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Capitalist crisis deepens across South America
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A socialist newsweekly published in the interests of working people
Vol. 66/No.27July 8, 2002

lead article
Capitalist crisis deepens
across South America
Mass protests in Peru, Paraguay
reject government sell-offs

Thousands mobilize in Argentine capital of Buenos Aires June 20 to demand unemployment benefits. The capitalist crisis, originally and most sharply affecting Argentina, has spread, with steep declines in the currencies of Brazil and Uruguay, and rising poverty and unemployment. The IMF continues to refuse new loans to Argentina.
The capitalist crisis that erupted first and most sharply in Argentina has been spreading to other countries across South America, with working people both bearing the brunt of the attacks and leading massive protests against government austerity policies. Commentators in the big-business media are openly speculating that Brazil may be the next country to follow Argentina in defaulting on its debt payments.

"Brazil will be a litmus test for Latin America," stated Arturo Porzecanski, a leading economist at ABN Amro in New York. "God help us all if it goes wrong."

The Brazilian real, the national currency, plunged to an all-time low against the dollar June 21. Having once traded at better than one-to-one with the dollar, its value has sunk to 37 cents, with a 10 percent loss in June alone. The country’s stock market, Latin America’s largest, has fallen to its lowest level this year, as fears mount among capitalist investors over the ability of the government to continue paying the interest bill due on the country’s $290 billion public debt.

In Uruguay the currency slumped in value in mid-June after the government abandoned its exchange rate peg and allowed it to float freely in the international market. The value of the Uruguayan peso has plunged as much as 28 percent in local exchange houses, with devastating effects on the livelihood of millions of workers and peasants.

A delegation from the International Monetary Fund left the Argentine capital of Buenos Aires June 21, having failed to gain the agreement of government officials on a new round of austerity measures that they insist must be implemented in order to restart IMF loans to that country. Capitalist investors fear that without such an agreement, the government may not be able to meet the large interest payments due at the end of July on the country’s $140 billion debt. Argentina’s currency remains in turmoil as well. The government is now spending up to $50 million a day to stave off a run on the peso. Since January its currency reserves have dropped from $13 billion to less than $9.8 billion.

Workers and peasants from Argentina to Peru to Paraguay to Ecuador have taken to the streets to protest the effects of the deepening economic crisis and the attempts by the capitalist rulers to impose severe austerity measures on them. Thousands marched through the streets of Argentina’s capital city June 20, in the latest in a series of protest actions, to demand unemployment benefits. Militant street protests in Peru and Paraguay have succeeded in forcing the governments there to hold off for the time being on plans to privatize basic utility services.  
Imperialist concern over election
Imperialist investors are also worried about the possibility of Luiz Inácio Lula da Silva, the Workers Party (PT) candidate for president of Brazil, winning the upcoming election, which is scheduled for October. Since May, the PT contender’s lead in the polls over José Serra, the candidate of the ruling Social Democratic Party, has increased significantly.

Lula, as he is known, is a former metalworker, who made a name for himself during militant trade union battles in that country in the late 1970s. "The PT has become much more moderate in the past decade," noted the Financial Times. "For example, it has gained a reputation for clean government and responsible management in the cities and states where it has won local elections."

In the past Lula has called for renegotiating Brazil’s foreign debt and a few other moderate reforms. However, in recent statements, he has made clear that his intention is to honor the country’s debt payments and uphold the country’s contractual obligations. He has also named a prominent industrialist, Sen. José Alencar, as his vice-presidential candidate.

Lula’s reassurances were described by the Wall Street Journal as "moving in the right direction," and were welcomed by Brazilian president Henrique Cardoso, who has led the imposition of massive cuts in social programs and the sell-off of the country’s patrimony.

"It’s a good start, having Lula speaking like [current] Finance Minister [Pedro] Malan," said an official with UBS Warburg. "But investors need clear actions."

