Wednesday, April 15, 2015

Hondo Hillary - 6

Another One-Trick Pony (The Coup Cadre)

We have talked about how the Fed has but one trick to command the economy (raising and lowering interest rates).  Recently they discovered one more trick that is a form of temporary trauma management in the wake of 2008, called quantitative easing, which basically puts off the inevitable - making the rich richer in the meantime (the Dow as I write this is soaring past 18,000 as the printing presses roll) - and ensures it will be much worse for the rest of us when the trick hits its limit.  That is not the topic of this series, but there is much being said about it elsewhere.

Another trick is the operational template for making a coup d'etat.  It involves a triad of destabilizations, followed by the coup itself, and followed again by a consolidation phase.  The triad is economic destabilization, security destabilization, political destabilization.  More on that as we progress. The interesting thing here is that so many of the same people are involved in most of the coups supported by the US for several decades.  They just get older and meaner.

In 2010 post-coup, Honduras, and its border states, Guatemala, El Salvador, and Nicaragua, the US Ambassadors were respectively Hugo Llorens, Stephen McFarland, (Chargé d’Affaires ad interim) Robert Blau, and Robert Callahan.
Llorens was Bush II’s national security adviser on Latin America, and a shaker and mover behind the FTAA.

McFarland was another Bush appointee, sworn in by then Deputy Secretary of State and Reagan hatchet-man, John Negroponte (who serves as Secretary of State Clinton's adviser before, during, and after the coup in Honduras).

Robert Blau (an interim Obama appointee) was an old friend of Llorens, who he worked with together under Otto Reich when he was Assistant Secretary of State for the Western Hemisphere.

Robert Callahan, another Negroponte colleague from Negroponte’s Honduras days, was actually involved in the management of Reagan’s cross-border “Contra” war against Nicaragua in the 80s. The latter appointment was seen by Nicaraguans as highly provocative.

John Negroponte

Not only are these committed neoliberals, their collective genealogy traces well past Bush II and into the Reagan administration’s Central American covert operations era.

Neoliberalism was new with Reagan. It has matured – or some might say, decayed – since then. Clinton’s State Department had a bigger problem at home than Reagan ever did with the worst economic crisis in the United States since the Great Depression. And that was part of the coup context, too. Honduras was the first post-crash coup for the US., but it was engineered by the Reagan coup-cadre – about which we will talk at length further along – demonstrating something more revealing than the shared amorality of the two US political parties with regard to Latin American: the neoliberal establishment is a one-trick pony in a changing world. It is based fundamentally not on force, which is always the last resort, but on the leverage of debt.

Life and Debt

Debt as been denounced ever since the Hebrew Scriptures as an instrument for taking land, liberty, and lives. It is being used today for exactly those same purposes. Debt is not only a burden laid on the suffering, peripheral nations; debt has become the principle form of social control inside the United States. To reflate investor bubbles, easy credit was offered to the American public, the unspoken assumption being that this fictional value created by the speculative markets’ rampage could not disappear. Here is an astonishingly straightforward quote from the Federal Reserve Bank of San Francisco:
U.S. household leverage, as measured by the ratio of debt to personal disposable income, increased modestly from 55% in 1960 to 65% by the mid-1980s. Then, over the next two decades, leverage proceeded to more than double, reaching an all-time high of 133% in 2007. That dramatic rise in debt was accompanied by a steady decline in the personal saving rate. The combination of higher debt and lower saving enabled personal consumption expenditures to grow faster than disposable income, providing a significant boost to U.S. economic growth over the period.
Debt=growth. Your debt = my growth. If ever there was a single unifying experience that encompasses the people of the United States and the people of Latin America, the people of East and West Asia, the people of Africa and of the Island States, it is this: Wall Street is the creditor we work our asses off to pay.
The great majority of financial income is lent out to load yet more property and income streams down with debt. The economy’s bottom 90 percent is driven increasingly into debt to the wealthiest 10 percent.
This recycling of debt service and financial gains (and government bailout grants) into new loans reaches its limit at the point where debt service ends up absorbing the entire economic surplus, leaving no cash flow for new capital investment.

