National Catholic Reporter
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Cover story -- Latin America Today
Issue Date:  June 4, 2004

A call for economic change

Part Two: Economics

La Paz, Bolivia

The scene last October in Bolivia’s Altiplano, a plateau some 12,000 feet above sea level, was a familiar one. Thousands of peasant farmers, angered by government policies, were protesting in one of the few ways in which poor people in Latin America can get attention -- by throwing up roadblocks, bringing transportation and commerce to a halt.

As the days dragged on, food and fuel grew scarce in La Paz. President Gonzalo Sánchez de Lozada called out the troops to clear the way for gasoline trucks to reach the city and extract stranded tourists from an isolated mountain town. When the smoke cleared, at least 80 people were dead, the president had fled to the United States and his vice president, Carlos Mesa, a journalist with virtually no political background, was the new chief executive.

Michael Gillgannon, a diocesan priest from Kansas City, Mo., who works in campus ministry in La Paz, had just returned to the country. His taxi from the airport had barely reached the city limits when the roadblocks went up.

“This had been building up for three years,” Gillgannon said. “You just knew that there was no stopping it. It was a tinderbox.”

Bolivia’s protests were a microcosm of ingredients that are brewing, in various combinations, throughout the region. National pride, indigenous rights, persistent poverty, joblessness and, above all, the huge gap between rich and poor have implications not only for economics, but also for politics. Surveys show that in countries where the income gap is greatest, people are most likely to tolerate nondemocratic governments.

In Bolivia, the spark that lit the tinder was the government’s decision to ship gas from southern Bolivia to Mexico and the United States, probably through a port in Chile -- which has been a hated rival since it annexed Bolivia’s coast in a war in the late 1800s.

“Gas was the focal point that everyone, even groups separated by class and race, could rally round,” Gillgannon said. “Even the business class had begun to ask, ‘What’s in it for us and what’s in it for Bolivia if the gas goes straight from the well to the port?’ ”

But in Bolivia, as in the rest of the region, the problems run deeper than the gas wells. The protesters outside La Paz were mainly poor, indigenous farmers, while the president whose resignation they forced was a 73-year-old businessman with a declared fortune of $50 million. In places like the Andes and Central America, that balance of economic power -- a small, wealthy elite running a country with a largely poor, indigenous population -- has not changed since the Spanish conquest.

And between the “lost decade” of the 1980s and what is now being called the “lost half-decade,” from 1997 to 2002, an entire generation in the region has grown up with little hope of economic advancement.

After several years of stagnation or outright recession brought on the by international economic downturn in the late 1990s and exacerbated by the slump after Sept. 11, 2001, Latin American economies held steady or edged slightly into the black last year. Overall, the region’s economy grew by 1.5 percent, with the notable exception of Venezuela, which contracted by 9.5 percent. Regional growth of 4 percent is expected this year.

Those figures, however, do not translate into a better quality of life in most of Latin America, where a full 44 percent of the region’s population lives on less than $2 a day. According to the U.N. Economic Commission on Latin America, unemployment rose by a mere one-tenth of one percent last year -- but that was enough to put 700,000 more city dwellers out of work, bringing the total urban unemployment figure in the region to 16.7 million.

The jobless rates themselves are misleading. While unemployment stands at just over 10 percent, that doesn’t mean that nearly 90 percent of the region’s workers are employed. The ranks of the “employed” include not only professionals and semi-skilled laborers, but mothers and fathers who must support their families with the pennies they earn peddling pencils or candy on street corners.

“Three out of every four jobs created in the 1990s were in the informal sector,” said Ricardo Ffrench-Davis, the U.N. economic commission’s principal regional adviser and an economics professor at the University of Chile. “That’s a failure.”

But who failed whom?

High debt, low growth

Part of the blame -- as large-scale protests in places like Seattle and Cancún have shown -- must be placed at the door of multilateral lending agencies and the architects of the “Washington Consensus,” that began lending liberally to governments that had questionable credentials but either oil reserves or friendly militaries. Later, when oil revenues dropped and countries were unable to meet their payments, the lenders insisted that the borrowers institute drastic free-market reforms in order to qualify for assistance.

