From Volume 4, Issue Number 30 of EIR Online, Published July 26, 2005

Ibero-American News Digest

'Invisible Hands' Move To Grab Ibero-American Pensions

The privatized pension systems of ten Ibero-American countries control assets averaging 10% of the GDP of each country involved—over 50% in Chile—and the sums under their control are projected to grow to over 30% by 2015, an amount comparable to most banking systems in the region today. But, at a July 14 press conference in Washington, D.C., a group of financial vultures calling themselves the "Latin America Shadow Financial Regulatory Committee" (LASFRC) released their proposal that governments loosen regulations which require private pension funds in Ibero-America to invest only in safe, and generally, national funds. Instead, governments must permit Ibero-American pension funds be turned over to foreign investments, and "new financial instruments" created "to help deepen financial markets" in the region.

Even as Fitch Ratings Service was issuing a new warning that collateralized debt obligations, mortgage-backed securities, and other such speculative instruments could set off an "event" which could bring down the funds, banks, and the markets at large, the LASFRC proposed that the private pension funds move into these very asset classes. The LASFRC proposed any and all receivables in the region—from farm crops and livestock, to future flows of university tuitions and health-care payments—be "bundled" into securitized bonds and sold to the pension funds. Other financial gambles proposed for the pension funds include mortgage securities, infrastructure finance bonds, and collateralized loan obligations. (The latter "complex structures," which transform risky corporate-sector loans into investment grade assets, don't exist in Ibero-America today.)

This committee of shady Invisible Hands—created in 2000 and meeting three times a year, once each year with its sister "shadows" of Asia, Japan, Europe, and the U.S.—will be presenting its recommendations to governments in the region over the coming days. LASFRC currently has 15 members, including such infamous looters of their countries as former central bank presidents Arminio Fraga (Brazil), Miguel Mancera (Mexico), Ruth de Krivoy (Venezuela) and Roberto Zahler (Chile); former Finance Ministers Roque Fernandez (Argentina) and Angel Gurria (Salinas's Mexico); and the ever-present Venezuelan former Inter-American Development Bank chief economist Ricardo Haussman (now a professor at Harvard).

A Case Study in Financial Looting: Brazil

When the Brazilian government of Lula da Silva announced it would not renew its accord with the IMF this past March, it marketed the decision as an act of sovereign independence. Far from it, as Brazilian economist Adriano Benayon documented in a May 11 article, published this month in A Nova Democracia, and titled "With or Without an IMF Accord: Colony of the World Financial System." As Benayon pointed out: Brazil pays the highest real interest rates in the world, 19.5% as of April 2005, a rate double that of the second highest, Turkey, and almost three times that of the third highest, South Africa. With its "domestic" debt offering the world's highest interest rates, foreign speculators flocked to buy Brazilian debt. Speculators made an even bigger killing, because the value of the Brazilian real rose, vis-à-vis the dollar, by 23% between Aug. 4, 2004 and May 10, 2005: an increase of 2.3% a month, or 31.8% a year. So, a speculator who bought Brazilian debt in August 2004, and sells it today, effectively makes a 50% profit, when the revaluation and the interest rate are combined. "Not bad," wrote Benayon.

This inflow of speculative capital beefed up central bank reserves sufficiently for Brazil to do without new IMF loans. "In other words," Benayon wrote, "the National Treasury exchanged this [IMF] credit, which is useless and damages the country, for even more harmful foreign speculative capital, with the difference that the latter costs us 50% a year, and interest rates on IMF loans were 6-7% a year."

U.S. Ambassador to Colombia: Free Trade, or Be Damned!

In a July 14 speech to nearly 1,000 financiers and businessmen in Bogota at the annual "Colombia in the Eyes of Wall Street" seminar, U.S. Ambassador William Wood warned that the U.S. would sign a free-trade agreement (FTA) with "those who are ready," while those not ready will be left in the dirt. Wood delivered his ultimatum immediately after the Colombian LaRouche Youth Movement interrupted the proceedings to ask him about LaRouche's proposals to reorganize a world financial system typified by Wall Street's alliance with the narcoterrorists (see last week's Ibero-American Digest).

