From Volume 4, Issue Number 26 of EIR Online, Published June 28, 2005

Ibero-American News Digest

Panama Takes Step Back from Social Security Reform

In a nationally televised address June 21, Panamanian President Martin Torrijos agreed to a "temporary" suspension of the hated "reform"—i.e. privatization—of the country's Social Security Fund, decreeing a 90-day "discussion period" with the trade-union and business leaders who have been leading protests against that reform for weeks.

As EIR reported last week (see June 21 InDepth, "Panama: Social Security Reorganization in Panama Is a 'Death Plan' ") teachers, construction workers, and government employees have been striking ever since the reform was passed in late May, while schools and universities have been closed as students have joined the protests en masse.

Torrijos spoke to the nation after a four-hour meeting with the Archbishop of Panama City, Msgr. Jose Dimas, who urged the President to suspend the reform for at least three months, and to undertake a dialogue with the trade unions and others who have been demanding to have their voices heard. The Archbishop also appealed to Torrijos to include in the discussions the National Front for the Defense of Social Security, the coalition leading the protests, among whose leadership is Schiller Institute Trade Union Committee founder Eduardo Rios (whose interview with EIR also appears in the June 21 InDepth).

Vulture Fund Scam in Ecuador Curtailed

On June 15, Ecuador's Congress approved a government-proposed Law of Fiscal Responsibility which redirects the use of the government's surplus oil profits fund, known as the FEIREP, away from debt buy-back, and toward health, education, infrastructure building, and research and development. Under the previous government of Lucio Gutierrez, ousted on April 20 by mass protests, a whopping 70% of the FEIREP was allocated to buying back public debt from foreign creditors—principally vulture funds—and only 10% was spent on health and education. Under the new law, 35% of its funds will now go to "development of the productive apparatus," payment of social security obligations, and buy-backs of foreign debt. Fifteen percent will go to education; 15% to the health sector; 5% to repairs of environmental damage caused by the oil industry; 5% to improve highways; and 5% for R&D. Another 20% will go for "economic stabilization."

One of the Congressmen who voted for the new law warned that the reform, which was strongly opposed by the Ecuadoran Central Bank, could trigger "reactions by international financial speculators," whose vast profits on the debt buy-backs are going to shrink as a result.

Barclays Capital Bank is already screaming. On June 15, the bank's director of emerging markets, Jose Maria Barrionuevo, told local media that "there is deep concern among the international financial community over the financial policies being proposed in Ecuador, since in our opinion, they threaten to compromise the country's economic stability."

Not surprising: According to recent revelations made by the president of Quito's Chamber of Commerce, Blasco Penaherrera Solah, Gutierrez's government had deposited a whopping $30 million a month from the FEIREP fund into Barclay's coffers, for the purpose of debt buy-back. Barclays is reported to be financing the ousted Gutierrez's current stay in the United States, whence he is campaigning for his reinstatement as President.

Brazil Considers Multi-Year Austerity Pact

No sooner had the ongoing corruption scandal in Brazil forced cabinet chief Jose Dirceu out on June 16, than President Lula da Silva and his economic team began discussing the proposal championed by Sen. Delfim "Chicago Boy" Netto, for how to lock in drastic cuts in Brazilian government expenditures for years to come, as demanded by international financiers. These are precisely the policies which Argentine President Nestor Kirchner has been fighting to get Brazil to finally reject—as Argentina has.

Today, under IMF instruction, the Lula government runs a "primary budget surplus" of over 4.25% of GNP; i.e., a budget surplus excluding interest payments. But, because Brazil's public debt is at around $430 billion, with some 58% of it carrying floating interest rates, despite gouging 4.25% and more out of the economy to pay debt, the total government budget deficit was still 2.66% of GNP in 2004, when interest payments are included in the calculations. And that so-called "nominal" budget deficit rises dramatically with every increase in the interest rate. The Brazilian federal government's debt, in fact, rose by 9.6% in the first five months of 2005 (that's an 18.7% annual rate), despite the fact that the government actually ran a primary budget surplus of 7%.

Delfim Netto's proposal is that the government freeze all current spending, and eliminate the constitutional requirements for specified levels of expenditures on public salaries, pensions, health and education, step by step over the next five to six years. Today, between those expenditures and interest payments, 80% of the budget is earmarked in advance, making it difficult for the government to dedicate everything to debt payments. Under Delfim's proposal, the government would reduce the total required payments—except debt payments, of course—by 5% a year, until only 20-40% of the budget would be fixed.

