On the Borrowed Time
Frieden, Jeff
IDB-funded Piedras Azules cement plant, Comayaga, Honduras LAST YEAR BRAZILIANS WERE FOND OF repeating President Joio Baptista Figueiredo's supposed remarks to a loyal audience. According to the...
...As foreign finance dried up, industry was robbed of a major source of dynamism and both industrialists and workers were caught in the squeeze...
...At the same time, domestic business opportunities open to the major international banks were stagnating as the postwar boom began to wind down-hence the look overseas...
...Foreign finance was expected to spur industrial expansion...
...But it rested upon the continued ability of Latin American nations to increase exports and keep payments on their debt within reasonable limits...
...These sectors comprised the most powerful industrialists...
...Brazilian exports, for example, went from $1.7 billion in 1967 to over $20 billion in 1980...
...And indeed the 20 years after World War II saw a major industrial expansion in most of the region...
...Economic problems are so serious that major social conflict over issues 32REPORT ON THE AMERICAS 0I REPORT ON THE AMERICAS 32such as inflation is inevitable...
...W HAT THEN MIGHT THE 1980s BRING...
...His Brazilian counterpart, Ernane Galveas, concurred: "It is a dangerous mistake to think that the problems of international debt and economic recovery have been fully resolved...
...By 1981 Mexicanowned private corporations owed $13 billion to overseas banks, one-sixth of the country's total debt...
...access to British markets for their grain and beef could not be lost at any cost...
...0.7 n.a...
...One of the most valuable is Inter-American Development Bank, External Debt and Economic Development in Latin America (Washington, D.C.: IDB, 1984...
...A wave of protest welled up from the modern industrial sectors of Latin America...
...The difference between Luis Inacio da Silva ("Lula") in Sio Paulo, and Lorenzo Miguel in Buenos Aires or Fidel Velizquez in Mexico City is striking...
...From the standpoint of the Latin American nations, the reasons for heavy overseas borrowing were more complex...
...The "discipline" needed to impose austerity was provided by new military dictatorships in several nations...
...Such optimism is not warranted, nor is it shared by most Latin Americans, who have long and bitter experience with leaders who confound faith and fact...
...4. Paul Bairoch, The Economic Development of the Third World Since 1900 (Berkeley: University of California Press, 1975...
...106-40...
...By 1980 they were some $40 billion and growing more than twice as fast as exports of raw materials...
...The greater willingness of foreign banks to lend made borrowing from private Latin America External Debt, 1984 In billions of dollars Argentina Bahamas Barbados Bolivia Brazil Chile Colombia Costa Rica Dominican Republic Ecuador El Salvador Guatemala Guyana Haiti Honduras Jamaica Mexico Nicaragua Panama Paraguay Peru Suriname Trinidad and Tobago Uruguay Venezuela Private* $8.3 n.a...
...The oil shocks of 1973-74 served to accelerate the process.* In the broadest sense, capital made available by foreign banks went to the most dynamic sectors of the countries' economies...
...At the height of Chile's boom, 1978 to 1982, half of the country's investment was financed abroad-leaving postcrash downtown Santiago littered with empty and half-finished office buildings...
...The armed forces are in disarray, unable to consistently muster even conservative respect and support...
...Sinhor (Sio Paulo), August 17, 1984...
...0.01 7.1 2.1 2.5 n.a...
...Much of the middle class turned from complacent conservatism to protest, often to defend the public sector against attacks by foreign creditors...
...The optimists make three crucial assumptions: that the banks will resume lending to Latin America, that overseas markets for Latin American goods will expand and that the region's domestic political systems have been left fundamentally unchanged by the debt crisis...
...7 Mexico, despite its oil wealth, used foreign borrowing to fund about onefifth of domestic investment between 1978 and 1982...
...non-traditional exports were growing...
...0.2 1.2 n.a...
...As might be expected, all this borrowing by government coporations led to an astounding expansion in the Mexican state sector, to some 40% of the GDP in 1980...
...While the balance-of-payments crises of the 1930s led to populism and those of the 1960s led to military dictatorship, the current debt crisis seems to be creating the conditions for heightened social struggles in a more or less democratic setting...
...T HERE WERE ALSO MAJOR DIFFERences among the big Latin American borrowers...
