International Socialist Review Issue 19, July-August 2001
Is there a solution for Latin America?
By Tom Lewis
Tom Lewis is a professor of Spanish at the University of Iowa and a member of the editorial board of the International Socialist Review. He has written several articles on Latin America for the ISR, including Brazil: The struggle against neoliberalism; in the June-July 2001 issue.
NO END appears in sight for the economic and political crisis affecting Latin America. Crushing external debt, chronic unemployment, privatization mania, gutted social programs, and government corruption define the existence of a majority of Latin American countries. Recession, too, now menaces the entire region and has already wracked Argentina for more than three years. If Argentina defaults on its external debt, the problems presently faced by Latin America will suddenly look tame.
Throughout the 1980s and 1990s, Latin American rulers parroted the lines dictated to them by the U.S.-dominated World Bank and International Monetary Fund (IMF). They justified the introduction of neoliberal economic policies with promises that the new order would deliver a better world for their peoples.
Neoliberalism, with its open embrace of corporate globalization, was said to represent the means by which Latin American countries could achieve parity with the economically advanced countries–the U.S., Japan, and the nations of the European Union. The twentieth century ended, however, with a widening gap between Latin America’s developing states and the developed nations they pursued.
For Latin America, globalization has meant a race to the bottom rather than a race to the top. It is clear, of course, that the developed nations had a head start. What is no longer clear is whether Latin American economies stand a chance of ever catching up.
The crisis
The crisis in Latin America is a crisis of global capitalism in its contemporary, or neoliberal, form. Neoliberalism comprises a set of policies that have evolved over the past 20 years to include balanced budgets, deep cuts in public spending, lower wages for workers, deregulation, trade liberalization, production for export, and the privatization of state-owned enterprises. As a package, these policies were supposed to allow countries to manage their external debt, while simultaneously acting as engines of national growth.
Neoliberalism initially succeeded in lowering inflation and stimulating export growth in a number of Latin American countries. Exports grew by 6 percent in the 1990s compared with less than 2 percent in the mid-1980s. But, as is now well known, economic growth in the 1990s went hand in hand with a decline in living standards. "Achievements have not translated into a better life for most Latin Americans," according to one historian.1
Instead, neoliberalism has created a nightmare throughout Latin America. Whole populations remain enslaved by debt service. Mass unemployment has become the rule rather than the exception. Class inequality and social polarization have exploded rather than abated. A process of "denationalization" has taken hold, which significantly limits the ability of countries to steer their own economic course.
Latin America’s external debt, for example, ballooned from $439.7 billion in 1990 to $679.8 billion in 1998. Introduced as a response to the debt crisis of the early 1980s, neoliberal policies promised to enable the region’s nations to reduce their debt. What they actually accomplished was the slashing of funds for health, education, and the social safety net as a way of freeing up more cash for debt service.
Unemployment in Brazil and Colombia today hovers at 20 percent; in Argentina, Ecuador, and Venezuela, at 16 percent; in Chile, at 11 percent. Moreover, for those holding jobs in the 1980s and 1990s, drastic wage reductions have remained one of the IMF’s most bitter legacies. As Joel Geier explains,
Under IMF auspices, the 1980s was a lost decade for Latin America. In Chile, IMF loan conditions cut real wages by 40 percent. The IMF loan to Mexico in the debt crisis of 1982 cut real wages in half in the next decade, while investments in health, education, and basic physical structure were also halved.2
It should surprise no one, therefore, that widespread poverty still haunts Latin America. Based on the unrealistic figure of one dollar per day, even the notoriously understated official figures show that a majority of rural households, and 30 percent of urban households, currently live in poverty throughout the region. As a number of analysts argue convincingly, "If the poverty line is more realistically judged as the level at which families are able to meet their basic needs, then the percentage of Latin American households living in poverty would hit 60 percent."3 Those mired in abject poverty remain 35 percent of the region’s peoples–"just as they were a decade ago."4
Denationalization plays a major role in Latin America’s present crisis. Of course, the term "denationalization"–that is, the decline of national sovereignty–should not be understood as suggesting that local conditions no longer help to determine transnational processes or that nation-states have become superfluous. As Ellen Meiksins Wood explains:
If "globalization" means the decline of national capitalist classes and the nation-state, the transfer of sovereignty from the state to the organs of some kind of unified transnational capital, it certainly hasn’t happened yet and seems unlikely ever to happen. It is hard to foresee the day when capital will stop being organized on national principles.
