In this issue:

Brazil Central Bank Raises Benchmark Rate

Lula Campaigns for FDR-Style Infrastructure

Fox Hands Windfall Oil Profits to the Banks

Argentine Central Bank Shake-Up Rattles Financial Predators

Kirchner: IMF, Not Argentina, Needs 'Structural Reform'

Haiti Slammed by Tropical Storms; IMF Caused Mass Deaths

Huntington Rants Against Mexican Immigration

From Volume 3, Issue Number 39 of EIR Online, Published Sep. 28, 2004

Ibero-American News Digest

Brazil Central Bank Raises Benchmark Rate

The Brazilian Central Bank raised the benchmark SELIC interest rate to 16.25%, angering industrialists, but pleasing the banks, Folha de Sao Paulo reported Sept. 14-16. The quarter-point increase, announced on Sept. 15, was the first increase since February 2003, but the Monetary Policy Committee suggested that the rate will likely increased again, "in a process of moderate adjustments."

Financial groups (Merrill Lynch and the National Federation of Credit, Financing and Investment Companies) hailed the increase as a measure which would "calm the financial markets" and restore the Central Bank's "credibility." It's no surprise that the banks liked it, Folha de Sao Paulo pointed out, as they are the principal beneficiaries of high interest rates, living as they do off the public debt, 52.93% of which is linked to the SELIC rate. Folha calculated that the banks will get R$1 billion more from the government—some US$345 million—without their investing a penny more, if the SELIC remain at 16.25% for 12 months. The more the banks can make from government debt, the less interested they are in loaning to the productive sector, Folha added. (See EIW Vol. 3 No. 26, June 29 exposé of the Spanish takeover of Ibero-American banking.)

Industrialist federations—the FIESP of Sao Paulo, the FIRJAN of Rio de Janeiro, and the National Federation of Industries—protested the increase, as a blow to efforts to get industry and employment going again.

The increase will cause political problems for President Lula da Silva, in the run-up to October's municipal elections. Two days before the decision, his Vice President, Jose Alencar of the Liberal Party, again demanded that interest rates be lowered, a desire echoed on Sept. 14 by Jose Dirceu, Lula's civilian chief of staff.

Lula Campaigns for FDR-Style Infrastructure

"I want to do in the semi-arid Northeast, what Roosevelt did in the Tennessee Valley," Brazilian President Lula da Silva stated during a ceremony to inaugurate a refinery on Sept. 14. Lula has been personally campaigning for his biggest investment project, which is planned for 2005: the centuries-old plan to divert the waters in the Sao Francisco River Basin to irrigate four of Brazil's poorest states in the Northeast, which suffer constant droughts. The modern version of the Sao Francisco project was drafted decades ago, after direct study of FDR's TVA.

A technical mission sent to Brazil in 1942, under Roosevelt's Good Neighbor Policy, observed that the Sao Francisco River Valley would be a particularly appropriate site for TVA-style development.

Opposition is being thrown up by parochial interests who fear that their current use of the water will be jeopardized by such a large-scale project, but, as Lula said on Sept. 2, this project must be carried out, because it will "revolutionize" the impoverished Northeast over the next 5-10 years. The President—who grew up in extreme poverty in that area—called it an "historic error" that the project had never been implemented. "Those who criticize the Sao Francisco diversion project didn't drink dirty water as my brothers and sisters and I did when we were growing up in the Northeast. We drank the same water as the cattle, and this must end," he told his audience on Sept. 14. And to end the drought requires establishing public policies to do so, he said.

Parochial local opposition is less an obstacle to this great project, than the Lula economic team's refusal to permit large-scale government funding. The government budgeted only R$100 million towards the more than R$1 billion it wishes to see spent on the project in 2005, hoping to generate private financing to cover the rest.

Fox Hands Windfall Oil Profits to the Banks

The government of Mexican President Vicente Fox has used the windfall profits from the soaring price of oil, and then some, to bail out the banks. Between January and August this year, Pemex received $3.6 billion more than what was projected in the 2004 budget, due to the increase in the oil price. Such windfalls in Mexico are channelled into a special reserve fund, which the government uses as it sees fit. So, how did the Fox government choose to use the money?

According to an exposé published by La Jornada on Sept. 20, the Central Bank auctioned off those dollars—and $1.75 billion more—to the private banks in Mexico, at a price 9% below what the banks are required to sell them for to the public. The result, by La Jornada's calculations, was a staggering $444-million profit for the banks.

The Central Bank adopted the policy of selling foreign exchange to the banks in May 2003, officially explained as a measure to slow the rate of accumulation of foreign exchange. In reality, the Central Bank's sale of dollars has kept up the value of the peso, and kept domestic interest rates down, while providing a juicy stream of income to the banks—which are more than 80% foreign owned, as EIR's July 2, 2004 study demonstrated. Since the banks in Mexico have not made loans to Mexican companies or individuals since the 1995 blow-out, in effect the Mexican Central Bank has de facto been channelling Pemex's windfall profits into capital flight out of Mexico.

