Contagion in Latin America
by Tom Lewis
International Socialist Review, August 2002
Part of the decision by the International Monetary Fund (IMF)
and the Bush administration to let Argentina go to the wall last
autumn involved their calculation that an Argentine meltdown could
safely be contained. They went so far as to inoculate Brazil-Latin
America's largest economy-against possible contagion by stepping
up a multibillion dollar loan. It wasn't the first time "W"
and the IMF were dead wrong.
The past several weeks have witnessed the dramatic spread
not only of the economic crisis but also of popular struggle to
neighboring Uruguay, Paraguay, Peru, and Brazil. In addition,
political instability in Bolivia, Ecuador, and Venezuela has given
new impetus to the social movements. Latin America is presently
seething with anger against its own rulers and with hatred of
Victories against privatization
Since the end of military dictatorship in 1985, Uruguay has
represented one of the most stable societies in Latin America.
Its prosperity owed much to the so-called Argentine "miracle"
of the early and mid-1990s. But this June the country boiled over
in protest. The dose links to Argentina that once benefited Uruguay
have started to poison its economy.
The confiscation of dollar accounts in Argentina severely
damaged Uruguay's major industry of tourism this summer (winter
in the U.S.)-so much so that Uruguay's gross domestic product
dropped ten percent between January and March 2002. Investor confidence,
moreover, has evaporated. Moody's "country risk" for
foreign investment in Uruguay held steady at 200 points throughout
the Argentine revolt last December. Confidence is so low today
that Uruguay's country risk has jumped to 1,250 points.
On June 20 the Uruguayan government was forced to abandon
its currency board and float its peso-which then fell 10 percent
in two days. The economic destruction unleashed several days of
protest in which tens of thousands marched in Argentine-style
antigovernment caccrolazas (pot-banging demonstrations).
From mid-May to early June, mass struggle paralyzed Paraguay
and its capital city, Asuncion. The Congreso Democratico del Pueblo
(People's Democratic Congress)- comprised of 1,500 delegates from
the main peasant organizations, workers' unions, left political
parties, feminist, and homeless groups-called on May 15 for an
indefinite mass mobilization against IMF-imposed plans to privatize
several banks and public services. The mobilization also aimed
to stop the government's proposed new "antiterrorist"
law. After three weeks of intense showdowns, the government surrendered
and backtracked on both the privatizations and the repressive
A second spectacular victory against privatization occurred
in Arequipa, Peru in mid-June. President Alejandro Toledo, whose
election last year reflected anti-neoliberal sentiment throughout
the country, nonetheless has proven spineless in dealing with
But when Toledo recently sought to follow through on privatizing
electric power in Arequipa, as the IMF required, he suddenly found
himself confronted by one of the largest mass movements in Peru
in years. Organized by the Frente Amplio Clvico de Arequipa (the
Broad Civic Front of Arequipa), the movement began on June 13
and quickly spread to the cities of Puno, Tacna, Cuzco, and Moquega.
The Peravian mobilization included road blockades, urban barricades,
and battles with police that resulted in one death and 152 wounded
in Arequipa alone. After a declaration of martial law failed to
quell the protests in the Arequipa region, the Toledo government
finally agreed to postpone its privatization plans indefinitely.
Doomsday for Brazil
A crisis of proportions potentially rivaling those of the
past year in Argentina now lurks on the horizon for Brazil.
Brazil's internal and external debt has risen to 55 percent
of GDP. Its main debtors for both the internal and external debt,
unlike Argentina's, are Brazilian institutions. Over the last
two months, the interest rate on the combined public debt has
risen to 18.5 percent, despite an inflation rate of less than
This means that the government is paying 12 percent in real
interest charges, whereas countries like Mexico and Chile pay
less than 3 percent. A large chunk of Brazilian debt is also indexed
to the dollar, raising the specter of higher interest rates and
a higher share of debt in relation to GDP. Brazil is expected
to face default on one or both of its internal and external debts
in the first quarter of 2003.
The real has dipped to its lowest point against the dollar
since its creation in 1994. Foreign investment is slowing too,
as Brazil's country risk is now second only to Argentina's in
Latin America and has climbed as high as Nigeria's. This creates
a chokehold on the world's eighth largest economy. The lurking
scenario is a familiar one: capital flight, a falling currency,
and a collapse of the banking system-all propelled by the expectation
of debt default.
A return to state terror?
In Argentina, events have taken another deadly turn. The immensely
unpopular government of President Eduardo Duhalde resorted to
murder June 26 in order to intimidate protesters and to guarantee
"law and order" throughout the country. Two dead, 90
wounded, and dose to 200 arrested in Buenos Aires represented
the balance of state terror after a tense day of struggle between
piqueteros (unemployed workers) and police.
The piqueteros' signature tactic of blocking roads is known
for its peaceful character. But as 1,000 piqueteros tried to blockade
a bridge in a working class suburb of Buenos Aires, police fired
unprovoked into the crowd. The death toll has risen to 37 since
mass demonstrations toppled the government of former President
Fernando de la Rua last December.
The day after the massacre popular outrage led 40,000 to protest
the killings in front of the Presidential House at the Plaza de
Mayo. This pressure, and the threat of an even larger mass backlash,
forced Duhalde to dismiss Buenos Aires' police chief
Nevertheless, the police chief was merely following orders.
In early June, Duhalde declared he would respond with increased
repression to the almost daily marches and rallies aimed at denouncing
the government's capitulation to the International Monetary Fund.
