Mark Weisbrot | The Nation

The bottom line on bailouts for Greece, Spain, Portugal and Ireland must be help, not punishment.

Evo Morales expanded his mandate with a landslide victory in a referendum last week. But the Washington foreign policy establishment still won't acknowledge he's delivering on his promises.

The stuggle is not between pro-Chávez and anti-Chávez factions but between left and right.

Paul Wolfowitz's resignation won't reform the World Bank. But it could spark a new era of independence from the International Monetary Fund.

MCCAIN TORTURE BILL A BUST

Washington, DC

Democracy is being destroyed in Haiti, openly and with the support of
the United States and United Nations. If the farce election set for
December 27 by unelected government takes place, it will be a huge step
backward.

Venezuela appeared to take a couple of steps closer to a recall
referendum on the presidency of Hugo Chávez in recent weeks, but
there is little chance that he will be removed by elector

On October 6 Brazilian voters propelled Workers' Party candidate Luiz
Inácio da Silva, or "Lula," as he is known, one step closer to
the presidency of the second-most-populous country in

"In the Roman empire, only Romans voted. In modern global capitalism,
only Americans vote," declared George Soros in June. "Brazilians do not
vote."

He spoke too soon. With only weeks remaining till the presidential
election on October 6, Workers Party (PT) candidate Luis Inacio Da
Silva--"Lula," as he is popularly known--is still leading in the polls.
His closest competitor, Ciro Gomes, is an ordinary politician whose rise
to second place was fueled by harsh populist rhetoric against the IMF,
neoliberalism and the economic failures of the current administration.
The ruling party's candidate, José Serra, is a distant
third--despite Soros's claim that Brazilians had no choice but to elect
him.

The Wall Street-Treasury Complex, as Columbia economist Jagdish Bhagwati
has named the IMF and its private sector allies, won't be able to pick
the president this time. So they are going for second best: choosing the
policies. On August 19 President Fernando Henrique Cardoso met with the
contenders and tried to rope them into pledging support for continuing
IMF policies over the next three years. "The candidates," he told the
press, "whether they want to or not, will have to commit to these [IMF]
agreements."

We'll see about that, too. The IMF recently approved a $30 billion loan,
with most of it to be disbursed in installments next year. The idea is
that the IMF can cut off the flow of money if the new government
deviates from its program of fiscal and monetary austerity. That's the
way it usually works, but this time Imperial Rome may not get to choose
the policy any more than the proconsul.

Why not? First, Brazil has an explosive debt burden. The IMF's latest
loan was intended to stabilize Brazil's bond and currency markets, so as
to prevent a default before the election. It will also help US banks,
which have outstanding loans of more than $25 billion in Brazil, to get
some of their money out, on more favorable terms, before the collapse.
(The IMF may as well have written the check to Citigroup, FleetBoston
and J.P. Morgan Chase.) But it will not prevent a default.

The default--or "restructuring," if it takes place in an orderly,
negotiated manner--will make plain to everyone the failure of the
Cardoso/IMF model in Brazil. Since 1994 growth has been rather
slow--about 1.3 percent in per capita income annually. At the same time,
the public debt has soared relative to the economy--from 29 to 60
percent of GDP. And this was on top of $100 billion worth of
privatization, a massive raiding of public assets that should have
helped government finances significantly. The country's foreign debt has
also swelled. This is truly an enormous mortgaging of the country's
future, with very little to show for it. For Cardoso to lecture the
current candidates about fiscal austerity is like Ronald Reagan and
George Bush Senior--who presided over a similar record-breaking debt
run-up in the United States--telling their successors to please keep the
deficits down.

The business press seems to have missed the irony of all this, and
instead has blamed Lula's rise in the polls for the current financial
crisis. That, they say, has spooked investors, causing the currency to
fall (26 percent so far this year), foreign credit to dry up and the
country's risk premium to soar to the level of Nigeria's. But this
picture confuses the event that triggered the crisis with the actual
cause. Just as the accounting and corporate scandals did not cause the
stock market collapse in the United States--stocks were overvalued
relative to any conceivable economic future and had to crash sooner or
later--Brazilian bond prices aren't falling because Lula is ahead in the
polls. The real reason for the financial crisis is that the smarter (or
more risk-averse) bondholders have done the necessary calculations and
concluded that Brazil cannot pay its debt. Although some gamblers will
hang on to collect high returns in hope of jumping ship at the last
minute, default is inevitable.

But that's no reason for Brazil to surrender its democracy to Washington
and Wall Street. The PT has a reasonable reform program: lower domestic
interest rates (now set by the central bank at 18 percent, among the
world's highest), some support for domestic industry and small and
medium-sized agriculture, and a "zero hunger" program, including food
stamps, for the poor.

Brazil used to have one of the fastest-growing economies in the world:
From 1960 to 1980, income per person grew by 141 percent. From 1980 to
2000 it grew by 5 percent, or hardly at all. This is the story of
Brazil's neoliberal experiment. It is similar throughout most of the
region: hence the spreading political unrest. A Workers Party victory
could change the history of Latin America.

