The recolonization of Latin America
by Marcelo Garcia
International Socialist Review, Aug/Sep 2001
A QUALITATIVE leap is taking place with regard to the recolonization
of Latin America at the hands of the United States. The most powerful
imperialism on the planet has widened its policies of exploitative
expansion to include the entire Latin American continent. In order
to achieve its expansionist objectives, it has set as its primary
goals the dollarization of the continent and the orchestration
of free trade preached by the Free Trade Area of the Americas.
External debts, privatizations, flexible labor, and militarization
of the region-as in Plan Colombia-are the central elements of
its recolonizing policy.
The process of introducing a single currency in Latin America
has fairly distant antecedents, but never has there existed so
great a drive as the one being felt today. There are two forms
for the implementation of "dollarization." There are
those countries that tie themselves to the dollar in an official
way, and those that do it informally. In turn, there are those
in the first group that abandon their local currencies in a bilateral
way-reaching an agreement with the U.S. Federal Reserve, which
implies sharing control and obtaining a cover for the issue of
new dollars according to new demand-and those that opt for doing
There are already four Latin American nations that have formally
anchored their economies to the dollar: Ecuador, El Salvador,
Guatemala, and Panama. In this last case, the balboa was replaced
by the dollar in 1904. Dollarization in Ecuador occurred in January
2000; in El Salvador, a year later January 2001); and in Guatemala,
in May 2001, after the Guatemalan Congress approved last December
a law allowing free circulation of the dollar as a currency that,
in principle, would coexist with the quetzal. The economy of Costa
Rica will soon join them, although at the moment, the results
of trial experiences are pending.
The rest of the Latin American continent is divided among
those that are informally dollarized, those that are on the way
there, and those that still have some reservations about joining
in. Nations of the size of Argentina, Colombia, Peru, Paraguay,
and Honduras are in the process of dollarizing formally. Something
similar is happening in Mexico, since its type of exchange is
related to "free floating," which has been the rule
since the crisis of December 1994 and has become known as the
"tequila effect." President Vicente Fox still has not
given any favorable signs for complete dollarization of the Mexican
economy, but the proximity of and close dependence on the U.S.,
as well as its participation in NAFTA, makes Mexico easy prey
for the dollarizing project.
The case of Argentina is the most explicit, since the so-called
Convertibility Plan was orchestrated in 1991 under the presidency
of Carlos Menem and the economic leadership of Domingo Cavallo.
With this, they "invented" the one-to-one equivalence
of the peso and the dollar. Therein lies the key to informal dollarization.
The International Monetary Fund (IMF) maintains that a country
should be considered dollarized when it has more than 30 percent
of its deposits in dollars; in Argentina, there exists overwhelming
evidence to consider that the homeland of San Martin [Argentina's
national liberator-ed.] has lost a good measure of its monetary
independence. Sixty percent of deposits are held in U.S. currency,
while 66 percent of bank loans are also made in that currency,
and the same is true of 92 percent of public debt and 85 percent
of private debt. All it would take is the application of the reforms
already imposed in Ecuador, and Argentineans would definitively
lose their economic sovereignty.
Paraguay and Colombia are not much different from the preceding
example. Guarani economist Cesar Barreto discovered that "in
our country, 65 percent of deposits are in dollars, as are 50
percent of private-sector loans. Paraguay is virtually dollarized
and the guaranI has completely lost its role as a valuable reserve
currency and accounting unit."
Among the states that maintain somewhat more distance from
the process of dollarization, Brazil stands out for the moment.
Its president, Henrique Cardoso, has declared that Brazilian
dollarization is "unthinkable," although he hasn't shut
all the doors. This is why he predicts that, "at the right
moment," the country can adopt free convertibility as its
Economic sovereignty and international monetary stability
The total and absolute loss of economic and monetary sovereignty
is one of the principle characteristics of dollarization, which
undoubtedly brings with it a disaster for the political independence
of the dollarized nation. At present, the Latin American countries
as a whole are tied to the designs of U.S. imperialism, and it
is for this reason that they religiously obey the proposals and
models that organizations such as the IMF and the World Bank are
imposing in the economic realm. But the adoption of the dollar
will intensify their subjugation even more.
Any dollarized country will absolutely lose any possibility
of designing a politics of growth, of independent development
from the United States, or of real and definite attention to the
social needs of its inhabitants. Its economic strategy will be
completely tied to the U.S. Federal Reserve, which means that
national governments will be converted into mere managers or administrators
of the U.S. and its multinational corporations The Brazilian economist
Theotonio dos Santos explains this clearly:
Such a policy is a rejection of monetary control, of any
monetary policy, and lets prices adjust directly to the dollar.
But if we don't have funds and there's no liquidity, then the
economy doesn't function. The countries that adopt the dollar
are going to be in very serious recessions.
The defenders of switching currency assert that the main advantage
will reside in the eradication of exchange risk as a factor in
price formation, above all in interest rates, such that the country
risk and the credit risk would remain attached to the market's
perception of the capacity and certainty of payment. But for researcher
Ruben Pinero Santana, all of this could lead to a deflation that
would be very difficult for the national productive apparatus
to assimilate, as a result of its inefficiency and scarce technology.
He wrote in his analysis for the Cuban publication El Economista:
It's quite probable that local industry would not succeed
in lowering its costs with levels compatible with the fall of
internal prices. The result would be the de-capitalization of
national enterprises and their eventual replacement by foreign
Looking ahead, the U.S. is continuing to open the path toward
the monetary unification of the continent. Toward this end, U.S.
professor Steve Hanke has drafted a dollarization bill aimed at
Argentina-although this is only one step, since
Florida Republican senator Connie Mack has formulated a project
for the dollarization of all of Latin America that is already
being discussed in the U.S. Congress. The project, called the
International Monetary Stability Act (IMSA), makes clear the alleged
advantages that dollarization would produce. These include monetary
stability, the lowering of inflation and interest rates to U.S.
Ievels, greater economic growth that would stimulate savings and
investments, and a strengthening of the financial system. But
no one says anything about how a dollarized country could be easily
converted into a fiscal paradise for money laundering and counterfeiting.
In this same line of argument, IMSA asserts that such changes
would help to stabilize export markets and make them grow faster.
It also states that it would give U.S. investors the opportunity
to reduce their risk in the face of currency fluctuations in emerging
markets and that it would lessen the liability of contributors
when agreeing to financial aid to countries with financial problems.
Because of its contribution to strengthening the international
financial system, IMSA claims that it would increase profits in
the United States.
Meanwhile, Guillermo Gil, a specialist in monetary policy
at the Central Bank of Cuba, has offered this interpretation:
The total dollarization of Latin America would guarantee
the existence, for U.S. enterprises, of steady markets for its
products with a minimum of risk and an equally secure place for
investments. Moreover, it would mean the complete hegemony of
the dollar in the region, to the detriment of the euro, from which
it is easy to infer that this is the U.S. response to the economic
penetration of Europe into Latin America, and that it would mean
the expulsion of European firms and banks from the continent.
And it would constitute the most effective "weapon for destroying
regional trade blocs-Mercosur- | thus avoiding the emergence of
a common currency and the | integration of the region outside
of U.S. designs.
In conclusion, the perspective is that the Latin American
nations that accept this monster-dollarization-will be converted
into colonies that are both integral and useful to the Empire.
The governments of these nations will be transformed, as far as
the United States is concerned, into mere administrators of second-rate
Marcelo Garcia is a journalist and member of the Front Obrero
Socialista (Socialist Workers Front) in Comodoro Rivadavia, Argentina.