“The reforms have been applied too ideologically, in the belief that the market would solve all problems simply through liberalization,” Ffrench-Davis said. “The reforms instituted by the Washington Consensus were neither down-to-earth nor adapted to the reality of our countries.”

Figures bear him out. GDP (gross domestic product) growth in the region averaged 5.3 percent a year in the 1960s and about 5.8 percent in the 1970s, dropping to about 1.2 percent in the 1980s and just over 3 percent the following decade, largely because countries were privatizing state-run companies.

Experts say, however, that sustained growth of about 6 percent is needed for countries to pull themselves out of poverty.

Throughout the 1980s, developing countries around the world received loans from agencies such as the World Bank and International Monetary Fund on the condition that they open their markets and lower or eliminate tariffs. In many cases, the loans went to notoriously corrupt governments and dictatorships -- whose legacy has been an economic ball and chain.

While some of the larger economies, such as Brazil, Argentina and Mexico, managed to keep at least some of their national industry alive under those conditions, many countries saw their small businesses and much of their agriculture steamrolled by cheaper imports.

For decades, critics have pointed out that industrialized countries, including the United States and the European Union, continued to protect key sectors of their own economies while less-developed countries were forced to implement reforms under conditions that eroded their national production and their capacity to invest in social sectors such as health and education.

“The experience of developed economies is that the market has developed well when the state has played a role, helping through efficiency, a reduction of bureaucracy and the pieces necessary for the harmonious development of society -- quality of education, quality of macroeconomic policy, quality of exchange-rate policy, the development of a social security system and the social sector, including education, health and infrastructure,” Ffrench-Davis said.

That double standard -- powerful countries retaining some government control over their economies while insisting that others rely on the “invisible hand” of the market -- stalled trade talks twice in rapid succession at the end of 2003. At the World Trade Organization meeting in Cancún, Mexico, in November, a “Group of 22” less-developed countries led by Brazil, China and India dug in their heels on several issues, especially U.S. agricultural subsidies. A few weeks later, talks on the Free Trade Area of the Americas, held in Miami, stumbled on those and other issues.

The bottom line is the lack of a level playing field, both at the negotiating table and in economic conditions. The United States, Europe and other industrialized countries provide their farmers with $300 billion in subsidies every year, while farmers in less-developed countries get nothing. When their countries open the gates to subsidized products, those farmers -- many of whom scrape by on just a subsistence income -- can find themselves with no margin at all. The resulting problems are not only economic, but social and humanitarian, as well.

Elimination of U.S. agriculture subsidies was among the issues raised by negotiators from Ecuador, Peru and Colombia who began talks on bilateral trade agreements with the United States for their countries during the third week of May. A protest against the deals by thousands of people May 18 was broken up by police and soldiers who lobbed tear gas at the demonstrators. Fifty people were injured. Milton Mejía, secretary general of the Presbyterian church of Colombia, said that a low-flying helicopter also pointed a machine gun at the marchers.

Although a new Central American Free Trade Agreement (CAFTA) was finalized in December, Guatemalan Vice President Eduardo Stein recently said the United States has threatened to cut his country out of the free-trade pact if Guatemala does not eliminate safeguards meant to protect its own agriculture sector.

Brazil is now challenging these subsidies before the World Trade Organization, arguing that the $1.54 billion in annual subsidies granted to U.S. cotton growers results in overproduction that depresses prices and destroys export markets for other producing countries.

The battle lines are not only drawn between more-developed and less-developed nations, however. Threats from the European Union to seek sanctions from the WTO finally forced President George W. Bush to announce the lifting of steel tariffs.

Still, the breakdown of the WTO talks in Cancún was only a partial victory for less-developed countries.

“What people said about Cancún was that the underdeveloped countries -- or, more accurately, impoverished countries -- won, because the rich countries weren’t able to impose their will,” said Alberto Acosta of Ecuador, one of a number of Latin American economists who have been seeking alternative solutions to problems ranging from debt to trade. “That was positive, but the rules of the game didn’t change, and the rich countries can get what they want in other ways.”

