From Volume 4, Issue Number 21 of EIR Online, Published May 24, 2005

Ibero-American News Digest

Will Bolivia Avoid Civil War?

Bolivia today, like Ecuador, stands as a stark demonstration of Lyndon LaRouche's warning, that nation-states cannot survive under globalization.

Bolivia is shattering, under conflicting pressures over how it should exploit its principal natural resources, oil and natural gas, in the midst of the global financial meltdown. On May 10, President Carlos Mesa announced that he would not sign a new Hydrocarbons Law passed by Congress, because, he said, it would force Bolivia into a confrontation with foreign interests. Instead, he issued a dramatic appeal for a national dialogue on a consensus on "the unity of Bolivia," as a last-ditch effort to prevent "the fragmentation of the country."

The law is opposed as confiscatory by the multinationals and their local representatives, because it dared charge an additional 32% tax on oil and gas production, on top of the minuscule 18% royalty in existing contracts. The law is also opposed by the mass "social movements" in the country, who demand nothing less than full nationalization.

Mesa was forced to cancel his national dialogue, when key sectors refused to attend, and on May 17, he told the nation he would neither sign nor veto the bill, but that Congress would promulgate the law, as stipulated for such cases in the Constitution. He then announced various economic initiatives centered on aiding the poor.

Whether sufficient forces rally to Mesa's government to subdue the mass protests of the Jacobin-led "social movements" and the matching separatist drive of the right-wing interests tied to the multinationals, is still being contested. Should anarchy continue to spread, people fear the country will head toward civil war.

Ecuador's President: If We Pay That Debt, We Die

In an interview with investigative reporter Greg Palast, aired by Democracy Now! on May 17, Ecuador's President Alfredo Palacio was asked about the secret commitments made by the previous government to use "windfall" profits from the high price of oil to pay off bonds early, and at 100% of face value, to speculators who had bought up Ecuadoran bonds at 10 cents on the dollar. This was exactly the kind of scam by financial vultures which Argentine President Nestor Kirchner recently denounced. Palacio answered:

"If we pay that amount of debt, we're dead. And we have to survive. And the most convenient thing for them is that we survive. If we die, who is going to pay them?... They condemn us to not to have health, not to have education. Mr. Palast, people, sick people are not going to produce anything. Ignorant people are not going to produce anything. So we have to invest in that, in order to increase our production, which is the only way to improve, to make economic improvements, and then we'll be ready to pay our debts.... [W]e have to be able to pay what we owe, but they have to listen to us, you know, in order to keep our people living, alive."

Palacio assumed the Presidency on April 20, when his predecessor, Lucio Gutierez, was ousted in the midst of mass upheaval. He immediately announced that his government would not use oil revenues to pay debts before they came due, but rather for investments in the nation.

The Gutierrez government did not cook up the policy of providing gigantic windfall profits to financial vultures. Palast announced to Democracy Now! that he has obtained 5,000 pages of World Bank and IMF documents, marked "For Official Use Only," which show this policy was dictated by those institutions. Palast described the documents as "a bunch of secret agreements made with finance ministers, that say you're going to turn over all your money, and usually, privatize your electric companies, privatize your water companies, sell off everything to pay off old debts."

Criminal Investigation Opened Into Brazilian Central Bank Chief

On May 12, Brazil's Supreme Court authorized Federal prosecutors to open a criminal investigation into charges that Central Bank chief Henrique Meirelles had engaged in tax and electoral fraud, and money-laundering, between 1996 and 2001, when he lived in the U.S., and served as international president of BankBoston. The court lifted bank secrecy protection for his personal accounts, and at least ten companies which the public prosecutors assert he controlled at the time. Prosecutors want to trace the origin of some $500 million that was transferred abroad, suspected of belonging to Meirelles, which was never reported.

The Meirelles case went before the Supreme Court, because the Lula government had issued a decree when the charges first surfaced in 2004, dropping any pretense of Central Bank autonomy, by making the Central Bank chief a member of the cabinet in 2004. Cabinet members in Brazil are immune from prosecution, except that brought by the Supreme Court.

The much-hated central banker testily told the media how happy he is to be able to clear his name (certainly not his view the week prior, when his lawyers filed a petition for the case to be dropped). He is reported to have promised the government that he will not respond "emotionally," and quit his post, despite voices coming from Congress and the labor unions, calling for him to step aside, until the investigation is completed.

