Trapped in cycles of crisis: Latin America
and the world economy
--J. A. Tapia
In December 2001
the Argentinean State defaulted on its foreign debt and two governments
were removed from office by popular riots and demonstrations.
These events occurred in a context of international instability.
Stock markets were plunging worldwide since the summer of 2001,
September 11 launched its own shock on international markets,
and most recently, Enron scandal unfolded as only the first in
a long list of "prestigious" corporations that had covered
up enormous losses by "creative" accountancy, or just
lies and corruption helped by cronyism.
It has been known
recently that Chase-JP Morgan, one of the largest banks in the
world, has been severely hit by the bankruptcies in the power
and technology sector. Many European and Japanese banks are also
dealing with problems of bad loans. In fact the full impact of
the Argentinean cessation of payments of the foreign debt on global
capital markets, still largely hidden from public inspection,
will have probably damaged a number of financial institutions.
It seems however that US banks, formerly deeply involved in Argentina,
got out of the ship "on time." This would explain the
strong reluctance of the US government and the IMF throughout
most of the present year to bail out the Argentinean government
once more. However, the World Bank/IMF recent meeting in Washington
suggests that the US government has changed its stance and is
now inclined to approve a new IMF loan to Argentina. This could
momentarily solve the financial short-term problems of the Argentinean
government, though it would be hardly enough to bring the economy
out of a recession that has been characterized by unprecedented
levels of unemployment and poverty.
In the early months
of 2002 "the opinion of the experts" was that contagion
from the Argentinean crisis was not likely. However, early in
August Uruguay was in turmoil with mobs taking food from supermarkets,
riots on the streets, and dozens of people detained. Uruguay also
imposed a corralito - a freeze of banks accounts very similar
to that which triggered the December crisis in Argentina. From
recent reports Ecuador and Paraguay seem also to be in deep trouble.
Expectations for Mexico's new government are unfulfilled by the
poor economic performance. The Peruvian economy is in deep recession.
The Brazilian real seems to be going downhill, pushed both by
the financial situation of the country, and the election to the
Presidency of the Workers Party candidate.
Compounding the Latin
American crisis is the deep recession that has paralyzed the US
economy. In the 1990s the American locomotive single handedly
pulled forward the train of the world economy; it was a train
whose component wagons were engulfed in low growth, weak demand
and persistent recessions. The American boom of the 1990s not
only created demand for worldwide exports flowing to the US (and,
of course a huge US current account deficit) but also tightened
the US labor market where millions of immigrants from Latin America
and other parts of the world got jobs. Presently in countries
like El Salvador or Ecuador (more than 10% of the Ecuadorians
are now living out of the country) significant proportions
of the economy are dependent on flows of remittances of immigrants,
largely from the United States. If the present recession in the
core of the world economy persists and aggravates in 2003, the
possibility of an international financial meltdown cannot be dismissed.
This would have a huge impact on the living conditions of Latin
American countries and in general on Third World countries that
have been transformed into export economies in recent decades.
Present political
instability in Latin American countries only adds to the uncertainties
rooted in economic crises. The government of Hugo Chavez, whose
popular support is probably being slowly eroded as time passes,
seems condemned to be removed by the Venezuelan bourgeoisie. In
Brazil, in spite of the Workers Party's moderation and Lula's
commitment to respect financial agreements and outstanding debts
the new government will have to face huge economic problems. Deeply
damaging capital flight from Brazil will have ripple effects for
regional instability and financial troubles in world markets.
In Argentina, where the vote is mandatory, a large percentage
of people abstained in the last elections (held a few months priori
to the December revolts). In addition, many thousand votes were
nullified because voters crossed out ballots or wrote the names
of soccer players, cartoon characters or even Osama bin Laden.
Although voting is mandatory in Ecuador as well, 35% of the potential
voters abstained from the polls in elections in early fall. As
with Brazil, in Ecuador the recent electoral triumph of the populist
Colonel Lucio Gutiérrez has brought another "leftist"
into the ring. The recent electoral victories of left-wing candidates,
the ascent of organizations of the unemployed, new radicalized
unions, political parties that increasingly question the terms
of the capitalist order, and indeed, the fact that vast numbers
abstain from electoral participation - all these developments
seem to suggest that the limits of traditional representative
democracy are being strained in a number of Latin American countries.
