[] MULTINATIONAL MONITOR January 1988 VOLUME 9, NUMBER 1, JANUARY 1988 Latin America in Crisis Editor Ellen Hosmer Managing Editor John Richard Contributing Writers Justin Castillo, David Kusnet, Russell Mokhiber, Michael Moore, Allan Nairn, Samantha Sparks, William Steif and Cathy Watson U.N. Correspondent Josh Martin Production and Design Kathleen Glynn Business Manager Elizabeth Hax Intern Jim Donahue Multinational Monitor [ISSN 0197-4637] is published monthly by Essential Information, Inc., P.O. Box 19405, Washington, DC 20036. Telephone: (202) 387-8030. Second-class postage paid at Washington, DC POSTMASTER: Send address changes to Multinational Monitor Subscriptions, address as above. Features The Brazilian Crucible By Justin Castillo Resisting Repayment By Justin Castillo A Consuming Debt By Ellen Hosmer Argentina's Embattled Economy By Justin Castillo Debt Relief By Justin Castillo Peru's Predicament By William Steif Up From Ashes By Sandy Smith Interviews The Debt Dilemma An Interview with Bruce Morrison Growing Out of Debt An Interview with Isaac Cohen The Front Trouble Again, The Rap on Ciba-Geigy Wasting Saba Economics Britain's Banks On the Dole By Robert Beasley Labor Union Politics By David Kusnet ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR January 1988 VOLUME 9, NUMBER 1, JANUARY 1988 THE FRONT Trouble Again Chlordimeform, a dangerous pesticide which was pulled off the market in the mid-1970s after it was found to be a potential human carcinogen, is once again on the market in the Third World, courtesy of Ciba Geigy of Switzerland and Schering AG of Germany. The pesticide's hazardous nature was discovered in experiments carried out by Ciba-Geigy in 1976-78, 10 years after it was introduced for commercial use. The studies showed that chlordimeform produced a rare malignant tumor in blood vessels of mice fed with large amounts of the pesticide. Although Ciba- Geigy and Schering quit producing the pesticide for two years, they continued to carry out highly unethical tests of their "promising insecticide." In 1976 after withdrawing the pesticide from the market, Ciba Geigy sprayed Galecron on six Egyptian volunteers between the ages of 10 and 18, all of whom wore no protective clothing for the experiment. These youngsters later suffered diarrhea, dizziness, head and stomachaches, and other symptoms of chlordimeform poisoning. Company publicity in Europe warns parents to keep their children away from Galecron. The pesticide was first registered for use against fruit and vegetable pests. In 1972, the pesticide was also registered for use against cotton and tobacco pests. After briefly being pulled off the market, it was reintroduced in 1978 for use in cotton crops only. Today, Ciba-Geigy, along with Schering AG, remain two of the biggest manufacturers of this pesticide, marketing chlordimeform under the brand names of Galecron and Fundal, respectively. About half the annual production of chlordimeform has been exported to Latin American countries. Ciba-Geigy has long been concerned about the health effects of its pesticide on its own workers. The company spent some $4.5 million improving safeguards at its factory to prevent its Swiss employees from coming into contact with the chemical. Yet Ciba- Geigy confidential reports show that levels of the chemical in field workers from Latin America and Egypt regularly exceed the maximum permitted for the company's own employees. The field workers suffer dizziness, headaches and diarrhea, the reports said. Other symptoms of chlordimeform poisoning include vomiting, elevation of blood pressure, insomnia, aggravation of asthma, anorexia (lack or loss of appetite for food), dysuria (painful or difficult urination), nocturia (excessive urination at night), haemorrhagic cystitis (inflammation of the bladder) and hematuria (discharge of blood in the urine). Acute poisoning can result in cyanosis (blueness of skin), respiratory depression, methemoglobinemia (insufficient oxygenation of blood), coma and even death. In June 1985, the Pesticide Action Network (PAN) International initiated a campaign to regulate and restrict the use of a dozen pesticides it considered risky to human health and the environment. Chlordimeform was one of the "dirty dozen." The pesticide has been banned in Australia, Cyprus, Denmark, Ecuador, New Zealand, Pakistan, the Soviet Union, Thailand and Yugoslavia. It is severely restricted in the United States, Colombia, East Germany and Guatemala. - Third World Network ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR January 1988 VOLUME 9, NUMBER 1, JANUARY 1988 The Rap on Ciba-Geigy Ciba-Geigy's record on consumer health and safety issues is one of the worst in the industry. It has amassed a long list of violations of legal and ethical standards including the following: In the 1960s, Ciba-Geigy continued to market clioquinol for diarrhea in Japan, although the drug was known to cause SMON (subacute myelo optic neuropathy), a condition involving continuous pain, paralysis, blindness, and in extreme cases, death. In Japan, 30,000 people