...At the same time, much of the region may follow the apparent trend toward more open political systems...
...Austerity programs around the region cut subsidies to the urban poor, who took to the streets in desperation...
...Brazil's old-style labor leaders are under continual attack from a new breed of activists, more concerned with the needs of workers than with nationalist rhetoric...
...The steel industry expanded its capacity, increasing the orders it placed with local private industry...
...The author would like to thank Tom Frieden, Barbara Geddes, R. Guttman, Stephen Haggard, Mimi Keck, Marcelo de Moura Lara Resende and the NACLA staff for their useful comments and suggestions...
...All told, foreign finance accounted for nearly onesixth of Brazilian domestic investment in the 1970s...
...0.7 n.a...
...2.7 10.6 Short Term $12.6 n.a...
...ON BORROWED TIME 1. The New York Times, September 23, 1984...
...More than ideology, this sentiment is based on a profound dissapointment with the harmful consequences of the military government's arbitrary economic policy-making...
...At the same time, protectionism in the developed countries increased dramatically, and much of it was aimed at imports from Latin nations...
...This follows naturally, as the incentive for export-oriented growth, driven by foreign capital, dissipates...
...Indeed, in much of Latin America, per capita income has now dropped to at or near where it was 10 years ago, and it may take another decade simply to return to pre-crisis levels...
...3 (1980), pp...
...It was in this context that the increasingly available and relatively inexpensive foreign bank finance was eagerly snapped up by Latin nations...
...In the boomtown atmosphere that prevailed during the heyday of the two countries' monetarist experiments, much of the foreign borrowing went into real estate or financial speculation...
...Today, Latin America's labor movements may be on the verge of leading the struggle against austerity and for social progress...
...2.7 11.6 16.9 Total $46.4 0.2 0.4 3.1 98.0 18.1 10.7 4.1 3.3 6.4 2.2 2.1 0.7 0.5 2.1 3.0 93.7 3.8 3.1 2.9 13.2 0.7 2.9 31.3 banks a possibility for the first time in 35 years...
...A wave of "IMF riots" hit the Dominican Republic, and food riots became commonplace in Brazil...
...Although much of the borrowed money was used productively, some regimes undoubtedly wasted the funds on bloated salaries or chimerical projects.* In a few nations, notably Chile and Argentina, real-es*On wasted money, see Cheryl Payer's article in this issue...
...Industrialists enjoyed protection from foreign competition and even tolerated wage hikes for labor, since rising incomes meant rising demand for the consumer goods they produced...
...Neither were private financial markets likely to lend more money to Latin America...
...One does not have to approve of de la Madrid or Alfonsin's attacks on labor to believe that Mexican and Argentine workers are better off without the labor gangsters of the traditional PRI and Peronist unions...
...The rationale behind this massive borrowing was fairly straightforward...
...n.a...
...Source: Inter-American Development Bank Report on* th Americas 26As economic crisis overtook the region, many countries were forced into a succession of adjustment programs which typically included the reduction of popular consumption...
...1.7 3.0 66.9 3.7 n.a...
...Economic elites that had been at each others' throats forgot their differences as economies boomed...
...And, to add insult to injury, the private banking system often received windfall profits as domestic interest rates soared...
...From Mexico to Argentina and Brazil, opposition to government economic policy grew as the crisis drove more and more previously thriving firms into bankruptcy and caused massive unemployment in such major industrial centers as Sio Paulo, Buenos Aires and Mexico City...
...n.a...
...2 The astounding growth of the overseas debt of the larger countries of Latin America had two points of origin: the banks wanted to lend, and the countries wanted to borrow...
...This would mean that, for the first time in much of Latin America, politics would become increasingly class-based and openly competitive...
...15564...
...Businesspeople in Chile, Argentina and Brazil have been in the forefront of opposition to government economic policy, and in many cases their newfound revulsion to the consequences of foreign borrowing and the governments that encouraged it has made them leading critics of the regimes in power...
...Such false logic can also be heard in the citadels of international finance, where bankers are declaring the Latin American debt crisis defeated...
...Consumergoods imports went way down, but imports of such capital goods as machine tools and equipment used to produce consumer goods rose dramatically...
...The prolonged shrinkage of productive activity will inevitably lead to the destruction of Brazilian private industry and could even threaten the continuance of the free enterprise system...
