In this issue:

Vulture Funds Sneer at Argentina's Final Offer

Optimism Generated by Argentine Nuclear Plans

Brazil's Primary Budget Surplus Hits New Record

Financiers Target Brazil; Demand More Blood

Chavez Recall Fight Could Spark Civil War

Castaneda Threatens Rival Candidate

From Volume 3, Issue Number 23 of Electronic Intelligence Weekly, Published June 8, 2004

Ibero-American News Digest

Vulture Funds Sneer at Argentina's Final Offer

Argentine Economics Minister Roberto Lavagna presented the government's final offer for restructuring $81 billion worth of defaulted bonds, at a June 1 press conference in Buenos Aires. However, the offer was not to the liking of the vulture funds, which immediately demanded more blood. Hans Humes, president of the Global Committee of Argentine Bondholders, which speaks for the vulture funds, and represents about a third of the total bondholders, said they were "extremely disappointed" with the Lavagna presentation, and announced they would lobby the Group of Seven nations to reject it. Whether the vultures will prevail, remains to be seen. The IMF and the Group of 7 nations have yet to respond. The lawyer for the Italian bondholders, Mauro Sandri, called the offer "a good sign," although he said the fine print had yet to be studied.

The government maintained its initial proposal that 75% of the nominal value of the debt is to be written off. The government offers to exchange the remaining 25%, for three different types of new 30-40-year bonds. Two concessions to the creditors were made:

(1) The government agreed to include the interest accumulated on the $81 billion between the December 2001 default and December 2003, as part of the total debt to be paid off over the next 30-40 years (i.e., to capitalize it), a sum estimated at $18.2 billion. Initially, the government had said that the interest would be written off, too. Should 70% or more of the bondholders accept the government's offer, the government will also capitalize the interest accumulated from December 2003 until the end of June 2004, bringing the total interest capitalized up to around $22.5 billion.

(2) All the bonds offered will include a GNP-escalator clause, under which bondholders will be paid more, when and if Argentina's GNP increases by more than 3% a year.

The Argentine daily Clarin, which defended the government decision to make some concessions, reported on June 2 that most representative forces in the country agree that they would back the government's negotiation strategy, in order to not weaken the government's domestic front. The only exceptions were Ricardo Lopez Murphy—a Mont Pelerinite banker and former Presidential candidate who is a real killer, and the head of Elisa Carrio's ARI party's Congressional delegation, Eduardo Macaluse, who issued a communique denouncing the government for "capitulating" to foreign creditors.

EIR suggests that those charging "capitulation" be told: "You don't like the deal? Blame Brazilian President Lula da Silva, for not supporting Argentine President Kirchner." Whatever the particulars of the Argentine offer—which, in any event, will be blown apart by the coming global crash, along with everything else—the Kirchner government has stuck to its guns on the principle that the people and the nation are a higher priority than the debt, despite being internationally isolated, outside of the aggressive support for the cause of justice for Argentina, provided by U.S. Presidential candidate Lyndon LaRouche and his international movement.

Optimism Generated by Argentine Nuclear Plans

The Kirchner government's selection of the highly respected Argentine company INVAP to oversee the completion of the Atucha II nuclear plant, has generated excitement among the country's scientific community.

Invap, a company owned by the province of Rio Negro in the Patagonia, has a history of extraordinary scientific achievements, starting with its construction in 1982 of the first reactor designed and built in the country, and continuing with its building and export of research reactors to several countries, the building of multipurpose reactors for production of radioisotopes for basic and applied research, and the development of technology for uranium enrichment. It is recognized internationally as one of the leading companies in the production of research reactors and radioisotopes, and has made crucial contributions in the fields of medicine—in cancer treatment in particular—and is the only Argentine company recognized by NASA as qualified to participate in space-technology projects.

Under contract to the National Atomic Energy Commission (CNEA), Invap began the CAREM project to design small (under 300 MW), modular, commercial nuclear-power plants, and produce them for export to developing nations. It is currently trying to secure financing for the construction of the first prototype, that would allow it to export several of these abroad. This type of reactor would provide developing nations an opportunity to employ nuclear energy, at a lower cost.

The estimated time frame for the completion of Atucha II is 52 months, during which time 5,500 high-skill jobs are expected to be generated; work at the Sierra Pintada uranium mine in Mendoza province, and the Cerro Solo uranium mine in Chubut province, will also be restarted.

Brazil's Primary Budget Surplus Hits New Record

The Lula government achieved another record primary government surplus—money extracted from the economy to pay debt—in April, totalling over US$3.8 billion in one month. Finance Minister Antonio Palocci, speaking to investors in Japan on May 28, however, worried that politicians do not realize that this level of "fiscal adjustment" will have to continue for another 10-12 years.

Primary budget surplus (PBS)—total government revenues minus all expenditures except debt payments—is the principal IMF conditionality ensuring Brazil places debt payment before all else. In April, the public sector—Federal, state, and municipal governments, plus the state-sector companies—ran a PBS of 11.91 billion reals, the highest monthly amount since such calculations began in 1991, surpassing March's record R$10.3 billion.

