Arruda external debt; brazil and the international financial crisis (1999)

External debt : Brazil and the international financial crisis / Marcos Arruda ; translated by Peter Lenny.. Chapter One: 1.1 External Debt of Latin American Countries at the Close 1.5 Fe

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Arruda, Marcos.

External debt : Brazil and the international financial crisis / Marcos

Arruda ; translated by Peter Lenny.

p cm.

Includes bibliographical references and index.

1 Debts, External—Brazil 2 International Monetary Fund—Brazil.

3 Brazil—Economic conditions—1945- 4 Debts, External—Developing

countries I Title.

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Catherine and Pablo, my wife and nine-year-old son, who supported meall along, and bore with me while I rushed to meet the deadlines.

Pablo’s Grandmothers: my Mother, Lina, whose book on my time in jail as

a prisoner of conscience is still looking for a publisher, and Catherine’sMother, Mica, who has been a wonderful Grandma to Pablo

My second Mother, Pauline McCartin, who received me as a son in herfamily when I was a high-school student, and to Bart and Marilyn, mybrother and sister from Chicago

Christian Aid is the official relief and development agency of 40 Britishand Irish Churches and works wherever the need is greatest in around 60countries worldwide, regardless of people’s race or religion Christian Aidlinks directly with the poorest communities through local organisationswhose programmes aim to strengthen poor people so that they becomeself-sufficient It also seeks to address the root causes of poverty and spends

up to 10 per cent of its income on development education and relatedcampaigning at home

Chapter 1 E(x)ternal Debt:

The FHC-IMF Agreement: And the Government Promised

Chapter 2 Trojan Horse:

Brazil and the International Financial Crisis 30

Chapter 3 Neo-liberal Adjustment and Globalization:

Chapter 4 For a Debt-Free Millennium 77

Appendix 2: Alternative Debt Policies

Appendix 3: The Jubilee South Summit in Johannesburg 154

Chapter One:

1.1 External Debt of Latin American Countries at the Close

1.5 Federal Government Budget – 1998 Forecast of Spending

1.6 Most Impoverished, Heavily Indebted Countries that need the

Chapter Two:

Chapter Four:

4.3 Brazilian External Debt – Public vs Private, 1989–98

4.5 Brazilian External Debt as a Proportion of GDP, 1992–98

ATTAC – Action for a Tax on financial Transactions to Aid Citizens CEPAL – Comissão Econômica para a América Latina (UN)

CPMF – Transient Contribution on Financial Transactions

CRIES – Regional Coordination of Economic and Social Research ECLAC – Economic Commission for Latin America and the Caribbean FACS – Fundación Augusto Cesar Sandino

FHC – Fernando Henrique Cardoso (president of Brazil 1994–2002) GATT – General Agreement on Tariffs and Trade

GDP – Gross Domestic Product

HDI – Human Development Index

HFI – Human Freedom Index

HIPC – Heavily Indebted Poor Countries

IBRD – International Bank for Reconstruction and Development ICCAF – Inter-Church Center for Africa

IDB – Inter-American Development Bank

IMF – International Monetary Fund

IPS – Institute for Policy Studies

LTCM – Long-Term Capital Management

MAI – Multilateral Agreement on Investment

NGOs – Non-Governmental Organisations

OECD – Organisation for Economic Co-operation and Development PACS – Alternative Policies for the Southern Cone of Latin America PFL – Liberal Front Party

PMDB – Brazilian Democratic Movement Party

PPB – Brazilian Progressive Party

PRI – Institutional Revolutionary Party

PSDB – Brazilian Social-Democratic Party

SAP – Structural Adjustment Programme

SES – Socioeconomy of solidarity

TNCs – Transnational Corporations

TNI – Transnational Institute

TWN – Third World Network

UN – United Nations

UNCTAD – United Nations Conference on Trade and Development UNDP – United Nations Development Programme

UNICEF – United Nations Children’s Fund

UNRISD – United Nations Research Institute for Social Development

US – United States

WTO – World Trade Organisation

Brazil owes nearly US$230 billion to private banks, governments andmultilateral agencies such as the World Bank and the Inter-AmericanDevelopment Bank Today, every Brazilian child born already owes aroundUS$1,400, which it will go on paying eternally, because this is a debt thatgrows the more it is paid Alongside this looms an internal public debt ofR$330 billion (R$ is the Brazilian real)(nearly US$290 billion) that drainspublic – that is, ‘taxpayers’ – funds to the tune of R$130 billion a year(estimates by the Central Bank for 1999) mostly just to pay interest It isfor fear of the insolvency of the government led by Fernando HenriqueCardoso (FHC) that, in wave after wave of capital flight, investors arewithdrawing the money they have invested in Brazil, mostly on the stockmarkets In order to avert insolvency, the FHC government opted to resort

to the IMF, to accept its funds and demands in what is perhaps one of theharshest foreign loan agreements in Brazil’s history In this way, Brazil isbecoming more and more indebted in order to pay off previous debts,instead of building on its own resources and applying them to economicdevelopment and social and environmental programmes

At the same time, Brazil faces the reality of a moratorium on the social,political and environmental debts The financial debts have become aninsurmountable obstacle to these other debts ever being paid Worse still,the creditors of the internal and external debts are rich, they have andconsume far more than enough, while the creditors of the other debts aremostly oppressed, exploited and needy And what of Mother Nature?The social debt is owed to the 100 million people immolated by colonialismand slavery over the last three centuries or more, indigenous Americanand African peoples and their descendants, deprived of life, work, education,health, social security, safety, the right to childhood and adolescence and

so on The political debt relates to full citizenship, from which most of

Brazil’s population is excluded The ecological debt results from the gallopingover-production and over-consumption of the capitalist model of economicgrowth and globalization, and from the way it concentrates wealth andexcludes the masses This style of life and economy entails systematicallydestroying Nature and the assets with which Brazil is so well endowed.The creditors of these debts are the people: workers, indigenous peoples,blacks and mulattos, women and children; in short, the impoverished andexploited, not just in Brazil but in other countries of the South.