Indeed, less than a month after the Cancún meeting, Ecuador, Peru, Colombia and the Dominican Republic had all pulled out of the “Group of 22,” and the United States had opened bilateral trade talks or made overtures to a number of countries that had taken the harder line in the WTO.

In doing so, the United States is hedging its bets on the Free Trade Area of the Americas, the grand scheme that was to create a tariff-free trade zone of 800 million people stretching from Alaska to Patagonia by 2006. A watered-down version came out of the Miami meeting, where agriculture subsidies and intellectual property issues were among the stumbling blocks. Under the new version, countries would be able to decide when and how they join in.

“It’s likely that a full FTAA won’t emerge,” Acosta said. But that is not necessarily cause for celebration.

“From multilateralism, in which poor countries, united, have a certain possibility of making their voices heard, we’re moving toward a series of bilateral agreements, which is very dangerous. But I wouldn’t call it just bilateralism -- it’s Bush-lateralism,” Acosta said.

The United States signed a bilateral trade agreement with Chile in 2003 and is negotiating with Peru and other countries. The North American Free Trade Agreement (NAFTA) has been in effect for a decade, and even the World Bank admits that any benefits have been uneven. In Mexico, the wealthiest 20 percent of the population receives 58 percent of national income, while the poorest 40 percent receive only 11 percent. The greatest disparity is in the southern states, including Chiapas -- where NAFTA’s start date of Jan. 1, 1994, was marked, not coincidentally, by the Zapatista uprising.

The Central American Free Trade Agreement will lift tariffs on 80 percent of U.S. exports -- which now total more than $9 billion a year -- when it goes into effect.

CAFTA, in turn, dovetails with Plan Puebla-Panama, a development scheme being pushed by Mexican President Vicente Fox. That grand plan would form an area of about 60 million people that would combine petroleum, timber and water reserves with low-wage labor, the biodiversity of the Mesoamerican Biological Corridor and cross-isthmus routes offering alternatives to the congested Panama Canal. The scheme has drawn fire from environmentalists, indigenous groups and activists.

Critics say that neither CAFTA nor Plan Puebla-Panama will reduce the region’s enormous income disparities -- in Guatemala and Honduras, the wealthiest one-fifth of the population receives 60 percent of the income, while the poorest two-fifths receive only about 10 percent.

Persistent unemployment

One factor that contributes to the persistent income gap, not only in Central America but throughout the region, is employment -- or the lack of it. Most of the jobs created in Latin America in the past decade were in the informal sector, which includes small family-run workshops, street vendors and others whose cash flow is off virtually everyone’s books. Entire families -- including children -- labor long days earning only enough for subsistence. They have no insurance, no health plans, no retirement savings, no cushion against disasters or emergencies.

When formal-sector jobs are created, they are often unskilled and poorly paid. In Central America and Mexico, millions of people, mostly women, work in maquilas, assembly plants making everything from designer-label clothing to televisions, mainly for sale in the United States. Reports about conditions sparked an anti-sweatshop movement in countries such as the United States, Canada and Europe that pressured manufacturers to monitor workplace conditions in producer countries.

A Guatemalan nonprofit group, the Commission for the Verification of Codes of Conduct (COVERCO), works with international companies doing business in Guatemala to monitor and improve working conditions and labor practices in apparel factories and banana and coffee fields.

“For many years, consumers made their decisions based on price and quality. But beginning in the 1990s many consumers began to add environmental concerns and labor rights in the production process to this list. And many brands responded by creating corporate codes of conduct,” said Dennis Smith, a Presbyterian church (USA) missionary who works with COVERCO.

COVERCO followed earlier efforts by church and rights groups in Central America to organize to help maquila workers. Those efforts, which were often paternalistic, were generally ineffective when pitted against the power of factory owners.