were affected and 1,000 died before the drug was banned there. In India in 1975, Hindustan Ciba-Geigy Ltd. sprayed Nuvacron (common name: monocrotophos), a World Health Organization class IB pesticide described as "highly hazardous," on more than 40 Indian volunteers between the ages of 13 and 57. Over a period of four days, Ciba-Geigy used a plane loaded with the pesticide solution to spray the group. Despite confidential warnings from its own researchers, Ciba- Geigy continued to market two dangerous drugs, phenylbutazone and oxyphenbutazone, which are known to cause life-threatening blood disorders. In fact, in an internal document leaked in 1983, Ciba-Geigy admitted that the drug had already caused some 700 deaths. At the time only 72 deaths had been reported. It was only in April 1985, after worldwide protest against the two drugs, that the company withdrew oxyphenbutazone and severely restricted the use of phenylbutazone. In January 1986, Ciba-Geigy Ltd. in Japan was ordered to stop operations for 20 days, after the company was found to have submitted false data to obtain permission to market 46 of its products. And most recently, Ciba-Geigy spilled datrazine, a hazardous weedkiller, in the River Rhine, and waited 12 days to report the incident. -TWN and Monitor Staff ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR January 1988 VOLUME 9, NUMBER 1, JANUARY 1988 Wasting Saba A U.S. corporation is lobbying to build the world's longest barrier reef on the banks of a tiny island in the Dutch West Indies. The reef, called the Island of Caribbea, would then be turned into a mammoth landfill and incinerator for the world's garbage. The Dutch West Indies island of Saba, targeted for dumping by Waste Central, Inc., is a five square-mile volcanic island that rises 3,000 feet above the sea. Its lush green landscape is perched atop forbidding cliffs that have kept the 1,000 inhabitants almost entirely secluded. Four small villages dot the steep slopes, and until recently, travel between the villages was accomplished solely by climbing the stone steps carved into the volcano. In the early 1980s scuba divers discovered that the clear waters surrounding Saba contained a cornucopia of coral reefs, fish and underwater plants. They convinced the Dutch government to turn Saba into a protected ecosystem. The Dutch government decided to create a marine park out of Saba's underwater reefs and shoals. A year after beginning work, Tom Van't Hof, a marine biologist with the government, was told that Waste Central, Inc., a U.S. company had proposed its reef project. Entitled "Development on Saba Bank," the project is a request by the company to lease the nearby Saba Bank for use as an extensive landfill and incinerator capable of burning hundreds of tons of waste per day. "The consequences, although vague, could be quite harmful," says Van't Hof, "and could jeopardize a very important fishing ground in the region." Van't Hof says despite opposition from local residents the Dutch government may be lured into accepting the project because of the financial incentives offered by Waste Central. Waste Central operates out of the offices of the First Financial Funding Corp., a Philadelphia company which has attempted, in the past, to act as a lender to a landfill purchaser. For the perpetual, irrevocable and unrestrained right to dump waste onto the Saba Bank, Waste Central has offered to pay one dollar per ton to be split evenly between the Netherlands Antilles and Saba. Municipalities in the northeast United States have paid as much as $80 to $126 per ton for the removal of garbage. Hazardous waste, which is far more costly to remove, could apparently be dumped on Caribbea as well. "Perhaps most distressing of all," says Walter Hang, Toxics Director for the New York Public Interest Research Group, "the proposal apparently puts the burden on Saba to resolve any environmental problems that may arise." And a massive clean-up effort in case of leakage into the surrounding waters could be financially impossible for Saba to undertake, says Hang. Waste Central's proposal contains a mere 11 sentences addressed to the potential environmental impact of the project. The magnitude of the project is buried in a footnote which seeks to detail the benefits of the operation. "In excess of seventy (70) nautical miles of 'barrier reef' will be created. The implications of this huge addition, no doubt the longest reef construction ever, will be most positive to fisheries on Saba Bank." No reasons are given for the positive assessment. The proposal gives Waste Central the responsibility to conduct ongoing environmental studies prior to construction of the project, as well as to monitor the project once it gets underway. The waste reef envisioned by Waste Central's proposal could be environmentally devastating for Saba and other nearby countries whose shores are washed by the waters of the Caribbean Sea, and may violate international treaties on the environment. The Law of the Sea Convention, signed by the Netherlands on December 10, 1982, was drafted primarily