Robert McNamara’s Second Vietnam July 17, 2009Posted by rogerhollander in Foreign Policy, Philippines.
Tags: economic imperialism, ferdinand marcos, foreign aid, foreign policy, philippines, philippines economy, philippines industrialization, robert mcnamera, roger hollander, U.S. imperialism, walden bello, World Bank
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Development from Above?
As president of the Bank, the world’s premier channel for multilateral aid, McNamara did quadruple the institution’s lending portfolio to $12 billion. The key beneficiaries, however, were authoritarian dictatorships. Indeed, the rise to hegemony of authoritarian regimes in the developing world cannot be separated from the massive funding that the World Bank under McNamara provided them. By the late 1970s, five of the top seven recipients of World Bank aid were military, presidential-military, or military-controlled regimes: Indonesia, Brazil, South Korea, Turkey, and the Philippines.
Why did the Bank under McNamara feel a special affinity to military-dominated regimes? A major reason stems from McNamara’s own background. He was one of the prototypes of the “technocrat,” a term coined in the early 1960s to refer to the seemingly apolitical practitioner of the science of political and economic management. As chief executive of the Ford Motor Company and later head of the Defense Department, McNamara ran organizations that were hierarchical and non-democratic in structure. Not surprisingly, he was susceptible to the rhetoric of authoritarian regimes that promised to sanitize the political arena in order, according to them, to allow economic managers the space to modernize the country.
The Marcos Connection
Philippine President Ferdinand Marcos was one of the leaders who most successfully cultivated the image of bringing “development from above.” In 1972, he imposed martial law in order, in his words, to “break the democratic deadlock” that had become a barrier to development. “All that people ask,” Marcos explained, “is some kind of authority that can enforce the simple law of civil society. Only an authoritarian system will be able to carry forth the mass consent and to exercise the authority necessary to implement new values, measures, and sacrifices.”
Skillfully deploying a cadre of technocrats to impress the World Bank president, Marcos won McNamara over to backing his regime in a major way. The country was upgraded to what the Bank called a “country of concentration.” Between 1950 and 1972, the Philippines received a meager $326 million in Bank assistance. In contrast, between 1973 and 1981, the Bank funneled more than $2.6 billion into the country. Whereas prior to martial law, the Philippines ranked about 30th among recipients of Bank loans, by 1980 it placed eighth among 113 developing countries.
In return for this massive increase in aid, the Bank was given carte blanche to forge a comprehensive economic development plan for the Philippines. The two pillars of the strategy were “rural development” and “export oriented industrialization.”
Containing the Countryside
“Rural development” was the Bank’s response to the agricultural crisis. The centerpiece of the strategy was increasing the productivity of small farmers through the delivery of “technological packages” and upgrading agricultural support services like credit systems. Rural development, however, had implications that went beyond improved efficiency.
As McNamara explained to the Bank’s board of governors, the strategy would “put the emphasis not on redistribution of income and wealth — as justified as that may be in our member countries — but rather on increasing the productivity of the poor, thereby providing for an equitable sharing in the benefits of growth.” In short, rural development was partly counterinsurgency, directed at defusing the appeal of the revolutionary movement among the restive rural masses. It was, as one development specialist close to the Bank described it, “defensive modernization” which, if successful, will create a smallholder sector closely integrated with the national economy. Bank projects will encourage subsistence farmers to become small-scale market producers. With economic ties to other sectors, the farmers will be loath to link their interests to those not yet modernized and will hesitate to disrupt the national economy for fear of losing their own markets.
When it came to industry, McNamara pushed Marcos and other World Bank clients to “turn their manufacturing enterprises away from the relatively small markets associated with import substitution toward the much larger opportunities flowing from export promotion.” Quotas were to be eliminated and tariffs brought down to expose protected local industries to the winds of international competition; exporters were to be given incentives; export processing zones were to be set up; and wages were to be kept low to attract foreign investors. The Bank shot down a plan by Marcos’ more nationalistic technocrats to set up “11 big industrial projects,” including an integrated steel industry and a petrochemical complex. The Bank did not consider this attempt to create a strategic industrial core to be in line with export promotion.
As in the case with rural development, there was a social logic to export-oriented industrialization. Persisting in industrialization based on the internal market would have meant having to undertake massive income redistribution in order to expand the market necessary to sustain it, a move opposed by the local elite. By instead hitching the industrialization process to growing export markets, the Bank broke the link between industrialization and domestic income redistribution. The cost, however, was intensifying class conflict as governments attempted to keep wages low and exports competitive.
The World Bank vision was grand, but implementation of a project that favored foreign interests and the traditional elites met mass resistance. The project was also dogged by corruption, cronyism, incompetence, and when it came to land reform, lack of political will. Then there was the special problem of Philippine First Lady Imelda Marcos, who wanted to corner more and more World Bank money for her projects. “Mrs. Marcos,” one Bank bureaucrat wrote in a briefing paper for McNamara, “has identified herself with a few showcase projects that we consider ineffective and which are a bit of a joke among knowledgeable Filipinos.”
Crisis and the Advent of Structural Adjustment
By the early 1980s, the World Bank program was floundering, prompting management to commission political risk analyst William Ascher to assess the situation. Ascher’s findings were grim. The Marcos regime was marked by “increasing precariousness” and “the World Bank’s imprimatur on the industrial program runs the risk of drawing criticism of the Bank as the servant of multinational corporations and particularly of US economic imperialism.”
In a desperate effort to salvage a deteriorating situation, the Bank forced Marcos to appoint a cabinet of technocrats headed by Prime Minister Cesar Virata, its most trusted agent in the country. But the cure that Virata and company administered was worse than the disease. The country was subjected, along with only three other countries that agreed to be guinea pigs, to an experimental Bank program called “structural adjustment” that involved the comprehensive liberalization and deregulation of the economy. The program, one of McNamara’s last innovations before he retired in 1981, sought to fully expose developing economies to international market forces in order make them more efficient. In the Philippines, this adjustment entailed bringing down the effective rate of protection for manufacturing from 44 to 20%. Instead of invigorating the economy, however, this shock liberalization combined with the international recession of the early 1980s to bring about deep economic contraction from 1983 to 1986.