At the initiative of Pope John Paul II, the International Jubilee 2000External Debt Campaign was launched with the slogan: ‘For annulment ofthe external debt and for the right to development’ for the poorest, mostindebted countries The Jubilee 2000 Campaign intends to obtain recog-nition from the creditors – governments, private banks, and multilateralagencies – that they are in part responsible for the debt crisis afflicting thepoor countries This is particularly true for countries like Honduras andNicaragua, especially after the catastrophe caused by Hurricane Mitch,which killed thousands and obliterated a considerable portion of bothcountries’ economies It also goes for countries like Brazil, Mexico, Argentinaand Venezuela, though, where rates of poverty and social exclusion arehigh and whose debts are unpayable and unjust

This book contains three chapters on the debts The first, ‘External Debt:Understanding Brazil’s Debt Crisis’, is a primer on external debt Written

in accessible language, it explains clearly the history of the debt, thestakeholders, the policies adopted to deal with the debt, the political,economic and social impact of the policy of indebtedness and the alternativeproposals for surmounting the crisis

The second chapter, ‘Trojan Horse: Brazil and the International FinancialCrisis’, builds on the central argument that the Brazilian crisis is not theresult of some supposed knock-on effect of the Russian finance and exchangecrisis The agent of the crisis – speculative capital, manipulated by banks,corporations and finance funds – has been in Brazil for a long time Much

of it is the same as that which pulled out of Russia in a hurry, and fromSoutheast Asia before that, and from Mexico before that… And it was the

FHC government that invited it to migrate en masse and invest in ‘progress’

and ‘modernisation’ in Brazil The chapter analyses the background anddevelopment of the Brazilian crisis, the factors that led it to devastate notjust investors, but also Brazil’s industry and workers It also focuses on thealternatives that were open to the FHC government and the fact that itopted for more extreme dependence, by subordinating to the IMF in theform of yet another loan with stringent conditions, and plunging Brazilstill deeper into the bottomless pit of indebtedness The chapter points up

the political and economic, social and environmental dimensions, andconcludes with a reference to the Jubilee 2000 Debt Campaign and somesocial and economic policy alternatives.

The third chapter, ‘Neo-liberal Adjustment and Globalization: A SouthernPerspective’, describes the origins of adjustment policy as it relates tothe external debt crisis of countries of the South, in a period under thehegemony of the liberal bloc of world capital Its plans for global expansionare not limited to the economy and finance It is also a political and culturalproject and manages to occupy terrain in the workings of the States andmultilateral agencies When the dollar abandoned the gold standard itushered in a new era of globalization The United States thus forged aweapon more powerful than all their armies, gaining the practicallyunrestricted power to issue a currency that serves as international legaltender This enables them to arrange almost unlimited debts with othercountries, to accumulate wealth and to consume at levels that no othernation in contemporary history has been, or will be, able to do In thiscontext, the debt crisis of the countries of the South looms as an opportunityfor the countries and conglomerates of the North: just like the old ‘colonialoctopus’ they stretch out their tentacles to subject the markets of the South.This annual tribute is paid regardless of the cost In a vicious circle themore the South pays, the more it owes Meanwhile, a group of local lackeysserve as well-paid overseers at their masters’ beck and call That is the result

of the crisis and the price is an enormous burden for the majority that live

by working

Neo-liberal globalization does not come down to just threats and crises,though At its heart lie advances and opportunities for mankind as a whole.The question for the working majority, and for the populations of the South,

is how to get around the obstacles, how to overthrow the hegemony ofcapital and harness these opportunities to emancipate and liberate That isthe thrust of the second part of the chapter

The fourth chapter, ‘For a Debt-Free Millennium’, focuses on how civilsociety in both hemispheres is mobilising towards pressuring authoritiesfor policy changes that effectively offer the over-indebted countries a newopportunity to achieve economic growth and human development Thechapter overviews the achievements of the Jubilee 2000 Campaign in theform of massive peaceful demonstrations during official meetings and theensuing policy changes by creditor governments and multilateral institu-tions, such as bilateral debt cancellations Finally, the chapter examines avariety of alternatives to over-indebtedness as proposed by national andinternational forums, showing that civil society does not lack vision,proposals and concerted action, and will not rest until it achieves equity

and justice in North–South relations and a co-operative way of organisingthe economy and society.

The crowning proposition of this book is that now is the right time for

the oppressed peoples to say, loud and clear, that there is another way and

that this depends on a development project that is owned by nations andpeoples themselves, and on a change in values, attitudes, behaviour,expectations and modes of relationship These changes have to do not onlywith socioeconomic structures and institutions, but also with our everydaylives and with relations between people, in the community and withMother Nature These are relations that break down with the compulsion

of competition and the violence of war, that grow continually from theawareness that we are all interconnected with one another and with thewhole cosmos and that the only rational, intelligent, sustainable coursefor us and for coming generations lies in the values of co-operation, respectfor diversity, sharing, reciprocity, complementarity and solidarity

The first three chapters have been published previously as essays Thefourth chapter has been written especially for this book and examines thepotential for a debt-free millennium, including the Brazil Jubilee 2000Campaign proposals

1

E(x)ternal Debt:

Understanding Brazil’s Debt Crisis

Latin America is an extremely rich continent inhabited by people whohave been impoverished by centuries of exploitation and oppression Forover four centuries the continent was a European colony, yet even after alltheir declarations of independence, the countries of the continent are stilldependent, exploited and oppressed External debt is proof that we are notindependent

External debt is like a third world war – a different kind of war, one where

children die instead of soldiers Instead of war wounded filling the hospitals,

it is the sick and underfed that overcrowd the wards, while the joblesswander the streets in search of work No bridges or roads are blown up,but factories, schools and hospitals are closed down No rockets are fired,but wealth is plundered External debt is a permanent blood-letting fromthe veins of Latin America that were cut open five centuries ago

Brazil ranks among the ten richest countries in the world But her veinstoo have been cut open, and the creditors are sucking her dry of the preciousblood produced by the toil of our people

Jubilee 2000 is an international campaign for a noble, just cause; namely,cancellation of Third World countries’ unpayable debt, based on the Jewishtradition of the Year of Grace, the Jubilee Year Debts and financial liabilities(money invested, later to return abroad) are only one aspect of the debts to

be settled; there is also a social debt, a political debt and an environmentaldebt But who, after all, are the debtors? And who are the creditors?

What is External Debt?

External debt is the foreign money loaned to the government or to companiesover several years It is money loaned with interest In 1985, Latin America

had a external debt of US$390 billion.1 By 1996, despite the many billions

repaid over those twelve years, the debt had risen to US$657 billion.

In 1985 Brazil’s external debt totalled US$105 billion Between 1985 and

1998 Brazil paid back US$282 billion in interest and amortisation In interest alone the bill was US$126 billion Nonetheless, by 1998 the debt had swollen to US$243 billion.

It is a vicious circle: the more we pay, the more we owe That is why we say that the external debt is unpayable It will remain an external debt, unless

the people decide to do something to staunch this blood-letting that iscrushing and impoverishing us all

The debt grows day by day When it is rescheduled, as Brazil did in 1982,

1987 and 1994, part of the amortisation is put off to a future date and newinterest is charged In this way, the debt becomes a permanent mechanismsubordinating the nation to external creditors

Is External Debt a Motherless Child?