Instead of taking a militantly pro-worker stance, COVERCO provides objective verification of labor codes. This helps level the playing field, making it easier for workers to organize. Although change is not coming as quickly as many people would like, the COVERCO staff hopes that by helping workers to bring about change themselves, the improvements will be long-lasting.

Part of COVERCO’s success is due to cross-border solidarity. The organization’s monitoring is only effective if churches, students and other groups in the north -- including labor federations that have become interested in foreign workers over the past decade -- put pressure on companies when needed. University groups have been among the most vocal. Churches have also participated in advocacy campaigns or more direct action.

According to Smith, the image of maquilas as Dickensian sweatshops is misleading. Most are clean, modern and brightly lit, with only the women’s furtive glances -- to see if a supervisor is watching or listening -- giving a hint of the problems lurking below the surface. Rights issues range from how often workers get bathroom breaks to whether they can organize a union.

The issue of pay is critical in countries where jobs are scarce.

“Most of the workers are young women and many are single mothers,” Smith said. “What alternatives are available to them? Working in export agriculture, with its exposure to chemicals, the elements and abuse, or working in domestic service 14 hours a day, six days a week, with guaranteed violation of labor law and the probability of sexual harassment or abuse? For these women, working in the maquila gives them their first-ever access to personal disposable income and allows them to support their kids.”

The maquila boom may be going bust, however. The number of plants in Mexico declined by about 12 percent in 2002 and 13 percent last year. Many are moving to China, where production costs, especially wages, are even lower.

Raw materials bring few benefits

Because of its distance from the United States, South America has fewer maquilas. The economic motor, however, remains export products, often raw materials -- petroleum, bananas and shrimp in Ecuador; metals and minerals in Peru; fruit and copper in Chile.

The sectors, however, do little to develop a skilled work force and fail to create many new jobs. Agriculture requires an unskilled labor force. Mining and petroleum operations create some construction jobs early on, but once the projects are under way, they have small crews of technical personnel, usually from outside the area of the wells or mines. The few local people who are hired are generally unskilled and poorly paid.

Nor are extractive industries, such as mining and petroleum production, necessarily a boon to the local or national economies of the host country. A study commissioned last year by the international aid agency Oxfam found a positive correlation among three variables -- dependence on extractive industry, poverty rates and civil strife.

“These are generally enclave activities that have little connection with the rest of the national economy,” Ffrench-Davis of the U.N. Economic Commission on Latin America said. “That’s why, in many countries, exports of natural resources or maquila products increase but the rest of the economy doesn’t show strong growth. What’s needed are exports that are more closely tied to the national economy and that have added value.”

As long as their economies are sluggish, the region’s countries remain dependent on foreign loans. Nearly half a decade after the Jubilee campaign for debt forgiveness, most Latin American nations still carry high debt burdens. At the end of 2003, the gross external debt for Latin America and the Caribbean stood at $744 billion, up 2.4 percent from the previous year. While debt liability dropped slightly in Colombia, Mexico and Venezuela, it rose by 13 percent in the Dominican Republic, 10 percent in Costa Rica and Bolivia, and 9 percent in Guatemala.

In Brazil, Peru and Bolivia, the external debt is equal to about half the country’s gross domestic product. The ratio is even higher in Ecuador, Uruguay and Argentina. Regionwide, the external debt figure is twice the amount of export revenues. Ecuador earmarks about half its annual budget for debt servicing, compared to 11 percent for health care and 18 percent for education.

Even in crisis, however, there have been some sparks of hope.

The debt issue was remarkable for galvanizing activists during the 2000 Jubilee Year. Churches throughout the hemisphere boned up on the topic and circulated petitions. In Peru, the bishops’ Social Action Commission spearheaded a drive to gather signatures on a petition for debt forgiveness, collecting 7 million, one of the highest in the world for signature collection.

In Bolivia, protests turned to proposals as the Catholic church held local conferences on economics and citizen’s rights. Citizen watchdog groups now monitor the use of funds freed up by debt swaps with creditors.