Indeed, structural adjustment led not only to deindustrialization; according to one study, it also created so much unemployment that migration patterns changed drastically. The large migration flows to Manila declined, and most migrants could turn only to open access forests, watersheds, and artisanal fisheries. Thus the major environmental effect of the economic crisis was overexploitation of these vulnerable resources.
Adjustment led to a decade of stagnation from which the country never really recovered, even as its neighbors, who were smart enough to avoid being saddled with the program, were registering 6-10% growth rates in 1985-1995.
Yet there was one unintended benefit for the Philippines: The economic chaos that structural adjustment provoked was one of the key factors that brought about the ouster of Marcos in the combined civil-military uprising of February 1986.
By that time, McNamara had been out of the Bank for five years. Ensconced in retirement, he must, however, have seen parallels between the last U.S. helicopters leaving Saigon in 1975 and Marcos going into exile in Hawaii on a U.S. aircraft in 1986. The Philippines was McNamara’s second Vietnam. Like the first, it was a memory the once-celebrated whiz-kid of the Kennedy administration would probably have preferred to bury.
Copyright © 2009, Institute for Policy Studies
Walden Bello is a member of the House of Representatives of the Republic of the Philippines and president of the Freedom from Debt Coalition. A retired professor of sociology at the University of the Philippines, he is currently a columnist at Foreign Policy In Focus and a senior analyst at the Bangkok-based analysis and advocacy institute Focus on the Global South. He is the author of 15 books, the most recent of which is The Food Wars (New York: Verso, 2009). He can be reached at waldenbello (at) yahoo (dot) com.
Argentine Factory in the Hands of the Workers: FASINPAT a Step Closer to Permanent Worker Control May 30, 2009Posted by rogerhollander in Argentina, Labor, Latin America.
Tags: Argentina, argentina economic crisis, argentina expropriation, argentina factory, argentina factory takeovers, argentina labor, argentina occupied factories, argentina unemployment, argentina workers, argentina world bank, argentlina economy, cristina fernandez de kirchner., fasinpat, latin america labor, marie trigona, roger hollander, worker control, worker cooperatives, World Bank, zanon ceramics
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|Written by Marie Trigona www.upsidedownworld.org|
|Wednesday, 27 May 2009|
Photo Courtesy of Prensa Obreros Zanon
While many workers around the world are worried about downsizing, lay-offs and how to protect their jobs, workers in Argentina have come up with their own solution to business closures – Occupy, Resist and Produce. Many factories, like the Zanon Ceramics plant, have been running without bosses for almost a decade. In response to a financial crisis in 2001 that wrecked Argentina’s economy, workers decided to occupy their workplaces and start up production without bosses in order to safe-guard their jobs.
Pirate Bankers, Shadow Economies April 15, 2009Posted by rogerhollander in Africa, Economic Crisis, Nigeria.
Tags: africa government, africa poltics, capital flight, citigroup, corruption perceptions, cpi, economic justice, Free Trade, G20, global shadow economy, Gordon Brown, IMF, jacob zuma, khadija sharife, nigeria dictator, nigeria oil, oecd, roger hollander, sani abacha, swiss bank account, swiss banks, tax havens, tax justice, third world corruption, third world economy, ti, transparency international, washington consensus, World Bank
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Published on Wednesday, April 15, 2009 by Foreign Policy In Focus
Corruption isn’t an issue that Jacob Zuma, the current president of the African National Congress – South Africa’s liberation party – is particularly enthusiastic about. Until prosecutors dropped charges in early April, Zuma stood accused of three dozen counts of corruption, graft, fraud, and racketeering related to a rigged multibillion-dollar arms deal. He was alleged to have accepted 783 payments from French arms multinational Thint via his financial advisor Shabir Sheik, who was later convicted for graft, fraud, and corruption. Sheik has since emerged from prison, serving just 28 months of his 15-year term.
In Africa, political power is often used as a “get out of jail free” card, immunizing the venal political elite through various mechanisms. Transparency International, the global corruption watchdog renowned for its annual Corruption Perceptions Index (CPI), argues that corruption is especially rampant in Africa. TI defines corruption as the “abuse of entrusted power for private gain,” a notion limited to the governing bodies in developing countries.
But this is only half the story. A respectable financial army plays an invaluable role in a global shadow economy. A coterie of bankers, accountants, and lawyers – based in “transparent” London, New York, and Singapore – serve as the agents of tax havens and offshore financial centers, and they’re backed by multilateral financial institutions. Corrupt government leaders get away with graft much more easily and more frequently because of these international financial enablers.
According to Global Financial Integrity’s Raymond Baker, a leading capital flight expert, an estimated $900 billion is siphoned from underdeveloped regions each year. Since the 1970s, Africa has experienced a loss of $600 billion in capital flight, a considerable portion derived from odious loans that commercial and development banks provided to despotic regimes. Harvard economist James Henry argues that that more than $1 trillion worth of loans “disappeared into corruption-ridden projects or was simply stolen outright.”
Facilitating this theft are the IMF and World Bank’s structural adjustment programs through tax competition, liberalized trade, and natural resources auctioned piecemeal to corporations. These multilateral institutions made it easier for politicians and corporations to acquire capital and then spirit it out of the country.
“The IMF pushed the Washington Consensus, pushed free trade for corporations, providing them with market access and minimum impediments in Africa such as tax competition,” said Richard Murphy, director of Tax Research LLP. “The IMF helped companies not to pay their taxes. They got it horribly wrong.”
Despite TI’s emphasis on corrupt political environments – which has since become the definition of corruption – less than 5% of capital flight comes from this narrow category, according to Murphy. A much larger portion of capital flight, 30%, derives from garden-variety crimes like drug trafficking and money laundering. Multinational internal mispricing, meanwhile, constitutes an astounding 60% of illicit flight.
