In this issue:

New Mass Demonstrations Again Threaten Chavez Regime

Record Number of Argentines Lose Jobs This Year

Nearly Half of Argentine Economy Now 'Informal'

Reality Hits Some Sectors at Mexican Central Bank

Old Financial Architecture Crumbling, Worries Banco de Mexico Governor

'Mexico Is Not Latin America!' Insists Monterrey Group Mouthpiece

From the Vol.1 No.32 issue of Electronic Intelligence Weekly, Published October 14, 2002

IBERO-AMERICAN NEWS DIGEST

New Mass Demonstrations Again Threaten Chavez Regime

More than 1 million Venezuelans marched in the Plaza Bolivar of Caracas Oct. 10, demanding that President Hugo Chavez resign and that new elections be held immediately. The march stretched at least 30 blocks, and was the fifth, and probably largest, since the April protest march whose bloody outcome led to the temporary ousting of Chavez from office. Like the others, this march was sponsored by the business federation Fedecamaras, the Venezuelan labor federation, and an umbrella group of political opposition organizations known as Democratic Coordinator.

At numerous access points to Caracas being followed by the hundreds of thousands of protesters converging on the capital, armed members of Chavez's so-called Bolivarian Circles attempted to block the marchers, burning tires, throwing rocks, and shooting and wounding a number of the protesters. They were eventually dispersed by the National Guard. One death is being reported, but no details are yet available.

Throughout the week leading up to the march, Chavez deployed thousands of troops and tanks in and around the Presidential palace, the national palace, and across the city. On the day before the march, a very nervous Chavez warned that there was a conspiracy to overthrow his government under cover of the march, but he didn't dare ban the protest. Instead, he tried, and failed, to cut off its head by sending military police to arrest a number of the opposition generals who had been prominent in the April movement that had led to his ouster, and who represent the anti-Chavez faction within the Venezuelan active and retired military forces. In each instance, neighbors and supporters of the generals surrounded the police and forced them to leave without carrying out the arrests.

Several of the march leaders said that a program for a provisional government has already been worked out. Chavez was given a deadline within 10 days to come up with an "institutional solution" to the crisis, or face bigger and more frequent protests in the period ahead.

Record Number of Argentines Lose Jobs This Year

A record number of Argentines, 470,000, lost their jobs in the first nine months of this year. Analyst Bruno Matarazzo told Clarin Oct. 8, "For now, there are more jobs being destroyed than created. Sectors that continue to fire workers are financial (banks, insurance companies), construction, and auto. Those hiring people are linked to exports, or are exploring the possibility of selling abroad, or substitute imports." In September, 56,300 jobs were lost, an increase of 121% over August.

Nearly Half of Argentine Economy Now 'Informal'

Almost 50% of Argentina's economy is now "informal," according to a private think tank. In 1998, it was estimated that 30% of Argentina's economy was informal, but with the deepening of the financial crisis over the past four years, that figure is now close to 50%, according to Juan Luis Bour of FIEL. It's worth noting that FIEL is a Mont Pelerinite think tank which advocates privatization of the state, and repressive measures against tax evaders. Whatever its purpose in publishing the study, the reality described is accurate.

For example, 40% of the workforce works "off the books"— employers don't pay payroll taxes, benefits, pensions, etc., and workers are paid in cash. The imposition of the bank-deposit freeze last December exacerbated this trend. If employers have cash to pay wages, it's also because they are making money without declaring it, and therefore not paying taxes. In the last few years, as real jobs have disappeared, "informal" employment has risen astronomically, seen in the barter markets, or now, in the institutionalized "cartoneros," who dig through garbage each day, looking for items to sell for cash.

A significant percentage of financial transactions takes place outside the formal banking system— in fact, the banking system barely exists. The quantity of funds held by individuals or companies in checking or savings accounts has fallen to 1980 levels, and credit and debit-card transactions are also dropping. People have cash under their mattresses, or in the form of stocks, bonds, or accounts held abroad, to the tune of $100 billion, according to FIEL. The 7.7 billion pesos in "quasi-money" circulating nationally— provincial bonds, etc.— which is half of national monetary circulation, does not go through the banks. They are used to purchase goods and pay bills outside of the banking system.