-Michael Hudson
Untaxed revenues are not used to upgrade technology or replace business losses. It is used to service debt.
No seed money is left, no revenue for governments to spend on infrastructure because all is earmarked to pay bondholders. Families are unable to afford an education or save for their retirement. The economy collapses.

-Michael Hudson
What the Dollar-Wall Street Regime – headed by the Federal Reserve Chair and the Executive Branch – has done so far is repeatedly bail out Wall Street and reflate financial bubbles. When billions, even trillions, are lost, the public has been forced to pick up the tab.

This is the basic neoliberal formula, without the ideological window-dressing: (1) privatize the gains, and (2) socialize the losses.

Neoliberalism is about power. That power can be described in plain terms: a few people are making a lot of money by doing nothing. That money is then a claim on the rest of us and the earth. Fortunately or unfortunately, this is not a permanent condition. It is a self-cannibalizing system. It is a burned bridge of suffering. We suffer while it’s there, and we will suffer when it burns.

The Obama administration inherited this situation, but his list of economic advisers is not consistent with a “change” agenda. Paul Volcker now advises Barack Obama on the economy. Paul Volcker was once the adviser to Ronald Reagan. Volker began Latin America’s harsh introduction to “structural adjustment.”

Paul Volker

Volker and Friend

The Volcker Shock
Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.

-Kenneth Boulding
Paul Volcker is an economist who was the Chairman of the Federal Reserve under Presidents Carter and Reagan. Interestingly enough, he is now an economic adviser to President Barack Obama. His name will forever be associated with something called stagflation, a bastardized combination of the terms stagnation and inflation.

When economies are in recession (stagnation) and prices continue to rise (inflation), orthodox economists are flummoxed, because the standard practice in an economy under the control of a central bank has been to increase interest rates when employment approaches 100%, the fear being that full employment will drive wages up, creating inflation. Raising interest rates slows down investment and causes the economy to shed jobs, reducing the market power of labor and thereby lowering wages. Imposed stagnation is seen as the weapon against inflation –anathema to finance capital, because rising prices reduce the purchasing power of lenders’ return on investment (ROI). Simultaneous inflation and recession cuts into the ROI of both finance capital and productive capital. It also leaves the Fed at an impasse.

The pony’s one trick doesn’t work.

With the stagflation of the late 70s and early 80s, Volker confronted this dilemma by coming down on the side of finance capital, and he chose to go after inflation. He raised the interest rate on all US loans to 21%, which effectively shifted much of the pain offshore. This policy devastated developing nations, and came to be known as “the Volcker Shock.”
To be sure, the end of fixed exchange rates and a dollar nominally tied to gold now meant that it had to be accepted internationally that the returns to those who held US assets would reflect the fluctuating value of US dollars in currency markets. But the commitment by the Federal Reserve and Treasury to an anti-inflation priority via the founding act of neoliberalism – the ‘Volcker shock ‘of 1979 – assuaged that problem.

-Leo Panitch
[The] ‘Volcker Shock,’ which raised interest on all US loans to a debilitating 21%. Developmentalist countries that had had their feet swept out from under them in the 70′s (their main industries privatised, protections removed through free trade and foreign pressure) were now in even less of a position to defect from international pressure.

In this pattern, repayment schedules and debt restructuring are allowed only in conjunction with further free market policy enactment, the dreaded conditionality of IMF loans

Shock Doctrine Summary.
The Volker Shock doctrine shocked Latin America to its knees.

Latin America’s trauma of the 70s,80s, and 90s hit home as debt, debt that was rolled down on top of the general population with the IMF’s “austerity measures.”

If you want to know what has those crazy Greeks so pissed off these days, it is structural adjustment, or what is euphemistically called "austerity."  It is not austerity for the rich.

Latin America Gets Adjusted… and Adjusted

Since 1973, when the oil states raised prices, they were flush with excess (and now unpegged) dollars, which were repatriated to Wall Street for investment. That glut of dollars – itching to be invested by Wall Street – was used in Latin America to make massive development loans, with “flexible” interest rates (subprime loans anyone?), when the economy seemed to be on the upswing in the early 70s. Easy credit became the name of the game. Mexico, Brazil, and Argentina were the biggest borrowers. Sovereign debt in Latin America quadrupled.

