In this issue:

Base of Brazil's Ruling Party Sees Betrayal in Austerity Economics

LaRouche Friends Sworn in, in Brazil's Congress

Brazil: Budget Cuts Increase National Debt

Mexico: 50,000 Farmers Protest NAFTA Agricultural Clauses

U.S. Financial Collapse Spills into Mexico

Narcoterror Wave Expands in Colombia

IMF Policy Closes Colombia's Symphony Orchestra

IMF Praises Ecuador's Austerity

Argentina Now: Growth in Poverty, Child Labor, Trade Collapse

Uruguay: Rumors of Argentine-Style Bank Holiday

From Volume 2, Issue Number 6 of Electronic Intelligence Weekly, Published Feb. 10, 2003

Ibero-American News Digest

Base of Brazil's Ruling Party Sees Betrayal in Austerity Economics

Predictably, a brawl has erupted within Brazil's ruling Workers' Party (PT) over the issue of economic policy, following President Lula da Silva's return from an official visit to Europe. On return, Lula had to huddle with PT President Jose Genoino and his chief of Cabinet Jose Dirceu, to figure out how to manage growing dissent from the PT's more radical wing, which opposes the austerity policies imposed by Lula's Finance Minister Antonio Palocci. Palocci, they say, is continuing the policies of former Brazilian President Fernando Henrique Cardoso.

Palocci held a very tense meeting with the PT's Congressional bloc, where he justified the decision to impose whatever policy is necessary to ensure that Brazil "honors its contracts," that is, pays the debt, reported Bloomberg newswire on Feb. 4. Palocci argued that Lula's election platform included the promise to honor foreign obligations and related policies, and rejected any change in policy other than what was spelled out during the electoral campaign. Bloomberg adds that Palocci warned that higher interest rates and a tight budget were required to avoid a "collapse" of Brazil.

It is being reported this week that Brazil's foreign debt comes due in 2003. EIRNS has been unable to confirm this, but there is no doubt as to the panic in financial circles over the likelihood of a default. In its Feb. 4 report, Bloomberg worries that the PT may obstruct Palocci's efforts to impose the austerity policies necessary to avoid default—freezing wages, raising interest rates, overhauling social security, etc. "If the opposition continues," said one analyst, "the party may even split."

LaRouche Friends Sworn in, in Brazil's Congress

On Feb. 1, the friends of American Presidential pre-candidate Lyndon LaRouche's friends in Brazil—Dr. Eneas Carneiro, and the five other deputies elected from his PRONA Party—were officially sworn in as Congressmen, when the new Congress convened. Thus was defeated the hailstorm of fraudulent legal actions aimed at stripping the PRONA bloc of their election victory. Because they are now officially sitting Congressmen, the multiple actions have to go through new procedures, the making it almost impossible to strip them of their posts.

Another battle will have to be fought over the next two weeks: that of securing PRONA's right to constitute itself as a "parliamentary fraction," with the right to name a leader, who would be Dr. Eneas. A parliamentary fraction is granted a number of political prerogatives, such as the right to speak before the plenary of the Chamber of Deputies, on subjects of national importance.

Brazil: Budget Cuts Increase National Debt

The Brazil case study proves that cutting the national budget to please the IMF only makes things worse. On Feb. 7, Brazilian Finance Minister Antonio Palocci announced that the Lula government's target primary budget surplus for 2003 will be 4.25% of GDP, a target higher even than that "achieved" by the Cardoso government. This is supposedly to "prove" to "the markets" that Brazil's debt is sustainable. Under the IMF agreements operating since 1999, Brazil has been required to run ever-greater "primary budget surpluses," the which are calculated by subtracting all government expenditures except debt service, from all revenues. The surplus then goes to pay debt service.

Thus, from 1999 to 2002, the Cardoso government generated 163 billion reals more in revenues than it spent. At today's exchange rate, that's over $46.5 billion, all of which was used to pay debts. Each year the amount extracted was larger: in 2001, R$43.6 billion was extracted; in 2002, R$52.4 billion; and for 2003, the expected target is more than R$60 billion.

To produce the surplus, the Cardoso government savaged investments in electrical production (leading to nationwide electricity rationing), highway repair (many national highways are today impassable), law enforcement (the drug mob loved it), health (the AIDS virus loved it), and social programs. The US$46.5 billion-plus paid did less than nothing to reduce the debt, however. The debt, Brazilian daily O Globo pointed out on Jan. 31, grew from 1999 to 2002, by R$495 billion, a good US$141 billion, at today's exchange rate!

