Latin America is entering a period of profound economic recession, financial crises, collapsing stock market quotations, prices, deep devaluation of its currencies, growing unemployment, declining revenues and the prospect of a prolonged socio-economic recession. The economic breakdown, which is still unfolding, affects the entire political spectrum, extending from the far-right Uribe regime in Colombia to the social-liberal Chilean and Brazilian governments of Bachelet and Lula da Silva to the 'center-left' regimes of Evo Morales in Bolivia and Rafael Correa in Ecuador and even to the leftist government of Hugo Chavez.
It is not surprising to see that rightist regimes, embracing neo-liberal doctrines and deeply enmeshed in free trade agreements with the US, following its path to economic collapse. The deepening crisis has affected, with equal or greater force, the so-called 'center-left' regimes of Brazil, Ecuador, Argentina, Bolivia and Nicaragua.
The problem avoidance and external finger pointing adopted by the ideologues of the 'New Latin American Left' reflects a fundamental misunderstanding or ignorance of what was really going on within these countries. They substituted emotional gratification at rhetoric flourishes and symbolic changes and privileged invitations to private soirees with the 'center-left' presidents over hard analyses of substantive policies and structural continuities. Disentangling illusions from reality is the first step to coming to terms with the existing collapse affecting the region and the disastrous consequences for the great majority of wage, salaried and informal workers and peasants.
The spread of the crisis from the US-Europe to Latin America is a result of the CLR's continuities of the neo-liberal policies, the maintenance of the same ruling economic classes and the pursuit of economic strategies dependent on inflows of speculative capital, debt financing and the agro-mineral export elites.
Despite the rhetoric of '21st Century Socialism' (Chavez in Venezuela, Morales in Bolivia, Correa in Ecuador and Ortega in Nicaragua), 'independent model' (Lula Da Silva in Brazil), and the 'social-liberal' model (Bachelet in Chile and Vazquez in Uruguay), the above-mentioned regimes retained and even deepened the principle structural features and policies of the neo-liberal model. They remained highly dependent on the global market: in fact they all accentuated its worst features by emphasizing primary goods exports (agro-mining commodities) to take advantage of the temporary spike in prices. As a result they vastly increased their vulnerability to external shocks. With the onset of the world recession in 2008, the collapse of demand put an end to the big trade surpluses and provoked a big slide in all the related economic factors: Foreign reserves plummeted. Government revenues based on export taxes declined precipitously. Local currency was devalued as both foreign and domestic investors fled to what they perceived as stronger currencies and safe havens.
All of the CLR based their development strategies on a strategic partnership between the nationalist capitalist class, the state and foreign investors contrary to the populist-nationalist imagery of Western intellectuals. At the very onset of the financial collapse, foreign capital began its massive flight outwards and upwards driving down the stock markets in Brazil and Argentina by over 50% and forcing a de facto devaluation as local savers and investors converted local currency into dollars, euros and yen. With the onset of the recession in the real economies of the EU and the US, national capitalists and financial elites responded by reducing investment in the productive sectors anticipating a sharp decline in demand for their primary commodity exports. This provoked a multiplier effect in satellite and related domestic manufacturing and service industries.
The double exposure to financial shocks and world recession was a direct result of the one-sided export market policies pursued by the CLR. The leaders of the CLR paid lip service to 'regional integration' (ALBA, MERCOSUR, UNASUR), even setting up an entire administrative structure and initially investing marginal resources to the effort. The regional rhetoric was dwarfed by the ongoing and growing 'integration' in the world market, which remained the motor force of their growth. Given their deep involvement in the primary commodity boom, the regimes maximized the importance of markets outside of the Latin American region. With the downturn, even the regional integration scheme (MERCOSUR) faces disintegration as Argentina turns protectionist.
The temporary trade and budget surpluses were used to further deepen the primary sector expansion (expanding infrastructure to and from productive sites to shipping centers on the coast), increase the wealth of the agro-mineral elites, and encourage a huge influx of speculative investors who inflated stock valuations (doubling and tripling prices in the course of two and three years: Price/earnings ratios reached bubble proportions.