The capitalist economy
is, to some extent, self-regulated; thus recessions or depressions
(the use of these two words by economists is highly imprecise
and we may consider them interchangeable) tend to disappear "by
themselves.” In a serious "slump" bankruptcies multiply,
millions become unemployed and large sectors of the population
sink into poverty. The wages dropping to the lowest levels, the
cheapening of capital goods and perhaps a "strong government"
in power tend to create again good conditions for investment.
As expectations of high profits rise, capital flows to production,
jobs are created and the economy recovers - until the next crises.
These economic convulsions have their effect
on people consciousness, as persons are not insensitive nuts
and bolts of a large social machinery. During severe economic
crisis millions are faced with the question of the economic, social
and political system that forms the "social frame" in
which everyday life evolves. When the ruling order deprives large
sectors of the population of income and the means of livelihood,
millions are pushed by necessity to disrupt property relations
in order to meet basic needs. Crime goes up, conflicts and fights
in industrial districts and neighborhoods multiply, and political
ideas quickly flow.
New economic theories
arguing for an active role of the State to manage the capitalist
economy-the essence of Keynesianism-appeared precisely in the
1920s and the 1930s when deep recessions and social unrest in
many countries were a threat to the stability of the social system.
The new economic ideas were applied in different forms (with an
iron fist by Hitler in Germany, with a populist garb by Roosevelt
in the US) up to the great convulsion and destruction of World
War II. In the form of economic nationalism, structuralist economics
and import-substitution policies, Keynesianism had influence in
Latin America for several decades. From the 1970s severe problems
of public debt, social unrest and the pressure from international
capitals strongly pushed the ruling elites toward military dictatorships
and neoliberal economic policies of privatization, trade liberalization
and cuts in public spending. The initial results of these neoliberal
policies are illustrated by the fact that already, by the early
1990s, the 1980s were baptized as "the" lost-decade
for development. In Latin America this decade was seen as one
in which lukewarm economic growth brought with it huge inequalities,
severe environmental problems and scarce or nil relief for the
millions in poverty. During the 1990s the same medicine of privatization,
"free trade" and cuts in government spending was applied
at higher doses, with such deleterious results that some observers
are beginning to talk about the 1990s as the second decade lost
for development.
In this situation to go back to Keynesian
policies might seem the logical step for ruling elites, since
the neoliberal creed produced monumental problems. However, years
of propaganda on the need to avoid an economic role of the State,
a context of national economies intensely imbricated with the
international one (in ways that make it difficult to implement
targeted national policies) and State finances in bankruptcy under
the weight of foreign debt are conditions making Keynesian policies
quite difficult to apply. At any rate, these policies would have
to be implemented by the same ruling classes who brought many
countries to the present disarray. If peoples tolerate that or
some other solution protecting national and international capital,
only the next years will tell.
The Latin American
left was traditionally divided between the wing leaning toward
social democratic policies (the political translation of Keynesian
ideas), often tinted by some kind of Latin American nationalism
(like that of the Peronists, the Peruvian APRA, the Mexican PRD),
and the most extreme and marginal Leninist sectors (the Colombian
guerrilla, the Peruvian Shining Path, the Salvadoran FMLN and
many of the Latin American communist parties), looking for a revolutionary
exit toward a "socialism" built on a Cuban, Soviet or
Chinese model. The breakdown of the Soviet bloc in the early 1990s
led many guerrilla movements to quit armed struggle and join parliamentary
politics. They were perhaps moving into the space on the political
spectrum that was abandoned by the social democratic and moderate
left parties that had moved to the right to implement and defend
neo-liberal policies. In the past century those Leninist parties
that seized power in backward countries drove economies to modernity
through a path that brought plenty of suffering for the people
- and ironically, eventually lead to a capitalist end. This makes
unlikely that Leninist organizations have much future in Latin
America (though they are now increasing its influence for instance
in Argentina). On the other hand, economic and social constraints
don't seem to leave much space for reformist policies. It seems
as if all the known paths had been discovered to be futile and
there were an urgent need to look for new directions.
November 2002
Dr. Tapia is an economist from New School University,
New York, NY.
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