Putting on the Pressure: Latin America

Noam Chomsky

Excerpted from Rogue States, 2000

Exercising Pressure

Guatemala’s experiment with democracy, its first and only experiment, which went on for 10 years, was overthrown by the Eisenhower administration in 1954, opening a period of brutal repression and tortures supported strongly by the Kennedy administration, which essentially constructed the national security doctrine, not just for Guatemala-but for the whole hemisphere. That led to a plague of repression over the hemisphere, with direct US involvement strongly supported by Johnson as atrocities mounted in the late ’60s, and so it continued. The atrocities peaked in the early 1980s under the Reagan administration, which publicly and openly-and, in fact, rather passionately-supported the killers now identified by the UN commission. This was known at the time perfectly well. Congress compelled the administration to state repeatedly that the human rights condition was improving not only in Guatemala but in El Salvador and Honduras so that the US could continue to support the regimes. Congress knew they were hearing lies; that is now recognized. The UN commission gives a grim report on Guatemala; there is an equally grim one to be given on El Salvador.

There’s more. In presenting the report, the chair of the commission emphasized that the US government and private companies "exercised pressure to maintain the country’s archaic and unjust socioeconomic structure."’ The chair of the commission emphasized that because it’s at the core of the issue wherever there are atrocities and terror. These reflect the socioeconomic structure, which is one of brutal repression for a large majority of the population. When people try to gain and protect some rights, an iron fist comes down, with the hemispheric superpower backing it. That’s the story of "our little region over here."

… Why did the United States overthrow the one democratic capitalist government in Guatemala, and why has it maintained support for state terror ever since?

Guatemala was becoming what’s called a "virus" which might infect others. It was threatening what’s called "stability." "Stability" was defined by the US embassy as follows: Guatemala has become an increasing threat to the stability of Honduras and El Salvador. Its agrarian reform is a powerful propaganda weapon; its broad social program of aiding the workers and peasants in a victorious struggle against the upper classes and large foreign enterprises has a strong appeal to the populations of Central American neighbors where similar conditions prevail.

And that’s unacceptable. That’s undermining stability. The US coup restored "stability," restored the traditional social order, by violence. It’s been maintained by extreme violence. The coup was undertaken and the terrorist regimes have been maintained for exactly the reasons just stated very clearly: to contain the threat of democracy and to roll back the social programs that were undermining stability because of their strong appeal to the population, not only in Guatemala, but in other countries of the region.


The Tombstone of Debt
Let’s move on to other examples of maintaining socioeconomic supremacy in "our little region over here." Recently in Tegucigalpa, the capital of Honduras, there was a meeting of 17 Latin American countries on the debt. The archbishop of Tegucigalpa, president of the Latin American Conference of Bishops, speaking of the debt, said that it "is not one more problem for us to face-it is the problem. The foreign debt is like a tombstone." Latin America Press, which comes from Peruvian liberation theology circles, reported what I’m now quoting, but it ought to be on the front pages here. It’s a problem that we’re creating and we’re maintaining. But the conference was not even reported.

Then come the data. These are World Bank figures. The data roughly are the following: in the 1970s the Latin American debt was about $60 billion. By 1980 it had reached $200 billion. That’s the result of very explicit World Bank and International Monetary Fund (IMF) policies that were urging banks to make huge loans and urging countries to accept those loans. Their economic theories ensured everyone that that was going to work great.

Those recommendations continued virtually right up to the day on which Mexico defaulted and the Latin American system collapsed. Up till then there was strong advice from the World Bank and the IMF to continue pouring in the loans. By 1990 the debt had gone from $200 billion to about $433 billion; by the end of 1999 it was expected to be about $700 billion. Meanwhile, from 1982 to 1996, about $740 billion has been sent back to the Northern banks and the international financial institutions in debt payment. In 1999, debt service alone amounted to about $120 billion. Just take a look at these numbers. It’s clear that the debt will never be paid. It’s impossible to pay. It’s getting bigger and bigger, it’s more and more of a capital drain from the poor to the rich, and that will continue and escalate without any change.

I’ll give a final example, from the Wall Street Journal, a very enlightening front-page article. It’s about Mexico since the North American Free Trade Agreement (NAFTA). NAFTA came along, and then the 1994 debacle occurred, when the Mexican economy went into a tailspin. The article starts out conventionally, reporting that since NAFTA, Mexico has been an economic miracle. It "enjoys a stellar reputation." It’s a model that should be followed by other countries. The reason is that Mexico is following all the rules, doing just what the IMF tells it- meaning just what the US tells it, because the US decides what the IMF tells it. It’s following all the rules, the macroeconomic statistics look great, foreign investors and wealthy Mexicans are prospering, everything is just perfect.

