, the state maintains control of the copper industry in Chile, and Mexico and Venezuela will not sell their oil companies.

Latin America will never achieve prosperity if economic liberty is divorced from political freedom and the rule of law, says Vargas Llosa, and creating a free market requires reforming political and legal institutions.

For example, even though peasants in Peru have taken possession of 60 percent of the land collectivized by socialists reforms in the 1970s, they don't have titles to the property. In Mexico, property rights are insecure because the constitution still states that the nation owns all land. And in Peru, the independent judiciary was disbanded by the president in 1992 and there are now 1,100 political prisoners.

Source: Alvaro Vargas Llosa, "In Latin Amerca: Privatization, Yes. Capitalism, No," Washington Times, October 21, 1996.