[Militant International Review, No 60, February-March 1995, p. 26-28]
As the devastating debt crisis of the 1980s receded, Latin America once again showed signs of economic growth – there was even talk of Latin America joining the ‚first world‘ of advanced countries. But the Mexican financial crash has revealed how brittle these claims were. Tony Saunois investigates.
Mass uprisings by Zapatista peasant guerrillas and their supporters in the southern Mexican state of Chiapas occurred at both the start and end of 1994, As the second revolt continued into the new year, massive falls shook first the Mexican and then the other Latin American stock markets. At the time of writing (early January) the Mexican Peso had lost more than 40% of its value. At one stage it crashed by 60% over a two day period.
The Mexican stock market crash set off tremors in the Argentinean and Brazilian financial markets, with shares falling 10% in one day in both.
The Mexican crash has been dubbed throughout the continent as the ‚Tequila hangover‘. Behind this crisis is the shattering of a drunken dream propagated by the Latin American ruling class during the last few years: not only is an economic paradise not around the corner, neither is capitalist social and political stability.
As the 1980s debt crisis receded, apologists for the status quo started to talk about Latin America joining the ‚first world‘. In Chile, economists promised that the country would become the Latin American ‚Australia‘. Similar things were said about Argentina, Mexico and even Bolivia and Peru.
It is true that substantial economic growth rates have occurred in a series of countries. Inflation, once the hallmark of the continent, appears to have been brought under control and the debt crisis of the 1970s and 1980s resolved. Compared with the economic turmoil and social upheaval that rocked South America during the 1970s and 1980s a relative stabilisation was achieved in the early 1990s.
Gradually the multinational corporations and big banks came to see South America as a ’safer bet‘. By 1991 for the first time in more than [a] decade the massive capital outflows to service the debilitating debts of the 1980s gave way to a net inflow of capital. In 1993 the net inflow of capital was US$55 billion. This relative stabilisation and growth has, however, been very uneven and volatile; it will cost the ruling class, and the masses of Latin America, dearly in the next period.
As economic growth slows, political upheavals have rocked Mexico, Chile, Argentina, Bolivia and Venezuela. They are a harbinger of what will now open up throughout the continent. The most protracted economic growth has been recorded in Chile where the post-Pinochet government of Aylwin secured an annual average economic growth of 7.2% – a huge 10.3% during 1992, Argentina scored a spectacular development, amounting to 30% growth between 1990 and 1994. This placed it third in the world economic growth league, ranking only behind China and Thailand. Even Bolivia has seen ten consecutive years of growth, during which inflation has been brought down from 23,000% in 1985 to a mere 7.5% in 1994. A similar process has taken place in Peru. Only the economic colossus of the continent, Brazil, appears to have been the exception.
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An important part of this process has been trend towards the establishment of a trading bloc within the Americas, of which Mexico’s entry into NAFTA with the US and Canada is the most significant aspect. This was heralded as a model economic strategy, opening the way to Mexico being fully incorporated into the ‚first world‘. In May 1994 this seemed to be confirmed by Mexico formally joining the OECD – the ‚club‘ of the most advanced countries, The collapse of the Mexican currency and panic that swept the stock markets have punctured this balloon.
The NAFTA agreement was mirrored further south by the establishment of the Mercosur trading bloc including Argentina, Uruguay, Brazil and Paraguay, in 1991. Its objective is a free trade area similar to the European Union, Some of the participants want this to expand to include the Andean Pact countries (Bolivia, Colombia, Peru, Ecuador and Venezuela), with the idea of eventually joining with NAFTA to create a huge free trade area of the Americas.
The Mercosur countries include 200 million people with a combined GDP of $800 billion. This compares with NAFTA’s combined GDP of $7.2 trillion and the EU’s $6.2 trillion. While a joint South American trading bloc is likely, there will be important conflicts over its role. Brazil, the region’s economic giant, will want to dominate it, and tends to see it as an alternative to NAFTA.
The apparent economic transformation of the continent, coupled with major world political events like the collapse of the Soviet Union, had a major impact on the Latin American left. The leaders of the Chilean Socialist Party (PS), together with sectors of the Brazilian Workers Party (PT) and even important currents in the Nicaraguan Sandinistas, the Salvadorean FMLN and the M-19 movement in Colombia, moved sharply rightwards towards a new accommodation with market capitalism and the United States.
Failure to resolve any of the social issues results in the beginnings of a new revival of mass struggle in several countries.
Generally this has taken the form of new social democratic currents, like those led by Sergio Ramirez in Nicaragua and Joaquin Villalobos in El Salvador, which led to open splits in the FMLN and FSLN. The most right wing of these currents, for example the Chilean PS leaders, openly support massive programmes of privatisation and reduction of import tariffs.