With the dramatic contraction of the real physical economy, tax revenues have skidded— those in the informal economy don't pay taxes. A slight increase in tax revenues through July is explained only by the imposition of higher export taxes, as exports overall are dropping.

Reality Hits Some Sectors at Mexican Central Bank

Reality seems to have struck some sectors at the Mexican Central Bank (Banco de Mexico), as seen in its just-released "Monetary Policy Report" on the functioning of the economy for the first half of 2002. The report, covered in El Economista of Mexico City Oct. 1, notes, among other things, that "the risks to which the basic economy is subject for the remainder of 2002 and in 2003, are substantially greater than those envisioned for other quarters ... primarily due to the great uncertainty which currently exists with regard to the evolution of the world economy and the volatility of the financial markets." The report was apparently presented to the recent IMF/World Bank annual meeting.

Moreover, "The U.S. economy hasn't recovered in the second half of the year, [contrary] to what was anticipated." Noting that economic growth and inflation targets have not been met— inflation is out of control— the Banco de Mexico warns of a possible change in the dollar exchange rate with regard to the euro, as well as an "additional contraction of capital flows to emerging markets."

On Sept. 20, Mexican media reported on a flurry of early morning meetings at the Central Bank, attended by President Vicente Fox, his economics team, and Banco de Mexico Governor Guillermo Ortiz and his staff. Nothing was said about the content of the discussions, but later that day, Fox met with leaders of the Mexican Businessmen's Council, the Monterrey Group, and business associations Canacintra and Coparmex.

Old Financial Architecture Crumbling, Worries Banco de Mexico Governor

The old financial architecture is crumbling, worries Banco de Mexico Governor Guillermo Ortiz, and, he claims, its replacement isn't ready yet. Ortiz told the London Financial Times Oct. 1 that "the current situation in international financial markets is particularly dangerous because important pieces of the old [financial] architecture have been weakened, and the new elements are barely in the design phase." (Clearly, Ortiz is not paying close attention to developments, such as the Italian Parliament's adoption of a resolution calling for a new financial architecture based on Lyndon LaRouche's proposal for a New Bretton Woods conference.) Ortiz calls for increasing IMF resources, "and the quantity that can be loaned to any country, proportional to its size." He argued that the IMF should also make a larger initial disbursement of funds to a country in crisis, "given that the need for advance funds in a crisis of capital accounts is normally greater than in a current account [crisis]."

Also worried is the Private Sector Economic Studies Center, which warns of the "semi-stagnation" of Mexico's economy, noting that exports dropped by 7.7% in May and June, while industrial production dropped 1.7% for the same period.

'Mexico Is Not Latin America!' Insists Monterrey Group Mouthpiece

"Mexico is not Latin America! Mexico is North America! End of discussion. We have nothing to do with Latin America!" This hysterical outburst came from Lorenzo Zambrano, one of the leaders of Mexico's Monterrey Group and a nationally influential businessman, according to El Norte-Reforma Oct. 2. Zambrano went berserk in response to a question from a reporter, asking what he thought about the decline in foreign investment to Ibero-America and Mexico. Zambrano is pinning his hopes on the privatization of Mexico's electricity sector, which he says will provide the infrastructure Mexico needs to be more competitive globally, and "to take advantage of our geographical position and trade relationship with the United States." If privatization reforms are implemented, Zambrano states, Mexico can cease to be a maquiladora economy, and become instead "a nation of sophisticated logistics and infrastructure."

Also in Zambrano's camp is Finance Minister Francisco Gil Diaz, who insists that Mexico is on course, in terms of growth and inflation, "despite the deterioration of the international situation." Eduardo Sojo, public-policy adviser to President Vicente Fox, adds that the government is "confident and calm" with regard to international "turbulence." Crises in Argentina and Brazil are merely "conjunctural turbulences and won't discourage investment."

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