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 U.S. imperialism.

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 legislation.

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 the IMF.

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 6 percent.

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 meltdown.

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 and unemployment

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 times" reappear.

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.

Electoral barometer

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 summer.

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 politics.

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 reform.

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 ever.

Tom Lewis is a member of the editorial board of the International Socialist Review and a regular contributor on Latin American issues.

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