The reactionary/retrograde model of the CLR, built on the 'primarization' of the economy and the boom in speculative investment, was ignored by almost all Western intellectuals who were dazzled by and chose to focus on marginal 'populist' measures: Lula's $30 dollar (45 Reales) monthly food basket for 10 million poor families (who became part of his electoral client machine in the Northeast); Kirchner's promotion of human rights and 150 Peso ($50 USD) monthly unemployment benefit; Evo Morrales cultural indigenismo and 'joint ventures' with the international oil and gas companies (falsely dubbed 'nationalization') and Rafael Correa's declarations in favor of 21st Century Socialism and increased social spending.
The ideologues of the CLR failed to analyze the fact that these marginal increases in social spending took place within a socio-economic and political framework, which retained all the structural features of a neo-liberal economy. With the collapse of overseas primary commodity prices, the first reductions in government programs are directed at…the poverty programs that provided a fig leaf to the rapacious speculator-agro-mineral driven economic model. The entire 'left spectrum' ignored the fact that the balance of payments and budget surpluses, which funded social reforms, were dependent on the inflow of 'hot money'. The latter, by its nature, enters easily and flees rapidly, particularly in response to any adversity in their 'home market', not to mention in the face of a worldwide financial crash. Thus the already meager social measures adopted by the CLR were fragile to begin with, highly dependent on the volatile behavior of highly speculative capital and world markets.
Latin America did not 'de-couple' - it was part of a global chain, which tied it to the vagaries of the US and EU economies. The attempts by Brazil's President Lula to blame Brazil's crises on US 'casino capitalism' in order to deflect criticism from his policies of deep structural dependency on primary commodity exports and hot money is beside the point: The Brazilian regime's policies opened the door wide to the full adverse effects of the downfall of US speculative capital.
None of the CLR deviated from the neo-liberal 'export model' nor did they make any effort to dynamize the domestic market or mass consumption via redistributive policies. Industrialization was subordinated to commodity exports. Urban incomes between capital/labor favored profits over wages. Interest and royalties remained highly skewed in favor of capital thus weakening domestic demand. Support of the agro-export elite and the rejection of agrarian reform, undermined the domestic purchasing power of millions of landless and subsistence peasants, rural laborers and small farmers. Tax subsidies and incentives, not progressive taxation, eliminated the possibility of rebuilding social services (public health, education, pension and social security programs), which could have expanded domestic production and investment. The CLR did not invest in a production grid linking complementary internal regions and economic sectors. The CLR's investments linked local domestic sites to ports connected to overseas markets.
The CLR strategies weakened their domestic markets relative to the big push toward exports thus avoiding structural changes. This emphasis on social payments was contingent on the performance of the agro-mineral export sector of the big bourgeoisie. Even their 'social transfers' have proved to be unsustainable. Without the meager poverty programs there is little to distinguish the CLR from their traditional neo-liberal predecessors.
During the boom in commodity prices several CLR regimes, namely Brazil and Argentina, diverted billions of dollars in earnings to early pay-offs of their debts to the IMF and other official lenders, claiming this 'freed' them to pursue 'independent policies'. In fact the IMF was very happy to re-capitalize their treasury while the levels of poverty continued at alarming levels and public facilities, like housing, transport, schools and hospitals deteriorated. While some aspects of foreign external debt declined, others, mainly private foreign debt in dollars and Euros, skyrocketed, encouraged by the CLR. Given the regimes' high domestic interest rates, foreign overseas borrowing by domestic businesses rose precipitously and foreign speculators, lenders and overseas subsidiaries of US and EU banks loosened lending standards. With the financial crash in the US and EU, foreign flows of capital dried up and short-term notes were called. Foreign inflows turned into massive outflows, driving down the value of the currency. The Brazilian and Argentine stock markets fell by over 50% in less than 5 months (June-October 2008) and the credit crunch began to squeeze investment.
The crash in commodity prices, deeply affected state revenues as prices for copper declined by 60% (from $9,000 USD a ton in June 2008 to $3,900 USD in October 2008 and oil fell from $147 USD a barrel to $64 USD during the same period). What is worse, the decrease in the CLR's foreign debt was matched by a vast increase in domestic debt - that is borrowing from foreign banks' subsidiaries and local financial groups. The latter lent to the regimes by borrowing from overseas banks and thus the entire credit/finance chain continued to depend on private financial institutions in the US and Europe. Rather than reflect a break with the financial dependence of the past neo-liberal regimes, the CLR reproduced it via local intermediaries. Combined with the collapse of commodity prices, the financial crisis revealed the abject integration and subordination of the CLR to the empire-centered marketplace. The sustained fall in stock prices and the massive flight from local currencies to dollars revealed the entire precariousness and profoundly 'liberal' nature of the CLR economic policies.