External debt is just one facet of the array of debts that are impoverishingand marginalising the peoples of the third world

The external debt is fathered and mothered by some countries’ forceddependence on richer, powerful countries, and their people are subordi-nated to local élites allied to these interests from abroad

It is fathered and mothered by the type of economy that is divorced fromsociety, manipulated by whoever controls the banks, factories, machines,land and credit and compels the workforce to be subservient and dependent,just to survive Those who have most are always going to get more

It is fathered and mothered by this economy that turns everything andeveryone into merchandise with a price on the capitalist market If youare unable to sell your product or yourself on this market, then as far as it

is concerned you do not exist

It is fathered and mothered by this policy in favour of massive externalcapital to the detriment of national savings and investment; of importsrather than local production; the destruction, rather than creation, of jobs;concentration of income at the cost of social exclusion; attracting specula-tive capital at the highest real interest rates in the world, rather thanproductive capital; overseas markets instead of a domestic market with evermore buying power; unemployment instead of a skilled, organised labourforce; paying financial debts instead of funding human and socioeconomicdevelopment and solid infrastructure; the State subordinated to big privatecapital and bereft of its sovereignty, instead of a democratic State controlled

by its citizens

How Do You Pay External Debt?

Every Brazilian born in 1998 already bears on his or her shoulders a debtburden of US$1,374 This is a debt that weighs on each one of us and day

by day is paid not only with the nation’s labour, but also with the privations

and necessity that afflict most of us.

Debtor countries pay more than just the debt They also pay interest, therent for borrowing that money for a certain time For many centuriesChristianity and other religions condemned the practice of charging

interest, which is known as usury But as capitalism expanded, so did the

practice of usury: it gradually came to be seen as normal and fair The reason

is that money itself has come to be seen as a merchandise Lending someone

a merchandise is seen as depriving yourself of it for a time, thus entitlingyou to charge rent for it

Today the question is not whether it is fair to charge interest, but which

interest rates can be justified and which cannot In 1985, Mexico was

handing over US$85 out of every US$100 it obtained from the sale of oil topay interest on its debt In Latin America, out of every US$100 that thecontinent earned through its exports, an average of US$35 went to pay

interest Meanwhile, between 1985 and 1997, Brazil paid US$48 in interest

for every US$52 amortised from the principal All these can be consideredunfair, extortionate and impoverishing rates of interest

In order to pay off its external debt, Brazil has to export more and more.Since it needs to bring in foreign money, it sacrifices part of its production,which should be used to meet the needs of the population and the country

A long time ago, imports could be paid for out of the foreign currency earned

by exports Since 1969 this is no longer possible, because an increasingportion of foreign exchange is earmarked to pay the debt

Sources of Foreign Exchange to Pay External Debt

• Exports – Foreign Exchange: payment of debt + payment of imports =insufficient;

• Attracting External Investment: more liabilities to pay, increasingremittances of profits and dividends;

• New Loans: before, to invest in development later, to pay interest = moreindebtedness in a vicious circle

Brazil tried to attract external investments to cover the difference betweenthe balance of trade and external debt service payments This increasedthe liability to pay, and so the country was obliged to lift restrictions onthe remittance of profits and dividends abroad But during the 1980s not

enough external investment was attracted and so the country was obliged

to borrow money to pay the interest on its external debt In this way, thecountry went even further into debt without even investing in development

Who Do You Pay External Debt To?

Creditors are those who lend Brazil’s creditors are the richest capitalistcountries, mainly the United States, Japan, Germany, France, England,

Switzerland, Canada and The Netherlands These are the official creditors.

Alongside them are private commercial banks such as Citibank, DeutscheBank, AMRO, Crédit Agricole, Union of Swiss Banks and others These are

the private creditors And then there are creditors such as the World Bank,

the IMF (International Monetary Fund) and the IDB (Inter-American

Development Bank) These are the multilateral creditors.

Besides being creditors, the IMF and the World Bank play other roles.Both were set up in 1945, not to be debt collectors but rather to help bringsome order to the world economy and prevent the big fish from eating upthe small fry But – especially in the 1970s and 1980s – these two agencies,strongly controlled by the rich countries, took on the role of policing notonly their own loans, but those of the official and private creditors as well.The IMF was supposed to help balance the finances of countries in crisis

by using shorter-term loans to remedy the problems The World Bank was

to help countries progress towards fair, sustainable social and economicdevelopment

What really happens is quite different They grant and refuse loans (Cuba

is not admitted as a member and for a long time neither was China) Theyare not managed democratically, nor is their information transparent Theycollect debts in their own favour and for other creditors They intervene

in our countries to tell us how we should organise the economy; they laydown prescriptions that never favour the debtors and always protect thebankers’ interests And in each one of our countries they have theiraccomplices

Who Pays External Debt?

People who spend their lives ensuring that they and their families survivebelieve that the debt has nothing to do with them It is the government’sbusiness; the government has to negotiate with the IMF and the WorldBank They feel it is a big, complicated issue beyond their understanding.But when they say: ‘I have no food/ school/hospital/work/rights’… they

are talking about the external debt Because it is by sacrificing these rightsdaily that the government is able to go on paying the debt.

There are endless examples of people waking up and rising in defence oftheir rights and against the government and the IMF In the DominicanRepublic, Jamaica, Argentina and recently in Indonesia and South Korea,protests have broken out against packages that swap loans for measuresthat crush the domestic economy, produce bankruptcies and unemployment,destroy national industry, reduce public funds meant for social investment

in health, education, sanitation, housing, land reform and social security,and cause immense suffering, chiefly to those who are already the victims

of so much deprivation

Many goods and services in Brazil cost the same as in countries like theUnited States and Switzerland – or higher In those countries, you can findfood, clothes and electric appliances cheaper than in Brazil Now, if youcompare the average family income of Brazil and the US, Brazil’s is at leastten times lower

In the 1980s we paid the debt by cutting back on imports and domesticconsumption in order to export Little investment entered the country Inthe 1990s the neo-liberal trend consolidated and governments reducedtariffs and protections on imports Cheap goods from transnational com-panies produced in the rich countries, in Eastern Europe and in East Asiaflowed massively into the country, wrecking businesses and destroyingjobs The bill for imports outweighed that for exports, and Brazil’s external-account situation deteriorated

The Brazil of Fernando Henrique Cardoso has been the most liberal ofall, as far as external capital is concerned He has taken to the extreme hiscommitment to foreign powers to privatise public assets, claiming firstlythat this was done so as to be able to invest in social programmes, thenlater, that it was to reduce Brazil’s indebtedness Privatisation has alreadyyielded more than US$50 billion, yet the people are still waiting for theresults There have been no social improvements, nor is there less debt.Where did all that money go?

Increasing unemployment, the numbers of returned cheques and viduals and companies in default, the high rate of compositions withcreditors and bankruptcies, the rise in urban violence and corruption atall levels of society, the lack of hospitals, the sorry state of education, healthand agriculture in Brazil, the decline in workers’ incomes, the imperilledcondition of our universities, the lack of incentives for scientific researchand national technology, the scandalous concentration of income – Brazil’s

indi-is the worst in the world, according to a recent report by the IDB American Development Bank) – all this has to do with external debt

(Inter-How did External Debt Begin?

