** Written 7:28 am May 1, 1992 by witness in cdp:native.1492 ** Witness for Peace 1492-199
** Written 7:28 am May 1, 1992 by witness in cdp:native.1492 **
Witness for Peace
1492-1992 Expose the Myths: Calling for a Just World Order
Myth of the Month--May 1992/Debt Crisis and Structural Adjustment
MYTH: Production for export benefited the colonies and structural
adjustment programs help Latin American countries today.
RESPONSE: Rather than benefitting the indigenous people, production for export
benefitted the European colonists who exported the goods (minerals,
agricultural crops, crafts) and reaped sizeable profits. The steady flow of
gold, silver and sugar also greatly benefitted European monarchs and
entrepreneurs filling their coffers and funding their development. The Indians
experienced increased poverty, hunger and social and economic dislocation.
Similarly, today's structural adjustment and production-for-export policies
benefit the Latin American agro-export elites. The North also benefits by
importing Latin America's produce at production prices far below those of the
United States. Corporations' profit margins increase, while the poor in
Central and South America continue to suffer.
It steals with one hand what it lends with the other.
The more they pay, the more they owe.
The more they get, the less they have.
The more they sell, the less they earn.
--Eduardo Galeano, The Book of Embraces
Colonization: The Europeans Arrive
The extraction of wealth and resources from the colonies expanded at an
astounding pace after the arrival of the first conquistadors. Between 1503 and
1660, 185 tons of gold and 16,000 tons of silver were extracted from the
colonies. Uruguayan writer and journalist Eduardo Galeano estimated that
between 1760 and 1809 silver and gold exports from the Mexican mines of
Zacatecas and Guanajuato exceeded five billion dollars (The Open Veins of
Where silver and gold could not be found, the colonists turned to
agriculture. Production of crops for export became one of the main sources of
wealth. Sugar was the first crop produced on a large scale for export.
Introduced in the Americas during Columbus' second voyage, sugar cane
plantations soon spread throughout the Caribbean, Central and South America.
Land and indigenous people were seized by the Europeans for the lucrative
business of sugar production. Not only were the Indians enslaved, but between
1500 and 1650, 10 million Africans were brought to the Americas as slaves. It
is estimated that 20 percent of the Africans died on the voyage across the
ocean. Expansion of sugar production brought expansion of the slave trade.
The Aztec, Maya and Inca empires all had highly developed social and
agricultural organizations and, for the most part, were self-sufficient in
food production. However, since the arrival of the Spaniards and those that
followed, poverty, hunger and malnutrition have plagued the Indian
communities. Never since the Spanish Invasion have they recovered the
well-being that they enjoyed before.
Re-Colonization: Latin American Debt and Structural Adjustment
The colonial legacy can be seen today in Latin America primarily in two
phenomena: 1) the external orientation of the Latin American economies; and 2)
the extreme polarization of Latin societies. Since the conquest, the Latin
American economies have been oriented toward the needs of the colonial powers,
rather than the needs of the inhabitants of the Americas. As a result, Latin
American societies developed extreme social inequalities resulting in a marked
These two phenomena persist today; Latin America's economies are
primarily focused on the North, and social inequality has grown over the last
decade to reach alarming proportions. According to a recent Washington Post
[On the] 500th anniversary of Columbus' voyage, the people
he found when he arrived--and insisted on calling "Indians"-
-are at the bottom of the social and economic ladder, an
underclass in the land their forbearers ruled. Throughout
the continent whites of European ancestry constitute the
wealthiest and most powerful class, while Indians are among
the poorest and most disenfranchised. (June 23, 1991)
Throughout the 1970s, Latin American nations managed to maintain economic
growth in spite of the global recession via a massive influx of capital from
large banks in New York, Tokyo, London and Frankfurt. Large amounts of
"petro-dollars" (dollars from the Arab World's astounding oil profits) flooded
western banks which eagerly made loans to Third World countries at floating
interest rates (variable, set by the North).
This system of "development through debt" reached a crisis point in 1982
when several major debtor nations of Latin America were unable to keep up with
their scheduled debt payments. Due to the global recession of the early 1980s,
Latin America's export earnings were no longer sufficient to pay for the
massive borrowing of the previous decade.
What ensued has been a catastrophe from the point of view of Latin
America's poor. The United Nations called the decade of the 1980s the "lost
development decade." Latin Americans find themselves worse off today in terms
of poverty, per-capita income, education, health and nutrition than they were
The current predicament of Latin Americans is due primarily to what the
developed nations in general, and the U.S. in particular, have enforced as the
solution to the debt crisis. To ensure the continuance of the flow of
resources to the North, the developed nations named the International Monetary
Fund (IMF) as the intermediary between the debtor nations and the creditor
banks. To receive any further loans (to finance debt payments, or for balance
of payments) a country must turn to the IMF. To be eligible to receive any
funds, the IMF demands the implementation of a structural adjustment program.