In fact, globalization itself is a phenomenon of national economies and national states. It is impossible to make sense of it without taking account of competition among national economies, and national states carrying out policies to promote international "competitiveness," to maintain or restore profitability to domestic capital, to promote the free movement of capital while confining labor within national boundaries and subjecting it to disciplines enforced by the state, to create and sustain global markets–not to mention national policies deliberately designed to forfeit national sovereignty. It needs to be added, too, that globalization has in large part taken the form of regionalization…creating blocs of unevenly developed and hierarchically organized national economies and nation-states.5
But denationalization does accurately describe an important dimension of contemporary Latin American experience insofar as corporate globalization has severely weakened the ability of countries to choose an independent economic direction. In addition to the conditions imposed by IMF and World Bank deals, the frenzy of privatizations represents the main cause of new limitations.
In Brazil, which is the world’s eighth-largest economy, fully 70 percent of the businesses involved in mergers or acquisitions during the past five years ended up with foreign ownership. Twenty years ago, approximately one-third of large enterprises had foreign owners in Argentina, Latin America’s third-largest economy. Two-thirds fall under foreign control today, including such strategic sectors of the economy as petroleum, energy, telecommunications, public services, and the rail industry.6
The debate
There are three basic views on how to resolve Latin America’s crisis. The first corresponds to Latin America’s ruling class and holds that prosperity for everyone will eventually result from all of the current pain. After 20 years of experience with neoliberalism, however, this view rings hollow. Even when neoliberal policies have led to growth in gross domestic product (GDP), such growth has always been accompanied by a rise in economic and social inequality. Hence, this view is nothing more than a smokescreen hiding the fact that Latin America’s bosses and politicians intend to seek an end to the crisis by attacking the living standards of urban and rural workers even harder.
The second view argues that an alternative mode of national insertion within the global economy must be found. It holds that the primary task at hand is to reclaim national sovereignty and to strengthen the position of the nation-state in the world market. The reform-oriented left (social-democratic parties, trade union leaderships, indigenous peoples’ movements, other peasant organizations, some nongovernmental organizations [NGOs]) and liberal sectors of Latin America’s bourgeoisie (populist parties, technocrats and professionals, the majority NGOs, the church in a number of countries) share this view.
The third view maintains that no solution exists for Latin America’s problems at the national level. It argues that a solution cannot be based on the illusory belief that the competitiveness of Latin American nation-states within global capitalism could be increased to the point where parity with the economically advanced countries would result. Concluding that only an international and revolutionary strategy can lead to better societies throughout the region, this view currently belongs to an important minority.
A debate between the second and third views is underway all over Latin America, in the face of the urgent need to build the movement against neoliberalism and corporate globalization. Brazil is one place where that debate has reached its fullest expression. In particular, the debate on the left that has been conducted in a spirit of solidarity around the book A opção brasileira (Opção, The Brazilian Option) has helped to clarify certain issues.
A Opção Brasileira-Consulta Popular includes the Movimento dos Trabalhadores Rurais Sem Terra (MST, The Landless Rural Workers’ Movement), a group of left intellectuals, and certain sectors of the church–all of whom are working to build an alternative social movement to the left of the Partido dos Trabalhadores (PT, Workers Party) and the Central Unica dos Trabalhadores (Workers Central Union, CUT). The book A opção brasileira represents their statement of strategy in the fight against neoliberalism and consists of a progressive version of the second view. The strengths of the book are its commitment to mass struggle and direct action as vehicles for confronting corporate globalization, its insistence on the need for theoretical discussion, and its insight that the possibilities for Brazilian parity with the developed nations have now vanished.
Fifteen years ago, various paths of accelerated development could claim successes, with substantial legitimacy. Apparently, the intermediate countries were getting closer to the leaders…. As it is organized today, the international economic system is structurally asymmetrical and rigidly stratified. A logical impossibility prevents any strategy for parity from altering the relative positions inside the system…. The successive disarticulation of strategies for parity is a decisive aspect of the world situation and is one that affects us most directly.7
Despite its clarity on this issue, however, Opção goes on to argue in favor of taking up the project of Brazilian national development anew, only this time with the idea of using it to give impetus to the formation of a regional economic bloc encompassing all of South America: "Over time, a successful national project in Brazil would naturally grow over into a continental project, with a great vocation for integration."8 South America could then "explore its own synergies" and reverse its continuing decline in the world economy. Opção’s vision is thus one of a world segmented into large trading blocs whose comparable size and productivity would neutralize the existing hierarchy and unevenness of the global economy.
In this regard, the strategic weakness of Opção Brasileira-Consulta Popular’s platform significantly outweighs its strengths. Opção’s argument recalls Karl Kautsky’s theory of "superimperialism," in which, during the run-up to the First World War, Kautsky put forward the improbable notion that the division of the entire planet among a few great superpowers was a force working in favor of peace and stability. Opção implicitly repeats Kautsky’s fundamental mistake. That mistake was to assume that the existence of large economic blocs would negate the necessity for enterprises and the states backing them to compete under capitalism. And capitalist competition inevitably results in winners and losers–whether on the stock exchange or on the battlefield.