“TI has got it all wrong,” stated Murphy. “Transfer mispricing constitutes the largest portion of flight capital.” But even when capital flight happens because of corruption narrowly understood, like bribery, where does the money end up? Probably tax havens and places like Switzerland, which zealously protects the privacy of its depositors. Though Sudan, Chad, Equatorial Guinea and Zimbabwe rank near to last on CPI’s list of 180 countries, Switzerland comes in at a pristine fifth place. “The idea that Switzerland has a clean economy is a joke. It is a dirt-driven economy,” said Murphy.
Tax justice was billed as the “big issue” of the recent G20 meeting in London, a gathering of the largest economies in the world. By targeting Switzerland and numerous island economies, Prime Minister Gordon Brown conveniently shifted attention away from UK crown dependencies and overseas territories, accounting for more than a quarter of all tax havens worldwide.
And London is the head office.
“Tax havens are little more than booking centers. I’ve seen transactions where all the decisions are made in London, but booked in havens,” stated an official of Britain’s Serious Fraud Office, to John Christensen, cofounder of the Tax Justice Network and former economic advisor to Jersey, one of the world’s leading tax havens – and a UK crown dependency.
High-net-worth individuals have already secreted away more than $11.4 trillion, Christensen estimates, resulting in a loss of over $250 billion in taxes each year, minus corporate profits declared in tax havens.
The presence of tax havens, guaranteeing protection and discretion to corrupt political elites and economic criminals, directly undermines democracy and development, manipulating legal vacuums in unanticipated ways.
“The IMF is in favor of the highly flawed incentive of tax holidays. Many countries have lost huge sums of revenue, because tax incentives undermine revenue base of developing countries,” said Christensen. “Corporations prefer weak governments that are anxious to secure investments, and despotic governments,” he stated.
Over 60% of global trade occurs in unobserved vacuums. The Organization for Economic Cooperation and Development (OECD), composed of 27 high-income countries, have decided to focus on these conduits as well as the exotic islands, thus marginalizing and absolving structural exploitation, the lax regulation, and the culture of secrecy, all of which underpins the larger OECD economies such as London.
The strength of offshore hubs – an intricate labyrinth that facilitates flight and protects the corrupt through obscuring transparency, depends on the lack of automatic exchange of information between countries experiencing capital flight and those on the receiving end. After intensive lobbying by the international financial community, the IMF removed just such a provision on information exchange from the final drafts of its Article of Agreement. Presently, governments are only able to interrogate havens when already in possession of data related to illicit financial transactions and assets. The power of offshore hubs expanded when the IMF paved the way for capital account liberalization in the late 1970s. Cross-border flows increased eightfold. Unlike tax havens, offshore hubs relocate at the first sign of financial regulation. This is often done via costly flee clauses. The move to target and regulate tax havens, which range from shell companies to conduit markets to hedge funds, shouldn’t detract from the importance of regulating offshore hubs as distinct entities.
Going after the Real Corrupters
During his days on the throne, according to the Tax Justice Network’s John Christensen, former Nigerian dictator Sani Abacha had a standing order to transfer $15 million from state coffers to his Swiss bank account each day, resulting in a personal fortune of $3-$5 billion. One hundred banks (including Citigroup) knowingly protected Abacha and facilitated his plunder. Since the early 1990s, the population of Nigerians living on less than one dollar per day has increased by 10%.
Nigeria’s economy is largely dependent on hydrocarbon contracts, which is the root of the problem. “Hydrocarbon contracts in particular are very secretive, especially with regards to taxation, and it is difficult to get evidence of payment, with many political parties and politicians receiving payment on the side,” said Christensen.
Nigeria isn’t the only country subject to opaque transactions and capital flight. Wall Street’s $56 trillion tumble was triggered by toxic assets traded in the shadow economy. Suddenly, the spotlight in the United States fell on discretely marketed tax havens and powerful multinationals, many of them on the receiving end of taxpayer-subsidized bail-out funds. The Government Accountability Office reported that 83 of the top 100 corporations maintained multiple subsidiary units in tax havens.
The key to addressing corruption in the broadest sense is through country-by-country reporting. Such reports reveal the presence of multinationals in each country, trade names, financial performance, physical assets, the number of employees, sales to third parties, and intra-group trading, profits, and tax payments to the governments in each location. “Country-by-country reporting already works in the US where states all have different corporate taxes,” stated Murphy. “It would allow us to ‘look through’ havens, and if nothing of value is added there, we can simply ignore it and tax the companies where performance is happening.”
The automatic exchange of information in conjunction with country-by-country reporting would bolster accountability by precipitating automatic sanctions on havens, disincentivising capital flight and corruption. In doing so, the magnifying glass of transparency would fall on unchecked and unregulated shadow economies in developed and developing countries alike.
Now that would be an economic revolution.
Can Africa survive Obama’s advisers? January 8, 2009Posted by rogerhollander in Africa, Economic Crisis.
Tags: Africa, africa debt, aids south africa, apartheid, Bill Clinton, Economic Crisis, Federal Reserve, IMF, jubilee usa, lawrence summers, naomi klein, nyerere, Obama, patrick bond, paul volker, rhodes, robert rubin, roger hollander, shock doctrine, South Africa, stiglitz, thabo mbeki, tim geithner, transafrica, treasury department, volker shock, Wall Street, wall street journal, washington consensus, World Bank
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Kenyans celebrate Obama’s victory.
November 12, 2008 — One of Barack Obama’s leading advisers has done more damage to Africa, its economies and its people than anyone I can think of in world history, including even Cecil John Rhodes. That charge may surprise readers, but hear me out.
His name is Paul Volcker, and although he is relatively unknown around the world, the 82-year-old banker was recommended as “a legend!” to Obama by Austan Goolsbee, the president-elect’s chief economic adviser (and a professor at the University of Chicago). Volcker was recently profiled by the Wall Street Journal: “The cigar-chomping central banker from 1979 to 1987, he received blame for driving up interest rates and tipping the US into the deepest recession since the Great Depression.”