After Argentina’s economic meltdown in late 2001 -- amid protests that brought down President Fernando de la Rúa and led to a revolving-door parade of five presidents in 13 days -- the Catholic bishops and other church leaders issued statements calling for less emphasis on debt payments and more on safety nets for the poor and elderly. They also took the country’s political leaders to task for poor economic management and high levels of corruption.

The Brazilian Conference of Bishops was among organizers of a referendum in 2000 in which 6 million people turned out to vote on external debt, and another in 2002, when 10 million voted no to the FTAA. Bishops on the Ecuador-Colombia border have been equally outspoken, not just on the hemispheric free trade area, but also on U.S. involvement in Colombia and Bush’s Andean Regional Initiative to fight drug trafficking, calling them part of a “system of evil.”

While many of the region’s governments still earn popular distrust because of scandals involving malfeasance and nepotism, a new style of leadership is emerging in Brazil, where lathe-operator-turned-president Luiz Inácio Lula da Silva has stood up to the United States in the World Trade Organization and on the Free Trade Area of the Americas.

Lula has also served as an inspiration to other leaders in the region, calling for a solidification of trade relationships in South America -- especially within and between the Southern Common Market (MERCOSUR), which consists of Argentina, Brazil, Uruguay and Paraguay, with Bolivia and Chile as associates, and the Andean Community of Nations, which includes Venezuela, Colombia, Bolivia, Ecuador and Peru -- as a way of developing the critical mass necessary to bargain on more equal terms with the United States.

Seeking solutions closer to home

Ecuadorian economist Acosta also sees that as one of the best hopes for the region. “All that’s lacking is the political will to do it,” he said.

According to Ffrench-Davis, political will can also make a difference on the home front. Costa Rica and Uruguay have the region’s smallest income gaps -- and, perhaps not coincidentally, are among the Latin American countries with the highest educational levels -- largely because their governments played a stronger role in shaping policy.

“Their policies haven’t been as ideological,” Ffrench-Davis said. “They took a more pragmatic, longer-term approach to the reforms of the Washington Consensus. They placed emphasis on both the public and private spheres. They both have very strict social policies, and they’ve paid attention to education.”

After the economic crises of the 1980s, Chile instituted policies designed to put the brakes on speculative capital and increase savings. As a result, it suffered little during the Russian and Asian crises of the late 1990s.

“The neoliberal model says that there’s a single formula for change, but Chile and Costa Rica have demonstrated that there are alternatives when policy is well thought out and adapted to the local situation and when there’s a relatively well organized political system,” Ffrench-Davis said.

While those lessons have not yet crystallized into solid, widespread proposals for change, they may offer a glimmer of light at the end of a long tunnel.

“There still aren’t clear elements for new policy, but there are many indications pointing in a new direction,” Ecuadorian economist Acosta said. “We need to rethink the role of the state and turn it into a state that plays a positive role in economic, social and environmental development. We also need to rethink the market, turning it into a market that combats monopolies and the excessive power of transnational companies. The market needs a stronger presence of organized workers, consumers, farmers and ordinary citizens.”

Indeed, alternatives to textbook free-market policies have been arising from the grass roots. Ranging from microcredit to barter systems to marketing aimed at ensuring producers a fair price, these options have been dubbed the “economy of solidarity.”

“Capitalist logic seeks to maximize profits,” said Peruvian economist Humberto Ortiz of the Catholic church’s Social Action Commission. “When the capitalist doesn’t achieve the expected rate of return, the company goes bankrupt.”

Low-income Latin Americans, on the other hand, set up tiny businesses, sometimes employing just the nuclear family, as a strategy for survival.

“It’s a different kind of economy, not oriented toward profit, but oriented toward well-being,” Ortiz said. “This economy, which also seeks efficiency in costs and income, even when the income is precarious, is a ‘grassroots’ economy.”

Only about 10 percent of the region’s micro enterprises accumulate capital, Ortiz said, but they survive in defiance of conventional capitalist theory. The phenomenon has drawn the attention of a network of socially oriented economists, including Ortiz in Peru, Acosta in Ecuador, José Coraggio in Argentina and Luis Razeto in Chile.