Ever since the Europeans set foot on the South American continent, it hasbeen in debt To be a colony is to be a country in debt It means having topay taxes to the metropolis simply because you exist, let alone for whatyou produce It is reckoned that 25 to 30 million Amerindians were living

in what came to be Mexico when Columbus landed One historian claimsthat 90 per cent had been wiped out by 1568, leaving only three million.Another calculates that 30 million were exterminated in the very firstdecades after the ‘discovery’ All those who refused to reveal the location

of ore deposits or who refused to work to extract riches for the metropoliswere killed

The Portuguese and Spanish, and then the English, French and Dutch,set up the profitable traffic of slaves from Africa to the Americas Negroeswere negotiated by the ton For over three centuries, slavery was the preferredway of organising labour for capitalism One hundred million are said tohave been dragged out of Africa between the sixteenth and nineteenth

centuries When to the indigenous peoples decimated by the conquistadores

and their descendants, you add the negroes sacrificed during capture, inthe slave ships, on the farms and in the mines of America, you reach the

total figure of ‘100 million human beings wiped out by the boundless voracity

of “civilisation” and “modernity”’ (Paulo Schilling, 1989).

Who are the real debtors? Faced with these facts, it has to be admitted

that the debtors – especially in this century that has sanctioned the human

rights of peoples – are the countries responsible for this piracy and genocide.

You cannot put a price on human life

Schilling mentions the 1952 agreement between the States of Germanyand Israel establishing compensation for the crimes committed by the Nazis

in the period between 1933 and 1945, when six million Jews were killed.Under this agreement, Israel began to receive goods (industrial, transportationand communications infrastructure and so on) worth the equivalent, at

1989 rates, of US$125 billion.

If we take the US$125 billion that Germany paid to Israel in compensation

for the sacrifice of six million lives as our criterion to appraise what the

slave-owning coloniser countries owe to Latin America and Africa for the genocide

of 100 million Amerindians and Negroes during the centuries of slavery, the compensation due to these two continents totals US$2,083 billion! This amount

is greater than the total external debt of the ‘developing’ world in 1998

It is even easier to work out, albeit approximately, the value of the wealthtorn from the Americas Schilling suggests with sound arguments the figure

of US$9.55 billion, plus interest of 6.25 per cent a year for 130 years

Brazil’s financial debt dates from the days of the Empire In 1934, thethen Minister of Finance, Oswaldo Aranha, said:

…the history of Brazil’s indebtedness is one of… debts contracted topay other debts, in an endless sequence of credit transactions so that,

if we look back at our financial past, we will find that the loans meantfor public works are few and far between and that these, althoughofficially authorised, were deviated to other ends

Later governments seem to have striven to keep up this tradition Duringthe depression years of the 1920s, Brazil’s exports began to dwindle In

1931 Brazil had to declare a moratorium on part of its payments Thishappened again in 1987, during the Sarney government

‘We did not Get into Debt, They Got Us into Debt!’

It was in the 1970s, during the military dictatorship, that external debtreached definitively unpayable proportions With the 1974 oil price hike,rivers of ‘petrodollars’ – nearly a trillion – were deposited in the banks ofrich countries by oil-producing countries and transnational oil companies.The bankers then offered loans with interest rates that were low, but flexible(variable rates that are only set after the loan has been made, and so to suitthe interests of the creditor.)

The military government had been set up to prevent a truly nationaldevelopment project based on sovereignty and directed at the needs of theBrazilian people The military regime managed to multiply Brazil’s external

debt by 42 in 21 years, catapulting it from US$2.5 billion in early 1964 to

US$105 in 1985 In 1984, out of every US$1,619 per inhabitant that Brazil

produced, US$781 were pledged to the external debt.2

In Latin America the bankers found poverty and an urgent need for loans

to build up industry, increase production and improve the distribution ofwealth Brazil was one of the exceptions, as it had quite advanced industrialfacilities and a domestic savings and investment capability But the Geiselgovernment, and above all Minister Mário Henrique Simonsen, preferredthe easy, venture money from abroad During this government the total

debt swelled from US$13.8 billion to US$52.8 billion With a negative

average balance of trade during those five years, this indebtedness must be

seen as the result of irresponsible administration, even bearing in mind that

average interest rates increased over the period Those were the days ofthe big foreign-financed projects, many of which are now decaying ordiscontinued But the debt goes on being paid

The rise in interest rates on the debt in dollars came between 1979 and

1981 In those two years, the average rate of around 6.25 per cent soared to

24 per cent a year This was a completely unilateral decision on the part ofthe United States government, which wanted to cover its deficits byattracting money back home It so happens that the North Americancurrency is also – absurd as it may seem – international currency Thisevent, along with the flight of foreign exchange back to the United States,

tied up the external-debt crisis in the third world This unilateral raising of

interest rates caused losses of US$106 billion to Latin America, a figure that the

continent should charge the creditors, with the appropriate adjustments,

at some future global negotiating table (Kucinski and Branford, 1987: 222)

In 1981, Latin America – and then the other impoverished continents –sank deep into crisis The debt that was already unpayable by the poor

countries also became financially unpayable That was when the IMF and

the World Bank ‘came to our aid’, also in the name of the other creditors.

They all realised that this was a golden opportunity to strengthen the ties

of dependence and subordination of our countries to the economic modeland capital of the northern hemisphere In exchange for renegotiatingexternal debt, with longer payment timeframes, our governments sur-rendered the sovereign right to decide our own development path and todefine our own investment priorities An adjustment programme wasimposed on us with the aim of fitting our economies to the single priority

of continuing to pay interest on the debt, even at the cost of recession,unemployment and the impoverishment of most of our populations

‘We did not Develop, We Under-Developed!’

The 1970s and 1980s were decades of military dictatorships in much ofthe third world The glut of dollars was channelled to the dictators withouthesitation and all the creditors can be considered accomplices of these

dictatorships They are co-responsible for those times of repression and

official terror, and their investments yielded hefty profits because of that.They are in debt to our peoples

From 1980 on, the countries of Latin America began to send more capitalabroad than the capital that entered from abroad In other words, they began

to de-capitalise and under-develop once again, in much the same way aswhen they were colonies It is no coincidence that this happened at theheight of the dictatorship period The South American dictatorships most

conspicuous for their authoritarianism and brutality were those of Argentina,

Chile and Brazil Were they by any chance punished by those who controlled

the supply of foreign exchange; did investments come to a halt? Quite the

opposite: at the end of that cycle of dictatorships, these countries showeddebts totalling US$49, US$20 and US$105 billion, respectively.