Standard components of an IMF structural adjustment program are:
* strong emphasis on export-oriented growth;
* reduction of public spending (education, health, etc);
* reduction of state participation in the economy (i.e.
privatization of state enterprises);
* removal of subsidies for basic foods and transportation;
* devaluation of the national currency; and
* freezing the real wages of workers.
The IMF structural adjustment programs have not led to an improvement of
Third World economies nor to an improvement of the living conditions of the
poor majorities. In fact, they have not even led to a reduction of the Third
World's debt. In 1984 the total Third World debt was $895 billion; in 1989 it
had increased to $1,235 billion. Structural adjustment, far from producing
economic growth in Latin America, has produced increased poverty, a general
worsening of the living conditions for most Latin Americans, increased
indebtedness and increased dependency on the North.
Let us look at some of the effects of structural adjustment in Latin
1. Hunger and Export-Agriculture: Hunger is a problem today in Central
and South America as it has not been in decades. In Honduras, it is estimated
that more than half of the country's 4.5 million inhabitants are malnourished.
The National Nutrition Institute of Mexico estimates that 80 percent of
Mexicans have suffered some degree of malnutrition at some point in their
lives and 40 percent of the population still does.
One of the main reasons for hunger is the IMF/World Bank/U.S. Agency for
International Development (USAID) emphasis on export agriculture. Increasingly
land is dedicated to export crops (flowers, broccoli, snow-peas, kiwi fruit,
etc.) destined for U.S. markets, while production for local food consumption
is dropped. Countries like Mexico, Guatemala, and Colombia among others, no
longer produce enough food to feed their people. Staples like wheat, corn and
beans are imported because land is being used for export crops. In Mexico, for
example, 25 percent of arable soil and virtually all irrigated land are used
for crops destined for foreign markets. Another third of the arable land
produces feed for cattle whose meat is sold in the U.S.
Declining terms of trade also translate into poverty. During the last
decade the prices that Latin American countries get for their products have
declined steadily. This means that to pay the same amount of dollars to a
foreign creditor, or to buy tractors or other technology, production must be
increased_and larger amounts of land must be dedicated to production for
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Part 2 of 2
Witness for Peace
Myth of the Month--May 1992/Debt Crisis and Structural Adjustment
2. Capital Transfers from the South to the North: Far from the myth that
the North gives money to the South, the reality is that in spite of almost a
decade of structural adjustment, the debt continues to grow and the transfer
of resources from the South to the North is reaching astronomical proportions.
Notwithstanding the acute social and economic crisis, the South is a net
exporter of capital (it pays the North more than it receives from it).
Peruvian economist Javier Igui$ez said that "since 1982 we [Latin Americans]
have been financing the First World with quantities of money never before
known except in colonial times."
Estimates show that between 1983 and 1989, Latin America paid an average
of $82 million daily, an annual net transfer to the North of $30 billion.
Economist and theologian Franz Hinkelammert who lives and works in Latin
America stated that since 1982 Latin America has transferred to the North
"more than the Marshall Plan (1948-51) allotted for Europe's post-war recovery
when the U.S. transferred $14 billion to Europe ($70 billion in current
In 1988 Brazil paid $17 billion to international creditors. According to
Marcos Arruda, a Brazilian economist, if that money had been invested in
Brazil, 81,000 schools could have been built for 60 million students, or 7.7
million low cost houses could have been built for 30 million people.
Debt payments are not the only channels for capital transfer to the
North. Corruption (stealing loaned money) and capital flight (wealthy Latin
Americans investing their money in Northern banks) is another main source of
such transfers. For example, according to the Morgan Guaranty Trust Co. of New
York (one of the major creditor banks that also monitors capital flight) in
1989 wealthy Brazilians sent $43 billion abroad_an amount equal to 38 percent
of the country's external debt. The same bank estimates that Argentina's $50
billion foreign debt would not exceed $1 billion if not for fraud and capital
3. The Poor get Poorer: According to the Inter-American Development Bank
(IDB, another proponent of structural adjustment) in 1990, 50 million people
(38 percent of Latin America's population) were living in "extreme poverty."
In 1990, in Brazil alone, 750,000 children died as a result of malnutrition.