Mexico: 50,000 Farmers Protest NAFTA Agricultural Clauses

About 50,000 farmers marched in Mexico City on Jan. 31, to protest implementation of NAFTA's agricultural clauses. Three major groups—El Barzon, the Permanent Agrarian Congress, and an organization called "the Countryside Can't Take Any More"—led the demonstration, which brought farmers from around the country, with their tractors and farm animals, to demand that President Vicente Fox immediately begin negotiations with them over the issue of U.S. agricultural imports.

Since before Jan. 1, when Mexico had to eliminate protective tariffs on all but a handful of U.S. food imports, as per NAFTA's timetable, farmers have been protesting, warning that they will be wiped out by a flood of cheaper imports. However, instead of demanding NAFTA's abolition, their leaders are urging renegotiation, thereby letting stand the faulty premise that free-trade is "good" for Mexico. There are also demands for more government subsidies and a new farm policy altogether.

The Fox government has indicated it is ready to hold dialogue with farm leaders, as long as there are no conditions attached to it, and has rejected any idea of renegotiating NAFTA. Indicating what farmers think of Fox, one of the protesters was a burro, which sauntered down the main Reforma avenue of Mexico City, with "Fox" written in bright letters on its side. The Jan. 31 protest also included Jacobin elements, including some from the Zapatista National Liberation Army, Greenpeace, and other environmentalist groups. A leader of the national telephone workers union, who is also an official at the National Workers' Union Federation, said his group is prepared to support the farmers with a national strike.

U.S. Financial Collapse Spills into Mexico

In the shadow of the U.S. financial collapse, Mexican businessmen are sparring over economic policy. Hector Rangel Domene, president of the Mont Pelerin-influenced CCE businessmen's association, says that Mexico is now in an "orderly recession," which can only be resolved by government adoption of "structural reforms," such as privatization of the electricity sector. The political infighting which has delayed these reforms must stop, he demanded. Otherwise, Mexico won't be able to attain the necessary "sustained development."

Yeidckol Polevnsky, president of the Canacintra business federation, disagrees. Failure to carry out structural reform can't be used as an excuse to explain Mexico's problems, he said in a Feb. 3 press conference. The government can't sit around and wait to see what happens with the failing U.S. economy, to decide whether the country is going to survive or not. It must have a plan to build the internal market and diversify its export markets. What is needed immediately, is a revival of the construction industry, to build both housing and infrastructure; yet the government has practically ceased investing in infrastructure altogether, Polevnsky said. It is the government's policies which have made Mexico less competitive, and less attractive to investors, both foreign and national. Polevnsky reported that some Mexican businessmen are even considering moving to China, seeing it as an attractive location for productive investment!

Narcoterror Wave Expands in Colombia

Colombia's Arauca is the "pilot program" of warfare between the state and narcoterrorists. As of Feb. 4, the Colombian government had declared curfew in six of Arauca province's seven townships, after terrorists blew up an electricity tower that plunged the entire region into darkness. Arauca is an oil-rich province along the northeastern border with Venezuela, and has been a traditional battleground for territory between the FARC/ELN narcoterrorists and the paramilitaries. The Uribe government has put most of the province under military control, as a "pilot program" for its war against narcoterrorism, and the enemy is responding with everything in its arsenal, ranging from ambushes, sabotage and kidnappings, to car-bombings and selective assassinations. The chief of staff of the governor was shot in the head as she left her home for work.

The government is considering using the Army engineering battalions to build much-needed public works projects in the province, Defense Minister Marta Lucia Ramirez told El Tiempo on Feb. 1. The problem the government faces, is that until the government can reestablish control over the province, a good portion of any monies which the government provides either as royalties to municipalities, or for private contractors working on public projects, ends up in the pockets of one or another of the narcoterrorist gangs. Using the Army engineers is put forward as a way to counter the seizing of funds by the narcoterrorist forces.

But, skewing Colombian President Uribe's battle for territorial sovereignty in Arauca, however, is the recent arrival of some 70 special U.S. military instructors, to train Colombian soldiers as part of the U.S. project to create a separate military force dedicated to protecting only the oil pipeline running through Arauca, which is jointly owned by the Colombian state and Occidental Petroleum. The strategic pipeline has been dynamited hundreds of times in recent years by the narcoterrorists, but this deployment of U.S. military forces into Arauca reflects the Bush Administration's view that the pipeline is in the category of a "U.S. national security concern."

President Uribe has, however, firmly rejected a proposal made Feb. 2 by the UN Human Rights Commission, for the Colombian government to engage in "regional" peace negotiations with the FARC/ELN as a way of supposedly protecting human rights in Arauca. Said Defense Minister Martha Lucia Ramirez, "That is the UN's proposal. It is not the national government's position."