...From roughly World War I until the 1960s-the period differs from country to country-most of the Latin American nations underwent a process known as import-substituting industrialization, in which direct investment by foreign-owned corporations was an important feature...
...The urban middle classes, too, were affected...
...1-2 (1977), p. 1 15...
...the CarajAs mining complex...
...With international trade and finance cut off, just about every Latin debtor decided it was not worth the trouble to maintain debt service, and a wave of defaults swept the continent...
...Economic and political environments are also quite different in Latin America...
...In the 1930s and 1940s, the working class was a junior partner in populist coalitions...
...This might especially be true in countries, like Mexico, where the military has managed to maintain its aura of nonpartisanship...
...The idea is that higher domestic interest rates will continue to attract foreign finance and discourage capital flight, and that cuts in government spending will make funds available to maintain service on the foreign debt...
...In 1966, the Argentine generals followed suit...
...By 1960, for example, effective rates of tariff and other forms of protection for manufactured products were 42% in Mexico and 184% in Brazil...
...XXXV, no.3 (Summer 1981), pp...
...0.3 n.a...
...While the Right's primary social base is debilitated, its primary weapon, the military, is hardly in better shape...
...At the same time, private corporations that had expanded thanks to government orders suddenly found that these orders had disappeared as state spending was cut...
...T HE CRISIS OF THE 1980s WILL NOT BE A simple repeat of the 1930s...
...The banks would provide capital which was desperately needed by the region's corporations and governments...
...Labor, too, is changing...
...In the summer of that year, Mexico was the first domino to fall...
...By about 1965, tariffs were high in virtually all of the larger Latin American nations, and this had encouraged industrial development, especially in heavy consumer goods in which foreign corporations were prominent...
...Despite national variations on the theme, the borrowing boom had some common features...
...1.5 Public** $25.5 n.a...
...n.a...
...Especially after 1976, these two laissezfaire strongholds practically opened their borders to foreign finance...
...the debt was being serviced...
...IDB, External Debt, pp...
...This is partly a result of the abject failures of military rule...
...In the rest of Latin America-and even in Per6n's MARCH/APRIL 1985 31Argentina-things were very different...
...Here, too, the public sector was the big borrower, led by the petroleum and iron-ore firms nationalized in 1975...
...The initiative passed to more modern hands: the domestic banking system, state corporations, nationally owned private firms in such advanced industries as consumer durables and capital goods and, of course, the dynamic multinational corporations...
...8. On Brazil, see Baer, Brazilian Economy, pp...
...Austerity might help overcome temporary balanceof-payments problems, but more basic issues soon arose...
...National statistical sources and interviews were also used...
...See also Andre Lara Resende, "A politica brasileira de estabilizacdo: 1963/1968," Pesquisa e Planejamento Econ6mico, Vol...
...XV, no...
...national development banks, which re-lent the funds to locally-owned corporations at subsidized rates...
...Between 1950 and 1970, Latin America's combined Gross Domestic Product (GDP) tripled...
...Import substitution, debt repudiation and income redistribution were the economic complements of nationalist populism, whether of the radical (Mexican) or military (Peronist) variety...
...Politics and economics, of course, went hand in hand...
...According to the story, Figuereido announced, "When I took office in 1979, Brazil stood at the brink of an abyss...
...produce basic inputs (steel, energy, oil...
...n.a...
...From 1930 until the mid-1960s, after all, there was virtually no private bank lending to Latin America...
...After years of austerity and a return to civilian rule in 1980, bankers are still suspicious of Peruvian reliability...
...The urban middle and working classes were pacified with tangible material improvements in their lives and promises of still brighter days ahead...
...Medium- and long-term debt contracted by the public sector...
...The ensuing waltz between international banks, the International Monetary Fund, the borrowing countries' authorities and domestic political actors in both developed and developing countries has now held the world's attention for three years...
...n.a...
...And the domestic private banking system was exploding with its new-found overseas connections...
...Dominant elites-frustrated with the military and populists, and confident of their own social power-seem willing to risk more open political systems...
...EVEN AS LATIN AMERICA'S EXPORT markets began to dry up, the cost of servicing its foreign debt rose dramatically...