Brazilian Central Bank Raises Benchmark Interest Rate—Again

For the ninth month in a row, Brazil's Central Bank raised interest rates by a quarter percent, to the phenomenal rate of 19.75%, a full 11% over the rate of inflation. The pretext given was the continuing need to "fight inflation," but the decision is really driven by growing desperation over Brazil's debt bubble, given the international global crisis. The increase will worsen Brazil's situation immediately, in two principal ways:

1. It automatically increases the debt, since 58.5% of Brazil's public domestic bonds carry floating interest rates tied to the benchmark rate. An increase of a quarter-point may not sound like much, but on somewhere around $175 billion worth of bonds, it adds up.

2. Speculative activity increasingly becomes the only profitable economic activity in the economy. Many Brazilian companies are beginning to sell inventory to raise cash, which they can invest in government bonds, holding off expanding investments in their production until interest rates drop.

Argentina Prepares To Fight World Bank

Argentina's fight against a World Bank ruling that it pay financial predators, "has only just begun," Justice Minister Horacio Rosatti stated, following a May 12 ruling by the World Bank's ICSID (International Center for Settlement of Investment Disputes) on behalf of CMS Energy Corp. ICSID ordered the Kirchner government to pay CMS $133 million for its alleged "losses" as a result of the forced conversion of its dollar debts to pesos, and peso devaluation that followed the December 2001 default.

At least 30 foreign-owned privatized utility companies, which savagely looted the country during the privatization binge of the 1990s, have taken their claims to the ICSID, hoping for favorable rulings that can force Kirchner to pay up, to the tune of $20 billion. These same companies, with IMF/World Bank backing, are also demanding that Kirchner grant them rate increases of as much as 60%.

Rosatti announced that the government will request that ICSID declare the May 12 ruling null and void, on grounds that CMS is a minority shareholder of the Argentine energy company TGN. Otherwise, anyone who owns even one share could go to ICSID, and if there are 20 shareholders, there could be 20 different claims, Rosatti said. But more important, he added, is Argentina's sovereign right "to defend its interests." When companies were privatized in the 1990s, he said, legal jurisdiction was also handed over to foreign courts. But the disputes between the privatized companies and the state "should be resolved in local courts." Despite ICSID's ruling, "we can never give up the possibility of determining the ruling constitutionally.... [T]his fight has just begun."

When vulture funds were attempting to seize Argentine diplomatic holdings in Washington and Maryland in 2004, it was Rosatti, then the Treasury General Prosecutor, who reminded the U.S. of its own Drago Doctrine, which forbids the forcible collection of the foreign debt of nations.

The current Treasury General Prosecutor, Osvaldo Guglielmino, has mooted that Argentina might break with the ICSID altogether, after the ICSID confirmed as one of its "unbiased" judges a Spanish lawyer who simultaneously represents private Spanish utility companies that have claims against Argentina! Guglielmino warned on April 25: "No one can conceive of any state submitting to a judge who acts like the old Roman Emperors, making decisions with a thumbs up or thumbs down." The ICSID refused to provide any explanation for its decision, merely repeating "the decision is final and there is no appeal." ICSID's behavior is "perverse," Guglielmino charged, and "we shall use all the resources of a sovereign state to prevent it from trampling on our rights."

U.S. Ambassador Demands Energy 'Reform' from Mexico

"Energy reform is critical to Mexico's future," U.S. Ambassador Tony Garza told a NAFTA gathering entitled Hemispheria 2005, held May 13 in Nuevo Leon. Mexico's energy sector needs "big-ticket reform," he said. "I know this issue is a terribly sensitive one in Mexico, particularly when it's the U.S. Ambassador who is talking about it. But you don't have to hear it from me.... Mexico must find ways to more fully exploit its own energy resources because its competitiveness and the prosperity of its own people depend on it." His imperial tone—he told the gathering that "reliance on remittances from the U.S. and windfall revenues from high oil prices is simply not an economic policy"—was so egregious, even the subservient Fox regime felt obliged to protest.

Garza has a wee bit of conflict of interest, when he demands Mexico hand over it energy resources to private sector interests: he just married one of Mexico's top investors, Maria Asuncion Aramburuzabala, the wealthiest woman in Ibero-America. Worth an estimated $1.8 billion, the heiress of the Modelo beer empire sits on the boards of Mexico's leading television channel, Televisa, and the Mexican Stock Exchange, and on the advisory board of the country's second largest bank, Citigroup-owned Banamex.

All rights reserved © 2005 EIRNS