Argentine Central Bank Shake-Up Rattles Financial Predators

Argentine President Nestor Kirchner's decision to replace current Central Bank President Alfonso Prat-Gay, with Deputy Foreign Minister Martin Redrado has alarmed international synarchist financiers. They fear the change may not only affect debt-restructuring negotiations, but make the Central Bank less independent and more subject to Kirchner's influence. Also removed, were the bank's vice president, and three of its eight directors.

Prat-Gay, former head of Emerging Market Research at JP Morgan Chase, criticized the government's debt-restructuring plan, and constantly clashed with Finance Minister Roberto Lavagna on the issue. He argued that the plan should be made more attractive to the foreign vulture funds with a cash payment, warning that otherwise few bondholders would accept it. A source close to Kirchner told Pagina 12 Sept. 19 that this appeared to the President to be more of a defense of the bondholders' interests than of Argentina's. As the debt restructuring enters its final phase, Kirchner can't tolerate divisions among his team. One economist told Clarin that in the case of a country "whose financial system collapsed, the independence ... of the Central Bank has to be put on hold."

Redrado, a graduate of Harvard, definitely has monetarist leanings, but can be expected to keep his distance from anything having to do with debt restructuring.

Kirchner: IMF, Not Argentina, Needs 'Structural Reform'

It's the IMF that requires "structural reform," not Argentina and other developing nations, said Argentine President Nestor Kirchner in his Sept. 21 speech to the United Nations General Assembly. Kirchner echoed many of the same themes that his Brazilian counterpart Lula da Silva had stressed earlier the same day—strengthening multi-lateralism, and the pressing need to address problems of poverty, hunger, and disease in the developing sector. But he reserved his most pointed remarks for the IMF, and the destruction, poverty, and indebtedness wrought by unbridled neoliberalism of the 1990s, in particular.

Argentina is a paradigmatic case, he said. It was a model for the IMF's policies, and ended up in a horrific crisis. The IMF claims there is a single, universal policy prescription for all countries. That is not the case. "We accept responsibility for adopting policies foreign to us which led us into the worst of worlds," he said. But, it's not good enough for multilateral lenders to say they made mistakes (as the IMF did in the Argentine case). "An urgent, tough, structural redesign of the International Monetary Fund is needed, to prevent crises and help in [providing] solutions, changing that direction which led it from being a lender for development to a creditor demanding privileges."

Without this, Kirchner said, the IMF can only demand "theoretical structural reform, whose results no one can guarantee.... [M]eanwhile, inequality in our countries will grow because of those reforms; tears will be shed, and poverty created for those millions of excluded, caused by those reforms. They will say their 'mea culpa,' and we will see the number of poor grow if we again do as they say. That is why we say that it is those international credit organizations which are most in need of structural reform."

Haiti Slammed by Tropical Storms; IMF Caused Mass Deaths

The ravaged island-nation of Haiti is being forced to bury its hundreds of dead in mass graves due to the advanced state of decay caused by high temperatures. There are estimates of as many as 2,000 dead, with many more missing, and at least 250,000 without homes—all the result of the latest devastating floods from tropical storm Jeanne.

Haiti's hillsides, denuded by a desperate population which has been forced to rely on charcoal for fuel because of an austerity regimen that has denied alternative energy sources, could not stop floods that washed away entire towns. In the 250,000-person city of Gonaives, not a house was undamaged. Electricity was cut off in parts of the country, and corpses—many of them children—piled up in the 90° heat. The situation is being dubbed "critical," as epidemics and starvation are expected to spread. Despite urgent calls for international aid, food and supplies are trickling in, and having a hard time getting to the interior of the country.

There is nothing "natural" about this disaster, as this nation has been a laboratory for IMF-style genocide for decades. This latest destruction of Haiti's homes, crops, and fuel leaves no margin for survival of the majority of the population.

Huntington Rants Against Mexican Immigration

Illegal Mexican immigrants might bring weapons of mass destruction into the United States to unleash terrorism, raved synarchist Samuel "Clash of Civilizations" Huntington, at a conference in Veracruz, Mexico Sept. 20-21. Attending the Veracruz 2004 Business Summit, Huntington repeated the themes in his fascist tome Who Are We?, warning that illegal Mexican immigrants coming into the U.S. are increasing in numbers, but don't want to accept the American way of life, learn to speak and write English, assimilate, etc. Arguing that they represent a grave national security threat to the U.S., he warned that were a terrorist incident to occur in the U.S., "where it was proven that the perpetrators had crossed the U.S.-Mexican border," this would result in completely closing the border, building walls, and restricting any further immigrant flow into the United States.

Huntington's remarks didn't sit well with some of the other participants. Former U.S. Ambassador to Mexico Jeffrey Davidow pointed out that people were leaving Mexico in large numbers because of the economic conditions in the country.

Speaking in Nuevo Leon the same day, Will Wertz, president of the U.S. Schiller Institute, and representative of the LaRouche PAC, responded to Huntington's remarks in an interview with the Diario del Aire radio program Sept. 21 in Monterrey. Wertz warned that, just as Huntington's fascist "Clash of Civilizations" theory served as the ideological basis for launching war against Iraq, Huntington's synarchist faction intend to use his Who Are We? book as the ideological justification for a military attack on Mexico. Huntington's book portrays Mexican immigrants to the U.S. as the new enemy-image.

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