DEVELOPMENT: Latin America still in crisis, say critics

By Pratap Chatterjee Reprint | | Print |

Pratap Chatterjee

WASHINGTON, Oct 11 1995 (IPS) - Two guards dressed in red stand in silent vigil outside a church in a quiet residential neighbourhood here, watching over a delegation from Mexico.

They are not watching over visiting Mexican president Ernesto Zedillo but over a rival delegation which includes members of the opposition Party of the Democratic Revolution (PRD) and representatives of the Zapatistas, indigenous peasants from the state of Chiapas who rose up against the government last year.

Both sides are here to present their views about the economic state of their country at the annual meetings of the World Bank and the International Monetary Fund (IMF).

But the views are radically different: the government says the economy is picking up, while the opposition party and the Zapatistas say things are getting worse.

These differences mirror the range of opinions throughout the region regarding the economic health of the countries which were supposed to be emerging from the doldrums of the 1980s.

“Latin America is two to three times more shock-prone than industrial nations,” said Ricardo Hausman, the chief economist of the Inter-American Development Bank (IDB), at a weekend meeting convened by his institution to discuss these matters.

Trouble came last December when the Mexican government devalued its currency. Investors immediately pulled billions of dollars out of the country, sending shock waves to financial markets around the world.

The United States and’the IMF put together a 30-billion-dollar emergency bail-out package in a matter of weeks. This past week, the richer members of the IMF agreed to double the 29 billion dollars in credit they make available for emergencies.

Markets have responded cautiously. Financial analysts are still watching other countries like Argentina, Brazil, and Venezuela for any signs of crisis.

The IMF says the worst is over. In their 1995 World Economic Outlook, they estimate that the current account deficits of Third World countries have dropped by 15.5 percent to 84.5 billion dollars over the last year with the biggest savings coming from Latin America.

Brazil cut its deficit from 17.7 billion dollars in 1994 to 1.5 billion dollars this year, while Argentina’s deficit is down to 4.4 billion dollars from 10.2 billion dollars.

The most dramatic cut has come from Mexico which used the U.S. and IMF money to slash their 28.9-billion-dollar deficit to 200 million dollars.

There is still much work to be done, says the IMF. “Banking systems will need to be strengthened and put on a strong footing,” managing director Michel Camdessus said at the weekend.

A week ago, the Mexican government paid back 700 million dollars of the 12.5 billion dollars it had borrowed from United States in an attempt to prove it was financially back on track.

But Mexican groups say cutting the deficit has not helped because the new money is simply paying back U.S. investors while doing little for the people of Mexico.

Carlos Heredia, a former official of the Mexican ministry of finance who runs the think tank Equipo Pueblo, says Mexicans are hurting.

“With consumer interest rates at 80 percent, businesses and individuals are finding it impossible to pay back loans and businesses are going under. Nearly two million workers have lost their jobs,” he says.

The problem with the banks is not the lack of funds but the fact that they charged 20 percent or more than the market rate forcing their borrowers to shut down, he says.

What little new money is coming into the country is going into the pockets of the ruling party, says Carlota Botey, an opposition member of the Mexican parliament.

The money from the World Bank and IMF “is paying for a political process that favours a state structure which is anti- democratic, unjust and corrupt,” she says.

Botey says the privatisation policies promoted by the two institutions are not helping poor people. For one thing, she says, they have caused the cost of basic services such as water to shoot up as much as 1000 percent.

Bolivia, Costa Rica and Nicaragua are three other countries in the region where economic success has not helped the poor, the non- governmental organisation Development GAP says in its new report, ‘Structural Adjustment and the spreading crisis in Latin America’.

Bolivian inflation dropped from 8,000 percent a year in 1985 to nine percent in 1994. But average wages fell 22 percent between 1988 and 1991, while the percentage of temporary workers increased from nine percent of the economy to 24 percent of the workforce.

Nicaragua cut inflation from 13,000 percent in 1990 to 12 percent in 1994. But, says Managua-based economist Nan Wiegersma, 70 percent of women have lost their jobs as a result of the new economic policies imposed by the Bank and the IMF. Real wages in 1993 were 59 percent of their value in 1980.

Costa Rica — a country viewed as an oasis of tranquility in the region with the highest literacy and lowest infant mortality rates — has seen the number of recorded malaria cases rise from 110 in 1982 to 4,646 in 1992.

Once self-sufficient in food, Costa Rica has watched the number of grain farmers in the country plummet from 70,000 to 27,000 between 1984 and 1988, as tight economic policies forced them to sell their lands to foreign-owned exporters of luxury crops.