This transcript appears in the March 16, 2001 issue of Executive Intelligence Review. See also transcript of Questions and Answers.
Opening Statement by Lyndon LaRouche
to Peruvian Accountants
February 23, 2001
Introduction from Peru: Ladies and Gentlemen, a very good evening to all. On behalf of the finance committee of the Lima Public Accountants school, I would like to thank you, to welcome you warmly to this international video conference, to be transmitted from the United States, with the title "The Challenge of Foreign Investments: Country Risk Considerations." Under the presentation by Lyndon LaRouche, international consultant and financial specialist, we are joined at this time by the following panelists: Dr. Dennis Falvy Valdivieso, past Dean of the College of Economists, economic and political commentator from La Repubblica; Luis Lizarraga Perez, main professor on finances in the Lima University; and Luis Vasquez Medina, executive director of EIR in Peru.
Next, we will yield the floor to the United States, and await the words of Dr. Lyndon LaRouche, whom we would like to welcome with a warm applause.
Lyndon LaRouche: Thank you very much.
As you probably have observed from the international press, and sources you may have available to you otherwise, at present the international financial system is in a collapse phase. Because of the nature of the situation, because there are no clear decisions from governments on how to deal with this collapse phase, there's a certain amount of uncertainty of where the world goes from here. We can define options, we can define probabilities, but we cannot provide certainties, because the certainties will depend upon what kind of decisions are made.
For example, I would indicate the situation inside the United States.
The United States was hit in this time, with a major deregulation crisis in energy supplies. This affected, to some degree, petroleum supplies, but more emphatically, electricity distribution and gas distribution inside the United States. It affected largely utilities. We have had rates of increase of costs of electricity, 400% and so forth, and higher in some areas. There's wild speculation in this field. There are now major moves in various parts of the United States, to reverse this, and to immediately restore measures of regulation. There is a campaign by the leading trade union organization in the United States, to hold meetings in the coming period, calling for re-regulation: that is, to put the system back under Federal and state regulation of public utilities, of the type we had prior to the Carter Administration, in part, prior to these deregulation measures, which have happened recently.
We have at the same time, a major collapse in the financial markets. We have it almost daily. The chairman of the Federal Reserve System is pouring in billions of dollars of newly printed money, in the form of repurchase agreement types of money, to try to keep the Nasdaq from collapsing below the 2000 index. The Dow is very soft.
We have in Europe and Japan, and so forth, we have generally collapsing markets. We're in a period which is characterized by a collapse of the role of the United States, as what became known as the importer of last resort.
Over the period since 1971, of course, there's been a transformation in the world economy, with the Nixon decision, and the following 1972 Azores decision, in which we established a floating-exchange-rate system. This, of course, was a disaster for the countries of South and Central America, in particular, and for other countries--the floating-exchange-rate system--which has caused the multiplication of the formerly existing debts, and an accumulation of debt. It's been a disaster for most of these countries.
But we've come to the point now, in the recent period, particularly since the 1980s, in which the United States, more and more, relied upon exporting its work to cheap labor markets abroad, and relying upon these sources, while shutting down U.S. manufacturing and things of that sort. So, therefore, the United States was operating recently, on a very large current account deficit, which, in one estimate I had, was running as high as a $600 billion-a-year rate.
In addition, the United States was living on the basis of a large influx of foreign exchange, in short-term investments, into the U.S. financial markets, because the profit rates were indicated to be high here.
Now, that's in question. The financial markets in the United States are collapsing. The NASDAQ is in a disaster, and the effect is the collapse of U.S. purchasing power, and the collapse of the flow of revenue into the United States for investment, has resulted in the collapse of imports into the United States, which has affected Asia, Japan, Korea, China, and so forth, and other countries. Canada, for example, is heavily hit.
So now, we have a chain-reaction collapse of international markets, as a result of a decline of the U.S. market, as an importer of last resort for many countries. Mexico will be very hard hit by this. Mexico, [has] up to 40% vulnerability in its total income, through exports largely to the United States.
So, this is the kind of crisis we face.
My approach to the thing, is to recommend to my government, that it change its policy, and return to the lessons we learned from the period of 1929 to 1933. We're now in a crisis which is somewhat similar to, but worse than that which we experienced in 1929-1933; that is, the underlying problem is worse today, relatively speaking, than in the period. In that period, the outgoing President, President Hoover, worked closely with the incoming President, President-elect Franklin Roosevelt, to start a process of changes which gave us a highly regulated system, which gradually got the United States out of the Depression. And of course, Ibero-America benefitted to some degree from the Roosevelt Good Neighbor policy, during that period.
We went through World War II quite successfully, in terms of economics. After Franklin Roosevelt died, some of his policies were abandoned, particularly his foreign policies. But nonetheless, during the period up until 1965, the United States cooperated closely with Western Europe, under the Bretton Woods system, regulated system, under which the United States maintained its market for exports of goods to Western Europe, which helped to build up Western Europe, with U.S. cooperation. And thus, the two parts of the world benefiteed greatly. Some of those benefits spilled over into Ibero-American countries.
In 1965, 1966, we underwent a change, and for the past 35 years, we've been going away from the kind of economy we had, as economic policy, from 1933 to '65, into a new kind of highly deregulated, globalized trend. The globalization has taken off since 1989, 1990, with the collapse of the Soviet power as power, and we're now in the situation where we do not have the structure of national sovereignty, and other devices we had earlier, to help defend us against mass unemployment, and things of that sort.