The brutality of the fiscal austerity which this would represent boggles the imagination. A June 20 Bloomberg wire reported that the Lula government has already cut the budget deficit by three-quarters in its two years in office, by cutting government pension expenses and "social security fraud," and simply shutting down state investments.

This, in a country where over half its 180 million people live under the poverty line.

New Brazilian Chief of Cabinet Is Anti-Nuclear

President Lula da Silva promoted his anti-nuclear Energy Minister Dilma Roussef to Chief of Cabinet on June 20, replacing Jose Dirceu, who returns to the Chamber of Deputies to fight charges that he approved an alleged Workers Party (PT) Congressional bribery scheme. Dilma Roussef is being hyped as an "iron lady," a Ph.D. economist and technocrat who gets things done. In the recent period, she and Dirceu had been at loggerheads over whether Brazil should finish its partially built, third nuclear plant, Angra III. Roussef was adamant the plant should not be finished, using a bogus "cost-benefit" analysis that completing the plant would take precious resources from other programs.

Peru Drug-Producing Region Threatens Separation

"If some believed that the anarchy into which Bolivia has sunk is somehow distant from us, they should think again," former Peruvian Interior Minister Fernando Rospigliosi aptly warned, after the regional government of Cuzco passed a decree on June 19 legalizing coca production in the region—and threatened to declare themselves "autonomous and independent," should the central government object.

Regional president Carlos Cuaresma, calling coca a natural resource and the region's "cultural patrimony," decreed its cultivation legal for "medicinal, ceremonial, religious, cultural, and 'chewing' " purposes. Painting the increase in narco-cultivation as a defense of "indigenous" traditions, Cuaresma threatened that he "would not be responsible" if a government prohibition of the decree were to lead to an autonomy struggle in Cuzco province. The issue is no longer the defense of a legal measure, he added. "what is at stake now is autonomy for the regions." If the government continues to oppose us, "it could awaken the Cuzco puma, and we could declare Cuzco to be an autonomous and independent region."

The Toledo government, riddled with its own fraudulent "indigenist" activists and drug-legalizers, backed down from its initial position that Cuzco had no legal right to issue such a decree, and struck a deal with the rogue province which allows "only one valley," and not the entire province, to legally cultivate coca fields.

Argentina Demands IMF Meet Its Conditions

The IMF's just-concluded "Article IV" review of the Argentine economy "passed" Argentina's program, but only after issuing an insulting, teeth-gnashing report—prepared by Western Hemisphere Division Chief Anoop Singh—complaining about everything that "populist" President Nestor Kirchner has done: his "hardline stance" in debt restructuring talks, alleged "animosity" to foreign investment, etc. The IMF demanded the government agree to a "considerably higher" primary budget surplus to insure debt payment (in the range of 4.5% of GDP), that it reform (privatize) its public banking sector, and acquiesce to the privatized utility companies' demands for higher rates.

Speaking in the city of Rosario on June 20, Kirchner countered that the IMF "attacks me directly only because I staunchly defend the nation's interests, and don't act like a courtesan of those interests that have permanently sunk us."

On the same day, Argentina's representative to the IMF presented the Board of Directors with a 13-page response to the IMF report, signed by Finance Minister Roberto Lavagna and Central Bank President Martin Redrado, which charged that the IMF staff "acts as if the only objective of current and future Argentine governments should be to pay the Fund in proper time and form, to please creditors, postponing policies to meet the needs of the majority of the population." In demanding a primary budget surplus of 4.5% of GDP (as opposed to the 3.6% indicated in the 2006 budget), "it would appear that the Fund wishes to prove" that by maintaining the higher surplus in the medium term, "and appropriating Central Bank reserves to pay the IMF, Argentina could pay more to private creditors."

Argentina is willing to sign an agreement with the IMF "today," as long as certain conditions are met, Lavagna told Radio Mitre June 23. "Any agreement would have to respect Argentina's growth. We cannot accept any recessive measures, and must ensure that there will be growth of employment and poverty reduction." As long as these criteria are met, "we'll sit down and discuss anything they want."

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