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So I've promised a well-researched article expressing my reasons for supporting radical Venezuelan president Hugo Chavez. However, before I get into that, I'd like to take a moment to establish some degree of context. I believe that current South American populism can only be understood if you first have a solid understanding of the economic forces working to undermine the third world.
Introduction
So, instead of talking about Hugo right away we're going to study Capital Flight. Capital Flight is the economic process whereby large amounts of money leave a country - say, for instance, to a swiss bank account, or some deep corporate coffer in another country. "This leads to a disappearance of wealth and is usually accompanied by a sharp drop in the exchange rate of the affected country." (source ) This has been a problem all over the world in the latter half of the 20th century, but perhaps most strikingly in South America.
A key component of the right-wing trickle-down supply-side-economics model often used to justify the corporate culture is that profits are redistributed into the economy, thus fueling economic growth. I am not going to debate this point, whether or not this works under ideal circumstances or not - that's what Tangle 002 is for. I will say, though, that not even the staunchest Reaganite can claim that Supply Side Economics work when the money is siphoned out of the economy entirely rather than being reinvested.
"Yes," you may say, "But really, who does that?" Multinational Corporations is one big one. The general wealthy classes in poor countries is another. This has been happening in South America for decades, and the result is that the local currencies get weaker and weaker as investors lose more and more confidence in the economy - and who can blame them, since the money in the system decreases daily? The idea then is that in an effort to salvage the crumbling economy, the country will take a massive loan from the IMF - but this can only buy time, not solve the problem, and as the currency depreciates more and more it becomes almost impossible to repay the debt. Meanwhile, the rich, who were "smart" enough to export their money, are still sitting pretty, while the poor get progressively poorer.
A Case Study: Venezuela
In Venezuela, financial problems are no new development - "capital flight reached historical levels at the end of 1982 with US $8 billion leaving the country." At the time, then-President Campins tied the Venezuelan Bolivar to the dollar at a 7:1 rate in an effort to solve this problem, but it didn't help much. (source.) (An aside: Economics is not my strong point, can someone comment and explain why tying the Bolivar to the Dollar could have helped? And why it didn't? At any rate, the decline continued.)
In 1988, then-President Perez was faced with a 43.9% poverty rate. In an attempt either to reform (if you are feeling generous) or profit from (if you are feeling cynical) the economic instability, Perez called in the IMF and began the process of neo-liberal reform.
"The neoliberal model came with its customary lethal dose of fiscal austerity measures, which forced budget cuts and slashed social-welfare benefits. It also led to large-scale privatization, which transferred prized national assets to foreigners who proceeded to eliminate thousands of jobs, and to the liberalization of trade and foreign investment, which made the country more vulnerable to the vagaries of international markets and globalization. The combination of corruption, financial deregulation, and globalization created the conditions for the banking crisis that hit the country in the mid-1990s. This crisis hurt the middle class and the poor while enriching corrupt bankers who then fled the country with their bounty." (source.)
It is important to note that the IMF reforms were undertaken without any sort of public referandum - and that there were massive protests in the street. "In 1989, the country witnessed the worst street riots in decades, with people protesting against neoliberal reforms that might have reflected the Washington Consensus but were very far from enjoying a consensus among Venezuelans. (same source.)"
Did Perez's actions ultimately help to fix the 43.9% poverty rate? Actually, as a result of his actions, "the economy contracted by 8.6% and general poverty went from 43.9% in 1988 to 66.5% of the population in 1989." (source.) It was here that Hugo Chavez and company had their first attempt to seize power - their coup attempt failed, but obviously made an impression on the people. He gained a reputation as someone willing to stand up to the corruption plaguing the Venezuelan economy.
So, after that did everyone see the error of their ways and resolve to be more careful in the future? Haha, no. "Another $1.4 billion IMF loan, with its structural adjustment, was negotiated in 1995. There were more privatizations: foreign investment increased, oil prices rose - but poverty kept on growing." Venezuela went even further into debt, even more money was shuffled around by the moneyed elite, and the poor got poorer.
Here is a brief summary from what seems to be 1998 of the overall effects of Venezuela's dealings with the IMF:
In recent years, Venezuela's economy has gone from bad to desperate. Its deterioration coincided with the adoption of policies recommended by the International Monetary Fund, economists point out. The advice came with two IMF aid packages beginning in 1989.
Since implementation of the most recent package in 1996:
- Interest rates have more than doubled to 68 percent annually, the country's bolivar has been devalued 94 percent, accumulated inflation has reached 218 percent and production output has stalled.
- Over the past two months capital flight has drained more than $2 billion from Venezuela's international reserves -- which are lower today than when the IMF package was signed.
- The fiscal deficit has been declared unmanageable and the stock market is down more than 50 percent.
What manner of advice produced these results?
- The 1996 package included tax increases, devaluation, few privatizations and public service rate hikes -- the latter being popular with politicians because it increases government revenues.
- The few state-owned companies to be privatized were sold as monopolies in order to assure the state maximum revenues -- monopolies that charge some of the highest rates in the world.
- The repeated devaluations have increased costs to the private sector and ignited inflation.
- The IMF allowed the government to postpone reforms of inept state hospitals and public schools.
To rescue the economy from these failed prescriptions, experts recommend the government transfer all assets not necessary for state operations to the country's creditors, as payment of debts. This would require relinquishing all state-owned tourist resorts, corporations, mines, urban real estate, forestry reserves, farm lands, educational and health-service buildings and infrastructure.
The state's creditors would become the private owners of these assets and the state's overwhelming debt burden -- 40 percent of the fiscal budget -- would be wiped out immediately.
Source: Alejandro J. Sucre (Caracas equity fund manager), "Venezuela Can't Afford Any More 'Help' From the IMF," Wall Street Journal, August 14, 1998. (Myk's Source.)
Conclusions
So, did you know about Capital Flight? Did you know that there was world-wide phenomenon where the IMF and World Bank loan a poor country money, that money is spent developing an infrastructure used to benefit large multinational corporations and corrupt government officials, and then any profits are exported, leaving the country even further in debt? Are you aware that this is a cycle that is perpetuated over and over again around the world? Did you think that the IMF was a good thing?
More specifically, in terms of my next article, can you understand why Hugo Chavez would, say, implement state control of the country's top income generating industry? Can you understand why he would take a strong anti-american, anti-West stance? We in the west destroyed his nation's economy, and it wasn't an accident. You blame him for the poverty and the crime, but we're the ones who created it. Two really useful articles if you'd like to learn more can be found here and here.
Next time I will talk about what he has done to combat the results of this poverty. I will also address the various very legitimate concerns about him - I think he may be a power-mad lunatic, possibly. Then again, maybe his bid for total power is justified because he's the only one he can trust NOT to run the country into the ground again. All this and more next time!