We’ll consider the impact of Volcker’s rule on Africa in a moment. But why dredge up crimes nearly 30 years old?
This kind of reckoning is important, as three current examples suggest:
- Reparations lawsuits are now being heard in New York by victims of apartheid who are collectively requesting US$400 billion in damages from three dozen US corporations who profited from South African operations during the same period. Supreme Court justices had so many investments in these companies that in May they had to bounce the case back to a lower New York court to decide, effectively throwing out an earlier judgment against the plaintiffs: the Jubilee anti-debt movement, the Khulumani Support Group for apartheid victicms, and 17 000 other black South Africans.
- Last month a San Francisco court began considering a similar reparations lawsuit — under the Alien Tort Claims Act — filed by Larry Bowoto and the Ilaje people of the Niger Delta against Chevron for 1998 murders similar to those that took the life of Ken Saro-Wiwa on November 10, 1995.
- In Boston last month, Harvard University’s Pride Chigwedere released a study into preventable deaths — at least 330 000 — caused by former African National Congress and South African President Thabo Mbeki’s AIDS policies during the early 2000s. The ex-president has “blood on his hands”, according to Zackie Achmat of the Treatment Action Campaign, requesting a judicial inquiry.
The same critical treatment is appropriate for Volcker, because of the awesome financial destruction he imposed, within most Africans’ living memory. His policies stunted the continent’s growth when it most needed internal economic coherence.
Even the International Monetary Fund’s official history cannot avoid using the famous phrase most associated with the Fed chair’s name: “The origins of the debt crisis of the 1980s may be traced back to and through the lurching efforts of the world’s governments to cope with the economic instabilities of the 1970s… [including the] monetary contraction in the United States (the ‘Volcker Shock’) that brought a sharp rise in world interest rates and a sustained appreciation of the dollar.”
Volcker’s decision to raise rates so high to rid the US economy of inflation and strengthen the fast-falling dollar had special significance in Africa, write British academics Sarah Bracking and Graham Harrison: “1979 marked a radical change in global economic policy, inaugurated with the ‘Volcker Shock’ (so called after Paul Volcker, then chairman of the Board of Governors of the Federal Reserve) when the United States suddenly and dramatically raised interest rates, [which] increased the cost of African debt precipitously, since a majority of debt stock was held in dollars. The majority of the newly independent states had been effectively delivered into at least twenty years of indentured labor. From that point on access to finance became a key policing mechanism directed at African populations.”
Adds journalist Naomi Klein in her book The Shock Doctrine, “In developing countries carrying heavy debt loads, the Volcker Shock was like a giant Taser gun fired from Washington, sending the developing world into convulsions. Soaring interest rates meant higher interest payments on foreign debts, and often the higher payments could only be met by taking on more loans… It was after the Volcker Shock that Brazil’s debt exploded, doubling from $50 billion to $100 billion in six years. Many African countries, having borrowed heavily in the seventies, found themselves in similar straits: Nigeria’s debt in the same short time period went from $9 billion to $29 billion.”
The numbers involved were daunting for low-income countries. According to University of California economic geographer Gillian Hart, “Medium and long-term public debt shot up from $75.1 billion in 1970 to $634.4 billion in 1983. It was the so-called Volcker Shock… that ushered in the debt crisis, the neoliberal counterrevolution, and vastly changed roles of the World Bank and IMF in Latin America, Africa, and parts of Asia.”
Elmar Altvater of Berlin’s Free University recalls how the world “slid into the debt crisis of the 1980s after the US Federal Reserve tripled interest rates (the so called ‘Volcker Shock’), leading to what later has been described as the ‘lost decade’ for the developing world.”
How “lost”? The British Medical Journal complained in 1999 of orthodox World Bank structural adjustment policies that immediately followed: “According to Unicef, a drop of 10-25% in average incomes in the 1980s-the decade noted for structural adjustment lending-in Africa and Latin America, and a 25% reduction in spending per capita on health and a 50% reduction per capita on education in the poorest countries of the world, are mostly attributable to structural adjustment policies. Unicef has estimated that such adverse effects on progress in developing countries resulted in the deaths of half a million young children-and in just a 12-month period.”
A few honest mainstream economists also explain Africa’s economic crisis in these terms. “The external shock that might have precipitated the developing country slowdown is the increase in real interest rates after the Volcker Shock in 1979″, wrote World Bank senior researcher William Easterly in 2001. “The interest on external debt as a ratio to GDP has a statistically significant and negative effect on growth.”
A few blocks away from the Federal Reserve, one of Volcker’s closest allies was World Bank president Tom Clausen, formerly Bank of America chief executive officer. As the Volcker Shock wore on, in 1983, Clausen offered his board of directors this frank confession: “We must ask ourselves: How much pressure can these nations be expected to bear? How far can the poorest peoples be pushed into further reducing their meagre standards of living? How resilient are the political systems and institutions in these countries in the face of steadily worsening conditions? I don’t have the answers to these important questions. But if these countries are pushed too far, and too much is demanded of them without the provision of substantial assistance in their adjustment efforts, we must face the consequences. And those will surely exact a cost in terms of human suffering and political instability.”
At that point, “Africa was not even on my radar screen”, Volcker told interviewers Leo Panitch and Sam Gindin.
Meanwhile, the World Bank’s sister institution, the International Monetary Fund, was described by Tanzanian president Julius Nyerere as “a neo-colonial institution which exploits the poor to make them poorer and serves the rich to become richer”. Volcker had, ironically, played a central role in the destruction of the Bretton Woods system’s dollar-gold convertibility arrangement, effectively a US$80 billion default on holders of dollars abroad, when in 1971 he served Richard Nixon as under-secretary of the Treasury.
Eight years later, he was chosen to chair the Federal Reserve, which sets US (and by extension world) interest rates. As Jimmy Carter’s domestic policy advisor Stuart Eizenstat explained, “Volcker was selected because he was the candidate of Wall Street. This was their price, in effect.”
