In this issue:

Fuses Lit on Brazilian Debt Bomb...

...And Mexico, Too:

South America Descends into Barbarism

National Strike Called in Peru

Peru Congressman: Fight Drugs with Cultural Optimism

Argentina Threatened: Bend Before Vultures—or Else

Argentine Post Office To Remain in Gov't Hands

Calls for Creating State-Run Railroad in Argentina

From Volume 3, Issue Number 25 of Electronic Intelligence Weekly, Published June 22, 2004

Ibero-American News Digest

Fuses Lit on Brazilian Debt Bomb...

Brazil and Mexico face phenomenal financing needs in 2004, exactly at the point that external capital is drying up, and becoming expensive—a recipe for blowout.

Take the case of Brazil, which has over $300 billion in public debt alone. In June, the Central Bank changed strategy, opting to roll over bonds and exchange-rate swaps coming due, rather than paying them off out of reserves, as they had been doing. To do so, however, they had to agree to offer so-called "post-fixed interest rate bonds," in which the government agrees to pay the bondholder any difference that has accrued between the interest rate at the time of purchase, and what it may have risen to when it comes due. After months of trying to reduce the percentage of Brazil's public bonded debt which carry these floating interest rates, the percentage is now rising again.

Between January and the end of May, the Central Bank had spent US$17.6 billion in paying off debt coming due, almost equal to the US$19.1 billion thus spent over the entirety of 2003. Treasury officials claim the government still has enough of a reserve "cushion" to cover nearly three months of maturing debt, should that become necessary, not bad, given that the debt coming due in July, August, and September totals R$67 billion—roughly US$21 billion, at today's exchange rate.

That figure doesn't include exchange-rate swaps coming due, nor the over $10 billion more which comes due in October, November, and December. These looming obligations broke the Central Bank's policy of not offering "post-fixed" bonds, because had they not offered them, investors would not have accepted the roll-overs, and would have demanded their money, instead.

...And Mexico, Too:

According to La Jornada of June 13, Mexico has an unprecedented $47.9 billion in public and private debts coming due over the next 12 months.

In the recent period, a (relatively) steady flow of foreign capital coming into Mexico, viewed as a "safe refuge," has allowed it to meet debt payments. Stories such as that run in the Mexican daily El Financiero June 11—headlined "Hidden Debt, A 'Time Bomb'; Represents at Least 50% of GNP"—warn that those days are about to end.

El Financiero's article featured a warning by Walter Molano, chief economist at BCP Securities, that the institutional investors who consider Mexico a secure refuge might want to look again, more closely.

This is not news to EIW readers, as the real story on how Mexico has become, once again, another debt bomb, was reported in EIW #20. (See InDepth, "No Recovery for Mexico, but Argentinization.")

But given the prominence Molano often receives in the international financial media, his warning itself could well set off capital flight, and bring about the onset of a new crisis. Because Mexican debt is rated investment-grade by the rating agencies, many investors stopped looking closely at its numbers, Molano said. Mexico has a lot of sovereign debt hidden under other categories (Pemex, Pidiregas, pensions, etc.—see EIW #20), and, Molano warned, at some point, holders of Mexican assets are going to be hit with disagreeable surprises, and some people are going to suffer.

South America Descends into Barbarism

On the night of June 14, Aymara Indians from the town of Ayo Ayo, Bolivia, kidnapped the mayor while he was in La Paz, drove him back to their town of 7,000, near the Peruvian border. There, a mob beat and stoned him, burned him alive, and left his corpse hung upside down from a lamppost. His crime: alleged corruption.

The Ayo Ayo murder was no isolated case. On April 26, the mayor of the city of Ilave, Peru, in the region bordering Bolivia, was also seized by a mob of Aymara Indians numbering over 5,000, and murdered in a similar brutal manner, for alleged "corruption." Leaders of that Ilave murder now threaten to shut down the south of Peru, until the central government recognizes them as the legitimate local authorities.

More is involved here than the Aymara "nation" asserting its right to practice its ancient custom of "communal justice," as some radical voices claim. When the Ilave lynching occurred, the Lima office of this news service, noting that Ilave is no small Indian village, but a center of the drug trade, identified the bestial murder as the opening of a phase-shift in the region, favoring the narco-terrorist mafia that dominates the region of the Peru-Bolivia highlands.

This disintegration of civilization is the direct result of the Synarchist financiers' policy of treating entire nations as "dogs." That policy was made explicit by Roger Scher, head of Latin American Sovereign Ratings for the British rating agency, Fitch, who told London investors on June 8 that the government of Brazil must impose yet more austerity on its people. "Brazil is still a prisoner of market sentiment. If the market says Brazil is a dog, then Brazil is a dog," Scher pronounced. It is because South American governments can no longer provide for even the most minimal necessities of their people, after two decades of such looting policies by the financiers, that the drug mob has established sufficient power to assert its will through mob violence.

National Strike Called in Peru

Labor unions have called a national strike in Peru for July 14, demanding nothing less than a total "change in direction" by the Toledo government. Juan Jose Gorriti, Secretary General of the General Workers Federation of Peru (CGTP), charged that the political, social, and economic policy in the country is so precarious, because "every day we hear that Peru is growing, that there is more investment, but people are in the same conditions they were in before." CGTP leader Mario Huaman suggested on June 6, that either President Alejandro Toledo changes policies, or the strike will become his political "grave."