But. To the credit of the Wall Street Journal, it points out that there’s a "but." Mexico has "a stellar reputation," and it’s an economic miracle, but the population is being devastated. There’s been a 40 percent drop in purchasing power since 1994. The poverty rate is going up and is in fact rising fast. The economic miracle wiped out, they say, a generation of progress; most Mexicans are poorer than their parents. Other sources reveal that agriculture is being wiped out by US-subsidized agricultural imports, manufacturing jobs have actually declined, manufacturing wages have declined about 20 percent, general wages even more. In fact, NAFTA is a remarkable success: it’s the first trade agreement in history that’s succeeded in harming the populations of all three countries involved. That’s quite an achievement.

The point of NAFTA was to lock in the so-called reforms by treaty, so that even if there is a democracy opening-that hated danger-they won’t be able to do much about it, because they’re locked into these arrangements.


Jubilee 2000

The Latin American debt that reached crisis levels from 1982 would | have been sharply reduced-in some cases, overcome-by return of flight capital, though all figures are dubious for these secret and often illegal operations. According to Karin Lissakers, currently US executive director of the IMF, "bankers contend that there would be no [debt] crisis if flight capital-the money the citizens of the borrowing countries sent abroad for investment and safekeeping-were available for debt payments," although "these same bankers are active promoters of flight capital." The World Bank estimated that Venezuela’s flight capital exceeded its foreign debt by some 40 percent by 1987. In 1980-82, capital flight reached 70 percent of borrowing for eight leading debtors, Business Week estimated. That is a regular pre-collapse phenomenon, as again in Mexico in 1994. The 1998 IMF "rescue package" for Indonesia approximated the estimated wealth of the Suharto family. One Indonesian economist estimates that 95 percent of the foreign debt of some $80 billion is owed by 50 individuals, not the 200 million who suffer the costs in the "Stalinist state set on top of Dodge City," as Asia scholar Richard Robison describes Indonesia.

The debt of the 41 highly indebted poor countries is on the order of the bailout of the US Savings & Loan institutions in the past few years, one of many cases of socialization of risk and cost that was accelerated by Reaganite "conservatives" along with increase of debt and government spending (relative to GDP). Foreign-held wealth of Latin Americans is perhaps 25 percent higher than the S&L bailout, close to $250 billion by 1990.

The picture generalizes, and breaks little new ground. A study of the global economy points out that "defaults on foreign bonds by US railroads in the 1890s were on the same scale as current developing country debt problems." Britain, France, and Italy defaulted on US debts in the 1930s. After World War II, there was reported to be heavy flow of capital from Europe to the United States. Cooperative controls could have kept the funds at home for post-war reconstruction, but, some analysts allege, policymakers preferred to have wealthy Europeans send their capital to New York banks, with the costs of reconstruction transferred to US taxpayers. The Marshall Plan approximately covered the "mass movements of nervous flight capital" that leading economists had predicted.

There are other relevant precedents. When the US took over Cuba 100 years ago it canceled Cuba’s debt to Spain on the grounds that the burden was "imposed upon the people of Cuba without their consent and by force of arms." Such debts were later called "odious debt" by legal scholarship, "not an obligation for the nation," but the "debt of the power that has incurred it," while the creditors who "have committed a hostile act with regard to the people" can expect no payment from the victims. Rejecting a British challenge to Costa Rican debt cancellation, the arbitrator-US Supreme Court Chief Justice William Howard Taft-concluded that the bank lent the money for no "legitimate use," so its claim for payment "must fail." The logic extends readily to much of today’s debt: "odious debt" with no legal or moral standing, imposed upon people without their consent, often serving to repress them and enrich their masters. The principle of odious debt, "if applied today would wipe out a substantial portion of the Third World’s indebtedness," Lissakers comments.

In some cases, there are solutions to the debt crisis that are even simpler and more conservative than the unthinkable capitalist idea or the US government’s principle of odious debt. Central America is suffering severely from the debt crisis. The highest per capita debt in the region is Nicaragua’s, currently $6.4 billion and clearly unpayable. The human costs of the IMF programs designed to ensure that lenders are compensated many times over are incalculable. About $1.5 billion is from the Somoza years, hence clearly "odious debt," of no standing. Another $3 billion is from the post-1990 period when the US regained control over Nicaragua; also odious debt. The remainder is the direct responsibility of the United States, which was conducting brutal economic warfare and a murderous terrorist war against Nicaragua, for which it was condemned by the World Court, which ordered the US to pay reparations, variously estimated in the range of $ 17 billion. Accordingly, the highly conservative principle of adhering to international law, as determined by the highest international judicial body, would suffice to eliminate Nicaragua’s debt, with a good deal left over. Were elementary moral principles even to be imaginable in elite Western culture, similar conclusions would at once be drawn far more broadly throughout Europe and the US, even without World Court judgments. But that day remains very distant.