...And the spectacular growth in deposits into the international financial system by the oil-rich nations of OPEC left the international banks even more flush with funds after 1973...
...Although recent events demonstrate the attractiveness to much of the business sector, the middle classes and labor, of a "progressive" national unity that would manage an orderly, moderate retreat from IMF orthodoxy, such variegated coalitions are unlikely to last long...
...Colombia, it is often said, needed foreign capital only to supplement its plentiful cocaine revenues...
...0.1 n.a...
...DURING THE PAST 20 YEARS, THE REgion amassed $300 billion in foreign debt, then collapsed under the weight of this burden...
...15.6 0.1 n.a...
...Haiti's good behavior can best be explained by the presence of U.S...
...Plenty of private borrowing went on too, and a good portion of it was undoubtedly sunk into Miami real estate...
...The most dynamic industries in Latin America, especially capital goods and consumer durables, were stretched to the limit by the domestic consequences of the debt crisis...
...16-20...
...3 But foreign corporations, especially those producing more sophisticated consumer goods, jumped the tariff barriers in order to tap the rapidly expanding markets...
...National capital goods industries were blessed with rapidly growing orders to keep factories humming...
...In the case of Brazil, manufactured exports went from virtually nothing to over $10 billion in that period...
...Directly or indirectly, it was reasoned, foreign finance would help raise the na- tional output of modern products...
...n.a...
...It was soon followed by Brazil, Argentina and nearly every other Latin debtor...
...As Brazil's best-known business group declared in July 1983, "it is reckless to subject Brazil to a recessive adjustment of uncertain duration...
...For nearly 40 years, foreign capital and foreign markets have been central to Latin America's growth, and thereby its social cohesion...
...1-11...
...But there are strong forces militating against a resurgence of traditional militarism...
...For Peru, borrowing peaked in the early 1970s, during the nationalist phase of the military regime...
...But the continuing financial crisis is now eroding the economic bases of Latin American politics...
...As in the 1930s, international economic events are causing a major political upheaval around the region...
...Sidermex, the huge state steel MARCH/APRIL 1985 *For a discussion of the impact of oil shocks on indebtedness, see Cheryl Payer's article in this issue...
...The system seemed viable, indeed extraordinarily successful...
...develop natural resources...
...7. Figures cited below come from a variety of sources too numerous to list in detail...
...Nationalist leaders came to power throughout the region promising to better the lot of the urban (and sometimes rural) poor and near-poor...
...Even official Latin American opinion is pessimistic...
...After the Malvinas/Falklands fiasco, the Chilean collapse, the Brazilian bust and Peru's problems, even traditionalist "forces of law and order" are hard-pressed to find anything good to say about the military...
...Many of the biggest privately owned firms borrowed heavily abroad, too...
...At the same time, exports of "non-traditional" products such as manufactured goods also shot up...
...Nor are new forms of multi-class nationalist alliances likely...
...In the process, state-owned corporations were strengthened dramatically...
...The interest payments on their debt soared, even as their ability to meet those payments declined...
...2. There are major differences among countries of the region, and our focus on a few big borrowers will obscure many local details and ignore the smaller countries...
...By 1982 the "debt service ratio," interest and principal payments as a share of export earnings, was 73% for Chile, 78% for Brazil and an incredible 113% for Argentina...
...The two most distinctive poles of the phenomenonMexico's Institutional Revolutionary Party (PRI) and Argentina's Peronism-are undergoing major realignments...
...WITHIN THIS GENERAL PATTERN, THE background to massive overseas borrowing, and the uses to which it was put, varied somewhat from country to country...
...the nuclear power program...
...407-31...
...Populist movements, led by men as diverse as Brazil's Getulio Vargas, Argentina's Juan Per6n and Mexico's LAzaro Cdrdenas, all had very similar multi-class bases of support...
...In Chile and Argentina, the pattern was somewhat different...
...1985 29 MARCH/APRIL 1985 29DEBT A S THE DEBT CRISIS WORSENED, ITS political fallout settled on a variety of fronts...
...Perhaps the most striking fallout from the debt crisis was the explosive indignation of major portions of Latin America's business communities at government-imposed austerity...
...In 1981 and early 1982, for example, untold billions of dollars borrowed by Mexicans were plowed into North American real estate and savings accounts as Mexican investors took advantage of the remarkable (and artificial) strength of the peso...
