The Structural Adjustment Stranglehold: Debt and Underdevelopment in the Americas
Ugarteche, Oscar
In the early 1970s, following Richard Nixon's removal of the U.S. dollar from its gold and silver backing and the "shock" caused by the steep rise in oil prices, the international economic order...
...Historically, debt-alleviation accords with Colombia in 1941, Peru in 1945 and Germany in 1953-in which that country's war debt was restructured-were centered around a now-forgotten principle: A country cannot satisfactorily get out of debt by simply borrowing money to pay what it owes...
...Negotiations can take place through the International Development Agency facility of the World Bank for low-income countries or through the Brady Plan for middle-income debtors...
...They had become "common sense...
...By the early 1990s, Latin American governments had largely accepted Washington's new "neoliberal" policies...
...There was a sud- "cross conditionalit] den realization that short-term international debt was imposed by the var very high throughout the world and that levels of tions virtually irrev internal indebtedness were also quite high...
...The new policies produced nei- ing of the rest of th ther growth nor investment, nor a reduction of the mitted the most pov trade deficit...
...The res GDP throughout the 1990s, compared with 20% in the New York while t 1970s...
...deregulating the labor market and creating labor "flexibility...
...These s exist in agreements between govaris Club of creditors, Brady Plan anks, the IMF, the World Bank and Development Bank (IDB), as well ments with the United States and Vorld Trade Organization (WTO...
...a.r, a ~~llr -rr.,l ull ulut lo guvu rv, rr rvullu can negotiate--or renegotiate-its debt with the Paris Club and with private creditors...
...ntroduced through a process called ," an interlacing of the conditions ious lenders, making those condiersible...
...to revalue and stabilize exchange rates in order to create a more pre- the economies of L dictable environment for international trade...
...Nor tained in a growing did the rate of investment return to the levels of the they can be financed 1970s...
...Through the IMF's Heavily Indebted Poor Countries Initiative (HIPC), the international creditors are now prepared to alleviate the debt of the world's 42 poorest countries...
...It has therefore become imperative-for the world system itself--that the rules of the game be modified to allow Latin American and African countries to comply with at least a portion of their debtservice obligations so that the "debt crisis" of the 1980s is not revisited...
...The stock exchanges of the most devel- sus-structural adju oped industrial countries became highly unstable, giv- policies-was intro ing rise to the possibility of an intensification of the Specifically, it was i crisis that began in the early 1970s...
...The new world order was instead anchored by market-oriented economic policies, a global technology based on information, and a new role for the old Bretton Woods institutions, now given the task of designing new economic policies and supervising international debt agreements...
...Meanwhile, a number of influential Washingtonbased bankers, economists and functionaries of both U.S...
...At the end of the 1970s, interest rates were dramatically raised in the United States in an attempt to capture global savings in order to finance the chronic U.S...
...VOL XXXIII, No 1 JULY/AUGusT 1999 21REPORT ON GLOBAL FINANCE The liberalization and deregulation of Latin Between 1980 and 1990, Latin American economies had three medium-term America's foreign debt doubled objectives: to increase solely because of the national savings in order to avoid the levels capitalization of interest...
...As the per capita gross domestic product (GDP) doubled in the ten richest countries in the world between 1985 and 1995, it fell by 30% in the world's ten poorest countries...
...The less-than-democratic governments that ruled Latin America at the time were all too happy to Oscar Ugarteche teaches economics at the Catholic University in Lima, Peru...
...The failure to comply with y single creditor automatically leads f the accords with the others...
...He is author of several books, including El Falso Dilema: Ambrica Latina en la globalizaci6n (Nueva Sociedad, 1997), La Historia de la deuda externa peruana (Sur, 1999), and The New International Agenda Viewed from the South (ZED Books, forthcoming...
...These high interest rates, combined with falling prices of most Third-World exports, produced a situation in which many debtor nations threatened to default on their foreign loans, thus sparking the so-called debt crisis...
...Plagued by conditions in which the debtor countries assume all interest and exchange-rate risks, these multilateral loans are yet another burden as debt service grows while exports stagnate...
...trade deficit...
...richer...
...was in the "normal" years, from 1950 to 1970...
...This has pererful country in the world to use its urrency for operations of internaU.S...
...Latin America's situation on the eve of the millennium is simple...
...10 alk%,%t...
...As the oil shocks played themselves out through the 1970s, global financiers, in an effort to put accumulated petro-dollars "to work," encouraged public and private economic actors in developing countries to take out loans...
...In th the economically depressed 1980s...
...Between 1980 and 1990, Latin America's foreign debt doubled solely because of the capitalization of interest...
...This allows the row rapidly while the rest of the ewhere between recession and ult is an overvalued stock market in he rest of the world's exchanges mic crisis, it is apparent that the nd African-foreign-debt problem ith us...
...Debtor countries were forced to apply adjustment policies before being allowed to renegotiate the debt with both public and private creditors...
...The instrument was coercion, mostly through the renegotiation of the debt...
...The evidence shows that the foreign deficits of the 1990s are greater than those of all previous decades and have been financed by shortterm credits, making the economies of the debtor countries all the more volatile...
...Cross conditionality, in other words, seeks to impose a universal set of conditions on debtor countries...
...This is common sense...
...and reducing the size of the state by eliminating subsidies, privatizing public firnm and rttrllino QtntP rcronnnl and "' b . It's not that functions...
...because the Washington Consenstment accompanied by free-market duced by way of the foreign debt...
...New debts are directed toward the private sector, and those directed to the public sector are channeled through the multilateral agencies...
...and to growing...
...The old order had been shaped by economic policies of social welfare, a global technology based on oil, and the central role of the Bretton Woods institutions-mainly the International Monetary Fund (IMF) and the World Bank-as stabilizers of a world economy configured by the dollargold relation and the stability of global exchange rates...