By 1980, the economy slid into recession, with inflation, and Volcker raised interest rates to curb inflation, ballooning debt repayments in Latin America, grinding their economies to a halt, and throwing these large borrowers into crisis. In 1982, Mexico announced that it could not pay its debt, and Brazil, Venezuela, and Argentina followed in short order. As a result, their currencies were devalued on the speculative market, wiping out the purchasing power of the Latin American street.

This was an emergency for Wall Street too, since the Fed’s decision to raise rates had just bankrupted its own cash cow in the region. Reagan’s Secretary of Treasury, James Baker, was obliged to make Wall Street whole if the crisis were to be contained in Latin American and not allowed to spread to the US. The solution was debt restructuring, in conjunction with bail-out loans to which “conditionalities” were attached. These conditional loans were coordinated by the IMF and the World Bank, and each installment of each loan was released only after the recipient nation had performed one of the “structural adjustments.”

Among those conditional adjustments to release the rescue loans were wage cuts to the public sector, elimination of social programs and domestic subsidies, an increase in regressive taxation, deregulation (of labor and environmental standards), privatization (especially of public utilities), drastic reduction of import tariffs, and access to the domestic market by foreign investors. The model was Chile, where nascent neoliberal practices had been adopted by the military dictatorship of Augosto Pinochet - who came to power, oh by the way, in a US-supported coup d'etat in 1973.

The United States had found a way, via the institutional framework of the IMF/World Bank, to shift the crisis onto Latin America and to re-colonize Latin America in one fell swoop.
In Latin America, the 1980s were termed “the lost decade” of development largely because, instead of continuing to grow, per capita GNP and income receded to the levels of the mid 1970s [and in Africa to that of the pre-independence level of the early 1960s]. Per capita income declines of 10 to 15 percent were common and reached or exceeded 25 percent in Argentina and Peru.

Immiserization became rampant in part because of the debt service and massive export of capital to help support the banks, the financial system, and the economy generally in the North … during the present world … economic crisis, which began in the mid 1960s (Frank 1980, 1988). In Latin America, but also in some other parts of the Third World, the 1990s threaten to become the “decade of cholera.”

-Andre Gunder Frank
The late Andre Gunder Frank wrote the above in 1992, in an article decrying the debt trap into which Latin America had fallen.
All of these countries practiced export led [non]growth. Moreover, [often under IMF/World Bank pressure] they socialized the burden of the debt, which had been largely contracted and/or taken advantage of privately. Quite independently of ideology or anything else, the “Communist” regimes in the East and the “military fascist” ones in the South, as well as their respective successor “democratic” regimes in both have all handled their debt crises in exactly the same way. At the same time, the debt was and remains an instrument successfully used by the West to force the South and the East to drop out of the race to compete in the world economy.
The direction of Dollar-Wall Street policy by the 90s was annexation and integration of all capital markets. Western Europe began to integrate Eastern Europe as its new exploitable periphery, and the United States turned to regional annexation and integration policies in this hemisphere, the North American Free Trade Agreement (NAFTA) becoming emblematic of this trend for both advocate and opposition.
Where useful, Canadian and Latin American raw materials, labor and capital are to fuel the decelerating US locomotive. Moreover, this American jigsaw puzzle is already being assembled piecemeal. First the US-Canada free trade agreement. Then the US-Mexico one and the trilateral ones involving the same countries. Serving as a link in the meantime, Mexico makes a trade agreement with the Central American states, a looser one with Venezuela and Colombia, and still another one with more distant Chile. In the Southern cone, Mercosur establishes ties among Brazil, Argentina, Uruguay and Paraguay. However, these economies, and those of Peru, Ecuador and Bolivia are not likely to find much place in an economic bloc dominated by the United States. Either they pose too much of a competitive threat, like Sao Paulo; or they have little to contribute beyond drugs.