The Bush Administration has been trying to force the Andean countries of Colombia, Ecuador, and Peru to sign a NAFTA-style free-trade pact with the U.S., but has encountered resistance. Although Peruvian President Alejandro Toledo—whose popularity has sunk to single digits in recent polls—has readily agreed to sign on the dotted line, despite furious mass protests across Peru, economic interests in both Ecuador and Colombia have been balking.

In particular, Colombian agriculture producers, who have been doing business with the U.S. under a long-standing agreement of preferential tariffs on many of their products, are protesting that the FTA with the U.S. will turn Colombia into a one-way dumping ground of cheap U.S. grains and other agricultural products. The result will be mass bankruptcies, and the conversion of tens of thousands of Colombia's growers into coca and poppy cultivators.

The imperious Wood informed his Colombian audience that the U.S. would not be renewing the preferential tariff agreement with Colombia (which expires in 2006), and that therefore, if Colombia does not sign the FTA, it will be "in the worst of all possible worlds," with neither an FTA nor the protective agreement.

Argentina's Foreign Minister Blasts Wall Street Journal

Argentine Foreign Minster Rafael Bielsa exposed the Wall Street Journal's dragon lady, Mary Anastasia O'Grady, following the vicious claim in her July 8 Americas column that the Kirchner government "is looking like the pre-9/11 Saudi Arabia of South America." O'Grady charged that President Nestor Kirchner himself was harboring terrorists, and could hardly be counted on by the U.S. as a reliable ally in the war on terror.

In an article published in La Nacion July 16, Bielsa explained the origin of O'Grady's rantings: Her viewpoint "in no way differs from that of the major neoliberal think tanks: the Foundation for Economic Education, the American Enterprise Institute, the Heritage Foundation, the CATO Institute, and the Atlas Economic Research Foundation," he noted. If you really want to know how she thinks, look at the subhead on her article, "Too Many Promises," appearing in the 2002 edition of the "Index of Economic Freedom" of which she is coeditor, he added. The subhead says it all: "How Latin American Constitutions Weaken the Rule of Law."

For O'Grady, Bielsa says, the bottom line is that "the rule of law ... begins and ends with the right to property, under which individual freedom is subsumed, and before which the state must relinquish all regulatory impulses which tend to restore fairness and humanize social relations."

Bielsa's dismissal of O'Grady stung the Journal enough that it responded with a July 20 editorial, which simply proves his point. Defending "classical liberalism," it denounces Argentina's "ruling Peronists" for their "different philosophy," based on "breaking contracts, destroying dollar holdings, freezing prices and marking down Argentine bonds to 34 cents on the dollar."

Financial Predators Demand Argentina Capitulate

The Union Bank of Switzerland is circulating a confidential report demanding that Argentina's Kirchner government immediately change its monetary policy, to combat inflation by raising interest rates, and cease its practice of intervening in the markets to maintain a stable exchange rate. Griping that the government is covertly maintaining a fixed exchange rate, UBS demands that Kirchner follow the lead of other "responsible" governments, and allow an immediate appreciation of its currency by at least 20% vis-à-vis the dollar.

The Swiss gnomes wail that everything Argentina is doing to combat inflation is wrong. Its real interest rates are too low, it complains. Why not follow the example of neighboring Brazil, UBS argues, which has correctly (and suicidally) responded to a much more modest increase in inflation by dramatically increasing its benchmark Selic interest rate?

The International Monetary Fund added its voice to UBS's lunacy on July 18, asserting in its official report on its "Article IV" review of Argentina's economy, that fighting inflation is the country's first priority, to be accomplished by raising interest rates, cutting public expenditures, and ceasing to maintain a stable exchange rate. Above all, the Fund warns, unless Argentina aggressively imposes "structural reform," annual growth will drop to 2%, thus risking a new debt default.

"We will not raise interest rates any further," Finance Minister Roberto Lavagna answered on the "14 Days" cable TV show July 18. Lavagna and Kirchner met on the evening of July 18, and agreed that rather than any "drastic" measures to control inflation, they would resort to "moderate fiscal policy," and price agreements with different sectors of the economy.

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