In 1985, Ronald Reagan offered Clausen’s job to Volcker, but he decided to stay on at the Fed until 1987, when he went back to a high-paid Wall Street job.
Now he is back, and according to a recent profile by the Wall Street Journal, “Obama is increasingly relying on Mr. Volcker. His staff now routinely reviews policy proposals and speeches with Mr. Volcker. Conference calls and face-to-face meetings of the Obama economic team are often reorganized to accommodate his schedule. When the team discusses the financial crisis, ‘The most important question to Obama: What does Paul Volcker think?’ says Jason Furman, the campaign’s economic-policy director… When Sen. Obama raised the prospect of a package of spending and tax measures to ‘stimulate’ the economy, Mr. Volcker disapproved. ‘Americans are spending beyond their means,’ he told the group. A stimulus package would delay the belt-tightening and savings needed, he added, proposing instead better regulation and assistance to banks.”
By November 8, the odds of Volcker being appointed US Treasury Secretary were 10%, according to the WSJ‘s betting pool. The race was between New York Federal Reserve Bank president Tim Geithner and former Bill Clinton-era Treasury Secretary Lawrence Summers, at 40% odds each. Geithner served under Summers and Robert Rubin in Bill Clinton’s Treasury Department during the 1990s.
Summers is best known for the sexism controversy which cost him the presidency of Harvard in 2006. But 15 years earlier he gained infamy as an advocate of African genocide and environmental racism, thanks to a confidential World Bank memo he signed when he was the institution’s senior vice president and chief economist: “I think the economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable and we should face up to that… I’ve always thought that underpopulated countries in Africa are vastly underpolluted, their air quality is vastly inefficiently low…”
After all, Summers continued, inhabitants of low-income countries typically die before the age at which they would begin suffering prostate cancer associated with toxic dumping. And in any event, using marginal productivity of labour as a measure, low-income Africans are not worth very much anyhow. Nor are African’s aesthetic concerns with air pollution likely to be as substantive as they are for wealthy northerners.
Such arguments were said by Summers to be made in an “ironic” way (and in his defence, he may have simply plagiarised the memo from a colleague, Lant Pritchett). Yet their internal logic was pursued with a vengeance by the World Bank and IMF long after Summers moved over to the Clinton Treasury Department, where in 1999 he insisted that Joseph Stiglitz be fired by World Bank president James Wolfensohn, for speaking out against the impeccable economic logic of the Washington Consensus.
Volcker, Summers and a whole crew of similar capitalist economists are whispering in Obama’s ear for a resurgent US based on brutal national self-interest. They need Obama to relegitimate shock-doctrinaire neoliberalism — and in turn, they need Obama’s Africa advisers (like Witney Schneidman) to promote military imperialism in the form of the Africa Command.
Whose advice will prevail?
Can Obama instead hear supporters like Bill Fletcher, Imani Countess and Danny Glover, who made TransAfrica (as one example) a visionary economic justice organisation, by fighting the policies of Volcker and Summers? Can AfricaAction, the Institute for Policy Studies, the American Friends Service Committee, Jubilee USA, ActionAid and other genuine advocates for the continent get a word in edgewise, between fits of cackling from the corporate liberals who think they own Obama? Will the president-elect ever get advice from economists James K. Galbraith of the University of Texas or Center for Economic and Policy Research codirectors Dean Baker and Mark Weisbrot, who correctly read the various financial crises way ahead of time, and whose records promoting social justice would serve Africa far better?
Probably not. So it is vital for Africans to wake up to the danger that the likes of Volcker and Summers represent. Anyone paying attention to the continent’s economic decline since 1980 knows the damage they did, but Obama apparently needs to hear more of their sins against his father’s people before he chooses his Treasury Secretary next week. And while he’s at it, how about a revision of Obama’s utterly neoliberal ‘fundamental objective’ for the continent, which is “to accelerate Africa’s integration into the global economy”?
[Patrick Bond directs the Centre for Civil Society in Durban, South Africa: http://www.ukzn.ac.za/ccs; this article was originally a ZNet commentary.]
One, Two, Three … Many Ecuadors? December 22, 2008Posted by rogerhollander in A: Roger's Original Essays, About Ecuador, Economic Crisis, Ecuador, Latin America.
Tags: Alberto Acosta, commercial banks, Economic Crisis, Ecuador, ecudor dictatorship, external debt, illegal debt, illegitimate debt, IMF, Latin America, latin american parliament, Rafael Correa, roger hollander, third world debt, third world poverty, washington consensus, World Bank
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© Roger Hollander, 2008
Four the past fourteen months a Commission appointed by Ecuadorian President Rafael Correa to “audit” the nation’s public debt in the period from 1976-2006 has been labouring away on a report that landed like a bombshell when it was issued on November 20.
La Comisión de Auditoria Integral del Crédito Público (Commission for the Integral Audit of the Public Debt) was made up of senior government officials, representatives of Ecuadorian social movements and international organizations. Its mandate was to investigate the legitimacy and legality of external and internal debt incurred by governments in the designated period through the examination of conventions, contracts, and other documents related to acquired public debt and entered into between governments, multilateral financial institutions (IMF, World Bank, etc.), commercial banks, and the private sector both national and foreign.
If the Commission’s conclusions can be verified, a virtual revolution with respect to public debt could very well occur within the entire Third World, for there is little doubt that the kind of financial shenanigans uncovered by the Commission in Ecuador are not unique to that country.
The Commission’s 172 page report outlined various categories of illicit and illegal debt, including “odious debts” incurred by the military dictatorship (1970-1979), usurious debts, and corrupt debts (contracted under conditions that do not conform to the legal norms of the lender or debtor or international norms). It went on to cite instances of illicit and hidden clauses, uncontrolled and disproportionate expenses and commissions, excessive arms sales, capitalization of interest, and fraudulent collusion between lending institutions and government officials that served individual interests at the expense of the Ecuadorian nation.