Millions of dollars of external debt fell into the hands of the dictators,who spent them arming the police and armies that repressed and tortured.The dictatorships of Somoza in Nicaragua and Stroessner in Paraguay hadalready opened up that route Foreign exchange also fell into the hands ofprivileged groups, élites, companies patronised by the authoritarian states,which imported unnecessary goods, wasted these funds or took them out

of the country This was the capital flight which led to a flood of numbered(unidentified) accounts holding funds that had originated in indebtedcountries and ended up in international banks and tax havens, where theyenjoyed secrecy and protection

During the 1980s the rich countries benefited from the crisis in the thirdworld in at least three ways: by receiving the mass of capital transferredfrom the southern hemisphere (debt payments, profit remittances, etc.);

by taking advantage of the drop in prices of exports from the indebtedcountries, who all wanted to sell their products in exchange for foreigncurrency to pay the debt; and with the flood of capital, including that ofthe élites of the South, that accumulated in the rich countries throughoutthe high-risk phase in the poor countries Parallel to this came the wave ofneo-liberal reforms that had an impact worldwide and were captained indebtor countries by the multilateral agencies and the governments thatthe élites had managed to set up in place of the dictatorships

In the 1990s the situation was inverted International capital sought outLatin America once more, especially the more dynamic, if more indebted,

economies Mexico, Brazil, Argentina, Chile, Venezuela, Colombia and Peru

received US$70 billion in 1996 alone, whereas the total capital inflowthroughout the 1980s was only US$68 billion

A recent report released by ECLAC (UN) reveals that the external debtcrisis of the 1980s and the structural reforms prescribed by the IMF and

Table 1.1: External Debt of Latin American Countries at the Close of the

Table 1.2: Poverty in Latin America

1980 1990

Families below the poverty line 35% 39%

(income of less than US$1.00

per day)

(Source: ECLAC)

Table 1.3: Concentration of Income in Latin America

1979 1997

Families with below-average income 67% 75%

Concentration of income in Brazil

Income in the hands of the 10% richest 42.5% Income in the hands of the 40% poorest 11.8% Concentration of income in Chile

Income in the hands of the 10% richest 39.4% Income in the hands of the 40% poorest 13.4%

Concentration of income in Argentina

Income in the hands of the 10% richest 34.6% Income in the hands of the 40% poorest 14.4%

Concentration of income in Mexico

Income in the hands of the 10% richest 34.3% Income in the hands of the 40% poorest 16.8% Concentration of income in Uruguay

Income in the hands of the 10% richest 25.4% Income in the hands of the 40% poorest 21.6% (Source: ECLAC)

World Bank in Latin America – especially in the 1990s – have served only

to aggravate the concentration of wealth and social inequality

Between 1990 and 1996 the continent’s external debt swelled from

US$475 to US$657 billion, at an annual rate of 2.5 per cent, whereas it had

grown only 1.2 per cent a year during the 1980s Also the debt service(amortisation plus interest) more than doubled in the 1990s, from an

annual average of US$38 billion in the 1980s to US$86 billion in the 1990s.

This all charts a course that is increasingly vulnerable to the fears andwhims of international investors and to the instability of the world economy

In 1994, and again in 1995, Mexico fell prey to a sudden outflow of dollars

which triggered a deep crisis In order to obtain external resources fromthe IMF and the United States to cover the gaps in its foreign accounts,Mexico was obliged to deposit invoices for its oil exports in the CentralBank of the United States In exchange it received US$50 billion in newloans and a highly recessive package from the IMF Did that put an end tothe crisis? No Up went the country’s external debt, increasing its vulnera-bility and its dependence on the United States’ market and investments.Today 84 per cent of Mexicos exports go to its big neighbour up north Itsindustry become a mere accessory to that of the United States All this atthe cost of lower real average wages, higher unemployment and moreprecarious relations on the labour market

While the IMF and the bankers wait for Mexico to meet the targets oftheir package, they go on financing its debts which, growing steadily, shot

up from US$95 billion in 1989 to US$156 billion in 1997.

Argentina, in turn, now has its economy tied to Brazil’s If the real is devalued,

the Argentinian economy will burst The adjustment model applied there

is the same as in Colombia and Venezuela; that is, production chains werebroken up, imports of intermediate products and consumer goods increased,the balance of trade deficit grew and foreign exchange is raised increasinglyvia the capital markets (which includes speculative capital)

For a long time Chile was showcased of the third world as an example of

the success of neo-liberalism In actual fact, the country abdicated itsindustrialisation and opted for the agribusiness exporting model that ishighly dependent on international markets and investments; nothing to

do with ‘modernity’ The country specialised in meeting certain demandsfrom markets in the northern hemisphere, for industrialised fresh fruits,wines, beverages, fish, salmon, timber and low value-added manufactures.Also, like the other ‘emerging’ countries, Chile enlarged its capital market,taking care to regulate both the entry and exit of short-term capital Thisshould have served as an example for other ‘emergents’ such as Russia andEast Asia who failed to follow suit and either plummeted deep into crisis

or else (like Brazil and the other ‘emerging’ nations of Latin America) are

at serious risk of doing so

Capital Takes All, Social Spending Gets the Crumbs

Brazil in particular faces the threat of being the international speculators’

‘next target’ This means, if they are convinced that it is too risky to invest

in Brazil, that the government did not manage its foreign accounts properly,

or that the IMF package is not going to work, they will continue to drawing their capital and the country will slide into default That was whathappened with Russia last August

with-External indebtedness has increased sharply during the FHC government:his first four-year mandate (1995–1998) has caused the external debt to

grow from US$146 billion to US$243 billion In that period the country paid

out US$137 billion, US$46 billion of which was interest alone 1998 ended

with Brazil owing more than US$100 billion in new liabilities in foreigncurrency, which had accumulated under the present government Pooreconomic growth, acute dependence on imports and on external capital,less public and private investment, privatisation of public and privateenterprises (even in infrastructure sectors) – all this is accelerating Brazil’sdependence on external resources, today and tomorrow

The growth of the external debt is reflected in rising internal public debt

During FHC’s four-year mandate up to 1998, Brazil’s internal public debt increased almost six fold From R$60 billion at the beginning of 1995, it rose

to more than R$326 billion (Central Bank, October 1998) Associated with

this debt are years of astounding interest payments to holders of federalgovernment securities: official figures indicate about R$60 billion Thoseastronomical amounts have to do with the policy of high interest rateswith which the government is trying to sustain the Real Plan.3 As thegovernment has no way of paying such amounts, it refinances the debtprincipal and pays just the interest

The external debt is different The private sector is the main debtor, not

the government At the beginning of the FHC government, it stood at

US$148.3 billion The high domestic interest rate encouraged the private

Table 1.4: Brazil’s External Debt in the FHC Administration

Debt Service between 1995 and 1998: US$126 billion

(Source: Central Bank)

sector to take out loans with foreign banks, either to reduce the financialcosts of its investments or to speculate on Brazil’s capital markets, takingadvantage of the low international interest rates and the high rates inBrazil.

During the years of FHC’s mandate (including 1994, when he was Minister

of Finance, and not counting 1998) Brazil paid almost US$126 billion interest

and amortisation Even so, in December 1998, according to the Central

Bank, the debt had risen to US$243 billion It really is a vicious circle: the

more Brazil pays, the more it owes The portion of the debt that corresponds

to the non-financial public sector is only US$95.2 billion, while the privatesector accounts for US$1447.97 billion of the total What is very important

is the burden of short-term debt The private sector has liabilities of US$34.8billion and the public sector, US$8.34 billion

The two debts entail charges that consume public funds reserved without

limit for this purpose in the federal and state government budgets.