As Folha de Sao Paulo explained to its readers on May 28: "Despite being a good fiscal indicator, and news to be celebrated by the financial market, the record primary surplus... announced today, contributed to keeping the economy stagnant.... [T]he money collected in taxes which was saved for the payment of interest, is not being invested in public works or social projects, which could help reactivate the economy or generate employment."

Brazil's public debt has grown steadily this year, despite the government having paid 8.08% of GNP—over US$13.7 billion—in interest payments in the first four months of the year. Central Bank officials warn that the 5% further devaluation of the real in the month of May, will increase the debt even further.

Financiers Target Brazil; Demand More Blood

Although to EIR's knowledge there has been no foreign coverage, outside of this news service's publications, of the discussion of FDR-style economic recovery policies, now taking place in Brazil (see last week's InDepth), the City of London is clearly getting nervous that Brazil could decide to change its current, suicidal course. Media attacks are raining down on the Lula government, led off by a June 1 warning by the Financial Times, that Brazil must "push ahead" on economic reforms, because "signs of backsliding are likely to be punished."

The government faces opposition to more economic reforms, but it must prevail, the FT wrote. "Defeats would be costly, not just financially, but to the government's wider credibility.... The external environment is becoming harsher ... [which] merely underlines the necessity of having a fiscally disciplined, reforming government. Times remain hard. They will continue to do so. The government must, accordingly, persevere."

Business Week chimed in, with a piece in its June 7 edition, lying that the financial turmoil which hit Brazil in April and May, was all a result of Lula's failure to push through IMF reforms. Two government reforms were defeated last month in Congress; should more defeats come, it "would be nothing short of a fiscal disaster." Business Week names three reforms which the financiers view as "must do": Congress cannot raise the minimum wage above the miserable R$260 a month announced by the government; the government cannot yield to pressure from the unions and its own party to raise income tax exemptions by more than a minimal amount; and the Supreme Court must not rule the taxes imposed on pensions last year, unconstitutional.

Chavez Recall Fight Could Spark Civil War

The civil conflict in Venezuela, a nation which supplies some 15% of U.S. oil, entered a new phase, with the conclusion of the so-called "repair" of the petitioning for a recall referendum on whether President Hugo "I Speak for God" Chavez should finish his term. Forces on both sides are preparing for civil war, should the referendum option stall.

The Chavez-dominated Venezuelan Electoral Council was forced to announce June 4 that more than 2.4 million signatures favoring a recall referendum against Chavez were verified, and that the referendum will be held, probably on Aug. 8. If the referendum is held before Aug. 19, and Chavez loses, new elections will be called. If the referendum is held after Aug. 19, half-way through Chavez's term, were Chavez's opponents to win the referendum, no new elections would be called, and Vice President Jose Vicente Rangel would finish out Chavez's term. For Chavez to lose, more voters would have to vote him out, than the 3.76 million who re-elected him to a six-year term in 2000.

The announcement by the Electoral Council came after hours of violence from pro-Chavez thugs, who beat up the former head of the opposition AD party, sending him to the hospital with a concussion and a blood clot in his brain; crashed a truck into an opposition television station, shot up the offices of El Nacional newspaper, burned cars and buses in central Caracas, and attacked the offices of Caracas mayor and opposition figure Alfredo Pena with automatic weapons.

While there is some debate over whether Chavez could win the referendum, there is little question that he will not go easily. Chavez gave a televised speech hours after the figures were released, to announce: "I accept the challenge. We're ready for the Presidential referendum. The battle has just begun. The game starts now." Chavez said he was certain to win the referendum, and added that he hoped the past weekend's show of democracy would deter the U.S. from any attempt to overthrow him.

It still remains unclear whether Chavez will actually permit the referendum to go forward at all. The June 4 Financial Times warned that a Chavista grouping within the military, including Army battalion commanders, "is virulently opposed to the idea of a referendum.... 'This group is willing to effectively kick over the table to ensure there is no referendum,'" one Venezuelan army colonel is quoted. Even if the referendum proceeds, the disunited opposition—ranging from Synarchist-backed right-wing forces, to naive nationalists, old guard corrupt politicians, and everything in-between—has no competent leaders able to pick up the reins of power, nor a program for rebuilding the nation, whose economic crisis—like the rest of the continent—lies at the root of the problem.

Castaneda Threatens Rival Candidate

Wall Street's favored vehicle to break up Mexico's remaining institutions before the 2006 election, Presidential hopeful Jorge Castaneda, declared in late May that his opponent, Andres Manuel Lopez Obrador, had to be defeated, "to keep him from continuing to offer a populist platform." Castaneda specified: "I think he must be beaten, by all means fair or foul, by all means available."

To Castaneda, "populist" means opposing Wall Street's economic "reforms." Lopez Obrador is the Mayor of Mexico City, and a leader of the leftist PRD party. Because he talks a good talk (just as Lula da Silva did, before he won the election), he currently leads in polls for a Presidential election that is still two years away.

Castaneda has every right to oppose his opponent's "populist platform," but to speak of eliminating an opponent with "whatever it takes," opens the door to anything, including assassination, Proceso magazine responded May 27. We must ensure that political confrontations in Mexico do not again lead to bloodshed, as occurred a decade ago with the assassinations of Luis Donaldo Colosio and Jose Francisco Ruiz Massieu, Proceso warned.

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