The IMF has demanded new and harsher austerity measures as the
condition for restarting loans in the midst of Argentina's economic
Duhalde, who has broken all of his promises to stand up to
the IMF and U.S. bankers, delivered on another promise-to get
tough with protesters. Ironically, on the same day as Duhalde's
police were killing and maiming Argentine workers, his economy
minister, Roberto Lavagna, was in Washington, D.C. cow-towing
to IMF officials.
Shortly after Lavagna's return, Duhalde announced that he
would call presidential elections for March 2003-six months ahead
of schedule. This likely indicates that the IMF has agreed to
provide enough money to help hold Argentina's international creditors
at bay, but considerably less than is needed to remedy mass hunger
The June 26 murders represent only the beginning of a heightening
of violence. Not content with starving the population to death,
Argentina's rulers have left no doubt that they will beat or shoot
to death all those who attempt to challenge the system.
The process of class polarization and the development of a
potentially revolutionary upheaval continue to unfold even in
the face of repression. A second mass demonstration to protest
the government killings took place during the first week of July.
Already in late June, ex-president Carlos Menem-who advocates
full dollarization of the Argentine economy-told the press that
"the streets of Argentina are full of Marxists."
Duhalde's current foreign minister, Carlos Ruckhauf, also
gave a hair-raising speech to high-ranking air force officers
at the end of June. He recalled that he was the government minister
back in the mid-1970s who had signed into law the bill that became
the basis of Argentina's "dirty war" and "campaign
against terrorism." More than 30,000 leftist militants were
either killed or "disappeared" during the dirty war.
Ruckhauf assured the air force officers that he would sign such
a law again-"without any hesitation"-if "difficult
In this climate, unity among the forces opposed to the Duhalde
government and the policies of U.S. imperialism has become especially
important. The struggle to throw out Duhalde and to cast off the
yoke of the IMF can only intensify. It should also include plans
for organized self-defense.
Duhalde will not run in the March election-no doubt a smart
decision given that his approval rating fell to 8 percent in early
July. Opinion polls show Elisa Carrio, a progressive congresswoman,
and Luis Zamora, a left-wing congressman and former leader of
Argentina's once influential Trotskyist Movimiento al Socialismo
(MAS), as comfortable frontrunners if elections were held this
Menem, the former president who did the most to implement
the destructive neoliberal economic policies of the 1990s, and
Carlos Reutemann, a former Formula One racer and current governor
of the state of Santa Fe, were tied far behind at 7 percent each.
Reutemann is the preferred candidate of the U.S.
In Bolivia, the recent presidential election showed a stunning
advance for peasant and cocalero (coca grower) leader Evo Morales
and his Movimiento al Socialismo. While the two leading establishment
candidates each got 22 percent of the vote, Morales received a
surprising 21 percent. The newly elected Bolivian congress will
determine who will be the new president in August, so it is unlikely
that Morales can accede to power by parliamentary means. Nevertheless,
the size of Morales' vote signals a dear radicalization in Bolivian
The substantial lead held in the polls by Luis Inacio Lula
da Silva, the presidential candidate of the Partido dos Trabalhadores
(PT, Workers Party), is adding fuel to the fires of economic uncertainty
in Brazil. Lula is perceived by Wall Street and the IMF as someone
likely to increase government spending. To calm investors' fears,
Lula has promised the international financial community that he
will service the external debt and observe fiscal responsibility.
Lula and the PT also support Brazil's participation in the
U.S.-led Free Trade Area of the Americas (FTAA). Yet a major Brazilian
campaign against the FTAA over the next few months is scheduled
to culminate in a people's plebiscite on the FTAA in September.
Three years ago G million votes were cast in a similar plebiscite
on canceling external debt payments-with 95 percent voting to
repudiate the debt outright. Investors fear that the results of
the FTAA plebiscite may pressure Lula to move back towards a more
cautious position on hemispheric economic integration.
Other developments throughout Latin America revealed evidence
of widespread political instability. On June 20 Mexican president
Vicente Fox admitted that the crises in Argentina and Brazil are
beginning to affect Mexico. Ecuador's finance minister resigned
June 23, caught up in a bribery scandal.
In early July, a detachment of army soldiers exchanged fire
with members of the national police in Guatemala during an episode
that implicated the army in recent kidnappings. Apparently the
soldiers had come to collect the ransom money. The incident publicly
exposed the hollowness of the so-called "peace process,"
in which government and army corruption effectively block political
Meanwhile, Costa Rica signed an agreement with the U.S. to
open an International Police School (Escuela Internacional de
Policia) under U.S. control as a means of strengthening Latin
American armed forces.
Perhaps the most sinister single image to emerge over past
weeks has been the picture broadcast over Latin American television
stations and Univision of a masked right-wing paramilitary commando
vowing to start a contra war aimed at ousting democratically elected
Venezuelan president Hugo Chavez. This declaration follows on
the heels of the failed coup against Chavez carried out by right-wing
business leaders and generals-with the approval and support of
the U.S. embassy and the CIA. It surely indicates the Bush administration's
move to open a military as well as a political strategy to get
rid of Chavez.
There can be no doubt that a major U.S. imperialist offensive
is underway in Latin America-spearheaded by Plan Colombia, the
IMF, and the FTAA. That makes one more reason why building an
anti-imperialist movement here at home is more necessary than
Tom Lewis is a member of the editorial board of the International
Socialist Review and a regular contributor on Latin American issues.