This represents an inversion of ethical values in the administration ofeconomic policy The Executive, with no public debate, imposes debt service

as its top priority, and subordinates all other public and social needs to it

Capital takes all, social spending gets the crumbs This seems to have been

the FHC government’s slogan, throughout its entire mandate, but particularlynow that it has concluded an extremely harsh agreement with the IMFand the other foreign creditors

A Good Budget Makes for Good Planning

All countries have a budget where forecasts of revenues and spending areentered The budget is a planning instrument that allows governments toprepare revenue collection and spending policies, according to certainpriorities that cater for different interests This makes it possible to view

the borrowing capacity of the family, company or government, and to guide

decisions In the case of the federal government, the decisions are made

by politicians of the Executive, after consulting Congress However, if

we ask ourselves who are the politicians that make the decisions, andaccording to what interests, we see that the country’s political system isenormously distorted The great majority of congressmen are very wealthypeople: businessmen, bankers, big farmers, landowners and owners ofmajor media groups In the Executive, there are also rich people and largetechnical staffs While they are all busy with politics, their companiesand banks, farms and media networks generate a fortune without theirhaving to work for it

‘I have my executives who take care of my companies’, said an importantbusinessman with whom we talked in 1989 ‘I devote my time to politics.’Besides promoting their own interests, politicians are subject to pressurefrom different sectors of society There are lobbies representing (evenforeign) companies and banks, large farmers, owners of medical insurancecompanies, big civil construction contractors and so on In Brazil, but also

in many other countries, including the rich countries, there are oftenscandals involving corrupt practices by these groups, such as buyingpoliticians with money or favours so that they make decisions favourable

to their interests The ‘Dwarfs of the Budget’ and the ‘Pink File’ are just two

of a number of such scandals to break in Brazil in recent years.4

In addition, it is common for politicians and technical personnel fromthe federal government, including many former ministers, after theyleave public office, to find a berth in large companies and private banks,even foreign ones Either that or they go to work as consultants, earningfortunes in exchange for advice and strategic information they had access

to when they were public servants Unlike other countries, here there is

no ‘quarantine’ period to safeguard the interests of the State and of society,preventing these specialists from working in the private sector for a certaintime and from releasing strategic information from the public sector forexclusionary corporate benefit

Compared to the influence of the rich and powerful, pressure from therural and urban workers’ unions and organisations of civil society is stillweak and hardly influential Although they may represent majorityinterests, most people in Brazil are still alienated and disorganised This islegacy from the times of slavery, that ended only 110 years ago, which has

conditioned people to submit to and to depend on whoever is rich or whoever governs, to reduce their citizenship to the act of asking that some of their rights and interests be satisfied and, for the rest, to delegate power so that

others can govern them and decide for them Poor, excluded working menand women still believe that political power is not for them In this they

are greatly helped by the media, which put across the message that it isonly ‘those that know’ who can decide, and those that know are generally

‘those that have’

So, in fact, most of Brazil’s population is not represented in the ment: they are working men and women of the city and of the countryside,who live on their wages and not from capital that is generated by the work

Govern-of others

Politics means a power system, or way of using power

True democracy is when the power to make decisions is shared witheverybody involved; in the case of a country, with all its male and femalecitizens In Brazil, however, democracy is just a façade In practice, it is therich and powerful who decide The majority are excluded Even at elections,when all must give their opinion, there are many devices the rich andpowerful élites use to influence voters’ decisions

In the recent presidential elections, the law was changed to give PresidentFHC the right to run for re-election and to continue as president through-out the electoral campaign He consequently had scandalously greateraccess to the public over the whole country than any other candidate.Furthermore, the media gave massive, supportive coverage to the President

to the detriment of the other candidates Public opinion polls also duced distortions, all in favour of the élites’ candidates Even so, the FHCgovernment re-elected for the 1999–2002 mandate does not represent the

pro-majority of the voters: only 33 per cent of the total electorate voted for FHC in

October 1998.

As the government’s parliamentary base is centre-right, with the PFL,PPB and conservatives of the PMDB clearly predominant, little spaceremains for the less conservative sectors of the PSDB (the President’s party).Hence, there is nothing odd about the aggressive pro-privatisation tone ofthe first FHC mandate, which left our economy increasingly vulnerable

to waves of speculation It is interesting that central countries like Franceand Italy maintain strong control in the communications area, whereBrazil’s Telebrás system operates The same can be said of Germany andItaly in relation to their banks The Japanese state-run steel companycontinues to invest and acquire controlling interests in our, and others’,steel companies These are examples of what some economists call themyths of globalization In four years the FHC government privatised 50per cent more than Margaret Thatcher – the ‘iron lady’ – did in twelve.That is really out-Heroding Herod!

Even so, Brazil was no less in debt How were we to pay those debts?When the balance of trade (the difference between the value of exportsand the value of imports) is negative, as it has been throughout FHC’s entire

mandate, the government begins to depend on external investments and

on new loans so as not to have to resort to its international reserves

The FHC-IMF Agreement: And the Government Promised not

to Govern with Packages…

In September/October 1998, Brazil found itself on the brink of an abyss.The FHC government had already gone through several difficult moments

in managing the public accounts However, one keynote ran through thespeeches of the President and of the Minister of Finance: ‘Unlike previousgovernments, we will settle everything without imposing packages.’ Todaythe FHC government is exposing its own falsity, by imposing on Brazil apackage negotiated behind the scenes with the IMF and other foreign credi-tors and presenting to the nation a ready-made package, with no discussion,

as the only course possible It refuses even to show the text of the IMFAgreement to the Senate of the Republic, which has the constitutionalobligation to supervise all agreements involving foreign loans The FHCgovernment has contradicted itself on many other occasions What is atstake, however, is not just its credibility, but the health and sovereignty ofthe Brazilian nation

In August 1998, it was Russia’s turn The Russian government saw foreign

investors, who had arrived en masse during and after the Asian crisis of

October 1997, hastily withdraw their money, lent or invested at short term

on the stock exchanges of Russian capital cities It announced that it wouldnot devalue the ruble It signed an agreement with the IMF for one moreloan, this time for US$22.5 billion It then said that it could now continuepaying its creditors In spite of having received US$4.5 billion from theIMF immediately, it found itself forced to devalue the ruble, so as to bring

in more foreign exchange with its exports As soon as that happened,however, more investments fled the country Russia then declared a partialmoratorium on its external debt payments and a total moratorium on itsinternal debt payments

In September and October 1998 almost US$30 billion left Brazil Brazil’sforeign exchange reserves plummeted from US$70 to US$40 billion.Investors were afraid They saw Brazil with a foreign account deficit ofalmost 8 per cent of the GDP, a persistently negative balance of trade, highdomestic interest rates, the real overvalued, high rates of internal andexternal indebtedness and enormous amounts to pay to service those debts

They also saw that the IMF was finding it harder to raise funds to save them

when the squeeze was on In reality, the IMF’s packages have been tions designed to rescue western investors and creditors and not debtor

opera-economies So, after experiencing the crises of Mexico in 1994 and 1995,the Asian ‘tigers’5 in 1997 and now Russia – all of them so-called ‘emergingcountries’ – they thought it too risky to keep their money in Brazil and inother ‘emerging’ countries So they began to leave in a hurry.