By the 1990s neoliberalism had penetrated all of Latin America, beginning with Pinochet, but eventually swallowing nationalist and social democratic regimes as well: Fujimori’s Peru, Menem’s Argentina, Paz’s Bolivia, the Chilean Socialist Party, Mexico’s PRI, Brazil’s Social Democratic Party, and Venezuela’s Democratic Action Party.

Crises in big nations prevented its consolidation. Mexico in 1994. Brazil in 1999. Argentina in 2002.
The ravages of hyper-inflation were checked, but this was only achieved at tremendous cost. For a decade or more, economic development was paralysed, the concentration of wealth grew greater than ever before, public deficits spiralled and the mass of the population had their rights expropriated, most notably in the domain of employment and labour relations. On top of this, national debt expanded exponentially and regional economies became highly vulnerable, helplessly exposed to attack from speculators, as these three countries each discovered to their cost.

It was neoliberalism’s poor economic performance in Latin America that in many instances led to the defeats of the governments that pioneered it. These include Alberto Fujimori in Peru, Fernando Henrique Cardoso in Brazil, Menem in Argentina, Carlos Andrés Pérez in Venezuela and Gonzalo Sánchez de Lozada in Bolivia; also gone are the PRI in Mexico, the alternation of the two traditional parties in Uruguay, and the politicians who tried to perpetuate neoliberalism even beyond its collapse, including Fernando De la Rúa in Argentina, Lucio Gutiérrez in Ecuador and Sánchez de Lozada in Bolivia. It is also important to note the isolation of those leaders who struggle to keep it going, such as Felipe Calderón in Mexico, Michelle Bachelet in Chile, Alan García in Peru, or Alfonso Uribe in Colombia.

Emir Sader
In 1994, the IMF organized a bail out of Mexico after NAFTA triggered a peso-devaluation. In fact, it was Wall Street, the creditor, who was bailed out at the expense of US taxpayers. In 1997, the Clinton-engineered Asian crisis threw Latin America into another slump. By 1998, Argentina threatened to default on its now un-payable IMF loans, and the nation collapsed into almost four years of unemployment and deflation, plunging half the population into poverty. Ripples were felt in Brazil, Ecuador, Paraguay, Chile, and Mexico.

For every action there is a reaction. The Latin Americans reacted.

The Colonel

In response to these crashes and their social costs, an entirely new “anti-globalization” movement was emerging – ironically – around the world; and It was particularly sharp in Latin America. Chilean Marta Harnecker wrote:
Latin America was the first region in the world where neoliberal policies were introduced. Chile, my country, was used as a testing ground before Prime Minister Margaret Thatcher’s government implemented them in the United Kingdom. But Latin America was also the first region in the world where these policies came to be rejected as policies that only served to increase poverty, aggravate social inequalities, destroy the environment, and weaken working-class and popular movements in general.

It was in our subcontinent that left and progressive forces first began to rally after the collapse of socialism in Eastern Europe and the Soviet Union. After more than two decades of suffering, new hope was born. At first, this took the shape of struggles to resist neoliberal policies, but after a few years, people went on the offensive, conquering arenas of power.
Popular resentment about deteriorating social conditions was characterized by a strong consciousness of Neoliberalism, as a formed concept; this grasp of the international relations of neoliberalism opened the door to an emergent popular politics that successfully contested for state power, as Harnecker points out. For good or ill, since history has not yet provided us an answer to some key questions: Is state power effective, given its scale and complexity and embeddedness with day-to-day economics? And does the modernist development model, that left-leaning political leadership in Latin America have embraced, inhere with its own weaknesses, weaknesses that could force leaders back into the arms of the Dollar-Wall Street Regime, or weaknesses in industrial development altogether, i.e., dependency on foreign goods from gasoline to steel to staple foods. Time will tell if new leadership in Latin America can begin with the gains of greater political independence and move toward material independence.