The capitalist rulers in Washington and Brazil are most concerned about the impact that an electoral victory for Lula would have on the rising expectations of workers and peasants there. "A broad commitment to financial stability disguises rifts between party factions," noted the Financial Times. "Lula’s moderate majority faction...is opposed by many grass roots activists (the party has 300,000 members) who tend to be opposed to the market economy and in favor of radical anticapitalist reform."

The Bush administration has made clear that it has no plans to bail Brazil out of an economic collapse. In a Bloomberg radio interview, U.S. treasury secretary Paul O’Neill said that he would oppose sending any additional IMF funds to Brazil. "Throwing the U.S. taxpayers’ money at a political uncertainty in Brazil doesn’t seem brilliant to me," he stated.

Brazil’s national debt has grown rapidly, reaching almost 80 percent of its Gross Domestic Product (GDP). The country’s debt structure "is unique" noted David Malpass, chief global economist at Bear Stearns & Co., "in that roughly 90 percent of the internal debt is either floating rate or linked to the exchange rate." This means that the debt rapidly becomes more burdensome in the event of high interest rates, a weakening currency, or slow economic growth, all three of which are now occurring. Interest payments alone represent about 9 percent of Brazil’s GDP.  
Drop in foreign investment
Brazil’s GDP shrank 0.7 percent in both the fourth quarter of 2001 and the first quarter of 2002. Exports during the first five months of the year were 13 percent below the same period in 2001. Foreign investment is expected to decline by 20 percent this year.

In Uruguay, the currency devaluation is wreaking havoc with the banking system as well. Bank deposits have tumbled. The country’s central bank recently announced that it would take control of Banco Montevideo, the country’s third-largest private bank, in an effort to stabilize its operations.

In response to six days of massive protests by working people in the southern provinces of Peru, the government on June 20 suspended its plans to privatize two electrical companies. President Alejandro Toledo, who on June 16 had declared a 30-day state of emergency and sent in the army and police to occupy Arequipa, Peru’s second-largest city and the center of the protest, announced that he would hold off on this move until the courts could rule on the validity of the sale, given a prior injunction that brought it to a halt.

During the protests, thousands of workers in Arequipa, Tacna, Cusco, and Puno, organized pot-banging marches and blocked the city’s main roads with barricades and tires set ablaze in defiance of a state of emergency and government repression that resulted in hundreds of people wounded and two killed by government troops. Peruvian interior minister Fernando Rospigliosi resigned in response to the demonstrations.

"We are afraid that in the future they will privatize the water company; we cannot allow that to happen because we depend on them and these are companies with a social character," said Luis Dante, the mayor of Moquegua, who joined the demonstration.

In another protest, public transport workers in the capital city, Lima, and other cities in the central and northern part of the country, held a two-day strike June 20-21 to protest government moves to impose mandatory insurance payments upon the workers.

The privatization steps the Peru’s rulers are trying to implement are aimed at complying with an agreement signed with the IMF, under which the Peruvian government is committed to obtaining $700 million in revenue from privatizations in 2002.

"The privatization process is dead," stated Juan Assereto, a former privatization official, bemoaning the impact of the workers’ protests. "The next one will lead people to destroy another central square, will require a new high-level commission and another step backward."  
Protesters win demands in Paraguay
Privatization moves were also beaten back in Paraguay as a result of two weeks of protests that swept through the country. In response, the Paraguayan Senate on June 6 voted 32-7 to suspend the law it had passed authorizing the sale of the state-run telecommunications, railroad, and water and sewer companies. Declaring victory, thousands of unionists and peasants organized in the Democratic Congress of the People, called off a general strike that was scheduled to begin June 7. The Senate’s move came three days after President Luis González announced he was suspending indefinitely the privatization of the Paraguayan Communications Company. The protesters also succeeded in winning their other demands: the repeal of a value-added tax imposed on agricultural products, the withdrawal of a proposed "antiterrorist" law, and the suspension of a plan to privatize the state banking sector and roadways.
Related article:
Workers and peasants in Latin America resist capitalist devastation
July ‘Militant’ and ‘PM’ reporting teams planned July ‘Militant’ and ‘PM’ reporting teams planned for Argentina, Cuba, Paraguay, and Venezuela

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