as a means to protect and preserve the marine environment. It obligates signatories to prevent marine pollution from any land or sea-based sources (such as "artificial islands, installations and structures") which may spread beyond those areas where they exercise their sovereign rights. The London Dumping Convention and the Caribbean Regional Seas Convention (the "Cartagena Convention"), both ratified by the Netherlands, also contain provisions detailing the signatories' responsibility to safeguard the marine environment. "Such dredging and dumping on a coral reef will, at least in spirit, violate the conventions," says Sally Lentz, staff attorney for the Oceanic Society. Anxious to avoid any negative publicity, Dewey Yesner, the agent for Waste Central, Inc., refused to provide any details about the project. -Randall Weiner Randall Weiner, General Counsel to the New York Public Interest Research Group, litigated the issues surrounding the Mobro 4000 "garbage barge" during the summer of 1987. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR January 1988 VOLUME 9, NUMBER 1, JANUARY 1988 LATIN AMERICA The Brazilian Crucible by Justin Castillo Justin Castillo is a freelance writer based in Washington, D.C. On August 20, 1987, the world debt crisis quietly marked its fifth anniversary. Neither the media nor the people involved in the crisis looked back and took stock of what has--and has not-- been accomplished during those years. The Multinational Monitor recently visited South America to assess the situation in three of the most desperate debtor countries and to learn what experts in Brazil, Argentina and Peru think about the past, present and future of Latin America's debt, which currently stands at $400 billion. BRASILIA, Brazil--There are two sides to Brazil: one giant, powerful and prosperous and one poor, bitter and hungry. One face of Brazil is that of a modern and rapidly growing industrial nation, while the other reveals an impoverished, debt-ridden country that teeters on the edge of anarchy. If the two sides of Brazil have not managed, thus far, to co- exist, then at least they have managed to avoid coming into direct and open conflict. Only a few poor people beg for money or sleep with their belongings on the white beaches of Rio. But the beaches and luxury apartments of wealthy suburbs like Leblon lie only five minutes' drive from favelas (slums) such as Rosinha. The rule of law does not extend to Rosinha, where drug warlords, many of whom are better armed than the federal police, maintain order. And in places like Rosinha, there is no labor law protection, sewage system, medical care or hope. A healthy economy is the only force that can help the inhabitants of Rosinha escape their plight, and the health of Brazil's economy is tied, to a large extent, to its $118 billion debt. In Brazil, which has Latin America's largest debt and its strongest economy, the question is simple: how can the government find a way simultaneously to fulfil its obligations to its creditors and attend to the needs of its growing population? During the regime of President Jose Sarney, which is not yet 3 years old, three finance ministers and four presidents of the Central Bank have failed to devise any comprehensive solution to the debt problem. Brazil's suspension of interest payments on the $67 billion of the debt that is held by commercial banks, which began on February 20, 1987, is proof of that. Brazil needs rapid and sustained economic expansion for political and economic reasons. Because of Brazil's rapidly growing population, its economy must create 1.6 million jobs every year just to absorb the new entrants into the labor force. As a result, the economy must grow at an annual rate of 7-8 percent just to keep per capita income levels from shrinking. In addition, 25 percent of Brazilian workers operate on the fringes of the economy and lack rights in the workplace. To help these people, the economy should create an additional 200,000-300,000 jobs to help bring them into the mainstream workforce. Can the economy grow at this rate even when 2 percent of Brazil's GNP goes to service the debt? For the past nine months, Brazil has not paid interest to the banks. Paolo Lyra, the former head of Brazil's central bank, is guardedly optimistic that the country will find a way out of its current difficulties. "Brazil invested the money it borrowed, and people have consistently maintained their domestic savings ratio." As a result, Lyra says, "you can make a commercial proposition to pay the debt." Professor Dionisio Carneiro of the University of Rio has a bleaker view of the future. Carneiro, an expert on Brazil's debt, is becoming increasingly concerned about the negative effects of the debt on Brazilian society and politics. "Two years ago, I would have said that Brazil could service its debt," says Carneiro. "There still is a satisfactory growth pattern of 6 percent, and with good policies Brazil could still service its debt. There is no solvency problem yet. But the political environment needed for fine-tuning of internal