IBERO-AMERICAN NEWS DIGEST
Brazil's 'Risk Rating' Soars in Global Crisis
Brazil's "country risk" (a rating issued by the teetering U.S. bank J.P. Morgan Chase) has hit 17.71%, as capital flees Brazil. That's as high as the rating ever went during Brazil's 1999 financial blowout, which forced the free float of the real, Brazil's national currency. Now the real is sinking daily, and on July 26, went over 3 reals to the dollar.
By Bloomberg financial wire's calculation, Brazil's public debt increases by U.S. $1.4 billion with every percentage point of devaluation of the real, because around 40% of the debt is indexed to the dollar. Thus, the director of economic research of the Central Bank, Altamir Lopes, reported July 25 that, in the month of June, total government debt rose 4.6%, largely because of the 11% devaluation of the currency that month. He put total debt at nearly a trillion real at the end of June, or U.S. $337 billionequivalent to 78.1% of GNP, and an increase of 22% of the debt over June 2001, a jump of over one-fifth in one year!
Panic over the global collapse, combined with the statement by IMF Deputy Director Anne Krueger that no new IMF loan is under negotiation for Brazil (i.e., that the $10 billion creditors hoped the IMF would kick in to bail them out won't be there), has accelerated capital flight. People and companies with dollar debts coming due, are buying dollars now, convinced that today's dollar, as expensive as it is vis-à-vis the real, is cheap compared to what is coming. The Central Bank estimates that $10.6 billion in private debt comes due by Dec. 31, with nearly a billion of it due next Monday (July 29). Others are simply getting out of real investments outright.
Sounding like J.P. Morgan Chase executives, Central Bank officials felt compelled to offer public assurances that Brazil is "solvent." "There's no chance the debt gets unmanageable," Altmamir Lopes babbled July 28; as soon as the currency strengthens, the debt will fall.
Freeze on Bank Deposits May Be Uruguay's Next Step
A bank deposit freeze may be the next step in Uruguay, given the non-stop hemorrhaging of the banking system, to the tune of $40 million a day. The country lost 27% of its foreign reserves in the first 16 days of July, and nearly 70% for the year. Uruguay now has less than U.S. $1 billion in reserves left. The talk now is that unless more aid comes from international lendersthe $500 million recently sent by the IMF lasted two weeksUruguay will have no option but to restructure its debt, or go with the deposit freeze.
A J.P. Morgan Chase executive told Clarin July 25 that "at the rate at which deposits are being withdrawn, the government will have to make a decision.... It will have to restructure the debt, or deposits [freeze], or go with a huge fiscal adjustment." The country risk rate is now at 25%, and investors are talking openly of default. Holders of Uruguayan bonds are dumping them as quickly as they can, such that the widely traded bond that matures in 2003 has lost a third of its value in the last few days.
On July 22, former President Luis Lacalle, head of the National Party which is the minority partner in the coalition government of President Jorge Batalle, demanded the resignation of Finance Minister Alberto Bension, and set off a panic in this already highly unstable nation. Bension resigned the next day, followed by the head of the Central Bank. The new Economics Minister is veteran Senator Alejandro Atchugarry, one of the President's close political collaborators.
Chile 'Is Not Argentina,' Says Foreign Minister
"What happened to Argentina won't happen to us," vowed Chilean Finance Minister Nicolas Eyzaguirre, in an Interview published in the daily El Mercurio of Santiago on July 21. The former IMF official is increasingly the object of the private sector's ire, as he tries to explain why the economy of this country touted internationally as the success story, is not doing well. He says it's just part of an "international cycle."
Last week, the Central Bank cut interest rates for the fifth time this year (the tenth since August 2000), from 4% to 3.25%. Eyzaguirre has repeatedly promised that rate cuts would benefit demand, but just the opposite has occurred. Demand fell 0.7% in the second quarter of 2001, 0.2% in the third, and 4.9% in the fourth. In the first quarter of this year, it fell another 2.5%. In June, supermarket sales dropped by 3.9%. Moreover, economic growth through May of this year was 1.9%, while the government had forecast 3%. Unemployment stands at 9.1%, and is expected to go to two digits in the winter months (in the Southern Hemisphere), the fourth consecutive year this has occurred. Following last week's interest-rate cut, Eyzaguirre projected a 2002 growth rate of between 2.5% and 2.9%, down from his earlier 4.5% projection.
