COLUMN LEFT / ALEXANDER COCKBURN : Crisis Is Over and the Banks Won Big : For the Third World, the debt is as menacing and debilitating as ever.
Ten years ago almost to the day, on Aug. 20, 1982, the finance minister of Mexico announced to a group of bankers mustered in New York that his country was unable to make payments on its external debt. His audience, sitting in offices of the Federal Reserve Bank of New York, faced a financial abyss. Mexico’s bankruptcy would set off a wave of similar defaults throughout Latin America. Their creditors, the large First World banks, could fail. The stability of the entire industrial world was under duress.
This summer the great crisis was officially declared to be over. The signal for the champagne to be uncorked was a rescheduling agreement between Brazil and its private creditors. Brazil’s overall external debt is $119 billion. The agreement concerned $44 billion owed Japanese, European and especially U.S. bankers.
After the Brazil agreement in July, the New York Times exulted that the deal was the capstone of three years of arduous negotiation. The Miami Herald called it “the end of the crisis that has impoverished the region.” The London Financial Times ran triumphant headlines, such as “Bouncing Back From Disaster in Tigerish Style.” The message was that Latin America, after 10 grim years, was set for growth, with free-market reformers replacing the statist ideologies of the past.
The crisis is indeed over for the banks, but the debtors are still in bad shape. As Brazil’s former economy minister, Luiz Carlos Bresser Pereira, put it, debt rescheduling agreements have helped foreign bankers reduce the weight of shaky Latin loans in their asset portfolios, so the stability of the international finance system is now far less menaced than it was five years ago. But Pereira added, “There were actually two debt crises, one for the debtors and one for the creditors, and only the latter has been solved. For our countries, the problem is as serious as ever.”
That same viewpoint was cheerfully acknowledged by Paul Volcker, the man who was running the Fed when Mexico defaulted. Volcker offered a woeful insight on what is regarded in the First World as financial stability. “Africa,” he told a reporter in July, “is a different kind of situation. It is a disaster for the Africans. But it never has had implications for the world financial system.” In other words, Africans can be starving by the millions, but since this presents no risks for bankers, it is by definition no cause for concern.
Latin America’s external debt is rising, and now stands at about $430 billion, close to $25 billion higher in real terms than it was five years ago. After its rescheduling deal in 1990, Mexico’s debt fell sharply. But despite the supposed economic miracle achieved under President Carlos Salinas de Gortari, the external debt is soaring, now topping $100 billion and predicted by Moody’s Investors’ Service to be headed for $125-billion, which is about 30% higher than when the country embarked on the rescheduling talks in 1989.
The Latin American debtors’ treadmill is bleakly evoked in figures worked up by Bernardo Kucinski, a London-based financial analyst. Using World Bank figures, Kucinski shows that Latin American countries paid $296 billion in interest to First World banks during the 1980s, when the region’s total external debt went from $242 billion to $429 billion. Supervising this stupefying transfer of resources from the Third World to the First were technocrats from the International Monetary Fund, forcing austerity programs to be implemented from Caracas to Montevideo so that the bankers could get their cash.
The consequence is human misery. In Venezuela, half of the population can afford but one meal a day. In Peru, wages have sunk to 1960s levels. In Brazil, millions of people have been thrown out of work as a direct consequence of the government’s IMF-approved economic austerity programs. Across Latin America, 183 million people--44% of the population--live below the poverty line.
In 1985, Brazilian socialist leader Luis Inacio Lula da Silva said: “The Third World War has already started . . . (but) instead of soldiers dying there are children. Instead of millions of wounded there are millions of unemployed. . . . It is a war by the United States against the Latin American continent and the Third World. It is a war over the foreign debt, one which has as its main weapon interest, a weapon more deadly than the atom bomb.”
Lula was beaten in Brazil’s 1989 presidential race by Fernando Collor de Mello. Today, the great neo-liberal hero and free marketeer, President Collor, faces possible impeachment on charges--originally made by his own brother--that he took millions in kickback favors from Brazilian business after he arrived at the presidential palace. The northern banks are happy and Lula’s analysis is as valid as ever.