...Better-off workers in the modern industrial sector, too, were pushed to the wall by the austerity programs and the industrial depressions that ensued...
...For the first time in 30 years, world trade stagnated and began to decline...
...In the two previous rounds of crises, labor was a relatively passive actor...
...the figures refer to all developing countries, not just Latin America, but are probably representative...
...n.a...
...Exame (Sio Paulo), March 9, 1983, pp...
...REPORT ON THE AMERICAS 28tate and financial speculation received a big boost from borrowing...
...84-86...
...Some of this increased output would be sold on overseas markets...
...In the 1930s and 1940s, Latin America could count on a degree of U.S...
...The biggest private borrower was the Alfa group, Latin America's largest private firm, which was $2 billion in hock by 1980...
...MARCH/APRW...
...Then Finance Minister Ernane Galveas' explanation was little comfort to the desperate business community...
...Virtually all of this debt is at floating interest rates, so the jump in the U.S...
...Perhaps most important, foreign borrowing would permit rapid economic growth without challenging the social bases of ruling coalitions...
...Repressive regimes could drive down living standards and discontent while maintaining existing patterns of international economic integration, as they did in the 1960s and early 1970s...
...They had grown prosperous primarily as government employment grew...
...Manufacturers of capital goods and other modern products had gained substantially in the previous 15 years of debt-fed expansion...
...to build new productive facilities...
...Traditional populist movements and politicians are already fading or changing...
...Domestic business communities seem increasingly anxious to build political systems in which they and others can compete more freely...
...3-43...
...But underlying trends in many Latin American economies helped make the need for foreign finance pressing...
...As austerity programs slashed state spending, government functionaries saw their salaries, and even their jobs, cut...
...It has brought to the fore the question of all economic crises: who will bear the burden of adjustment...
...If, as seems probable, international trade and finance stagnate through the 1980s, the economic base of these sectors will be very weak, probably far weaker than other social groups...
...High interest rates," Galveas said, "are the price that Brazilian society is paying in order to increase exports and sustain the balance of payments adjustment...
...n.a...
...Indeed, much of the borrowed capital could be channelled to local business...
...A NOTHER POTENTIAL OUTCOME TO the political upheaval brought on by the debt crisis is a conservative onslaught, probably with military overtones...
...In Brazil, the major Sdo Paulo businesspeople were an important factor in spurring and speeding the abertura process...
...In 1964, the Brazilian military seized power and by 1967 had forced the labor movement to swallow a more than 10% average real wage cut, and a one-third drop in the real minimum wage...
...Corruption, too, siphoned off part of the borrowed money, and some of it-8% by one estimate-went to buy military hardware.' Nonetheless, enough of the foreign finance was going to local investment that in most of the big borrowing countries, industry and industrial exports boomed...
...3.1 57.3 7.9 7.1 3.5 3.0 6.4 1.3 1.8 n.a...
...As the debt crisis continues, governments will find themselves crushed between overseas creditors demanding payment and REPORT ON THE AMERICAS 30The middle class--"ftrom complacent conservatism to protest" their own workers demanding a living wage...
...Statesmen, central bankers and private bankers are all eager to resume business as usual...
...9. Walter Kitchenman, "Arms Transfers and Indebtedness of Less Developed Countries," Rand Note No.N2020-FF (Santa Monica: Rand, 1983...
...If and when the local industrialists needed to expand production, they turned either to the national development bank or to the local private banks, all of which were borrowing heavily abroad and were happy to lend to local private industry...
...because fundamental problems have not been resolved...
...in 1968 a group of nationalist Peruvian officers also took power, and within a few years only a handful of Latin American countries had freely elected governments.' Y ET EVEN AN IRON FIST COULD NOT eliminate underlying economic dilemmas...
...REPORT ON THE AMERICAS Latin America 73.7 219.6 54.71 352.9 *Medium- and long-term debt contracted by the private sector...
...and provide cheap, often subsidized, supplies to domestic industrial firms...
...Unlike most of the rest of Latin America, private firms and individuals did the bulk of Chile's borrowing and nearly half of Argentina's...
...It is unlikely that populism will be revitalized in the 1980s...
...The U.S...