IMF Policy Closes Colombia's Symphony Orchestra

The appearance last December of a newspaper article by former Colombian Finance Minister, current Presidential adviser, and IMF lackey Rudolf Hommes, urging the closure of Colombia's National Symphony Orchestra, marked the signal for budget cutbacks—in line with IMF demands—that led inexorably to the official shutdown of Colombia's Symphonic Orchestra and National Band on Jan. 30. Every one of the 75 young orchestra and band members—the nation's finest—received a pink slip, and many of them are now seeking to emigrate and work in the United States.

In an interview that appeared in EIR in early January with the acting concert mistress of the Colombian Symphony Orchestra, Liz Angela Garcia condemned this policy of the Colombian state as "following the absurd model of privatization and globalization." She further warned that such a decision could well define "which way the country is going to go." After all, she insisted, "We are the real educators. With all due respect to Mr. Hommes, he doesn't know what he's talking about. Music, culture, and the education of a people are very important for any nation and for its economy. These are values that cannot be counted in money."

IMF Praises Ecuador's Austerity

The IMF rewarded debt-strapped Ecuador with a $200-million standby loan, and with praise for Ecuador's willingness to impose harsh austerity measures. The program, which has to be approved by the Fund's executive board, will then reportedly open the door for another $300 million in loans from the other multilateral lenders. The plan includes such measures as overhauling management of the country's customs and ports—possibly privatizing them—"reforming" the civil service (cutting wages), and tax reform. Finance Minister Mauricio Pozo announced a package of $600 million in "savings" last week, to come from freezing public sector wages, raising the fuel price by 35%, and imposing a 12% Value Added Tax, among other things. Great emphasis is placed on making state-owned companies more "efficient," i.e., downsizing. An IMF statement underscores that these reforms are "consistent with dollarization."

President Lucio Gutierrez, who ran as a "radical" boasted to the media that his government had set a "world record" in reaching an agreement with the Fund in only 16 days, adding, "It's a sign the IMF believes in our government." On Feb. 5, Standard & Poor's also absurdly revised Ecuador's sovereign debt rating upward, noting the government's progress in establishing "fiscal discipline." The Financial Times' Feb. 1 report was slightly more reality-based, noting that the IMF financing and fiscal cuts would avert a default at least for this year, providing the government is able to get legislation with the requisite reforms through the Congress, which is highly doubtful.

Argentina Now: Growth in Poverty, Child Labor, Trade Collapse

In Argentina, 57.8% of its people are now officially classified as poor; an increasing number of people cannot afford the cost of the monthly market basket, which increased by an incredible 75% in 2002! At the same time, wages, pensions, and income remained frozen. The government's monthly subsidy of 150 pesos to heads of households classified as poor, hardly makes a difference when the cost of the monthly market basket is 716 pesos. Most of the people who account for the 4% increase in poverty between May and October of 2002, are former members of the middle class who have lost their jobs, or whose income is insufficient to cover the cost of food and other necessities. These are Argentina's working poor.

Official unemployment stands at 23%, or 3 million people. If the 3 million officially unemployed, are added to the 3 million who work in the informal economy, plus 2.8 million retirees with pensions under 400 pesos, the result is almost 9 million people in Argentina who cannot purchase the basic monthly market basket of goods and services. It goes without saying that these poor also have no medical insurance.

Another part of the picture is that child labor has grown incredibly, as a result of the IMF-provoked collapse. Between 1995 and 2000, the number of children between the ages of 5 and 14 who were forced to take jobs of some kind, grew by 91.6%—from 252,000 to 482,000. Miguel Schapiro, an official of the International Labor Organization who was visiting the country, expressed "concern" over the increase, noting that, historically, rates of child labor in Argentina were relatively low.

Improvement is nowhere on the horizon. For example, Argentina's record trade surplus for 2002, of $16.4 billion is due solely to a 56% collapse of imports. Exports themselves actually dropped slightly, compared to 2001. Exports to Mercosur (Common Market of the South), in which Brazil is Argentina's primary trading partner, declined by 25%. Of the dramatic plunge in imports, the drop in capital goods imports was especially large, at 69%, followed by auto at 68%, and consumer goods at 56%.

Uruguay: Rumors of Argentine-Style Bank Holiday

Uruguay was awash with rumors of a bank holiday, Jan. 31, combined with reports that dollar deposits in banks would be "pesified"—forcibly converted to pesos, as occurred in Argentina a year ago. There was a run on the banks, as well, as depositors lined up to withdraw dollars. Finally, the government was forced to issue a statement, denying that any such measures were contemplated. Government sources told Argentina's Clarin they fear a speculative attack on the peso.

Uruguay is currently holding talks with the IMF, which agency withheld a scheduled $390-million disbursement last December, because specific fiscal discipline targets hadn't been met. The government wants those funds to be released, and hopes it can get an additional $700 million by promising to impose harsh austerity. Fear that the country will default on its $12-billion debt is such, that the Fund recently recommended that the debt be restructured.

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