While most economists refer to workers who have created their own jobs as the “informal sector,” socially oriented economists prefer to call it a grass-roots economy, saying it should not be defined by what it isn’t, but supported for what it is -- a survival strategy for tens of millions of families.

These economists call for governments, the private sector and civil society to join together to support these workers through a redistribution of government spending or the use of debt-swap funds. Ortiz said transnational companies should also purchase raw materials and intermediate goods from local small businesses and micro enterprises. Such policies, however, could be undercut by free trade agreements that discourage or eliminate purchasing policies.

Another solidarity effort links small producers in Latin America and the Caribbean with importers who market their products at prices that ensure a fair payment to the producer. The “fair trade” movement had its roots in efforts by missionaries and church groups to ensure that artisans working in Latin American countries received a fair price for their handcrafts, which are generally sold to tourists for a pittance. The movement expanded to other products, such as coffee and chocolate, and began to take different forms as solidarity groups in North America and Europe began to lobby supermarkets to carry fair-traded items.

Critics of the fair-trade movement claim it is too limited to have a real impact and that it focuses too much on the price the producer receives, leaving aside questions about labor practices and working conditions. The international Fair Trade Labeling Organization in Bonn, Germany, however, includes labor and environmental standards among its criteria for certification.

Church groups are major players in the fair-trade movement. London-based Christian Aid has waged several campaigns focusing on products, including asparagus and bananas, that can be traced all the way back to the farm or packing plant in the source country. The campaigns aim to educate consumers and encourage importers to pressure the companies with which they do business to treat workers fairly. In some cases, representatives of supermarket chains have traveled to the source country to visit farms and processing plants and talk to workers about labor conditions.

May 14Part 1Introduction: Power or credibility?
June 4Part 2Economics: Little relief in sight for poverty, debt and unemployment
July 16Part 3Development: Lasting change by helping the poor without paternalism
 Part 4Immigration: Opportunity and challenge for Latin America's poor
 Part 5Reconciliation from the grass roots up
 Part 6Indigenous people: Fighting for rights after centuries of discrimination
 Part 7Women In Latin America: The gender gap kills
 Part 8Children: Poverty cuts children’s chances for a future; interview with the Bishop of the Gangs
 Part 9Church: Despite crisis, Latin America's grass-roots communities remain strong model for effective church
 Part 10Solidarity: Church groups find countless ways to put faith into action
Rodney North, who handles public relations for Equal Exchange, a worker-owned cooperative that is one of the oldest U.S. fair-trade marketing companies, said the entire fair-trade model is a challenge to the status quo.

“Despite our rather unorthodox business model, we’ve been growing at about 32 percent per year for 18 years,” he said. “We want people to understand that business can be done differently. We take great pleasure in being emulated. We want people to see that while it’s not a way to get rich, it can be a way to run a business -- and a satisfying one.”

Another grass-roots response to neoliberalism is the “economy of solidarity” movement, whose flagship was the barter movement that sprang up in Argentina in response to the economic crunch. It began in lower-income zones, where neighbors would offer to swap homemade goods and services, but quickly spread to the middle class and even extended to neighboring Uruguay.

The barter groups used chits so they could swap indirectly, but fell victim to their own success. Some of the groups grew too big and counterfeit chits began to circulate -- mirroring a problem that is not infrequent in the regular monetary system.

Still, the barter groups made their point, and many continue to operate in Argentina and other parts of the region.

Initiatives like these, cross-border solidarity and the protests that have become part of every meeting of multilateral trade groups or lenders are a sign of increasing awareness and dissatisfaction with the economic status quo.

“The people of Latin America are saying, ‘Enough. We don’t want business as usual. We want change,’ ” Acosta said. “But the people who govern Latin America haven’t tuned in to that yet.”

Barbara Fraser worked in Peru for 14 years as a Maryknoll lay missioner. She now lives in Peru as a freelance writer. Paul Jeffrey is a United Methodist missionary journalist who has lived in Central America for two decades. He lives outside Tegucigalpa, Honduras.

National Catholic Reporter, June 4, 2004

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