and foreign policies is not here yet. It's economically possible to pay the debt, but the government lacks the structures to do so." But every dollar that goes to service the debt is a dollar that could have been devoted to projects in Brazil that would create jobs for an increasingly embattled working class. According to Latin American Weekly Report, between March, 1986 and August, 1987, the purchasing power of workers fell by 44.6 percent. "There is a gross disparity between the rich and the poor," warns Carneiro. "If it goes on, it will disturb the political equilibrium. If you could keep the income disparity from growing worse, then you could service the debt, but the gap is getting wider." Celso Brant, who recently helped to found the National Mobilization Party, was more blunt about social tensions in Brazil. Speaking at a conference in Rio on the debt problem in May of 1987, he said that the debt "is not an economic problem but a political one...it is a problem of political incompetence. The Brazilian political elites aren't in touch with the reality of what's going on in Brazil." The economic and political future of Brazil depends on the ability of the government to confront its serious internal problems and address the debt problem squarely. The political machinery to accomplish this task will not be in place until Brazil's 559-member Constitutional Assembly crafts a new constitution. The constitution will also be important in the debt crisis because it will determine the economic and investment climate for the country. But there is a great deal of controversy and debate about the constitution, especially about distribution of power between the executive branch and the legislature and about how much control the government should have in the economy. Thus, an agreement is still months away. In the mean time, Brazil's government will continue to confront the country's growing economic problems with inadequate, short-term measures. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR January 1988 VOLUME 9, NUMBER 1, JANUARY 1988 Resisting Repayment RIO DE JANEIRO, Brazil - In the last five years there has been remarkably little organized popular opposition to repaying the debt. Now the economic hardships that the debt creates may be unifying Latin American labor unions that contend that their countries' debt burden is too heavy for their workers to bear. In May of 1987, representatives of 56 labor unions from 25 Latin American countries met for three days in Campinas, Brazil to discuss the debt crisis. Sponsored by CUT, one of Brazil's largest workers' congresses, the conference was the first of its kind. While it is still too early to tell what the ramifications of this conference will be, this much is clear: if the unions can mobilize additional support for their position that servicing the debt shouldn't come at the cost of peoples' economic well-being, the politics of debt renegotiation in Latin America could become considerably more difficult and complex. Union opposition to the government's handling of the debt crisis, which now stands at about $110 billion, began to grow in the fall of 1986 after suspension of the Cruzado plan, which temporarily halted high levels of inflation by freezing prices and wages. "The Cruzado plan glossed over the debt problem through the elections of November 1986," says Sergio Ferreira, an analyst for the Rio-based Brazilian Institute of Social and Economic Studies (IBASE), an information clearinghouse and research center. "It soon became clear to the workers that the Cruzado plan was suspended because of debt renegotiation talks." Ferreira says the CUT talk provided a timely opportunity to protest the policies of the IMF. "The IMF fostered a sense of nationalism among the workers," said Ferreira. "The labor unions decided that if there were an international banking system, then there should also be an international labor system. The issues are the same for both." The cover of the conference report sums up the unions' conclusion about the debt. It depicts three workers painting a large "X" over the words "External Debt." One worker says, "We didn't make the debt." Another adds, "We can't pay the debt." The third says, "We don't want to pay the debt!" At the close of the conference, the unions published a list of 19 resolutions and conclusions, which included declaring 1988 the "International Year of the Fight Against Repayment of the External Debt." The union members also resolved: to return to their home countries and organize workers against automatic debt repayment; to sustain debate about repayment of the debt; to heighten public awareness of the debt; and to work to "censure governments that persist in a policy of submission toward the IMF and other international creditors who violate the sovereignty of our countries." The unions agreed to support candidates opposed to repaying the debt, but CUT's more radical proposal, a one-day strike throughout Latin America and the Caribbean, was not adopted by the delegates. Experts are divided about the significance of the CUT