Coping with Crisis, Latin America Bucks the System

As the U.S. economy tumbles into greater depths of disaster and
ignominy–dragging the rest of the world with it–some countries in
Latin America have decided it's time to strike out on their own.

At a Nov. 26 meeting in Caracas, barely mentioned in the U.S. press,
the nations that make up Alba (the Bolivarian Alternative for the
Americas) agreed to form a regional monetary zone. The idea is to
immediately create a new accounting unit to be called the "sucre"
(standing for Unitary System of Regional Compensation and also the name
of a historical figure) and move toward adopting it as the legal
tender. The financial ministers of the six Alba countries (Bolivia,
Honduras, Nicaragua, the Dominican Republic [ed. note: Dominica is a member, not Dominican Republic], Venezuela, Cuba, with
Ecuador) later met to begin technical studies.

Venezuela's finance minister, Ali Rodríguez, stated to the press,
"When there's a crisis that has among its factors the weakness of the
dollar–profoundly affected by extremely high levels of
speculation–that means that other regions must seek their own
solutions, and that's what is happening."

While proposals from Venezuela to reduce U.S. influence in the
region are nothing new, the other countries at the meeting showed equal
enthusiasm for paths that would enable them to get out from under the
shadow of the now not-so-mighty dollar.

Honduran economic minister Pedro Paez affirmed "At a time when the
international financial crisis creates a horizon of compression of
traditional markets, we are creating new markets to guarantee the
adequate flow of resources and defend employment in our countries."

Ecuador's president Rafael Correa,
which is an "observer" to Alba, excoriated the dollar system.
"Imperialism of the XXI century is no longer boots, no longer planes,
no longer aircraft carriers, ships, or cannons. It's called 'dollars',
that's how they seek to dominate us, and we've had enough of these
pressures." Ecuador switched to the dollar in 2000 (last time I was
there you bought your sancochos with Sacajawea dollars, which
solves the mystery of whatever happened to the second failed attempt to
circulate a woman's image on U.S. currency).

Other proposals to come out of the meeting include decreasing
reliance on the International Monetary Fund and other U.S.-dominated
international finance institutions (IFIs). The Group of 20 wealthy
nations and President Bush have urged using these to bail out
developing economies hard-hit by the same policies they promote.

"We're not going to wait here with our arms crossed for the World
Bank or the International Monetary Fund to come and solve the problems
that this great threat unleashed on the world," Chavez said at
the Alba summit in Caracas. Although Chavez stopped short of calling
for withdrawal from the IMF, both the IMF and the Inter-American
Development Bank came under fire for placing political conditions on
loans that limit countries' political options in dealing with the
impact of the crisis.

Chavez also criticized the Andean Development Corporation, a
regional bank made up of governments and private banks, for operating
along the same lines. Chavez proposed strengthening the role of the
Bank of the South, and pledged $500 million of Venezuelan funds to
establish a regional "common monetary fund" for the region and asked
other countries to commit portions of their reserves to back up
economies in crisis.

Correa slammed "certain international bureaucracies" in reference to
the IFIs and their legal apparatus. He was quoted in the Ecuadorean
newspaper El Telegrafo saying,
"As usual, they are accomplices to the lenders and exploiters of our
country, but they will find a new Latin America, one full of dignity,
that will know how to respond in case they try to blackmail us."
Ecuador recently completed an audit of its foreign debt that shows that
a large part of the debt was contracted illegally and under unfair
terms. At the Alba meeting he got the support of the other six nations
to face down the global financial system regarding payment of the
illegitimate debt.

Experience shows that real results in building Latin American
regional integration fall far short of the pronouncements. But the
recent flurry of diplomatic activity–to be followed up by more
meetings and a summit on Dec. 17 in Brazil–has an unprecedented
urgency now: the result of not acting could be chaos.

The World Bank's "optimistic" estimate is for about 2% average
growth in the region, while other estimates predict a slight
contraction. This compares to an average 5% growth a year over the past
five years. In countries where so many people live on the edge, a few
points uptick in inflation or a couple of percentage points drop in GDP
affects survival. This isn't a game of statistics.

The macroeconomic statistics, gloomy as they are, don't even show
the worst of it. In the most unequal region of the world, some will
suffer more than others–and some will make money off disaster
hand-over-fist. Although a few major companies are
taking mega-losses, it's the poor who feel the pain. In Mexico, the
average real wage fell, as inflation ate up the tiny nominal rise.
Currency devaluation has pummelled consumers reliant on U.S. imports,
and over a quarter of a million jobs were lost in the third quarter.
Central American countries are suffering a drop in remittances from
family members working in the United States, strangling the many small
businesses and family economies that depend on that money.
Inter-American Development Bank analyst Santiago Levy says employment
will come to a standstill in the region in 2009, announcing plans to
divert $6 billion of Bank funds to address the crisis.

The international financial institutions are salivating at the
prospect of lending massive amounts of money to rescue Latin American
countries and restore indebtedness in the region. Many countries, sick
of the neoliberal conditions placed on loans, have turned their backs
on the IFIs in recent years and regional loan portfolios seriously
dwindled. Crisis means new clients–unless the Alba plan and others
like it take off.

No-one knows how far this declaration of independence from U.S.
financial hegemony will ultimately reach. Or even what "independence"
looks like, beyond cutting ties to the dollar system. The Alba group
promotes a trade model called the Trade Agreement of the Peoples as an
alternative to U.S. Free Trade Agreements. While the Central American
members have the Central American Free Trade Agreement (CAFTA) with the
United States, the other members have refused to sign FTAs.

The prospect of a unified Latin America that could finally stand up,
not only to the U.S. but to the global financial system, appeals to
global justice activists. But the truth is it's not just around the
corner. Each step is hard and obstacles, from internal divisions to
conflicting visions, abound.

Once again, though, a refreshing wind from the south has blown the
dust off conventional "wisdom". For people in the United States who
work to see the crisis open up real avenues for change, building
alliances to help our southern neighbors who are doing the same thing
makes a lot of sense.