The aim of the FHC-IMF adjustment programme for the three-year period1999–2001 is to stabilise ‘the ratio of the net consolidated public sectordebt to GDP at a prudent level, close to 44 per cent, at the end of the period’.Cutting the public deficit pursues this aim It is not an aim in itself Noteven the rich countries govern without a public deficit Moreover, one ofthose most heavily in debt is the United States, which forecasts a publicdeficit of US$300 billion for 1999

The FHC government promised the IMF to make spending cuts thatwould not jeopardise payments to external creditors Neither will it cutthe R$60 billion plus a year that it pays in interest to internal creditors.The only way to prevent this is for society to mobilise and bring strongpressure to bear The government decided that the cuts would concentrate

on social spending and on areas connected with Brazil’s domestic economy.The 1999 budget provision already agreed on with the IMF estimates at

63 per cent the total budgeted just for the federal government’s internaland external debts Taking as a basis the current internal federal debt, andthe 20 per cent interest rate that the government says it intends to adoptbefore the end of 1998, we would have R$66 billion interest to pay in 1999.However, if the interest rate rises to 30 per cent, the amount will be R$99billion!

Looking at these figures, all the talk about budget cuts seems meaningless.The IMF is demanding that the government, in order to qualify for US$41.5billion in loans to fill the gaps in its foreign accounts, generate a surplus(called ‘fiscal effort’) of R$28 billion by cutting spending and increasingtaxes In the best case scenario, that of R$66 billion, the government would

use all this surplus to pay debt interest and would still have to issue a further

R$38 billion in bonds to complete the payment This would entail anintolerable expansion of the very debt that is being paid In other words,

the government is broke And not just now, but since last May Going to the

IMF is not an honour for Brazil, as the government and the media wouldhave us believe, but a disgrace It is not a solution, but an aggravation ofthe problem

The only solution is to renegotiate the internal and external debtsimmediately, although this would give rise to a tremendous crisis ofconfidence in a government whose credibility is already very shaky Thiscrisis did not come from outside, it was produced by the government itselfwhen it encouraged the financial merry-go-round and mismanaged its

budget and its debt policy If the spark came from the Asian and Russiancrises, the gunpowder for the explosion was already here, accumulated by

a government that attaches more importance to international bankers than

to the Brazilian people

The package that FHC said that he would not impose did come The cuts

in social spending that Minister Malan said would not be made are beingmade The money from privatisations, that was to relieve the nation andreduce the debt, seems to have evaporated Meanwhile, the new money to

be borrowed from the IMF and from the other creditors that contributed

to the package, instead of alleviating the crisis, will have to be repaid athigher-than-market interest rates and in shorter pay-back periods, increas-ing both debts still further The political conditions are also extremelyharsh: the commitment to privatise Brazil’s entire energy system, ten statebanks and the water, sewerage and sanitation sectors In addition, all theannual revenue of Furnas and Itaipu is to be put at the disposal of thecreditors, as a guarantee, until the new debt is paid off.6

All this means passing on funds extracted from work and from tion to the financial sector It also means an unbearable cost for the economyand the Brazilian people, above all the majority of working men and womenwho make their livelihood solely by hiring out their productive and creativecapacity on the labour market Only pressure from society will stop thegovernment from negotiating with the IMF or submitting to its conditionsand giving priority to Brazil’s social and economic development needs

produc-The financial debts should not have priority over social, political and mental debts.

environ-Cancel Unpayable Debts

The International Jubilee 2000 Campaign is an initiative involving a largenumber of religious, lay and non-governmental organisations from dozens

of countries on all continents It is supporting the proposal for millions ofpeople in the world to begin the new millennium with their external debtscancelled How? With a single cancellation for the year 2000 of the unpay-able debt of the planet’s poorest and most heavily indebted countries, by afair, transparent process pursued through forums to be set up democratically.The Jubilee 2000 Campaign on the debt aims to pressure creditors –governments, private banks, multilateral agencies – to recognise that theywere partly responsible for the debt that afflicts third world countries, inparticular the very poor countries of Central America, the Caribbean andSub-Saharan Africa Nevertheless, countries like Brazil also have debts thatcannot be paid

This initiative is inspired by the Old Testament, especially in the Book

of Leviticus, which describes the Jubilee year as the Year of Grace Every

50 years, when social inequalities are adjusted, slaves are set free, land isreturned to the original owners that worked on it and debts are cancelled.The campaign was launched in 1996 by the three largest Christian aidagencies in Great Britain (among them Christian Aid and Cafod) and today

is being supported and developed in more than 40 countries

Following a survey made in 1995, which considered some vital economicand human development indicators, a list including some 50 of the poorestand most heavily indebted countries was organised for the Jubilee 2000Campaign

CIDSE (International Co-operation for Development and Solidarity)defined several priorities for the International Campaign and is holdingecumenical discussions on them with other churches and organisations

of civil society These priorities include:

• Cancellation of unpayable debts in the year 2000 This principle would

apply to only a small number of the poorest and most heavily indebtedcountries – Uganda, Bolivia, Burkina Faso, Mozambique, Guyana, IvoryCoast, Cameroon, Congo, Ethiopia, Madagascar, Minaram, Niger, Rwanda,Tanzania, Burundi, Guiné Bissau, Nicaragua, St Thomas and Principe,Sudan, Democratic Republic of Congo and Zambia It would be thesimplest and most direct way of reducing the debt The precedent ofGermany after Word War II is important: the creditors reduced almostall the Nazi debt to an annual payment corresponding to no more than

5 per cent of German exports What a contrast with what they accorded

to the poorest and most indebted countries: annual payments of between

20 and 25 per cent of their exports

• Review of conditionalities for the poorest and most indebted countries.

• Improvement of the Initiative for the Most Heavily Indebted Poor Countries

(HIPC), promoted today by the World Bank and the IMF to reduce or to

cancel the debt of these countries in exchange for neo-liberal reforms

of their economies

• Debt cancellation must be tied to investment in human development The

issue is that the cancellation should benefit the poor and needy in wayssuited to each country The debt is an important cause of impoverishmentand it threatens the development of the people who live in the poorestcountries Cancellation should liberate funds for investment in humandevelopment and in the productive capacity of the country and itspeople It should also allow more investment in health and education

COUNTRY POPULATION NOMINAL DEBT NET DEBT* GDP per capita

(million) (US$ million) (US$ million) (US$)

People’s Republic of Congo 2.7 5,796 5,367 2,050

Democratic Republic of Congo 43.9 13,075 11,630 429**

COUNTRY POPULATION NOMINAL DEBT NET DEBT* GDP per capita

(million) (US$ million) (US$ million) (US$)

COUNTRY POPULATION NOMINAL DEBT NET DEBT* GDP per capita

(million) (US$ million) (US$ million) (US$)

**GDP per head in 1994, supplied by the UNDP Report on Human Development, 1997.

Source: World Bank – Global Development Finance 1997 Trends in Developing Economies Human Development Report,

UNDP, 1997.