An additional factor of instability is the peso, which has depreciated 4.5% this year, which will most likely continue, given the constant rate cuts, and broader instability in the region as a whole. Eyzaguirre's solution to all this is to "make an effort to show that we have a quality that makes us different" from other South American countries. "We must repeat this constantly."
Reich Denies Economic Crisis; Sticks to Free Trade
Even as the economies of Ibero-American nations disintegrate, Assistant U.S. Secretary of State Otto Reich insisted in a July 18 report-back on his trip to Argentina, Brazil, and Uruguay, given at the Center for Strategic and International Studies (CSIS), that the problems in the region are only a "crisis of confidence." It is a "misintepretation of events" to suggest "that the democratic and free-market model has failed in certain Latin American states," he said, attributing the problems to the "imperfect and incomplete implementation of democracy and markets." (In an unintended truthful statement, Reich said that "the [free-trade] model has no more failed in Latin America than in North America, Europe or Asia.")
For this ideologue, the threat in Ibero-America is that the region has not yet severed itself "from its past," from its "legacy of poverty, statism, and authoritarianism." The "leadership class" must "eliminate the perverse incentives that the remaining elements of the old regime still offer." It is "incumbent" upon the United States' "stalwart ally" Argentina "to put forward a sustainable economic program," for example. He contrasted Argentina with Uruguay, claiming the latter is only facing a "temporary" financial crisis, which they have the political structures to overcome.
Reich declared: "We are reaching, if we haven't already reached, the bottom of the trough on the economic downturn, and are prepared for a recovery of the economies of the Southern Cone," although perhaps "there could still be a little bit of some more turbulence."
Reich recently added two more free-traders to his team: Dan Fisk, an "ultra-conservative" from the Heritage Foundation who helped Sen. Jesse Helms draft the Helms-Burton Cuban embargo laws, and Bill Perry, who also worked with Helms, and headed Latin American Affairs at the National Security Council under Bush I.
Multinational Force Planned Against Colombian Sovereignty
A Chilean military intelligence outfit operating near Washington, D.C. is being used to float plans for a multinational military intervention into Colombia, despite the Colombian military's opposition to foreign intervention.
The scenario appeared in a July 21 Jornal do Brasil article, whose source for the story is retired Chilean Army officer Jose Miguel Pizarro, a professor at Chile's National Academy of Political and Strategic Studies (Chile's equivalent of a Superior War College), and president of "Red Tactica," a "defense consulting" firm based in the Washington area. Red Tactica's website describes itself as an intelligence service for international defense industry companies operating in Latin America, staffed by former South American Army and Navy officers, former U.S. Marines, and a "multicultural team of researchers."
The Jornal do Brasil reports that since January 2002, some 30 Chilean colonels and lieutenant colonels at the Chilean War Academy have been preparing strategies for the participation of three Chilean infantry battalions (2,600 men) in an inter-American military "peacekeeping" force which would operate in Colombia. The force would be headed up by the United States, and operate under United Nations sponsorship, with a target date for intervention into Colombia of January 2004, after the Colombian military should theoretically have knocked down the FARC's military capabilities significantly. Plans for the force include participation by about 2,600 Peruvians; Argentina would provide a reinforced battalion; and Uruguay an infantry battalion. Brazil, however, remains silent on the plans.
Jornal do Brasil also asserts that Colombian President-elect Alvaro Uribe Velez discussed the multinational force idea with President George W. Bush and with UN Secretary General Kofi Annan, when he came to the U.S. in June. It also reports that during a June trip to Paris, Chilean Defense Minister Michelle Bachelet met with the Colombian Ambassador to France, Martha Lucia Ramirez, Uribe Velez's nominee for Defense Minister.
