Strangling Debtor Democracies

Rayfield, Gordon

Strangling Debtor Democracies By Gordon Rayfield Foreign policy is not just the work of diplomats. Businessmen and bankers make foreign policy, too, and not always for the better. In Latin...

...We preach free enterprise and democracy, then sit back while our bankers, through the International Monetary Fund, dictate policies on wages, prices, and other vital areas of economic life...
...You'd think the administration would take special pains to promote stability in these countries so they can continue down the democratic path...
...He can hope now only that his fragile democratic consensus can survive the austerities these creditors are imposing upon him...
...Meanwhile, the bankers have been doing to the debtor democracies what Reagan says he wants to do to the Sandinistas—make them cry "uncle...
...The Treasury has been involved in the debt negotiations, but primarily from a banking standpoint...
...Whether we like it or not, the United States will determine the future for millions of people...
...Our geopoliticians paid little attention to OPEC in the late 1960s, when its members were publicly plotting their course: the Soviets weren't behind it, so let the oil industry worry about it...
...Most American banks have effectively redlined Latin America since 1982...
...It's up to us to decide if we exercise that power by design or default...
...How would we feel if our government told us that until further notice we would have to endure a recession to satisfy bankers in Switzerland and France...
...You'd be surprised," he exclaimed upon visiting South America, "they're all separate countries . " But the deeper problem is that disruptions like the debt crisis just don't register on the radar screens with which official Washington—the White House in particular—views the world...
...There are no clandestine arms shipments from Cuba...
...In this way the debt crisis falls into the pattern of recent international crises, like the OPEC oil shocks, the Iranian revolution, and trade disputes with our allies...
...This March, Brazil inaugurated its first civilian president in 21 years, joining Argentina, Ecuador, Uruguay, and Peru as the newest and largest democracy on the continent...
...not the recessionary strings the bankers have imposed, but requirements that debtor nations promote democratic institutions and practices...
...They've been disappointed...
...they need sufficient capital to enable their economies to expand...
...Yet in return for "restructuring" (extending the payment schedule on) their loans, the bankers and the IMF have imposed harsh austerities that have thrown the country into a recession...
...Half the population is under 25, and one million people enter the work force each year...
...Brazil's debt alone exploded from $37 billion in 1977 to $102 billion in 1984, and the interest payments on these loans are a staggering burden for its economy...
...Instead we've entrusted the job to private bankers who are putting these countries through financial wringers in order to protect their loans...
...This, in turn, means restoring a reasonable level of private bank lending...
...The top echelons in foreign policy have played only a minor role...
...We should start by seeking to reverse the financial hemorrhage that is threatening their nascent democratic governments...
...This kind of intervention would restore a moral dimension to our foreign policy...
...We are intervening in this crisis no less than in Central America...
...Argentine President Raul Alfonsin has given up hope that Washington would pressure the banks and the International Monetary Fund to relent...
...Let the bankers handle it...
...The administration sees the Latin debt crisis today in much the same manner...
...should screw Brazil that day...
...They just don't fit the script...
...Brazil, for example, is the world's ninth largest economy and its largest debtor...
...And it might even lay to rest the neocolonial image that haunts us in the hemisphere...
...A Sandinista could look pretty good after "democracy" like that...
...Similarly, a close aide to Peru's President Fernando Belaunde Terry complained recently to Alan Riding of The New York Times that, on Terry's visit to Washington last fall, "President Reagan gave him only half an hour...
...We still have friends in South America, but their numbers are dwindling...
...Banking is viewed as very esoteric...
...This would give pause to any generals who might be thinking of a comeback once the civilians clean up their mess...
...Forty billion dollars flows out each year to the industrial countries...
...It's not enough to enable these countries to pay off old loans...
...There is a democratic resurgence in South America, for which the Reagan administration has repeatedly taken credit...
...Debt is not an East-West issue...
...as a place is extremely ignorant of banking per se...
...Diego Ascensio, the United States ambassador to Brazil, tells audiences how he must constantly convince Brazilians that there is no official in Washington who wakes up every morning trying to decide how the U.S...
...Having helped create the debt crisis with their profligate loan practices, U.S...
...But we are not doing so through our foreign policy apparatus, seeking to foster the spread of democracy...
...He wasn't even offered a cup of tea . " Our president is not a close student of hemispheric affairs...
...Even Jeane Kirkpatrick would have trouble identifying a communist menace in Brazil...
...As these countries pay off old loans, no new loans are flowing in...
...As a result, the debtor democracies have become net exporters of capital, especially to the U.S...
...In Latin America, while the Reagan administration continues its obsessions in El Salvador and Nicaragua, a far more important drama is unfolding further south: the debt crisis of major countries like Argentina and Brazil...
...banks should not be permitted to wash their hands and walk away...
...There is a better way to intervene in debtor nations like Brazil...
...This is a case study in how not to intervene...
...South Americans can't believe that the United States government would entrust private bankers to make foreign policy for the world's largest democracy...
...We have bigger fish to fry (Grenada, for example...
...We preach the IMF religion of higher taxes and balanced budgets, while we follow the opposite course ourselves (draining capital from their economies to finance our deficits...
...With new loans, however, should come new strings...
...One State Department official responsible for monitoring international financial developments observed, "Washington D.C...
...The State Department doesn't really know what [bankers] do in terms of foreign policy implications...
...Instead of developing, these countries are stagnating...
...Gordon Rayfield writes on politics and economics from New York...
...It could foster a new attitude in South America toward American leadership, perhaps for a generation...
...The federal government should encourage the banks to free up these funds, using its regulatory authority if necessary...
...The long-term prospects, moreover, are not bright...
...Not surprisingly, the countries' elected leaders have expected so as well...
...There are fewer jobs, and the middle class— the bedrock of fledgling democracies—has been hit especially hard, with purchasing power shrinking by 14 percent a year...

Vol. 17 • April 1985 • No. 3


 
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