...By 1982, it had become virtually impossible for the largest Latin debtor nations to continue servicing their foreign obligations...
...prime lending rate went from 11% in early 1979 to over 20% by early 1981...
...None of these assumptions is plausible...
...117 (September 1983), pp...
...1.1 1.8 n.a...
...In the early 1980s stagnation joined with monetarism to sabotage these two prerequisites of continued growth...
...Since all of these societies were chronically short of local investment capital, even such "progressive" Latin American governments as the Peruvian military regime believed that a return to economic dynamism would require major amounts of foreign funds...
...The industrial expansion of the postwar period-fed by foreign capital-transformed the continent's social structure...
...The World Bank and other official lenders supplied nearly two-thirds of Latin America's external finance in the early 1960s, but just one-quarter in the early 1970s...
...Argentina kept up payments through the 1930s, but the sacrifices the landowners imposed on urban industrialists and workers played a major role in bringing the populist regime of Juan Per6n to power in the 1940s...
...0.2 "0.3 n.a...
...As governments saw it, borrowing abroad would allow a maintenance or resumption of economic growth without the risk of losing more control of the local economy to foreign corporations...
...Much of the foreign finance went to the country's "big projects": the Itaipu hydroelectric power plant...
...The severity of the crisis was exacerbated by the slowing of lending throughout the 1960s from multilateral agencies...
...The age-old strongholds of the Right have been those groups with the strongest ties abroad...
...Argentina and Haiti were the only two exceptions...
...Import substitution seemed only to be substituting one kind of import for another...
...tolerance for steps such as default and expropriation...
...North America and Western Europe sank into recession, and their demand for Latin America's goods plummeted...
...The order of the day has become the distribution of losses, always a much messier business than the distribution of gains...
...B RAZIL IS THE THIRD WORLD'S BIGGEST debtor with a total debt near $100 billion...
...Locally owned industries in the most dynamic sectors were growing just as rapidly on the increased orders and subsidized credit the state was providing...
...Venezuela is another oil exporter that borrowed massively...
...B EFORE WORLD WAR I, AND AGAIN in the 1920s, Latin American countries had been major overseas borrowers and exporters, but by 1934 or 1935, it was obvious that international trade had ground to a halt and would not soon resume...
...While in 1977 approximately 32% of Latin America's export earnings were eaten up by debt service payments-already an extraordinarily high proportion-by 1982 this was up to some 59%, clearly an unsustainable burden...
...The interest rate to which most Third World bank debt is pegged rises more or less in tandem with U.S...
...By the early 1960s domestic industry was supplying 95% of Mexico's consumer goods and 98% of Brazil's...
...And to make matters worse, the major devaluations that every big debtor imposed in the face of financial panic simply served to raise the effective debts of domestic firms that had borrowed abroad...
...Assuming economic projections are accurate, most of the region's economies will turn inward...
...The Roosevelt Administration was, after all, primarily intent on replacing the British in the Western Hemisphere, and on keeping the Germans out...
...Most of the other borrowers attracted lenders with a combination of their general economic promise and the trust their economic managers could instill...
...It still managed to build up a $12 billion debt, which financed nearly one-fifth of domestic investment...
...1 T HE DEBT CRISIS HAS PRESENTED LATIN Americans with a series of very difficult choices...
...In Argentina, too, some of the borrowing undoubtedly went to the military's ill-fated Malvinas/Falklands adventure...
...Industry would grow, exports-especially of manufactured goods-would expand, and some portion of the export earnings would then be applied to service the debt...
...Argentine President Ratil Alfonsin asked his fellow heads of state at last September's meeting of regional debtors in Mar del Plata, Argentina.' 3 As foreign borrowing funded Latin America's rapid economic growth, there was little debate over how to distribute the wealth...
...Direct foreign control over the local economy would not, however, be increased...
...7 7 9 - 8 0 . On the borrowing process in general, see Jeff Frieden, "Third World Indebted Industrialization," International Organization, Vol...
...In Chile (and before it in Uruguay, Argentina and Peru), much of the strength of the opposition can be attributed to broad ties with the business community...
...For one example and review, see Michael Wallerstein, "The Collapse of Democracy in Brazil: Its Economic Determinants," Latin American Research Review, Vol...