According to Patrick Esteruelas, analyst at Eurasia Group, the report found “multiple irregularities in debt contracted between 1976 and 2006, such as double payments, abusive clauses, false justifications and negligence on the part of high-level government officials and multilateral institutions.”
Esteruelas, who has seen a copy of the audit report, said that it recommends that Ecuador suspend payments on all three of its global bonds, at least 45 multilateral loans and its debt to the Paris Club of international lenders. “The government will likely use these findings to enter into talks with bond holders over restructuring terms, driving a very hard bargain that will hamstring any negotiations and could likely lead the government to default,” Esteruelas said.
Perhaps the most controversial and explosive finding of the report is that not only private financial institutions but also multilateral lending institutions such as the IMF and World Bank are accused of being guilty of colluding with local government officials to impose impossible conditions and to “socialize” private debt. It alleges that false and misleading information was used to promote indebtedness and makes the general assertion that the lending institutions were guilty of policies that violated national sovereignty in favor of implementing the neoliberal policies of the “Washington Consensus.”
The Report advocates the notion of “co-responsibility” for illicit debt, a concept that the industrialized lending countries and multilateral funding institutions have roundly rejected. The situation may be analogous with the sub-prime rate mortgage lending “scandal” in the United States where lenders knowingly created debt that could not likely be repaid. Many believe that the lender as well as the borrower should share in the responsibility for the disastrous consequences of such practices.
Beyond narrow legal and financial considerations, the Report speaks of the social costs to the people of Ecuador. Its external debt rose from $241 million in 1970 to $16.6 billion in July 2006 (a 690% increase). From 1980 to 2006, the Ecuadorian government’s expenditure on education decreased from 30% to 12% and on health from 10% to 7%, while the percentage of the government budget to service the debt rose from 15% to 47%. A 2006 Report (“Comparte”) indicates that poverty affects 65% of Ecuadorians, and the 70% of Ecuador’s children live in extreme poverty. 30% of Ecuadorian children do not complete primary education.
When President Correa called into question the $30 million coupon on Ecuador’s Global 2012 bonds that was due on November 15 (with a 30-day grace period) ,Ecuador’s credit rate has plummeted. S&P has lowered Ecuador’s long-term sovereign credit rating to CCC- from B-, citing the severe uncertainty regarding the government’s willingness and likelihood to pay during the grace period. Meanwhile, Moody’s downgraded Ecuador’s B3 foreign currency government bond rating to Caa1 and placed them on review for another downgrade. They claim that Ecuador has “ample liquidity” and that the government’s action has demonstrated its “poor willingness” to pay.
True to form, a Moody’s senior analyst, Alessandra Alecci, was quick to “blame the victim.” “It seems that the [Ecuadorian] government’s stance towards bond holders is motivated by political and ideological factors, given the very small fiscal relief that a default would bring compared to the damage to the government’s ability to access international markets,” she said.
Now that Correa has announced that he will not meet the final December 15 deadline, the rating is expected to plummet. According to a report in the Globe and Mail, “Ratings agency Standard & Poor is likely to downgrade Ecuador’s credit rating to “Selective Default” from triple-C-negative, one of the agency’s analysts said after Mr. Correa’s announcement.”
Ecuador’s Alberto Acosta, a highly respected economist who served as President of the country’s recently concluded Constituent Assembly, challenges the position of the lender community. “Debt and corruption,” he says, “are two sides of the same coin.” He points out that “the developed countries have denied any co-responsibility whatsoever in their capacity as lenders, and, in fact, have blocked any investigation of the processes of indebtedness, their legality and, especially their legitimacy.” He cites as an example of the suffering of the underdeveloped nations as a consequence of the vicissitudes of the policies of the wealthy nations the fact that the soaring interest rates of the 1980s resulted in a net loss of financial resources in Latin America of 210 Billion dollars.
The Ecuadorian government has retained U.S. Attorney Paul Reichler of the law firm Foley and Hoag to advise on international law applicable to their case. It is considering an appeal to the World Court at The Hague.
Should Ecuador succeed in its ground breaking attempt to call to account the wealthy nations of the world and their multilateral lending institutions for at least co-responsibility for the enormous social and economic damage to the world’s poorest nations that has resulted from external indebtedness, we very well might see a domino effect. On December 5, the 22 countries that make up the Parlamento Latinoamericano (Latin American Parliament) threw their support behind Ecuador and urged its member to begin similar actions. In Spain, a coalition of more than 50 NGOs has sent a letter to the President of Spain asking the government to forgive its part of the Ecuadorian debt and to review its debts with other countries to verify their legitimacy.
Unwanted fuel to the fire given the state of the world’s financial institutions, on the one hand. On the other, some of the world’s poorest and most exploited nations may be finally taking a stand against the capricious and destructive lending that has deepened their levels of poverty.
Home website of the Comisión de Auditoria Integral del Crédito Público:
http://www.auditoriadeuda.org.ec/ (contains complete Report)
Polya Lesova, “Fears Rise Over Possible Ecuador Default,” MarketWatch, November 19, 2008; http://www.marketwatch.com/news/story/Fears-rise-Ecuador-may-default/story.aspx?guid=%7B46EE5CFA-6F60-4688-906C-4889080A83FF%7D
“Ecuador: A New Perspective on External Debt,” Third World Resurgence #198/199 (Feb/Mar 2007)
CENSAT, “Informe de la Comisión de Auditoría Integral del Crédito Público de Ecuador,” En Deuda con los Derechos – Sep 25, 2008,
Paulina Escobar & Julia Chávez, “La sucretización es una ilegalidad por sancionar,” El Telegrafo, Guayaquil, Ecuador, November 26, 2008,http://www.eltelegrafo.com.ec/macroeconomia/noticia/archive/macroeconomia/2008/11/26/La-sucretizaci_F300_n-es-una-ilegalidad-por-sancionar.aspx
“Comisión hace público informe de auditoría,” Diario El Mercurio, Manta, Ecuador, Novermber 27, 2008
Alberto Acosta, “Un paso histórico para una solución definitiva,” unpublished; from [Yapapolitica] Deuda external illegal de ecuador – Alberto Acosta; private e-mail to the author, firstname.lastname@example.org, November 25, 2008
“Ecuador contrata abogados estadounidenses para disputa de la deuda,” El Universio, Guayaquil, Ecuador, December 2, 2008, http://www.eluniverso.com/2008/12/02/0001/9/2CF4A5CF4CEB48ECB3380718D219763C.html
“Acreedores nerviosos por posible efecto contagio en pagos de deuda,” El Universio, Guayaquil, Ecuador, December 8,2008. C:UsersrhollanderDesktopEL UNIVERSO – Acreedores nerviosos por posible efecto contagio en pagos de deuda – Dec_ 08, 2008 – Economía.mht
“ONG solicita a España anular deuda ilegal,” El Universio, Guayaquil, Ecuador, December 12, 2008 (paper edition).
