One answer to the debt crisis: Bolivia's moratorium.
In May, the center-left Democratic and Popular Unity Coalition (U.D.P.) government of President Hernan Siles Zuazo announced it would no longer make interest and amortization payments, thus becoming the first in Latin America to declare a unilateral moratorium. Siles was under intense pressure from organized labor, and his action anticipated the outcome of the economic summit held in London in June and of the Cartagena, Colombia, meeting of Latin American debtors convened shortly thereafter.
Like many small poor countries in the region. Bolivia opposes the lenders' case-by-case approach to restructuring debt, which was reffirmed in London and Cartagena, and instead favors the formation of a bloc to deal with the international bankers. The weaker nations know that whatever the diagnosis in their case, the cure--restructuring--will inevitably require the intervention of the International Monetary Fund, which will impose painful austerity measures designed to reduce domestic demand dramatically. At Cartagena, Mexico and Brazil successfully championed the I.M.F. model, which they have scrupulously followed, against the sentiment of the smaller nations for some kind of debt cartel. Their fidelity has been rewarded by the banks with extended repayment periods and reductions in commission payments and interest spreads.
The I.M.F., which adheres to a fairy strict brand of monetarism, requires a country to bring its international balance of payments and its domestic accounts out of the red before the fund will issue its "seal of approval," on which banks base their decisions for debt renegotiation. That approach, which has much in common with Reaganomics, is supported enthusiastically by the present Administration in Washington, even though U.S. budgetary and foreign trade deficits are wildly out of control. The Siles government, which had the bad luck to be elected during the first severe stage of the debt crisis, in 1982, contends that its private debt is too small to be subjected to the I.M.F. shock treatment. Moreover, its economy is in so perilous a state that such measures would be an act of political and economic overkill. The nation's gross national product registered a 20 percent drop between 1980 and 1982, and per capita consumption fell 36 percent in the same period.
By its May action the Siles government in effect told the consortium of 128 banks with which it must renegotiate its debts, All right, treat us as an individual case rather than automatically bringing in the I.M.F. Although the banks have so far ignored that demand, Bolivia can make a plausible argument for not having to undergo the I.M.F. purge. First, its entire debt is comparatively minuscule--$5.3 billion, or 0.85 percent of the entire Third World debt. Second, its private debt makes up less than 20 percent of its total overseas debt; in Chile, Mexico and Brazil that proportion is around 80 percent. The bulk of Bolivia's borrowed funds have come from multilateral lenders such as the Inter-American Development Bank or from other governments, at lower interest rates and longer payback periods than private banks give. And because most of those loans are tied up in specific development projects, they are not readily siphoned off into Miami bank accounts by corrupt officials.
Bolivia is seeking to restructure a private debt of $720 million, small potatoes by Latin American standards, and it is not willing to push its economic indicators down even further in order to do so. The U.D.P. is hardly the first government to criticize international finance for failing to provide alternative payback schemes to countries that did not partake heavily of the easy credit that flowed in the late 1960s and early 1970s. The severe drop in demand for primary exports in the industrialized countries has pushed many of the small raw-materials producers back into dependence on just one or two exports. Bolivia relies almost solely on tin and natural gas for survival. As the cost of the country's debt service rapidly approaches parity with total export earnings, the I.M.F./Reaganomics policy of inducing a recession in order to provoke aa recovery is becoming merely academic. Most Latin Americans feel that with the economic depression, they have already taken their medicine and that a restructuring of the external debt on more favorable terms is the most direct and obvious path to economic recovery.
Politically speaking, the Siles government is in no shape to handle the social turmoil that I.M.F. austerity often produces: for example, riots such as those that occurred in the Dominican Republic last spring. Bolivia's economic crisis is preceded by a long history of coups and military corruption, not to mention six changes of regime between 1978 and 1980. As soon as it came to power, the U.D.P. fell into disarray. Heavy infighting broke out between Siles's reformed revolutionary National Movement of the 1950s and the various forces that since 1982 have crystallized in the Revolutionary Leftist Movement under the leadership of Vice President Jaime Paz. In short, Bolivia does not have the institutional stability of Brazil or Mexico to help it bring off the prescribed austerity measures. That was made most evident in the June 30 coup attempt--a traditional Latin American plot involving the temporary kidnapping of the President by a so-called secret civilian-military society (the Saravia-Galindo plot for a Second Republic).
When it became apparent earlier this year that the private banks were not going to budget on renegotiation without an I.M.F. agreement, the U.D.P. tried halfheartedly to stabilize the economy. On April 13, price controls and supports were lifted on a long list of state-subsidized commodities and services, and the peso was devalued by 75 percent. Predictably, the move provoked the wrath of the powerful Bolivian Workers' Central (C.O.B.), the country's major labor federation. Through a series of hunger demonstrations and national strikes, the C.O.B. forced the government to restore a number of state subsidies and in early July signed a formal accord with the U.D.P. calling for indefinite suspension of payments on the private bank debt.
According to Armando Morales, secretary of the C.O.B.'s economic commission, it would take a "Pinochet-type" solution to implement the usual package of I.M.F. austerity measures, and there exists no political will for such a strategy in Bolivia. The C.O.B.'s position is that Bolivia will begin cleaning up its economy and attacking its budget deficits as soon as the Reagan Administration does the same. The labor federation contends that the projected $200 billion deficit in the United States is the primary cause of the onerously high interest rates Latin American countries are paying.
Although the Bolivia decision to go it alone elicited the usual "confidential memorandum" from the international banks' debt steering committee threatening various economic sanctions, the local private sector has been surprisingly compliant on the debt issue. The Private Business Confederation would like to see the government take a more moderate stance--perhaps limiting annual interest payments to 25 percent of exporting earnings rather than halting them altogether. Bolivia's creditors gave it a ninety-day respite before payments were to be resumed. They threatened to impose trade and investment curbs, but no sanctions have been imposed yet. The Inter-American Development Bank and the European Economic Community continue to pour funds into the economy for various projects. The U.S. Agency for International Development, the largest and most obstinate of the bilateral lenders, says it has no intention of leaving Bolivia in the short or long term. According to one senior development officer, A.I.D. feels its Bolivian mission has been far too successful to abandon. The agency takes particular pride in a drive it sponsored against cocaine traffickers and in the implementation of its substitute-crop program under which farmers raising coca are encouraged to switch to other crops.
Having seen the writing on the wall last March, the Bank of America made a last-ditch effort to recover the approximately $60 million that Bolivia owes it. The bank offered to lend the Argentine government $150 million to cover paret of that country's debt to Bolivia for natural gas, on the condition that the Bolivians use the funds to cover their own debt with Bank of America's La Paz branch. The plan fell through, adding momentum to the go-it-alone movement; even the I.M.F. rejected the proposal, saying it was not in Bolivia's best interests and it discriminated against other foreign banks.
The banks' relatively light exposure in bolivia is probably the reason for the absence of economic retaliation, the threat of which has deterred small debtors from uniting in a cartel. As the private consortia remain preoccupied with big borrowers like Argentine, Mexico and Brazil, the weaker, less debt-ridden Latin American states are anxiously watching to see what will happen to a little guy who refuses to play by the I.M.F.'s rules.
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|Title Annotation:||non-payment of foreign debts|
|Date:||Nov 10, 1984|
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