Lula might just be the right person for the job. Born into an
impoverished peasant family in one of the poorer areas of Brazil's
Northeast, he confronted hardship and hunger, and by the age of 12 had
to go to work. He rose through the ranks of the metalworkers' union and
was jailed for labor activism during the military dictatorship. He was
elected to Congress in 1986, where he helped win some important
provisions for workers' rights, healthcare and education in the new
(postmilitary) Constitution. Tens of millions of poor and working people
in Brazil identify with both his personal and political struggle against
the injustice of one of the world's most unequal societies. He has been
compared to Nelson Mandela, fighting to bring the poor of Brazil out of
economic apartheid. And the PT also has considerable support among those
in the educated classes, many of whom recognize that the party's program
makes more economic sense than the slow-growth, high-interest-rate,
explosive-debt scenario of the past and present.

But winning the election is only half the battle. One reason the IMF is
so eager to postpone the inevitable until after the election is so it
can threaten the new president with default if he doesn't knuckle under.
If he wins, Lula and the PT will have to explain to the country that
they didn't create this mess and stick to their program as the way
forward. It won't be easy, but it can be done.

Franklin Serrano, an economist at Federal University of Rio de Janeiro, recently lamented the large proportion of graduate students in economics who leave for the United States. "But there is something worse than them leaving. It's when they come back."

"Brain damage," he says, "is worse than brain drain."

Argentina is the latest Latin American economy to be mismanaged into a crisis by US-trained economists. Unemployment is above 17 percent, the economy is in its fourth year of recession and the country is now in the process of defaulting on its unpayable foreign debt. It's not easy being the poster child of neoliberalism.

Argentina's currency has been pegged to the US dollar since 1991. This worked for a while, but in the past few years the peso has become highly overvalued. Rather than devalue the currency, the country piled up mountains of debt to prop it up and watched its interest rates soar as investors demanded ever higher risk premiums. For comparison, imagine the United States borrowing $1.4 trillion (70 percent of our federal budget) in order to keep our own overvalued currency from falling.

This is not the first time in recent years that the IMF has burdened a country with billions of dollars of debt in order to prop up an overvalued currency. In 1998 it did the same thing in Brazil and Russia, with predictable results. In both cases the currency collapsed rather quickly in spite of the loans. And in both cases the economy responded positively to the devaluation, with Russia in 2000 registering its highest growth in two decades. The fund's argument in the case of Brazil and Russia was that if the currency was devalued, the result would be runaway inflation. But that never happened.

The IMF has also insisted on budget austerity for Argentina--which makes about as much sense during a recession as high interest rates. First in line for cuts have been state pensions, salaries, unemployment benefits and other social spending, insuring that the burden of "adjustment" will continue to fall, as it usually does, on those who can least afford it. And even the debt "restructuring"--i.e., default--now under way may not lead to economic recovery: If the currency remains fixed at a rate that investors still see as overvalued, the crisis will continue until it collapses.

Why does the IMF seem incapable of learning from repeated failures? The interest of foreign bondholders cannot be overlooked: The longer the fixed exchange rate holds, the smaller will be the losses of US lenders--even if the peso eventually collapses. But there has been a broader political concern as well: Argentina has done everything that Washington has told it to do, and the economy is a wreck. As a result the Bush Administration, despite its distaste for IMF "bailouts," was reluctant to be seen as abandoning the Argentine government. It kept pouring money in until it became clear that Argentina's debt could never be repaid.

The sacrifice of Argentina's economy for the sake of Washington's imperial interests and the interests of "emerging market" bondholders fits a pattern at the IMF, including some of the most high-profile interventions of recent years. In Russia and the transition economies, the first priority has been to execute a rapid, irreversible change to a market-driven society, regardless of the economic consequences. Russia lost half its national income in about five years of IMF-led transition, an economic decline never before seen in the absence of war or natural disaster. In Asia, the fund's desire to open these economies to US capital flows--in countries that because of their high savings rates had little need for foreign borrowing--caused a severe financial crisis in 1997-98. The fund then exploited the crisis to further open these economies, worsened it with exorbitantly high interest rates and fiscal austerity and convinced the governments of the region to guarantee the debt owed to foreign lenders.

The IMF is able to decide these major economic policies for dozens of countries because it sits atop a creditors' cartel, much like the OPEC oil cartel. Those who refuse to take the fund's "advice" find themselves ineligible for credit from the World Bank and other multilateral lenders--like the Inter-American Development Bank or G-7 governments--or even for private credit.

The fund's aid packages are generally reported approvingly in the press as "bailouts." But it is the bankers and bondholders, particularly foreign, who are being bailed out; the people, especially the poor, are tossed overboard. Over the longer term, the neoliberal program of the IMF and the World Bank--and their ability to enforce it--has contributed to a substantial decline in economic growth over the past twenty years throughout the vast majority of low- and middle-income countries. In Latin America, per capita GDP has grown a mere 6 percent over the past two decades, as compared with 75 percent in 1960-80.

As Latin America's economies grind to a halt, dragged down by the recession in the United States, the dismal reality of this long, failed economic experiment is sinking in. The reign of US-trained economists and their sponsors in Washington may be coming to an end.