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Foreign Debt Strangling Latin America

Foreign Debt Strangling Latin America image Foreign Debt Strangling Latin America image
Parent Issue
Month
August
Year
1989
Copyright
Creative Commons (Attribution, Non-Commercial, Share-alike)
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Agenda Publications
OCR Text

"The división of labor among nations Is that soma specialize In winning and others In losing. Our part of the world, known todayas Latín America, was precodous: it has speclalized in losing ever since those remote times when Renaissance Europeans ventured across the ocean and buried their teeth in the throats of the Indian civilizations. Centuries passed, and Latin America perfected its role." -Eduardo Galeano, "Open Veins of Latin America" (1973) The full impact of the debt crisis on the people of Latin America, and the Third World generally, is not widely known in the U.S., although it is painfully understood by those who suffer the consequences south of the Rio Grande. Not only have present living standards declined for the majority of the population, but their future has also been put in jeopardy. Economie growth, national assets, social spending on basic needs and education - all have been sacrificed at the altar of foreign capital. And despite minor concessions extracted by riots and resistance, there is no indication that relief is in sight. The Third World debt crisis became evident in August 1982 when Mexico was unable to service its debt and international banks were unwilling to extend credit as they had previously done. At that time the total debt owed by Less Developed Countries (LDCs) was about $700 billion, with about twothirds owed to private financial institutions in the large capitalist countries. Since then, the LDC debt has nearly doubled to $1 .3 trillion, with Latin America and the Caribbean accounting for about $384 billion. The result has been that the LDCs have been using a large and growing portion of their GNP's to service their foreign debts - i.e. to pay their foreign, wealthy, private creditors. The ratio of debt service to GNP for all LDCs has risen from 4.5% in 1983 to 5.5% in 1986. The latter figure is actually quite staggering when one considere that it is nearly doublé the normal rate of growth for the U.S. economy. In absolute terms, the net outflow (the amount of resources leaving the LDCs) exceeded the inflow of resources by $31.1 billion for 1988, in spite of new loans that were made. An economy cannot grow unless it puts resources that are not consumed into productive investment. This drain of capital abroad for debt service means that these countries, which are already capital-starved, are sacrificing most of their potential for growth to satisfy foreign creditors . And without growth, there is no prospect for improving the conditions of the impoverished majority. There has therefore been a slowdown in the growth of GNP and in particular GNP per capita, to the point where the latter has actually declined for Latin America in the last seven years. There have also been dramatic cutbacks in social spending as governments scramble to raise the resources to make their remittances abroad. But the peT capita figures teil only part of the story, since they include the income of rich capital - ists and landowners, along with poor peasants and workers, divided by the total population. The resulting statistic is undoubtedly an understatement of the reduction of the standard of living of most people in these countries. Forexample, it seems that real wages have fallen as much as 40-50% in some Latin American countries. In Mexico the average annual rate of growth of manufacturing earnings between 1980-85 was a negative 5.9%. This trend has continued in the late '80's. The standard of living in Peru has fallen to what it was 15 years ago, and Argentina's has fallen to that of 20 years ago, according to the InterAmerican Development Bank. The human cost of debt repayment and austerity in countries like Mexico has been staggering. According to a recent UN study, more than half of Mexico's 85 million people live below minimum international nutritional standards. In rural áreas, only one in every five children less than 4 years old is of normal weight and size. Half of all children are now dropping out of elemetary school, often to work to help their families. Another consequence of the debt has been the selling off of national assets to foreign capital. For example, Argentina had to sell to foreigners its state owned airlines as a partíal repayment of debts. Such "debt-equity swaps" permit foreign capitalists to cheaply buy producti ve nationalized sectors of these LDCs. Private creditors and govemments of the developed countries have pressed for an "opening of LDCs" to foreign investors. Meanwhile, the LDC govemments have been blackmailed by their creditors into adopting a whole host of regressive policios generally reported in Ihe media as "liberalization." This is a euphemism for the restructuring of the economy on terms more favorable to domestic and particularly foreign capital: the privatization of nationalized industries, accompanied by massive layoffs and reductions of real wages; break ing the power of unions; and opening of the domestic economy to foreign domination through the reduction of tariffs and quotas. While the poor have suffered from cuts to govemment subsidies of cooking oil, basic grains, and transportation, the richest citizens of the LDCs have been quietly removing their money from the country and depositing it with LDC creditors in New York and Miami. This capital flight amounts to a massive proportion of the LDC debt - the majority of Mexico's borrowing, for example, has left the country. These deposits are, of course, not taxable by the LDCs, and the U.S. and other govemments refuse to cooperate by withholding laxes for the LDCs. The latter govemments thus resort to inflationary f inane - ing in order to squeeze the maximum revenue out of those classes whose income remains in the country - i.e., the popular classes. This has led to hyperinflation in countries such as Bolivia and Argentina, with attendant disastrous economie effects. Least burdened by the crisis, up to now, have been the international creditor banks. The banks have concealed their insolvency and have even managed to pay out very large dividends to their stockholders. This year, however, riots in Venezuela and Argentina have shaken the confidence of senior Bush cabinet members, who hastily carne up with Üie Brady plan. Unveiled in March, this plan provides thausome debt be written off if austerity and "free-market"policies are implemented. Remaining loans would be backed by a system of guarantees funded partly by the World Bank and the International Monetary Fund (IMF). The first agreement under this plan was reached at the end of July with Mexico, with an overall debt reduction that probably will not exceed 13%. A reduction of this size is unlikely to have any significant impact on Mexico's economie crisis, nor will the majority of Mexicans see a re versal of the decline in their living standards. There are differences of opinión in Washington over how much debt relief may be necessary to defuse the growing anti-U .S . sentiments in Latin America. Some policy-makers fear default and a threat to the international financial system, or to U.S. political control generally. Nonetheless, the general consensus among policy makers is that the creditor nations can continue as in past years, collecting interest payments and taking advantage of the crisis to consolídate U.S., European, and J apáñese control over the economies of the Third World. From the point of view of the LDC's, their interest clearly lies in refusing to cooperate with their own strangulation. A recent conference on the debt sponsored by Brazil's National Council of Christian Churches noted that Brazil (whose foreign debt is $124 billion) has paid S176 billion in debt service from 1972-88. The conference concluded that "the current foreign debt should not be paid, because it already has been paid." But while it may be in the "national interest" of debtor countries to default, those who hold political power in these countries do not represent the national interest. A striking example is President Carlos Salinas de Gortari of (see DEBT, next page) DEBT : . (from previous page) Mexico, whose fraud-marred election last year cleared the way for continuing national capitulation to the IMF. Until there is radical restructuring of poli tical power within the debtor countries, is is unlikely that any country or group of countries (as in a debtor's cartel) will offer sustained resistance to Washington and the banks. In the meantime, an entire generation is losing the hope that their children or even grandchildren might escape from poverty. A version of this article appeared In the July 1989 issue of La Palabra, the newsletter of the Latin American Solidsrity Committee.

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