However, the Mexican crash and the associated continent-wide turmoil have thrown into sharp relief the hollowness of the perspective of continuous capitalist economic growth. Perceptive ruling class observers never believed the hype. For the example the Economist cynically noted: „True, a grand document full of good intentions is floating around Washington; if all the governments live up to their suggested promises, Latin America will be near to paradise within 20 years, with pigs on the wing in search of pie“. (5 December 1994)
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The causes of the crash have to be sought in the character of the economic growth which has taken place. Nearly all of it has been the result of sucking in foreign capital, in search of a quick kill from privatisation programmes and high interest rates. This massively over-inflated the value of local currencies, and undermined domestic capital. It amounted to a short-term, speculative bubble, prey to a sudden crisis like that which has taken place in Mexico bringing the whole thing crashing down and leading to capital rapidly flowing outwards.
In Argentina during the 1980s $50 billion worth of capital fled the country. Between 1990-93 $24.5. billion flowed in. The government raised $24 billion from its privatisation programme. Throughout the continent airlines, telephone systems and large sections of industry previously owned by the state have been brought up at knock-down prices. The social consequences have been graphically illustrated by the privatisation of the Argentinean state oil company, which slashed its workforce from 52,000 to only 6,000.
As can be seen from the Argentinean example, it has been the transnational corporations that have benefitted rather than Latin American domestic capital. From a medium-term point of view this process has weakened further the national bourgeoisie and substantially increased the domination of the Latin American economies by imperialism.
The inflow of foreign capital is a one-off development mainly due to the privatisation policy. Despite the prospects for further privatisations, irrespective of the outcome of the present financial crisis this cannot be sustained for an indefinite period. The western financial institutions now want Brazil to undertake a major privatisation programme. The size and character of the Brazilian economy will make this a far more difficult process than was the case in Chile, Bolivia, Peru and other smaller economies.
The recent crisis in Mexico erupted with the growth of the current account deficit of the government, now standing at $28 billion. This, together with the rise in interest rates in the US, and the instability of the new government, resulted in a flood of dollars out of the country that accelerated as the Peso was devalued by the government. The government spent $20 billion of its dollar reserves supporting the Peso leaving it with only $6 billion. Instead of a predicted economic growth of 4% this year it is likely to be only 1.5% and inflation is set to rise from 4% to aver 15%, This has destabilised NAFTA and caused panic in Washington.
The Latin American left moved sharply rightwards towards a new accommodation with market capitalism.
A key feature of the early 1990s economic growth was its uneven character. It did not raise the living standards of the vast majority of workers or peasants, as once again the Argentinean example shows. Growth was concentrated in Buenos Aires and a few other major centres, leaving whole regions untouched and suffering a spectacular decline. Thus in the province of Jujuy the economy contracted by 30% in real terms since 1990 compared with a national growth rate of 30%. Growth has been in selected industries and is not generalised throughout the economy.
On a continental level the investment has been equally uneven and centred on a few key countries. Of the $55 billion capital inflow into the continent during 1993 nearly half – $25 billion – went into Mexico because of the NAFTA agreement. Moreover the investment that has taken place has still not replaced what was lost during the debt crisis of the 1980s. Thus in Argentina in the three years to the end of 1993 investment increased by an annual average of 23%. Despite this apparently impressive increase, in real terms it is still below the level reached in 1980.
The figures for the real incomes of the urban and rural poor are revealing. According to the World Bank, average incomes have risen by 49% since 1989. Yet in real terms they are 30% below the level of 1980. The poorest 20% have gained most in relative terms since 1989, but their income is worth only 60% its value in 1980! In Chile, after a period of the most protracted growth, the distribution of wealth has remained virtually unchanged. Those officially regarded as ‚poor‘ fell only marginally, despite huge economic growth, from 44% of the population in 1987 to 40.1% in 1990, The poorest 20% received 3.8% of wealth in 1987 and now just 4.1%. Despite its near decade of growth, Bolivia is still the poorest country in the western hemisphere after Haiti. Seventy per cent of its population still live in poverty and have a life expectancy of just 60.
It is the failure to resolve any of the social issues that has now resulted in the beginnings of a new revival of mass struggle in several countries. In Chile an important strike wave has swept the country. Uprisings have occurred in the poorer provinces of Argentina; in Santiago del Estero the town was taken over by the workers and the police driven out. Bolivia experienced a general strike in 1994. And of course the Zapatista rebellion continued in Mexico.
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The Mexican crash and the destabilisation of the speculative investment bubble, have cast a critical spotlight on rightward developments in the Latin American left. In the crucial general elections in Mexico and Brazil in 1994, the left ‚populist‘ PRD in Mexico and Lula’s PT in Brazil both lost heavily as the official message of these parties became more ‚moderate‘ and less radical. These and other rightwards shifts were in part an accommodation to the euphoria of the speculative boom. The new crisis, with its undermining of the position of the Latin American ruling class and generation of new workers‘ struggles, will re-pose the socialist alternative to the unending cycle of imperialist domination and mass poverty which remains that continent’s lot.
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