Precisely because competition is inherent to capitalism, envisioning a "United States of Latin America" makes sense only in the context of a struggle for the "Socialist United States of Latin America." As one Brazilian revolutionary socialist explains, Opção "speaks of the decline of [national] sovereignty with globalization, which is absolutely correct. But this can be avoided only by a revolution, made by workers, that advances toward a rupture with imperialist capitalism."9
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1 Thomas O’Brien, The Century of U.S. Capitalism in Latin America (Albuquerque: University of New Mexico Press, 1999), p. 166.
2 Joel Geier, "IMF: Debt cop," International Socialist Review, Spring 2000, pp. 19-20.
3 Lance Selfa, "Latin America: Rebirth of resistance," International Socialist Review, Winter 2000, p. 9.
4 O’Brien, p. 166.
5 Ellen Meiksins Wood, "Unhappy families: Global capitalism in a world of nation-states," Monthly Review, July-August 1999.
6 See José Welmovick, "América Latina en el cambio del siglo: Revolución o colonia," Marxismo Vivo, October 2000-January 2001, p. 9.
7 César Benjamín, et al., A opção brasileira (Rio de Janeiro: Contrapunto Editora Ltda., 1998), pp. 126, 127, 129.
8 Benjamín, p. 143.
9 Eduardo Almeida Neto, Brasil: Reforma ou revolução (São Paulo: Cadernos Marxistas, 2000), p. 88. See pp. 83-93 for additional criticisms of the theoretical and political framework of Opção Brasileira-Consulta Popular.
Argentina’s plight
NOWHERE ARE the effects of two decades of neoliberalism any clearer than in Argentina right now. The country has recently entered its fourth year of recession. Roughly one-third of Argentineans–12 million people–live below the poverty line. The unemployment rate tops 16 percent. Severe cuts in wages, education, health care, and other social services have so angered both urban and rural workers that six general strikes have taken place over the past 18 months. On any given day, as many as 50 blockades of highways and roads occur throughout the countryside.
International confidence in the government’s ability to service its external debt grew so shaky in June that, at one point, Argentina was forced to pay 14 percent interest to attract buyers for its government bonds. In July, Argentine bank deposits were expected to drop by $7 billion, or 9 percent, by month’s end–"the largest such drop since Mexico’s ‘tequila crisis’ in 1995."1
To compound the misery, Argentine president Fernando de la Rúa and economy minister Domingo Cavallo recently won congressional approval of a "zero-deficit" budget plan for the remainder of 2001. The government hopes to avoid default on the nation’s $130 billion external debt by implementing yet another draconian austerity plan. This time, the austerity measures are so extreme that they call for a brutal 13 percent reduction in state salaries and retirees’ pensions, as well as an across-the-board cut of equal magnitude in social services, including education and health care.
Argentina’s recession began when the 1997 Asian financial crisis reached Latin America in late 1998. Since then, payments on the external debt have severely restricted possibilities for domestic growth. At the same time, the currency peg of Argentina’s peso to the U.S. dollar keeps domestic prices high and thus dampens possibilities for export growth.2 Because the majority of business and personal debt in Argentina exists in dollars, moreover, the dollar peg cannot simply be abandoned. To do so would risk opening the country to complete financial ruin.3
The IMF’s role in skewering Argentina has proven central. At 45 percent of GDP, Argentina’s debt of $130 billion is not exorbitant by international standards. Japan’s ratio of debt to GDP presently stands at 125 percent, and Italy’s reaches 130 percent. The government deficit in Argentina also runs at a mere 2 percent annually. In other words, Argentina’s external debt is average, and its government deficit is small. Yet, the IMF insists on murderous cuts so that payments on the debt can be made on time.
Caged by the dollar peg on the one hand, and tortured by the IMF on the other, it remains difficult to see how Argentina can pull itself out of recession any time soon. The dollar peg eliminates the likelihood of an export-led solution, while the IMF has barred any solution based on increasing government expenditures.
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1 Thomas Catán, "Austerity bill boosts Argentine markets," Financial Times, July 31, 2001, p. 1.
2 Argentina’s main trading partners are the Mercosur countries. Throughout 2001, the Argentine peso has remained steady against the dollar, while the Brazilian real and the Chilean peso have continually posted new lows.
3 See "Continua a luta contra Cavallo e De la Rúa," Correio Internacional, March 2001, pp. 1-3.
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