One of the keys to this Latin American initiative to reorganize was the election of an ex-Paratroop Lieutenant Colonel to the Presidency of Venezuela, Hugo Rafael Chavez Frias. Mixed-race in Venezuela’s racially-stratified society, and literally born in a mud hut, Chavez was elected in 1998 with 56% of the Venezuelan vote.
Chavez was remembered from his own leadership of an anti-neoliberal coup attempt against the Venezuelan government in 1992, as a member of the active duty Army and the left-nationalist formation, the Fifth Republic Movement (MVR). That coup, which failed, was organized in response to massive cuts by the Perez government to social services, after Perez had been elected on an anti-IMF/Structural-Adjustment platform. When Perez ordered the structural adjustment cuts, there were mass demonstrations, to which the Perez government responded with violence. While the coup failed, the popular movement that supported its aims metastasized. And the singing, profane, gregarious “black” colonel became the face of that movement.

Chavez himself is a professed Christian who once considered the priesthood; and he says his views on social issues reflect his understanding of the Gospels as liberation texts. He entered the Venezuelan Academy of Military Sciences at seventeen, and during his military career with the paratroopers went to graduate school for political science at Simon Bolivar University. He also wrote poetry, stories, and plays. In 1983, he organized a political organization whose first members were fellow military officers, the Revolutionary Bolivarian Movement (MBR-200). This would evolve into the Movement for the Fifth Republic (MVR) that would organize the failed coup attempt of 1992.

The 1992 coup attempt tacitly assumed that there was no route to independence through elections or legislation. The growth of this movement after 1992, however, would prove them wrong. When Chavez ran for the presidency in 1998, in spite of everything the establishment had to throw at him, he trounced his opposition.

His election was taken by the Venezuelan elite as well as Washington to be a direct and dangerous rebuke.


Some Latin American leaders have decided to try building a regional alternative with the Bolivian Alliance for the Americas (ALBA), an initiative of Venezuela and Cuba to construct an alternative trade alliance to the neoliberal Free Trade Area of the Americas (FTAA) agreement.

This is one factor that led directly to the coup against Manuel Zelaya; and it was explicitly stated as a reason by the Honduran coup-makers. ALBA is routinely mischaracterized by the US press as “anti-American.” It is actually anti-neoliberal.

Here is an interesting quite from the International Monetary Fund’s own website:
If you have difficulty distinguishing the World Bank from the International Monetary Fund, you are not alone. Most people have only the vaguest idea of what these institutions do, and very few people indeed could, if pressed on the point, say why and how they differ…

Superficially the Bank and IMF exhibit many common characteristics. Both are in a sense owned and directed by the governments of member nations. The People’s Republic of China, by far the most populous state on earth, is a member, as is the world’s largest industrial power (the United States). In fact, virtually every country on earth is a member of both institutions. Both institutions concern themselves with economic issues… Staff members of both the Bank and IMF often appear at international conferences, speaking the same recondite language of the economics and development professions, or are reported in the media to be negotiating involved and somewhat mystifying programs of economic adjustment with ministers of finance or other government officials. The two institutions hold joint annual meetings, which the news media cover extensively. Both have headquarters in Washington, D.C., where popular confusion over what they do and how they differ is about as pronounced as everywhere else. For many years both occupied the same building and even now, though located on opposite sides of a street very near the White House, they share a common library and other facilities, regularly exchange economic data, sometimes present joint seminars, daily hold informal meetings, and occasionally send out joint missions to member countries.

Despite these and other similarities, however, the Bank and the IMF remain distinct. The fundamental difference is this: the Bank is primarily a development institution; the IMF is a cooperative institution that seeks to maintain an orderly system of payments and receipts between nations.
The World Bank directs “development.” The IMF is a debt enforcement agency. The World Bank tells nations what they can do (like convert national agriculture into export platforms to get dollars). The IMF is the world’s loan shark.