The CLR regimes diverted the major part of their windfall profits to building up their foreign reserves to attract foreign loans, credit and investors and to cushion the effects of a downturn in the economy rather than in large-scale investments in human resources and the domestic market. As a result, the foreign reserves provide a temporary lifesaver in the face of the decline in revenues from export earnings. Nonetheless, the regimes are using the foreign reserves to keep afloat the private banking system and to pacify panic-stricken investors seeking to convert local currency into dollars and euros. As the reserves are depleted, the CLR are resorting to class-selective reactionary fiscal policies. Once again the negative impact of the financial panic reveals another negative ('liberal') component of the CLR strategy: its dependence on an unregulated stock market highly susceptible to any downturns in the valuations of commodities and commodity prices.
The CLR economic policies and the major private economic actors were deeply enmeshed in the world of speculation just as any 'neo-liberal' regime would be. The total absence of any popular movement oversight of the CLR policies was a result of their total exclusion from all governmental positions making economic decision (Central Bank, Ministers of Economy, Finance, Commerce, Industry, Agriculture and Mining). The claims of participatory democracy were revealed to be a total farce. Moreover, the CLR (with the partial exception of Venezuela) granted 'autonomy' to the Central Banks, eliminating Congressional oversight and facilitating closer ties between Central Banks and the private financial elite.
As the capitalist financial system crashes throughout most of the world and a global recession spreads from the imperial countries to Latin America, the leading center-left regimes are not immune to the double shocks. Because they opted for a primary commodity export model they are especially exposed and vulnerable to the rapid fall in world demand and prices. While it is true that conservative fiscal policies allowed them to build up their foreign reserves, thus providing them with a partial and temporary cushion to weather the first wave of capital flight and to finance dollar-denominated debt, it should be remembered that the other side of the 'prudent fiscal policies' was the neglect of the social problems and economic diversification. Poverty reduction, through investment in productive employment, agrarian reform for landless peasants and the development of the internal market, in the medium run, could have lessened the impact of the crisis in the North.
The attempts by Lula, Evo Morales and political leaders to pin the blame entirely on the crises in the imperial countries, ring hollow after years of their hobnobbing with the economic elite in Davos and focusing exclusively on trade and investment agreements with MNC, 'hot money' from Wall Street and betting on agro-mineral exports. The spread of the crisis in Latin America, from early 2008 onward, is playing itself out gradually. The high level reserves, the relatively high prices (despite the 70% decline from record prices), the temporary return of partial liquidity and the slight loosening of credit in world markets as a result of over $1.5 Trillion USD injection of public funds by the US and EU has slowed the fall into an inevitable recession.
What is crucial however is not where Latin America's CLR stand at any given moment in time, but the direction they are moving and the inherent negative structural features, which are driving the economies toward a deep recession. As the reserves dwindle and as the agro-mineral elites disinvest in the face of declining prices, a serious negative multiplier effect sets in, battering satellite industries and driving dependent sectors into bankruptcy. Equally important, the economic recession is leading to deep and widespread state spending cuts. Given the fiscal conservatism built into the personnel of the key economic ministries and central banks, it is highly improbable that the CLR will reverse course and run fiscal deficits, increase large-scale, long-term public investments, restructure their economies and re-configure the social basis of public policy.
By the end of 2009, Latin America's CLR will feel the full brunt of the world economic recession, precisely when its depleted foreign reserves will have further discouraged overseas and local capital investment. No long able to rely on its principle 'economic motor force', the agro-mineral elite to finance imports and lacking overseas investment and credits for its exporters and banks, Latin America's CLRs will be confronted with powerful pressures from below. Workers and employees losing their jobs, local banks facing bankruptcy, manufacturers closing plants and indebted consumers and mortgage holders with few assets to sustain demand and living standards will be on the streets clamoring for state intervention: From the left and from the right.
soulskier said:That guy uses to many big words for me. Can someone translate into laymen form?
No, Argentina will have some affect, but it will have a better chance of survival. The main reason is this country seems to "rest" every 8-10 years. I guess people just get use to it.The whole World could blow up and Argentina would be unaffected, right?