Maria Eugenia Tello, (Reuters, December 12, 2008) “Ecuador defaults on foreign debt,” The Globe and Mail,” December 13, 2008. http://business.theglobeandmail.com/servlet/story/RTGAM.20081212.wecuador1212/BNStory/Business/home
Membership of the La Comisión de Auditoria Integral del Crédito Público (Commission for the Integral Audit of the Public Debt)
Minister of Finance and Economy
President of the Civic Council for the Control of Corruption
- JUBILEO 2000
- ACCION ECOLOGICA
- RADIO LA LUNA
- MINISTERIO DE LA COORDINACIÓN POLÍTICA
- MINISTERIO DE FINANZAS
- OBSERVATORIO CIUDADANO DE LA DEUDA EXTERNA EN ECUADOR
- JUBILEO SUR
- FEDERACIÓN LUTERANA MUNDIAL
- AUDITORÍA CIUDADANA DE BRASIL
- CONSEJO MUNDIAL DE IGLESIAS
From Ecuador: Good and Evil December 22, 2008Posted by rogerhollander in Environment.
Tags: alfred palacio, amazon, chevron, cofan, condaleezza rice, ecology, Ecuador, Evo Morales, exxon valdez, George Bush, global bonds, Greg Palast, Hugo Chavez, IMF, Latin America, Luiz Inacio Lula da Silva, occidental petroleum, oxy, petroleum, quechua, quito, Rafael Correa, Robert F. Kennedy Jr., roger hollander, texaco, Venezuela, wolfowitz, World Bank
A Conversation with Ecuador’s New President
by Greg Palast http://www.gregpalast.com/a-quechua-christmas-carol/ (no date)
[Quito] I don’t know what the hell seized me. In the middle of an hour-long interview with the President of Ecuador, I asked him about his father.
I’m not Barbara Walters. It’s not the kind of question I ask.
He hesitated. Then said, “My father was unemployed.”
He paused. Then added, “He took a little drugs to the States… This is called in Spanish a mula [mule]. He passed four years in the states- in a jail.”
He continued. “I’d never talked about my father before.”
Apparently he hadn’t. His staff stood stone silent, eyes widened.
Correa’s dad took that frightening chance in the 1960s, a time when his family, like almost all families in Ecuador, was destitute. Ecuador was the original “banana republic” – and the price of bananas had hit the floor. A million desperate Ecuadorans, probably a tenth of the entire adult population, fled to the USA anyway they could.
“My mother told us he was working in the States.”
His father, released from prison, was deported back to Ecuador. Humiliated, poor, broken, his father, I learned later, committed suicide.
At the end of our formal interview, through a doorway surrounded by paintings of the pale plutocrats who once ruled this difficult land, he took me into his own Oval Office. I asked him about an odd-looking framed note he had on the wall. It was, he said, from his daughter and her grade school class at Christmas time. He translated for me.
“We are writing to remind you that in Ecuador there are a lot of very poor children in the streets and we ask you please to help these children who are cold almost every night.”
It was kind of corny. And kind of sweet. A smart display for a politician.
Or maybe there was something else to it.
Correa is one of the first dark-skinned men to win election to this Quechua and mixed-race nation. Certainly, one of the first from the streets. He’d won a surprise victory over the richest man in Ecuador, the owner of the biggest banana plantation.
Doctor Correa, I should say, with a Ph.D in economics earned in Europe. Professor Correa as he is officially called – who, until not long ago, taught at the University of Illinois.
And Professor Doctor Correa is one tough character. He told George Bush to take the US military base and stick it where the equatorial sun don’t shine. He told the International Monetary Fund and the World Bank, which held Ecuador’s finances by the throat, to go to hell. He ripped up the “agreements” which his predecessors had signed at financial gun point. He told the Miami bond vultures that were charging Ecuador usurious interest, to eat their bonds. He said ‘We are not going to pay off this debt with the hunger of our people. ” Food first, interest later. Much later. And he meant it.
It was a stunning performance. I’d met two years ago with his predecessor, President Alfredo Palacio, a man of good heart, who told me, looking at the secret IMF agreements I showed him, “We cannot pay this level of debt. If we do, we are DEAD. And if we are dead, how can we pay?” Palacio told me that he would explain this to George Bush and Condoleezza Rice and the World Bank, then headed by Paul Wolfowitz. He was sure they would understand. They didn’t. They cut off Ecuador at the knees.
But Ecuador didn’t fall to the floor. Correa, then Economics Minister, secretly went to Hugo Chavez Venezuela’s president and obtained emergency financing. Ecuador survived.
And thrived. But Correa was not done.
Elected President, one of his first acts was to establish a fund for the Ecuadoran refugees in America – to give them loans to return to Ecuador with a little cash and lot of dignity. And there were other dragons to slay. He and Palacio kicked US oil giant Occidental Petroleum out of the country.
Correa STILL wasn’t done.
I’d returned from a very wet visit to the rainforest – by canoe to a Cofan Indian village in the Amazon where there was an epidemic of childhood cancers. The indigenous folk related this to the hundreds of open pits of oil sludge left to them by Texaco Oil, now part of Chevron, and its partners. I met the Cofan’s chief. His three year old son swam in what appeared to be contaminated water then came out vomiting blood and died.
