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U.S. Banks Face Threat: Economic Crisis in Argentina Spreads to Brazil and Uruguay

By Adam Price

San Jose, CA – In late September, people turned off their lights in Argentina's capital city, Buenos Aires, and in much of the rest of the country. This latest protest was aimed at the foreign-owned utility companies that want to raise energy prices by 35 to 50%, and the telephone rates by as much at 275%. While the national government would like to let the utilities hike their prices, many people are calling for returning the utilities to public ownership, since there has been no improvement in service since they were privatized.

Today, Argentina's economy is in a deep depression, a legacy of the last ten years of free market economic policies. One third of Argentina's workers are without jobs and prices have gone up 37% since the beginning of the year. Many of the unemployed are trying to make ends meet through peddling, barter, scavenging at garbage dumps or crime. But, at more than a hundred companies, workers have seized the business when it tried to close down or when it stopped paying wages. While these new collectives employ only 2% of workers with jobs in Argentina, they are growing rapidly as thousands of businesses declare bankruptcy or simply close down.

Crisis Spreads to Brazil and Uruguay

During the 1990's, Argentina was the poster child for the free-market economic policies of the United States and the International Monetary Fund (IMF).

However, the Argentine government's policies of privatization, free trade, and fixing the value of the peso at one U.S. dollar led to foreign takeovers of banks and businesses, a flood of imports and massive debts. After four years of recession, last December, Argentina's government had to default on its debts, devalue the peso and freeze bank accounts. Since then, the peso has lost almost three quarters of its value.

The crisis in Argentina has spread to Uruguay, with which it shares a border. The Uruguayan peso has lost half its value this year, unemployment has risen to more than 15% and inflation is almost 40%. In August, the Uruguayan government followed Argentina by shutting down the nation's banks to stop depositors from pulling their money out. While the government was able to reopen the banks after getting more loans from the United States and the IMF, it is planning severe cutbacks in healthcare and other government services to try to pay down the ever-mounting debt.

But what worries Wall Street the most is that the economic crisis is spreading to Brazil. Big U.S. banks have loaned more than $25 billion to Brazilian businesses and governments. Worried that the growing crisis will force Brazil to default on these loans, the United States is backing a $30 billion loan by the IMF to Brazil. Another purpose of the loan is to force the next president of Brazil to follow U.S. and IMF economic policies. They want Brazil to keep interest rates high to attract more foreign capital, and to cut government spending and raise taxes to pay back foreign loans. But it is these policies of high interest rates and government austerity that contributed to the crisis in the first place!

When a recession hit the United States last year, the U.S. government cut interest rates, increased spending and cut taxes in an attempt to bolster the economy. But today, the IMF is telling Argentina, Brazil, and Uruguay to do the opposite – while short-term interest rates are 1.75% here in the U.S., they are 17.5% in Brazil. In fact, if the IMF imposed the same conditions on the U.S. that it the IMF is imposing on Brazil, the U.S. government would have cut spending and hike taxes by about $250 billion! How would we in the U.S. feel if the IMF imposed these conditions on the United States, leading to cuts in government services, higher taxes, growing unemployment and the bankruptcy of many small and medium-sized businesses? Taking more loans from the IMF just pushes a country further into debt. And when Argentina mentioned the possibility of not repaying the IMF, the IMF threatened to cut off international humanitarian aid to the country.

The people of Uruguay and Brazil are rejecting these free market policies, along with the resulting economic turmoil and government austerity. In Uruguay, workers and opposition parties are organizing strikes and other mass protests. In Brazil, much of the attention is focused on the presidential elections, where the front-runner is the Workers Party candidate da Silva. While da Silva has a strong record as a trade-union leader and as an opponent of Brazil's past military government, he is also trying to win over Wall Street and the Brazilian business community. Da Silva chose a conservative vice-presidential running mate and says that he may continue much of the current government policies of privatization, limiting government spending and high interest rates. Thus, no matter who wins the election in October, the struggle of the Brazilian people is bound to continue.

Underlying the growing economic instability in Latin America is a crisis of overproduction on a world scale. In the hopes of getting the lion's share of profits, big corporations expanded their capacity to produce goods and services. But there is a problem – people do not have the money to buy what they have produced. The result is layoffs and poverty. The economic and political life of Latin America is dominated by the United States – across the continent, a vast people's movement is coming into being to challenge this domination and the crisis it brings with it.

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