For this to happen, it is indispensable that civil society participate inplanning and implementing policies and projects.

• Decisions on the reduction/cancellation of the debt must be made transparently.

This refers in particular to institutions such as the World Bank, the IMF,the Club of Paris and the governments of the indebted countries Citizens’groups should have access to all the information on the objectives andstrategies for their country Advances made by the World Bank shouldalso be adopted in the other institutions, including national govern-ments All of them should incorporate the views of government ministries,

of the legislative, as well as of local churches, labour unions and sations of civil society, including on loan conditions and the formulation

organi-of adjustment programmes

• The structure of international financial relationships must be transformed.

The pattern of these relationships should be thoroughly modified toestablish a fair dialogue between debtors and creditors Responsibilityfor what in many countries of the southern hemisphere is an unbearableburden of debt does not belong just to the debtors, but also to the creditors.For that reason, fair and transparent procedures should be adopted tofacilitate fair and egalitarian relationships between debtors and creditors

Among these, an international system of default/insolvency would be a

possible course to follow, based perhaps on the experience of NorthAmerica or Hungary, of legal safeguards for local governments in case

of default/insolvency and a neutral arbitration tribunal to hear the parties

affected and their views on the impacts of the proposed solutions Atribunal of this kind was set up in 1953 to deal with Germany’s debt.Among CIDSE’s proposals for the work of mobilising and bringing pressure

to bear on the centres of power are:

• To learn more on the subject of the debt To research data and to prepare

proposals in co-operation even with organisations in the creditorcountries

• To establish clear goals and specific objectives.

• To build awareness and to mobilise the social base and the networks at the

local and national levels.

• To pressure those who make decisions, to influence them in favour of the

Campaign’s proposals.

There is also the world campaign for the Tobin Tax, which proposes a 0.5

per cent tax on speculative transactions on the foreign exchange market.This would bring in about US$100 billion a year to be transferred tointernational organisations fighting against social inequalities and forsustainable development

Added to these are the proposals of the External Debt Symposium:

Implica-tions and Perspectives, held in July 1998:

• To support national and international social mobilisations that aim to

imple-ment policies for reducing or entirely cancelling payimple-ment of unbearable or

illegitimate external debts, making clear our political élites’ responsibility

in adhering to strategies designed to produce dependence and theirsubservience to the instructions and guidelines issued by multilateralorganisations

• To foster debate and to supply information in accessible language about

the current situation of the various aspects of the External Debt, itsrelationship to the social and ecological debts and its consequences forthe lives of the whole population

• To guarantee that countries use the resources that would be spent on servicing

the debt to implement social policies, with full participation by civil society.

• To contest the proposal for liberal deregulation represented by the MAI

(Multi-lateral Agreement on Investment), by strengthening the sovereignty of each

nation to define criteria for inflows, use and outflows of capital

• To support initiatives for creating international mechanisms to define limits

on indebtedness and to recognise situations of insolvency on the part of nation states.

• In solidarity with very impoverished countries, to support national initiatives

and to participate in international efforts toward the total and immediate

cancellation of their external debts To accompany closely the Brazilian

government’s position in international forums regarding the debts ofthe countries of which it is a creditor

Regarding Brazil:

• A comprehensive audit of the process of Brazil’s external debt, with the

parti-cipation of organisations of civil society, to guarantee transparency and

information for all its citizens

• The cancellation of the debt identified as illegitimate and unjust.

• A budget ceiling on debt service and amortisation payments, compatible with

the priority of redeeming social and ecological debts, to be set by theBrazilian Congress

• Constitutional mechanisms for civil society to participate in overseeing

economic policies and government acts relating to the process of edness at the federal, state and municipal levels are to be encouragedand strengthened

indebt-• Interruption of the current economic and financial policy of attracting capital

from abroad, which is producing massive increases in Brazil’s external

liabilities, particularly by privatising public service infrastructure

• Support for efforts to set up a tribunal to judge the whole matter of the external

debt and for the churches to make strenuous efforts to achieve this aim.

This suggestion is already being put into practice The Foreign DebtTribunal sat from 26–28 April 1999, in Rio de Janeiro Representativesattended from churches, social, intellectual and parliamentary move-ments, representatives of oppressed sectors of society and the public atlarge The audience heard statements, specialist reports and testimonyfrom other countries and regions, like Argentina, Central America,Russia, Africa and Europe Cultural shows were presented and a largenumber of international co-operation agencies were present

Notes

1 A billion is a thousand million

2 For a criticism of debt-taking during the military dictatorship, see MarcosArruda, ‘Prometeu Acorrentado, ou Os Grandes Grupos Econômicos, oEndividamento Externo e o Empobrecimento do Brasil’, PACS, Rio deJaneiro, 1988

3 Real Plan is the governmental plan that created a number of monetaryand fiscal rules in order to stabilise the inflation rate

4 ‘Dwarfs of the Budget’: this term refers to the manipulation of the federalBudget for private gain by seven congressmen, who became known asthe ‘Seven Dwarfs of the Budget’

‘Pink file’: this term refers to evidence of corruption within the Executive,which the Cardoso administration was able to stifle before it becamesubject to a Congressional Hearing

5 The term is used worldwide to refer to the Asian countries that underwentintensive economic growth during the 1980s and 1990s: South Korea,Taiwan, Hong Kong and Singapore They were also nicknamed ‘AsianDragons’

6 Furnas is a large State electric power generation and transmission firm.Itaipu is a huge hydroelectric dam between Brazil and Paraguay

to international capital and to eliminate whatever instruments were onceavailable to the Brazilian State to regulate that capital As a film, it could

have been called ‘How to Bring the Enemy into Your Home’ Even more

surprising is that now it stands face-to-face with the crisis, the FHCgovernment’s proclamations and measures keep it on the same course asbefore It persists in taking measures of all kinds to lure more and moreinternational capital into Brazil and to hold it there with promises of hugegains and privileges

Contrary to what the government says, the financial imbalance thatthreatens to devastate Brazil’s economy and society is structural in nature,and not conjunctural It is the result of the choice made by FHC and hisallies to steer a course of excessive dependence on foreign capital Thiswas the course taken throughout the four years of the FHC government

He of all people, who 20 years ago was denouncing dependence andproclaiming values like national sovereignty: Brazil’s need to have its ownsovereign national development plan, grounded in significant financialautonomy The global financial imbalance, too, is far more than conjunc-tural, and is tending to develop into a crisis of vast proportions It has to dowith the process of neo-liberal reforms that has prevailed the world over

in the 1980s and 1990s Deregulation – affording greater mobility to capital

of all kinds, but chiefly financial capital – has been one of its greatestachievements And all élites are responsible, particularly the élites of the