Correa had gone there too, to the rainforest, though probably in something sturdier than a canoe. And President Correa announced that the company that left these filthy pits would pay to clean them up.
But it’s not just any company he was challenging. Chevron’s largest oil tanker was named after a long-serving member of its Board of Directors, the Condoleezza. Our Secretary of State.
The Cofan have sued Condi’s corporation, demanding the oil company clean up the crap it left in the jungle. The cost would be roughly $12 billion. Correa won’t comment on the suit itself, a private legal action. But if there’s a verdict in favor of Ecuador’s citizens, Correa told me, he will make sure Chevron pays up.
Is he kidding? No one has ever made an oil company pay for their slop. Even in the USA, the Exxon Valdez case drags on to its 18th year. Correa is not deterred.
He told me he would create an international tribunal to collect, if necessary. In retaliation, he could hold up payments to US companies who sue Ecuador in US courts.
This is hard core. No one – NO ONE – has made such a threat to Bush and Big Oil and lived to carry it out.
And, in an office tower looking down on Quito, the lawyers for Chevron were not amused. I met with them.
“And it’s the only case of cancer in the world? How many cases of children with cancer do you have in the States?” Rodrigo Perez, Texaco’s top lawyer in Ecuador was chuckling over the legal difficulties the Indians would have in proving their case that Chevron-Texaco caused their kids’ deaths. “If there is somebody with cancer there, [the Cofan parents] must prove [the deaths were] caused by crude or by petroleum industry. And, second, they have to prove that it is OUR crude – which is absolutely impossible.” He laughed again. You have to see this on film to believe it.
The oil company lawyer added, “No one has ever proved scientifically the connection between cancer and crude oil.” Really? You could swim in the stuff and you’d be just fine.
The Cofan had heard this before. When Chevron’s Texaco unit came to their land the the oil men said they could rub the crude oil on their arms and it would cure their ailments. Now Condi’s men had told me that crude oil doesn’t cause cancer. But maybe they are right. I’m no expert. So I called one. Robert F Kennedy Jr., professor of Environmental Law at Pace University, told me that elements of crude oil production – benzene, toluene, and xylene, “are well-known carcinogens.” Kennedy told me he’s seen Chevron-Texaco’s ugly open pits in the Amazon and said that this toxic dumping would mean jail time in the USA.
But it wasn’t as much what the Chevron-Texaco lawyers said that shook me. It was the way they said it. Childhood cancer answered with a chuckle. The Chevron lawyer, a wealthy guy, Jaime Varela, with a blond bouffant hairdo, in the kind of yellow chinos you’d see on country club links, was beside himself with delight at the impossibility of the legal hurdles the Cofan would face. Especially this one: Chevron had pulled all its assets out of Ecuador. The Indians could win, but they wouldn’t get a dime. “What about the chairs in this office?” I asked. Couldn’t the Cofan at least get those? “No,” they laughed, the chairs were held in the name of the law firm.
Well, now they might not be laughing. Correa’s threat to use the power of his Presidency to protect the Indians, should they win, is a shocker. No one could have expected that. And Correa, no fool, knows that confronting Chevron means confronting the full power of the Bush Administration. But to this President, it’s all about justice, fairness. “You [Americans] wouldn’t do this to your own people,” he told me. Oh yes we would, I was thinking to myself, remembering Alaska’s Natives.
Correa’s not unique. He’s the latest of a new breed in Latin America. Lula, President of Brazil, Evo Morales, the first Indian ever elected President of Bolivia, Hugo Chavez of Venezuela. All “Leftists,” as the press tells us. But all have something else in common: they are dark-skinned working-class or poor kids who found themselves leaders of nations of dark-skinned people who had forever been ruled by an elite of bouffant blonds.
When I was in Venezuela, the leaders of the old order liked to refer to Chavez as, “the monkey.” Chavez told me proudly, “I am negro e indio” – Black and Indian, like most Venezuelans. Chavez, as a kid rising in the ranks of the blond-controlled armed forces, undoubtedly had to endure many jeers of “monkey.” Now, all over Latin America, the “monkeys” are in charge.
And they are unlocking the economic cages.
Maybe the mood will drift north. Far above the equator, a nation is ruled by a blond oil company executive. He never made much in oil – but every time he lost his money or his investors’ money, his daddy, another oil man, would give him another oil well. And when, as a rich young man out of Philips Andover Academy, the wayward youth tooted a little blow off the bar, daddy took care of that too. Maybe young George got his powder from some guy up from Ecuador.
I know this is an incredibly simple story. Indians in white hats with their dead kids and oil millionaires in black hats laughing at kiddy cancer and playing musical chairs with oil assets.
But maybe it’s just that simple. Maybe in this world there really is Good and Evil.
Maybe Santa will sort it out for us, tell us who’s been good and who’s been bad. Maybe Lawyer Yellow Pants will wake up on Christmas Eve staring at the ghost of Christmas Future and promise to get the oil sludge out of the Cofan’s drinking water.
Or maybe we’ll have to figure it out ourselves. When I met Chief Emergildo, I was reminded of an evening years back, when I was way the hell in the middle of nowhere in the Prince William Sound, Alaska, in the Chugach Native village of Chenega. I was investigating the damage done by Exxon’s oil. There was oil sludge all over Chenega’s beaches. It was March 1991, and I was in the home of village elder Paul Kompkoff on the island’s shore, watching CNN. We stared in silence as “smart” bombs exploded in Baghdad and Basra.
Then Paul said to me, in that slow, quiet way he had, “Well, I guess we’re all Natives now.”
Well, maybe we are. But we don’t have to be, do we?
Maybe we can take some guidance from this tiny nation at the center of the earth. I listened back through my talk with President Correa. And I can assure his daughter that she didn’t have to worry that her dad would forget about “the poor children who are cold” on the streets of Quito.
Because the Professor Doctor is still one of them.