Hugo Chavez was elected to the presidency of Venezuela in 1999 (referred to by the US press as “came to power,” a term designed to reinforce the impression of a Latin American strong man). He ran on an anti-neoliberal platform, and was elected with 56% of the vote. He immediately called a national referendum to change the Constitution that he saw as supporting the Venezuelan oligarchy. This is exactly what Zelaya was falsely accused of before the Honduras coup in 2009 (his was a non-binding referendum on whether to convene a Constitutional Assembly). At any rate, the referendum passed the new Constitution, and Chavez was re-elected in 2004 with 62% of the vote against two opposition candidates.
For the first time since the overthrow of Chile’s Salvador Allende in 1973, a challenge had arisen to US hegemony in this hemisphere. A popular leader who promised redistributionist policies at home, openly criticized the neoliberal model, and presided over an enormous deposit of oil wealth. And a lot of things began to happen.

A new constitution was adopted.
The new constitution included increased protections for indigenous peoples and women, and gave rights to education, housing, healthcare, food. It added new environmental protections, and increased requirements for government transparency. It increased in the presidential term from five to six years, allowed people to recall presidents by referendum, and added a new presidential two-term limit. It converted the bicameral National Assembly into a unicameral legislature. It also renamed the country to República Bolivariana de Venezuela. Elections for all elected government positions followed in 2000 under the new constitution, including the 2000 presidential election.

-Greg Grandin
Eighty percent of Venezuelan voters passed the new constitution, and learning the Constitution was integrated into adult literacy programs. With revenues from a nationalized oil company, Chavez began a comprehensive experiment in local governance with neighborhood-based popular assemblies called Bolivarian Circles. National funds were awarded to the assemblies, who then made local decisions about spending priorities. The combination of charismatic leader, oil money as a backstop, decentralized socialist politics, and the general conjuncture in Latin America created a phenomenon in Venezuelan politics called chavismo.
(2007) Chavismo is not an adequate description of the social movement that makes up Chávez’s political base, since many organizations predate his rise to political power, and their leaders and cadre have a sophisticated understanding of their relationship with Chávez. Over the last couple of years, a number of social scientists have done field work in urban barrios, and their findings confirm that this synergy between the central government and participatory local organizations has expanded, not restricted, debate and that democracy is thriving in Venezuela. Chavismo has ripped open the straitjacket of post-cold war Latin American discourse, particularly the taboo against government regulation of the economy and economic redistribution. Public policy, including economic policy, is now open to discussion and, importantly, popular influence. This is in sharp contrast to Costa Rica, where a few months ago its Supreme Court, with the support of its executive branch, prohibited public universities from not just opposing but even debating the Central American Free Trade Agreement, which soon won a national referendum by a razor-thin margin.
-Mark Weisbrot

Chavez then committed an unforgiveable sin. He embraced socialist Cuba as a regional friend. In 2000, President Hugo Chavez and President Fidel Castro signed an accord. Venezuela would provide Cuba with 53,000 barrels of preferentially priced oil a day. Cuba would send 20,000 medical and educational cadre to work with the rural poor in Venezuela.

IMF Begins to Lose its Grip – ALBA
The Bolivarian Alliance for the Peoples of Our America (Spanish: Alianza Bolivariana para los Pueblos de Nuestra América, or ALBA) is an international cooperation organization based on the idea of social, political, and economic integration between the countries of Latin America and the Caribbean. It is associated with socialist and social democratic governments and is an attempt at regional economic integration based on a vision of social welfare, bartering and mutual economic aid, rather than trade liberalization as with free trade agreements. ALBA nations are in the process of introducing a new regional currency, the SUCRE. It is intended to be the common virtual currency by 2010 and eventually a hard currency. On Tuesday, July 6, 2010, Venezuela and Ecuador conducted the first bilateral trade deal between two ALBA countries using the new trading currency, the Sucre, instead of the US dollar.

-Wikipedia, ALBA

In the wake of the 2002 coup reversal, the Chavez government of Venezuela began to formalize its agreements with Cuba into the framework for the Bolivarian Alliance for the Americas (ALBA). In 2004, Venezuela crafted a trade agreement between itself and Cuba based on a standing agreement. In exchange for favorably-priced Venezuelan oil, Cuba assists Venezuela with medical clinics established in Venezuela’s poorest areas. This marked the germination of the ALBA alliance, with only two member states. In 2006, gas-rich Bolivia joined. In 2008, Nicaragua joined, even though it was also a signatory to the US neoliberal initiative, the Central American Free Trade Agreement (CAFTA). In 2008, Dominica joined ALBA; he same year Honduras signed an agreement to join.
After the June 2009 coup, that agreement was nullified, which would have provided cut-rate petroleum, additional medical care, and upgrading of transportation infrastructure to Hondurans. In June 2009, the same month as the coup in Honduras, Antigua and Barbuda, as well as Saint Vincent and the Grenadines joined the alliance.

