Special Report of the IRC s Americas Program Privatizations The End of a Cycle of Plundering By Ra l Zibechi November 1 2004 One of the cornerstones of the neoliberal policies adopted by most Latin American governments in the 1990s was the privatization of state owned enterprises This process of passing national wealth on to the private sector has been so injurious that it could soon render entire countries unviable On occasion citizen organization has succeeded in halting privatizations through public demonstrations that at times have turned into outright insurrections The public has almost always viewed state owned enterprises as its own and to a certain extent these companies have served public or national interests Many state owned enterprises were created following the economic crisis of 1929 and especially during and after World War II During those years the decline of Great Britain as the hegemonic power in Latin America and its replacement by the United States encouraged tentative development based on a more active role for nationstates in economic management through import substitution industrialization State owned enterprises generally services transport providers or manufacturers were part of the national wealth although they were known to be mismanaged and to primarily benefit the political elite Though state owned companies were necessary for countries attempting to industrialize many governments used them to perpetuate their power by doling out favors and privileges These practices along with inefficient management undermined state enterprises by unnecessarily bloating employee rosters thereby reducing efficiency and raising costs Consequently in varying degrees from one country to the next services provided by state owned enterprises deteriorated for three decades following the end of WWII Many had fallen into serious financial crisis This state of affairs greatly facilitated the work of the privatizers of the eighties Promising efficiency to consumers fed up with shoddy goods and second rate services this first wave of privatization encountered little effective resistance The Debt Crisis Broadly speaking the privatization of state enterprises is always linked to the renegotiation of a country s foreign debt notes Belgian economist Eric Toussaint president of the Committee for the Abolition of Third World Debt 1 The roots of privatization policy can therefore be traced back to the so called debt crisis ignited by Mexico s payment moratorium in August 1982 At that time Washington was facing a crisis in its global hegemony caused by the United States military defeat in Vietnam domestic antiwar protests allied with the black civil rights movement and the demands of Third World countries This erosion of power culminated when the Iranian Revolution of 1979 sparked the hostage crisis the following year The convergence of these multiple challenges laid bare the declining hegemony of the world s most powerful nation and ushered in a long term shift Domestic and global New Deals were abandoned and the United States tried to restore its military prestige To pay for increased military expenses for the Second Cold War it raised interest rates and began to compete actively for international capital in search of investment During the 1980s it attracted the global surplus and precipitated the debt crisis signaling the abandonment of the promise of development 2 As the U S Federal Reserve hiked interest rates loans to poor countries were drastically curtailed preventing them from obtaining new loans to repay their debts As a result Third World debt became unpayable Until the 1980s Third World indebtedness had several objectives to create an outlet for Eurodollars accumulated in financial markets to encourage arms purchases and to lubricate the corruption mechanisms of pro U S governments By design Third World debt did not affect the balance of payments of the lending countries To give just one example two thirds of all debt assumed by the Argentine military dictatorship 1976 83 was deposited in bank accounts in the North 3 Needless to say the money lent largely as aid to poor countries often never arrived or arrived piecemeal to the economies of the recipient countries and their constituencies Americas Program Interhemispheric Resource Center w w w a m e r i c a s p o l i c y o r g A New World of Analysis Ideas and Policy Options The Brady Plan devised in the 1980s required bilateral accords between Latin American countries and U S authorities on the reduction or staggering of debt payments 4 One of the linchpins of the Brady Plan was the privatization of state owned enterprises In 1985 after a conference on foreign debt in Berne Henry Kissinger was characteristically blunt There is no painless solution to their critical situation but we must promote some corrections to the IMF s adjustment program The solution will entail sacrifice I prefer that debtor nations ensure their external obligations vis vis their creditors rather than receive aid in the form of real assets by surrendering the assets of state companies 5 To ensure their ability to repay their debts countries adopted structural adjustment policies promoted by the International Monetary Fund IMF and the World Bank WB As far back as the early 1980s those two bodies became the debt crisis managers and were put in charge of implementing adjustment policies and collecting debt payments IMF and WB promoted adjustments touted macroeconomic stabilization devaluation lifting of price controls and fiscal austerity as a first step on the path to structural reforms based on trade opening deregulation of banks and financial activities greater labor market flexibility and privatization This set of policies clearly entails a loss of economic sovereignty for countries applying them In addition debtor nations had to forfeit their political sovereignty either beforehand or simultaneously As dictatorships and corrupt democracies did the dirty work of applying the reforms foreign debt in Latin America multiplied eightfold between 1971 and 1980 In nearly every Latin American country state owned companies were already heavily indebted since governments used them to contract debt as a way of obtaining loans from private banks In 1976 at the beginning of military rule Argentina s state owned petroleum company YPF had a debt of only 372 million Seven years later it owed 6 billion and nearly all of the money borrowed remained in the hands of
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