According to the U.N. Economic Commission for Latin America and the
Caribbean (ECLAC) nearly 200 million Latin Americans (45 percent of the
region's population) live below the poverty line. In a June 1990 conference,
Latin American religious leaders stated that, "our peoples have suffered what
can no longer be described as a mere deterioration in their environment and in
their lives, but a systematic and planned destruction of their health,
nutrition, housing, employment, education and social welfare." They concluded
that structural adjustment constitutes a "death sentence" to the future of
Latin America and the Caribbean.
In Central America the statistics are equally alarming. In Guatemala, 85
percent of the population lives below the poverty line (up from 60 percent
five years ago). In El Salvador per capita income fell 34 percent in a decade.
In Honduras wages fell 24 percent between 1982 and 1988 and in Nicaragua wages
fell more than 80 percent in the same period.
Clearly the situation in all of Latin America is deteriorating. The riots
that Venezuela, the Dominican Republic and Argentina experienced in recent
years are indications of peoples' desperation. The outbreak of cholera in Peru
and the rest of Latin America_a product of IMF-sponsored government
health-care spending cuts_is another example of how devastating structural
adjustment can be. Yet the IMF continues to extract inordinate amounts of
preciously needed resources, and Latin Americans continue to pay them.
Structural Adjustment in Guatemala
Structural adjustment was implemented for the first time in Guatemala in
1986 by President Cerezo. The results are staggering: 85 percent of
Guatemalans live in poverty, up from 60 percent just five years ago. Because
of the emphasis on export agriculture (Guatemala now exports broccoli, snow
peas and other vegetables to the U.S.), beans--a national staple--must be
imported. Two percent of the population receives 52 percent of the national
income, while 80 percent of the population receives only six percent of the
The results of structural adjustment in Guatemala have been increased
poverty, unemployment and underemployment, and increased social inequality. As
in colonial times, the Indian population is the one that suffers the most.
Being dispossessed of their land, they are relegated to the margins of society
and forced to survive in garbage dumps, as street vendors or as beggars.
Alternatives to Structural Adjustment: Repatriated Refugees of El Salvador
El Gualcho is a community in eastern El Salvador. Like other repatriated
communities, it is united by a common experience of repression in the early
1980s and years of living in refugee camps. Their economic model, one of
self-sufficiency and community participation, presents a viable challenge to
the neoliberal, structural adjustment policies being implemented by the Arena
Every member of the community works for the same project-- the
community's subsistence and well-being. The individualistic nature of the
campesino is taken into account: each family has a plot of land that they work
three days a week. The rest of the week they work for the community. They
plant corn and vegetables, they have a poultry farm and a sewing cooperative.
Surplus is sold to nearby communities to purchase goods that they do not
produce. Everyone is literate and instructors teach the younger ones to read
and write. Health care is in the hands of trained health technicians.
This model of grassroots, sustainable development presents a viable
alternative and a challenge to U.S.-sponsored free market policies. El Gualcho
is an example of how Central America can move beyond its current poverty and
general misery to social justice and well-being for its poor majorities.
CALLING FOR A JUST WORLD ORDER:
* Form a study/discussion group to learn more about Latin America's foreign
debt and structural adjustment, and the role played by the U.S. in the
IMF and the World Bank. For further readings see "Resources" below.
* Become a Witness for Peace Media/Legislative Contact to receive regular
updates on how to affect foreign aid legislation (use the sign-up sheet
provided in the packet).
* Write to your congresspersons and tell them about the disastrous effects
of structural adjustment on Latin America. Urge them to stop USAID in its
use of structural adjustment as a condition for development aid.
* Write to your local media and tell them what you have learned about the
destructive effects of structural adjustment on the poor of Latin
* Go on a Witness for Peace delegation to Guatemala or Nicaragua and
experience first-hand the effects of structural adjustment (see enclosed
* Find out what local groups are doing on this issue and join forces with
1. What are the main characteristics of structural adjustment?
2. How does structural adjustment affect the poor most?
3. What do you see as the alternative solutions to the Third World debt
A Fate Worse Than Debt, Susan George, Food First: 1990.
Bad Samaritans: First World Ethics and Third World Debt, Paul Vallely,
Orbis Books: 1990.
Debt and Disorder: International Economic Instability & U.S. Imperial
Decline, Arthur McEwan, Monthly Review Press: 1990.
From Debt to Development: Alternatives to the International Debt Crisis,
The Debt Crisis Network, IPS: 1986.
Recolonization or Liberation: The Bonds of Structural Adjustment and
Struggles for Emancipation, Ecumenical Coalition for Economic Justice: 1990.
The Debt Squads: The U.S., the Banks and Latin America, Sue Branford and
Bernardo Kucinski, Zed Books: 1988.
E-Mail Fredric L. Rice / The Skeptic Tank