...5. Rogelio Ramirez de la O, "Industrializaci6n y sustituci6n de importaciones en Mexico," Comercio Exterior, Vol.XXX, no.1 (January 1980), p. 36, Werner Baer, The Brazilian Economy, second edition (New York: Praeger, 1983), pp...
...Should labor move to the fore, the 1980s may yet turn out to be a more decisive and hopeful decade than its first few years would indicate...
...B Y 1970, SUCH COUNTRIES AS MEXICO, Peru, Brazil and Argentina were already heavily in debt to the international lenders...
...Urban workers, industrialists and middle classes united to end the entrenched power of the landed and commercial elites tied to foreign markets...
...Its final outcome is still undetermined...
...4 Import-substituting industrialization and foreign direct investment by multinational corporations were thus the two major sources of Latin American economic growth through the 1960s...
...The region's business communities and middle classes seem unwilling or unable to respond to the debt crisis with either populist nationalism or reactionary internationalism...
...The British would allow Argentina to sell its goods freely to Great Britain only if debts were serviced punctually...
...These unions are in decay...
...The urban working and middle classes appreciated the populists' policies of support for labor and soaking the rich landowners...
...and Nacional Financiera, the $20 billion state development bank that is far and away the most important source of capital for Mexican business...
...Mexico's hapless Alfa group, which had borrowed $2 billion when the peso was worth four cents, was nearly destroyed when it plummeted to under a penny in the course of a year...
...33.6 8.1 1.1 0.6 0.2 n.a...
...6. The literature on this period is enormous...
...But in the last five years, we have taken a great leap forward...
...Much the same hapIDB-funded bridge linking Argentina and Uruguay E E C E pened, at various times, in Argentina, Chile and Venezuela, whose wealthy citizens became fixtures on the Miami and southern California condominium scene...
...Slum-dwellers on the fringes of the region's cities were driven to the brink of starvation...
...Capital flight was also common, especially when local currencies were overvalued and local investors, fearing devaluation, scrambled to move their money into the more trustworthy dollar...
...Today's counterparts to the 1930s agroexporters of Argentina are the bankers of Brazil...
...11.2 n.a...
...even in per capita terms it increased by two-thirds.' Y ET BY THE MID-1960s THIS INDUStrial boom seemed on the verge of running out of steam...
...fuel modern industry...
...In this context, the role of labor is central...
...The attractiveness of Mexico and Venezuela to overseas lenders was closely related to the world oil market: the higher the price of their oil, the better their credit rating...
...The difference in perspective is easy to explain...
...Some portion of the output of the new steel mills was exported to allow the foreign debt to be serviced...
...In Argentina, politically powerful landowners prevailed...
...T HE TWO MOST COMMON THREADS that run through almost all Latin American austerity programs are a dramatic increase in domestic interest rates and an equally striking reduction in government spending...
...In the first place, the international setting is far different...
...Between 1978 and 1982 foreign finance was funding half of all investment...
...XII, no.3 (December 1982), pp...
...0.1 n.a...
...8 Foreign borrowing was being used to build new modern industries...
...The broad-based coalitions currently reigning in Brazil and Argentina-and others like them--can be expected to break up into their component parts...
...The head of Brazil's largest private company, Votorantim, called his country's 30% "maxi-devaluation" of February 1983 "a betrayal of the Brazilian business community that was induced to borrow overseas...
...The consequences of the collapse were so dire that even in Chile the government was forced to take over major banks to forestall their failure...
...domestic rates...
...Serious balance-of-payment crises hit much of Latin America during the 1960s...
...It would be unrealistic and even dangerous to discount the regional strength and ferocity of the Right...
...The new unionists, unlike the old, do not preach unity between employer and employee...
...In most cases, these sectors were capital goods, the most sophisticated consumer durables (such as electronics, automobiles and appliances) and natural resources...
...The New York Times, September 14, 1984...
...Brazil's one-time radical populist Leonel Brizola has become governor of the state of Rio de Janeiro, a moderate Social Democrat and host of Second International conferences...
...The social and economic bases of the populism of the early import substitution era weakened...
...in the 1960s and 1970s, it was a powerless target of military repression...
...Neither of these facts is quite so obvious as it seems...
...Yet the experiences of the big Latin American debtors are important, not only by virtue of their size, but also because their actions are a major factor in the environment within which all of Latin America must operate...