ALBA was very new and very small, but it was gaining traction, and because Hugo Chavez was using Venezuelan oil wealth to create some different facts on the ground.

ALBA currently covers a joint population of 69,513,221. If the election of Andrés Manuel López Obrador had not been stolen in 2006, and if Obrado had chosen to join ALBA, the number would have grown to 175,864, 161. If Brazil were to join, that number would explode to 261,484,727. Chile. Argentina. This is the stuff of neoliberal nightmares.

Venezuela had also set about using its ample oil revenues – boosted by rising oil prices – to assist fellow Latin American states in escaping the IMF debt-trap. This was considered apostasy by the whole neoliberal establishment, and dangerous because Venezuela had amassed foreign exchange reserves of around $30 billion.

Venezuela bought $5 billion in Argentine bonds to assist that government paying down the principle on its IMF debt. In Ecuador, Venezuela offered to buy $300 million in bonds, but when the Ecuadoran bonds strengthened, Ecuador only asked to sell $25 million. Bolivia was given a loan of $100 million to support its new land reform policies.

The damage to the IMF was not regional, but international. From a high in 2004 of $81 billion in outstanding loans, the IMF portfolio shrank to $11.8 billion, with Turkey alone accounting for 75% of that portfolio.

Paul McIvor describes the wounds of the IMF at the hands of Venezuela:
[T]he IMF’s influence in the region is on the decline. In 2005, the Fund placed 80 per cent of its loans in Latin America but this year that amount is down to a mere one per cent, or $50 million. While there has been no economic miracle, enabling countries like Bolivia and Ecuador, which owe $5.9 billion and $10 billion respectively, to pay off their foreign debts, a new lender has entered the picture – Hugo Chavez and the Venezuelan petro-economy.

So far, Chavez has loaned $2.5 billion to Argentina and is close to providing $500 million to ease the Ecuadorian debt crunch and $1.5 billion to help Evo Morales stabilize the situation in Bolivia. Venezuela is also floating a bond offering jointly with Argentina, following last November’s successful $1 billion issue. Chavez has proposed institutionalizing this lending with a regional organization he calls the Banco del Sur.

This is bad news for the IMF, which has been forced to consider selling off part of its gold reserves to cover losses from its lending operations. More fundamentally, it is bad news for the United States, whose Treasury is the largest shareholder in the IMF. Historically, the IMF and the World Bank have been effective in promoting the ‘Washington Consensus’ – a sort of economic shock treatment intended to put countries like Argentina on the path to economic growth. Typically, countries would have to submit to structural adjustments, privatization and austerity measures to obtain a loan from the IMF.
ALBA’s architects appear to understand that food security/food independence is an absolute precondition of any meaningful notion of independence, Venezuela, Cuba, Nicaragua, and Bolivia signed a series of agreements on mutual agricultural development, joint food distribution, and a $100 million food security fund.

Food security and food independence are still not part of mainstream discourse on international relations, even on the left. But it is at the center of the debt-leverage regime in a world transformed by the so-called Green Revolution, where agriculture has been converted into a dollar-making machine using hydrocarbon-heavy monocropping of export commodities.

Not only has this cut into local agriculture, it has devastated much of the arable land for future local agriculture, and thereby created an even more urgent dependency on the status quo. Dependency for food. This is where the rubber meets the road in politics, as anyone who has ever witnessed a food riot can tell you. Hungry people become disorderly, fast.

