The current crisis in Latin America and the international economy

Monthly Review, Feb, 1985 by Arthur MacEwan

An economic crisis is a period of change, a historical turning point. The old institutions that gave structure to economic relations can no longer function, severe disruptions of production and exchange occur, and social conflicts become intense. In such circumstances, there are ever-present dangers of political reaction and retrogression, but there are also opportunities for progressive change. In the underdeveloped world--plagued as it is by instability, dependency, and inequality--economic crises are not rare. Indeed, one might go so far as to assert that the condition of underdevelopment is a condition of perpetually recurring crises. Accordingly, we see among the underdeveloped nations focal points of both revolutionary progress and reaction.

The current crisis in Latin America, however, is not simply one more in the long string of crises that have characterized underdevelopment. It is different because it is part of an international crisis that has beset both the center and periphery of the capitalist world--and perhaps also the noncapitalist world--for well over a decade. crises that affect the international economy on such a wide scale are rather rare, appearing only every thirty or forty years. The last such crisis was that which centered around the Great Depression of the 1930s and which found its resolution only in the cataclysm of the Second World War.

Nonetheless, while the current crisis is not confined to Latin America, Latin ameirca is a focal point of considerable importance. As in the early colonial period when the huge flow of precious metals out of Latin America altered economic relations around the world, events in Latin America today are having repercussions throughout the international economy. Also as in that earlier era, the central events concern the international financial system. Then the issue was money in the most basic form of gold and silver; today it is money in the most abstract form of credit that is the potentially disruptive link between Latin America and the centers of wealth and power. The "debt crisis" of several Latin American nations (and of a few other nations in the periphery) has been the focus of headlines since mid-1982, and there is little likelihood that the problem will be resolved in the near future.

The "Debt crisi" is of course a much broader crisis within Latin America, not only affecting financial matters but also disrupting production and employment on a wide scale. This current crisis in one more illustration of the way the region's destiny is dominated and perverted by its subordination in the international economy, and an examination of its origins and development offers a good opportunity to re-analyze the dynamic of underdevelopment. Moreover, if we are to have any influence on what emerges from the crisis--if we are to affect the nature of this historic turning point--it will be helpful to have some idea of where it might lead. In order to give history a little push, it is necessary to know where history is going. Roots of the Crisis

In a broad sense, the financial crisis as it has manifested itself in the debt problems of several Latin American nations is an outgrowth of the general crisis that has plagued the economics of the advanced capitalist world since the early 1970s. The emergence of the general crisis spawned an enormous expansion of liquidity in the international economy. This expansion of liquidity in turn, concentrted as it was in an essentially unregulated banking system, led to a very rapid growth of international banking. Moreover, the general crisis reflected a marked decline in the rate of growth of investment in the advanced nations, and growth in the demand for credit did not keep pace with the burgeoning supply of funds. Faced with a rapid expansion in available liquidity that could not be absorbed in the center, the banks became mechanisms for pushing funds out into the periphery of the world capitalist system.

This "push," which contributed to the current financial crisis, was complemented by a "pull," a strong demand for credit in the economies of the periphery, especially economies in Latin America. In attempting to interpret underdevelopment and determine directions of change in Latin America, this pull is of central concern.

It is no exaggeration to say that the roots of this pull--the roots of Latin America's current debt problem--can be traced to the early colonial era, to the way Spanish and Portuguese America were connected to the international economy and to the types of social structures that were established in these Iberian colonies. During the sixteenth century, economic life in Spanish colonies was thoroughly dominated by gold and silver. After the original plundering of the Aztec and Inca empires, it was particularly silver mining, centered in the Peruvian-Bolivian Cordillera and the Mexican Sierra, that defined both social relations in the colonies and the colonies' relation to the rest of the world. The economy of the mines, first of all, was driven by the European demand for silver, and the rhythm of life in the colonies was subordinated and dependent upon developments in the external world. Secondly, the economy of the mines generated a highly unequal, bi-polar social structure, with a small group of Spaniards and creoles at the top and a large group of indigenous peoples drafted into labor at the bottom--and relatively few others in between.