The obvious solution is, because we have to use past history often as a guide to any emergency action we take, the obvious solution is to return to the lessons of the 1933-1965 period. We can restore some of the kinds of the policies which worked well then. We can get out of any depression, with some difficulty, of course, but we can get out of it, and we can begin an upward movement. The question is, how is the present Bush Administration, which is a new administration, going to respond to a situation which demands action, precisely contrary to the policies it was committed to at the time of its election.
You have a movement in Europe. Europe is looking for the possibility, continental Europe, for the possibility of cooperation with Russia, and nations in Asia. Such as the ASEAN+3 group, of the ASEAN nations, India, in the pattern of cooperation, China, Japan, and Korea, and Russia. Europe depends largely upon Eurasian markets, for its survival; that is, continental Europe, in the postwar period.
Recently, Germany, for example, exported about 40% of its total national product, and this margin of Germany's income helped sustain the entire continental European market. Recently, that has collapsed. And now the Europeans, in a struggle to survive, must find foreign markets, long-term foreign markets, to export goods into market. The chief market for Europe is Eurasia--China, Asia generally. Therefore, that kind of move for cooperation with Western Europe, Russia, and the ASEAN+3 group, is on the move.
The United States, so far, is opposed to that. For example, the Bush Administration views China and Russia as its major competitors, or political adversaries, and thus this tends to jam up the desire for cooperation.
But that's our general situation.
Therefore, I would say, that I would emphasize from my point of view, what are the possibly optimistic alternatives.
Obviously, if this thing continues in this direction, we have a global disaster, and all parts of the world will suffer. The suffering can become incalculable. The political effects can become incalculable. No one can tell. And therefore, my response in the situation, is to say, what can we do, what should we do, under the best conditions, and what should our policies be.
In general, my view is this: The world is presently organized among the United States, as a leading power, which has been closely associated with the Anglo-American group: that is, Canada, the United Kingdom, Australia, New Zealand, and the United States. You have, on the other hand, continental Western Europe, which has a somewhat different orientation than the United States, and the Anglo powers. We have Russia, which is now trying to rebuild, and can play, potentially, a pivotal role in the relations with Europe and Asia. You have Africa, which is almost destroyed. You have a disintegrating situation in South America, and Central America, generally, economically.
My view is, if we come to our senses, the United States will seek to foster cooperation, with a bloc of nations--Western continental Europe, Russia, China, India, and the whole group of other nations around them in Eurasia--for a 25-year perspective, long-term cooperation at low borrowing costs, to build up Asia, at the same time as to use Eurasia as a market for developing Western Europe. The United States should cooperate in that. Under those conditions, you have a virtually destroyed part of the world, which is sub-Saharan Africa, and you have Central and South America. Of course, these are different areas. But I think that, if the United States changes its policy toward the world at large, and if we go back to the kind policy which is typified by Roosevelt's Good Neighbor policy, or what President Kennedy wanted to start with his Alliance for Progress, I think that we can reverse the negative trends, in Central and South America quite easily.
Such things as large-scale infrastructure development projects. For example, Mexico needs railroads badly, if it's going to develop its internal economy. Mexico is going to need assistance in getting out of this dependency upon its cheap labor exports into the United States. It has a large population. It's the second-largest nation of Ibero-America, and it's on our borders, the United States' borders. The stability and well-being of the people and nation of Mexico, should be of primary concern to the United States immediately.
The condition of the hemisphere--look at the hemisphere as a whole, the Southern hemisphere, Central and South America. We have a region of immense natural resources, which are very much underexploited, because of the lack of development of the infrastructure needed to exploit them. We have a relatively small population in Central and South America, relative to other parts of the world, and vast, untapped resources. So, obviously, under a longer term program of 25 years or so, with low interest rates on long-term loans, long-term credit, we could establish cooperation in long-term infrastructure projects: in water management, power management, and so forth, which would provide the stimulus for fostering the private industrial development, and agricultural development, there.
The potential, as we should know, is enormous. The potential, for example, in Peru, is actually enormous, but requires this sort of thing. So those, I think, are the positive things.
My concern is, and my work internationally, as I deal with nations in Eurasia, deal with nations in Europe, with governments, government circles in Europe--as in Italy, in the case of the New Bretton Woods effort there--is to bring together minds, whether they're in government, or outside government, to discuss this alternative, to the present catastrophe--which is a catastrophe. To hope that by bringing intellectual forces and others together, around an understanding of what the world requires, what the problem is, what the options are, what the precedents are, that we could induce governments to come to the table, to make the kinds of agreements, which would be signalled by a New Bretton Woods agreement.
For example. If the nations which are, in a sense, the proprietors of the G-7 system, now G-8 system, as it's called, these nations own the IMF. They are the controllers of the IMF, with the consent and participation of other nations. If these nations, as the caretakers and responsible parties, the management, the ownership, of the IMF agree, we can make drastic changes in the IMF. These drastic changes would probably mean coming back to pre-1958 standards of regulation, under the old monetary system, with the idea of maintaining a flow of cheap credit, on long-term, and fixed exchange rates; or getting to fixed exchange rates rapidly. Under these conditions, I believe we can have prosperity.
I think our best hope is the kind of discussion, which discusses these issues, and these alternatives: doing it internationally, as well as within nations. On private levels, on official levels. And hope that by building a consensus for a global recovery, that we could persuade the governments involved, as the crisis becomes more and more acute, to take the kind of emergency action, which will put this process back on a healthy basis.