Without steady, massive flows of food along the existing circuits of capital, populations would starve. This counts as an editorial aside, I suppose, but it seems unlikely that any program which attempts to break with dependency on a US-dominated world system can succeed, unless and until a locally-based, resilience-oriented food system has been developed. Recall Haiti, where the Artibonnite Valley can grow enough rice to feed Haiti, the rice is exported; and Haitians buy the inflated, subsidized rice of East Texas to survive.

The real danger in Latin America posed by the approaching hot-money abyss in the US is not a shift in statistics, but a crash resulting in the total destabilization of nations. Subsistence is still possible for the peasantry of these nations, but for the growing urban population, a cutoff in capital flows would certainly result in mass hunger and the violence that goes with it.

ALBA was not conceived as a counter to the United States. It was conceived of as a lifeboat. Time will tell, because the wolves of deflation are howling each day closer to the IMF campfire.

With the United States importing around 1/9 of its oil from Venezuela, and with the US being Venezuela’s biggest oil customer, Venezuela has proven resistant to pressure; but it is also uniquely vulnerable to changes in oil prices. During the Cold War, the US convinced Saudi Arabia to drop oil prices as a strategic weapon against the Soviet Union’s single biggest source of development capital – oil. On the other hand, oil proved two years ago that it is a fine investment opportunity when the prices are run upon oil to reflate a financial bubble. Higher oil prices, if necessary to extend the life of Wall Street, will also be another boom for Venezuela.

The Class Traitor

August, 2008, President Manuel Zelaya of Honduras signed an agreement in which Honduras would join ALBA. Ten months later, he would be kidnapped and sent to Costa Rica.

He seems an unlikely “leftist,” as he would come to be known. He was the offspring of oligarchs, his family being big players in the ranching and timber businesses. He joined a centrist party, had a quiet, nondescript career in the legislature, and was elected as a conservative. He was once actually the director of the Honduran Chamber of Commerce (COHEP) which was deeply involved in the coup against him. As President, he began by supporting CAFTA even in the face of widespread and vocal opposition at home.

Zelaya inherited a broken Honduran economy and a restless society.
During the first 32 months of his government, Zelaya faced at least 722 social conflicts of varying magnitude, including the national civic strikes of 2008 which paralyzed the country over demands such as price controls on basic foodstuffs, keeping potable water projects away from municipal control, and the approval of an increase in the minimum wage.
It was the organization and vigor of the social movements that forced Zelaya to take notice, but it was the new regional context that provided Zelaya with alternatives. At his domestic back, the organized resistance was explicitly against neoliberalism. At his front was ALBA.
In a country in which the two main parties can only be distinguished by the color of their logos, the popular organizations have bet on the construction of a truly different country: one which abandons the path of neoliberalism. On the way, they made their president into a politician different from the one he was when he came to power.

-Luis Hernandez Navarro
ALBA ensured Honduras a steady supply of 20,000 barrels of oil a day at preferential prices and interest rates.
The oil crisis that erupted in Honduras finally convinced Zelaya to change course. US companies, which monopolized the business of importing oil to the country, manipulated prices and created an artificial shortage in the fuel supply. Protests and strikes which left Honduras on the verge of a full-blown crisis made Zelaya temporarily expropriate oil storages owned by US companies.

-Nil Nikandrov
Honduras also received a mass shipment of farm equipment, and had 40,000 Hondurans’ vision improved or restored by the Cuban-Venezuelan project, Operation Miracle. Thousands of Honduran adults were recipients of literacy training through the ALBA “Yes, I Can” Program.

Zelaya had fallen out of a lose-lose into a win-win situation. There would be a rapid resolution to a number of social problems, and now his embrace of the ALBA initiative mollified the growing left-upsurge in Honduras. At some point along the way, perhaps after seeing the most irrational denunciations of ALBA by his newly-found opponents, “Mel” Zelaya appears to have had a Damascene conversion. I can’t say whether that was the case or not with any certainty. But I am a witness to the existence of Damascene moments. Zelaya’s actions as he headed into his confrontation with the US and its Honduran colonial surrogates surely seem to be consistent with the kind of true belief that takes terrible risks.

COMING NEXT - Anatomy and Sequence of the Modern Coup


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