Such a multinational intervention force is undoubtedly someone's intention, but it should not be assumed that this is at present Uribe Velez's or the Bush Administration's policy. In addition to military opposition inside Colombia, spokesmen for the governments of Chile, Ecuador, and Peru all issued denials.
Brazil Workers' Party Promises Stability to Wall Street
Brazil's Workers' Party (PT) has told Wall Street not to worrywe won't rock the boat. The Workers' Party of Presidential candidate "Lula" da Silva has deployed its people to court Wall Street and bankers in various European capitals to "calm" bankers' nerves about Lula's economic program, and clear up "any misunderstandings" about what a PT Presidency would do. PT economist Guido Mantega began a European tour in London, to explain Lula's program, while back in Brazil, Aloizio Mercadante, coordinator of Lula's economics team, was meeting with Central Bank President Arminio Fraga.
PT President Jose Dirceu made the rounds of various New York investment banks last week, including J.P. Morgan, Citigroup, Morgan Stanley, Lehman Brothers, as well as rating agencies and Alcoa.
After the July 17 meeting, Paulo Vieira da Cunha, Vice President of Lehman Brothers, defended the PT, and claimed that a PT-backed plebiscite on whether Brazil should pay its foreign debt, which took place more than a year ago, was really the work of the Brazilian Catholic Bishops' Conference. Da Cunh said that now, the PT "has a different opinion on the matter," since Lula has of course publicly stated that under his Presidency, the debt will be paid.
However, Dirceu stated that it was "asking the impossible" to demand that Arminio Fraga be kept on as Central Bank president, or that the PT back the idea of an independent Central Bank. "We have already made a public commitment to fiscal responsibility and controlling inflation," he said. But he promised that the private sector would be well represented in the government, as evidenced by the choice of Sen. Jose Alencar as Lula's running mate. "That was to signal an alliance with the productive business sector," he said.
On July 23, the candidate himself presented a program of government intended to please the IMF, described by observers as "very moderate." There is no mention in the text of breaking with the existing economic model, and most negative references to the IMF, multilateral lending agencies, or the U.S. have been eliminated. The only person blamed for Brazil's current financial debacle is incumbent President Fernando Henrique Cardoso.
The program text states, "Our government will not break contracts or revoke established rules. International commitments will be respected.... Fiscal responsibility and stability in public accounts will characterize the policies of our government." The program also promises that any changes in the "rules," will "be done democratically within an institutional framework." And, the PT will "do everything possible not to allow an increase in the internal debt in relation to GDP."
AFL-CIO International Division Okays Lula and PT
Quoted in O Globo of July 14, Stan Gacek of the AFL-CIO's intelligence-agency-connected International Division, has given a clean bill of health to the Jacobin Workers' Party of Brazil (PT). Gacek, who was scheduled to meet with PT president Jose Dirceu during the latter's U.S. trip, is one of Inacio "Lula's" key handlers, whose close friendship with the PT Presidential candidate dates back to 1981. Gacek said a PT government would mean more socially responsible policies, and a defense of workers' rights, but would also guarantee "consistent" macroeconomic policies, able to attract foreign investment to Brazil. Gacek recommends that, should Lula win the October elections, his first priority should be a trip to the United States. This would be the best way to dispel any U.S. doubts about Lula and the PT.
Older Argentine Women Forced into Prostitution To Survive
The IMF has forced older and retired Argentine women into prostitution as their only means of survival. According to Argentine film maker Rolando Grana, who just did a documentary on this subject, some older women working as prostitutes did this in the past, "but what we found was a high percentage that had never done anything like this before." Grana said, "They are women who have lost everything. Who have no pension and the only thing that they can think of doing is overcoming embarrassment and prostituting themselves.... We came across a woman who worked as a prostitute so that she could afford medicine for her disabled son. Many of them seemed almost happy or joyful, but once we started talking in depth, then the pain came through." The film offered the case of one woman, Alicia, now in her 60s, who had had her own seamstress business in the past, but couldn't sustain it as the economic crisis worsened. She reports that she only charges 20 pesos per client, "otherwise they would be off like a shot."
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