The IMF points to Peru as an economic success story, because increased exports from Peru's mines by foreign-run companies have helped pay the foreign debt, but Peruvians are increasingly unemployed, without services, and starving.

Some estimate Toledo's support at 6% of the population, but others dispute the figure, saying it is only 4%! The President is so desperate, that the notorious neo-cons of the International Republican Institute (IRI) have hired one Ralph Murphine to help Toledo come up with a strategy to "improve his public image."

Peru Congressman: Fight Drugs with Cultural Optimism

Peruvian Congressman Ivan Calderon Castillo reports that he is preparing a bill for Congress, which calls for creating a National Program of Education Against Drugs, based on the concept of "cultural optimism"—fighting against the rock-drug counterculture and for Classical culture, especially music, while simultaneously "battling poverty and pushing for jobs, economic and social development, preservation of the environment, and the social peace." The program would be a collaboration between the Education Ministry and the state anti-drug institute DEVIDA.

In the part of the bill motivating the project, Calderon urges certain aspects of "LaRouche's plan to wage a successful war against narcoterrorism." The bill also cites Luis Vasquez, who heads LaRouche's work in Peru, in emphasizing the need to counteracting the fallacies of the narco-legalizers, and in favor of "the aesthetic education of man" as defined by Friedrich Schiller.

Calderon has previously proposed legislation to turn the nation's central bank into a Hamiltonian National Bank, has endorsed a call for Lyndon LaRouche's New Bretton Woods proposal, and was the sole voice in the Peruvian Congress to oppose the U.S. invasion of Iraq.

Argentina Threatened: Bend Before Vultures—or Else

The IMF and the U.S. State Department issued new threats against Argentina this week: Make a deal with the vulture funds, and implement austerity, or forget about investment or new funds.

IMF Deputy Managing Director, "Freddy's mother" Anne Krueger, warned the Argentines in a New York press conference on June 14 that unless the government comes to an acceptable agreement with foreign creditors—the vulture funds—it will receive no new investment. Since he took over as the IMF's Managing Director, Rodrigo Rato, has also threatened that Argentina must reach an agreement with all its creditors, and implement other "reforms" it has promised to put through, if it wants support from the international financial community.

Finance Minister Roberto Lavagna has admitted that the Kirchner government will have to request a waiver from the IMF, as it has not yet implemented the revenue-sharing plan it had promised would be in place by the time the Fund began its third review of its $13 billion loan agreement with the country. That review is now underway.

President Nestor Kirchner has intentionally postponed debate on the revenue-sharing plan—the Fund wants provinces to get less money from the Federal government—because it is so politically contentious. However, during a seminar sponsored June 9-10 by the Center for Strategic and International Studies (CSIS) in Washington, attended by Krueger and her IMF cohort Anoop Singh (Pagina 12 called him "Snoop"), Assistant Secretary of State for Western Hemisphere Affairs Roger Noriega threatened that the U.S. government would not support Argentina financially, unless the revenue-sharing plan were implemented right away.

Argentine legislators attending the CSIS seminar remarked that Krueger-Singh duo is "only interested in collecting the debt." Congresswoman Sonia Escudero of Salta province observed June 14, "I don't think they have any great interest in Argentines' future. They want more money to go to the primary surplus, [so we can] pay more debt. We told them that in the context of a 50% poverty rate, and very high unemployment, it is absolutely impossible to prioritize that [debt] payment." But, she added, the American financiers had no interest in the complexities of Argentina's reality.

Argentine Post Office To Remain in Gov't Hands

On June 11, President Nestor Kirchner signed a decree establishing the "Official Post Office of the Argentine Republic, Inc." (CORASA), owned 100% by the state. Last November, Kirchner had rescinded its contract with the company which had run the nation's basic and universal postal service since the Menem government had privatized it in the 1990s. The concession had been held by the Macri group—headed by Mauricio Macri, one of these named by Kirchner last week as out to destabilize his government—which looted it into bankruptcy. Initially, the government said it would re-privatize the company within six months. Now, Kirchner instead extended state control indefinitely, with the formation of CORASA, all the while repeating that the government has not ruled out privatizing it again.

Calls for Creating State-Run Railroad in Argentina

Political allies of Argentine President Nestor Kirchner, grouped in the Alberti National Railroad Forum, are calling for creation of a state-run railroad agency, or perhaps one in which private capital might play a role, in order to guarantee proper functioning, as well as expansion of the country's railroad grid.

The group is calling for the creation of the National Railroad Company, or Enafe, whose responsibilities would include: management and oversight of rail services; control of rail infrastructure and train operations; strategic planning; and, very importantly, oversight of privatized rail companies. Rail specialists belonging to the above-named Railroad Forum, point out that today, some 15 to 20 years after Argentina's railroads were privatized, using the argument that they were generating enormous deficits, privately-owned rail companies spend far larger amounts of money, and produce larger deficits, than anything done by the Argentine state of the 1980s. The state today has to pay out annual subsidies to the privatized rail companies, to the tune of 300 million pesos, in addition to investing in infrastructure, as stipulated in privatization contracts, but also to compensate for the investments not made by private companies—as they were obligated to do.

As a result of the privatization of Argentina's railroads, 76,000 state-sector employees were fired, and hundreds of routes and lines which previously served important sectors of the country's interior, were shut down—just as occurred in the 19th Century, when British railroad companies and bankers destroyed native Argentine railroad lines that interfered with their looting operations.

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