...Yet at this point there are few Brazilian officers, and even fewer Brazilian businesspeople, who relish the prospect of the generals' return...
...Colombia and Peru were less avid borrowers...
...prime was a disaster for the heavily indebted countries...
...From 1960 to 1980, Latin America's combined GDP more than tripled...
...Now that expansion has turned into collapse, domestic industrialists, bankers, politicians, technocrats and speculators are all scrambling to hold on to what they have...
...Latin America's manufactured exports were barely a billion dollars in 1967...
...Marines on its soil...
...on Latin America as a whole, see, for example, InterAmerican Development Bank, Economic and Social Progress in Latin America: 1982 Report (Washington, D.C.: IDB,1983), pp...
...Instead of importing automobiles, Latin America's major nations produced them domestically-and imported the machinery and components to do so...
...n.a...
...The Depression and World War II years were the incubator for Latin American populism...
...Exports surged...
...MARCH/APRIL 198525 m W E 0 E MARCH/APRIL 1985 25 1 ,, .,4ZeX;Z':"i&i 1, ;:5DEBT What changed the picture for the international banks was the rise of a postwar international financial phenomenon known as the Euromarkets, which were booming by the mid-1960s and looking for new customers...
...In Brazil, real interest rates (that is, after inflation) for industrial finance have been a minimum of 25% since 1981...
...Jeff Frieden, "International Finance and the Third World," MERIP Reports, No...
...of course they have not...
...While uniformly dispirited and discredited, the armed forces' paralysis may only be temporary, Should social unrest grow, some militaries may have the will and support to intervene...
...By 1980, the Eletrobris group owed over $11 billion to foreign creditors, followed by the state steel firms with about $6 billion and the national development bank, the BNDES, with over $3 billion...
...A new wave of labor combativeness, often with overtly political overtones, swept across countries as diverse as Peru, Brazil and Argentina...
...3. L. Antonio Aspra, "Import Substitution in Mexico," World Development, Vol.V, nos...
...27DEBT conglomerate...
...And, as in the past, political systems are being transformed by ongoing battles over the distribution of sacrifices imposed by the debt crisis...
...But high interest rates are a strong deterrent to local business expansion...
...Roberto de Rezende Rocha, "Indicadores de politica comercial," in Paulo Nogueira Baptista Jr., et al, eds., Ensaios s6bre o setor externo (Rio de Janeiro: IBRE/ FGV, 1981...
...the local private banking system, which again relent most of the borrowed funds to locally owned business...
...The United States could afford a bit of moderation that is unlikely to be repeated...
...By 1980, the public sector accounted for two-thirds of the economy, fuelled by oil revenues and foreign finance...
...One of the artifacts of the populist era was the proliferation of corrupt, patronage-fed labor unions that served both to support their political benefactors and to buy off a small segment of the workforce...
...Governments protected domestic industrialists by building tariff walls, or quantitative quotas, around the national market...
...83-89...
...Foreign financing helped spur dramatic advances in industrial production...
...Some countries were in even worse shape...
...In most of the larger Latin American countries, the big borrowers from foreign banks were -state-owned corporations, especially in steel, electric energy, transportation, mining and petroleum...
...Other big borrowers included the Comisi6n Federal de Electricidad, the state elec- tric-power monopoly...
...Petr61eos Mexicanos (PEMEX), the state oil monopoly, was the biggest borrower: it had amassed over $15 billion in overseas debts by 1981, financing about half its major investments in exploration, development, petrochemicals and related areas with these foreign funds...
...Mexican Finance Minister Jesds Silva Herzog has said categorically that "the debt crisis persists Jeff Frieden is a professsor of political science at the University of California, Los Angeles...
...Lula is a labor leader, while the other two are labor bosses...
...Thus the international banking system lent money, for example, to the Brazilian state-owned steel industry...
...How much longer will we test the patience of our peoples and the responsibility of their government...
...The biggest single Brazilian debtor is indeed Eletrobris, the national electric energy holding company, which accounts for nearly one-tenth of all domestic investment, nearly half of this financed abroad...
...in Brazil it quadrupled, in Mexico nearly so...
...n.a...
Vol. 19 • March 1985 • No. 2