...Beyond that, interest liabilities have generated further interest liabilities which have greatly swollen the debts, making them all the more unpayable...
...The accords with the IMF, World Bank, IDB, Paris Club and London Club are structured in such a way that failure to comply with one means failure to comply with all...
...The d the hoped-for results...
...liberalizing and deregulating the financial system...
...and multilateral institutions, worried that the region's growing economic crisis might infect the rest of the world, converged around the idea that Latin American economies should be quickly liberalized and deregulated-a set of guidelines that informed a Washington-directed process called "structural adjustment," and which eventually became known as the "Washington Consensus...
...Debtor governments were virtually forced to sign on, having been assured that there was simply "no alternative...
...Old debts have been reprogrammed through the Brady Plan and the Paris Club...
...of foreign indebtedness that occurred in the 1970s...
...Meanwhile atin America have virtually stopped stern Hemisphere, only the United rowth rates...
...It began in Asia and then spread to Russia The debt is key and Brazil...
...oblige, leading to the doubling of Latin America's foreign debt between 1970 and 1990...
...Ar^ ^1 rh^ i^ ^I^ t^^.~~ al a., a.,I ~la...
...In the Wc narrow the region's trade deficit, which had been very States has steady g high during the period of import-substitution policies, currency has had n The 1990s, however, did not herald the arrival of of its holders...
...By the end of the 1970s, a new international economic order had arisen, though not the equitable one then advocated by the countries of the Third World...
...There is ment possible and tC only an improvement if one compares the data with repeat itself...
...That is to say, either one followed the commands of the governments of the industrialized creditor countries by way of the World Bank and the IMF or there would be no dialogue...
...ness...
...The global econ- as in antidrug agree omy seemed to have one foot over a cliff, membership in the NAC2A REPORT ON THE AMERICAS We are now seeing a substantial decline in global economic growth rates, a substantial fall in the prices of raw materials as well as of industrial products and evidence that the Japanese crisis has spread throughout Asia and is beginning to affect the rest of the world...
...The interlacing condition stock exchanges of the middle-income countries ernments and the P dropped between 30% and 66% over the two-year guarantors, private b period, 1997-1998, though the larger exchanges, while the Inter-American not very stable, did somewhat better...
...Resolving the ongoing debt t, but the international system itself order to make economic developensure that the debt crisis does not is context, a number of anti-debt ost visible being Jubilee 2000, a il coalition of primarily religious emerged demanding debt forgivecal point of view, the argument has ion...
...Apart from Mexico, Brazil, Argentina and Venezuela, which have issued public offerings on the European bond market (known as Eurobonds), Latin American countries are wallowing in costly multilateral loans...
...We cannot further impoverish or countries, forcing them to transries-in the form of debt serviceve...
...dollar from its gold and silver backing and the "shock" caused by the steep rise in oil prices, the international economic order which had been in place since the end of World War II came to an exhausted end...
...22REPORT ON GLOBAL FINANCE To negotiate one's foreign debt, for example, it is necessary to have an agreement with the IMF which imposes the conditions to resolve the problems of exchange rates, domestic savings and the trade deficit...
...From a techni to do with distribut atin America's economies are struggling to the population of pc develop in the midst of a powerful systemic cri- fer to wealthy count sis that began to unfold throughout the world in what they do not hal mid-1997...
...Translated from the Spanish by NACLA...
...foreign deficits can be mainmanner because to a certain degree by printing money...
...Internal savings have remained depressed, United States to g leaving the region to continue to rely upon foreign pri- world hovers son vate savings...
...In the mid-1980s structural-adjustment policies began to be imposed throughout the world, and the results have not been happy for the poor...
...But rather than movements-the n comparing the data with a period marked by economic broad, internationa depression, the comparison should be made with the organizations-have previous "normal" period...
...This pro- the conditions of an voked alarm about financial volatility and the conta- to the cancellation o gious nature of financial-investment decisions...
...It is like a giant pyramid scheme...
...Indeed, the structural-adjustment policies that Within this syste sought to close the trade deficit, increase domestic Latin American-a savings, stabilize exchange rates and promote eco- is still very much m nomic growth have not succeeded on any of those problem is importan fronts if one compares the figures with the experience must be modified ir of the three decades between 1950 and 1980...
...Economic growth in the 1990s is greater own faith-backed c than in the depressed 1980s but only half of what it tional commerce...
...move uncertainly...
...o backing whatsoever save the faith ollar, in turn, has become the backe world's currencies...
...In the wake of this crisis, between 1980 and 1990, economic growth stagnated throughout the region and net exports of capital came to $375 billion in the process of servicing the debt...
...After signing an agreement with the IMF, it is necessary to have a structural-adjustment agreement with the World Bank that has the following policy elements: liberalizing and deregulating foreign and domestic trade...
...Since 1971, the U.S...
...Usually accords with the WTO, antidrug agreements with the United States, and, when they exist, environmental agreements are also linked to these...
...The debt-forgiveness movement seeks to expand that list to the severely indebted middle-income countries...
...It has also been Third World countries are getting poorer, it's that we're getting forgotten that international credit should be a mechanism by which one obtains a good or service that generates economic returns that can cover that debt...
...I owe more because you lend me more to pay you what I already owe you...
...National savings have been only 18% of depression...
...The gap in income per capita between the richest and poorest countries grew from a multiple of 70 to a multiple of 430 during the same period...
...There is no question that those governments that incurred debt in the 1970s bear some responsibility for the current situation, but if debt was contracted at 2% and rates have risen to over 20%, no investment project will be profitable...
Vol. 33 • July 1999 • No. 1