conference. One ex-government official downplayed the conference's importance: "It's a political move by CUT, which is a radical branch of the labor unions. It's true that there are mixed feelings among the public about the debt, but most people believe that our commitments should be honored." Dionisio Carneiro, an economist at the Catholic University of Rio and an expert on Brazil's external debt, is not as quick to dismiss the gathering. He says that CUT's conference may not be a sign of increased "popular sentiment against repaying the debt. But it is a fact," he says, "that the debt is becoming more political. It certainly is an issue that is going to be up for grabs for a political party." It is still too soon to predict the unions' role in the increasingly popular political debate about debt repayment. But the recent success in Argentina's September elections of the Peronists, who draw much of their support from labor unions and who oppose repaying all of Argentina's $51 billion debt, indicates that time may be running out for governments that are trying to repay their debts in full. The harsh austerity measures required for repayment may mobilize so much popular opposition, especially among unions, that Latin American governments may begin to seek forgiveness for a portion of their debts or to default on a portion of their loans. -J.C. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR January 1988 VOLUME 9, NUMBER 1, JANUARY 1988 A Consuming Interest In one of the first attempts by the international consumer movement to broach the issue of the growing indebtedness of the Third World, the International Organization of Consumers Unions (IOCU) promised to make the Third World debt crisis one of its priorities in the coming year. IOCU's concern with the potentially divisive debt issue at its 12th World Congress in September comes at a time when the organization is increasingly attracting member organizations from debt-ridden countries in Latin America and Africa. The number of member organizations from Latin America doubled in the last three years, prompting IOCU to open a regional office in Montevideo, Uruguay a year ago. African membership has also doubled and there were some 30 African delegates from 14 countries at this year's Congress. Founded in 1960 as a largely First World consumer organization, over the years IOCU has been transformed into an organization with a decidedly Third World agenda, and one where Third World members will soon outnumber their First World counterparts. By attempting to come to terms with Third World debt, IOCU is addressing an issue that is unparalleled in its ability to affect consumers in both Latin America and Africa, and, in the long run, consumers in the First World. But the debt crisis has traditionally been far from the domain of the consumer movement. In offering its only analysis and solution, IOCU will have to strike a delicate balance. Indeed, finding a "consumer response" to the debt crisis could undermine IOCU's 25-year effort to find common ground between consumers from around the globe. But it is a challenge that IOCU's Anwar Fazal says the group must take or risk being put on the sidelines of the major consumer debate of the next decade. "We have to face the real issues in the world," says Fazal. "The consumer movement marginalizes itself by dealing with little problems. We have to confront the major issues of the day, then we will be relevant." And the Third World's mounting and debilitating debt is the issue of the 1980s and beyond, says Fazal. "If we cannot show our solidarity and build up a program with common concerns on this kind of issue then solidarity will be a hollow thing." Even so, IOCU may be hard-pressed to come up with a unified response or direct plan of action. Total debt forgiveness or a moratorium on debt repayments could shake the West's financial underpinnings, and even a partial government bailout of over- extended banks would cost consumers in the First World hefty tax increases amounting to billions of dollars. Divvying up financial responsibility for the debt crisis threatened to divide IOCU member organizations even at the Congress in Madrid. The failure of Third World governments to live up to their contracts, said Jeremy Mitchell of the European Research Institute for Consumer Affairs, will lead to an increased tax burden on British families of some $1 billion each year. Mitchell and others were concerned that already the debate on the debt crisis was failing to take into consideration that it was a zero-sum game--unless First World consumers were prepared to stand by and watch banks collapse, money that wasn't paid back by the debtor countries had to come from them. But more important than assigning blame may be IOCU's contribution to redefining the debate so that consumers in developed and developing countries are not pitted against one another. Clearly there is a role for putting the debt in its historical context and educating consumers about the role their banks, governments and corporations have played in precipitating the debt crisis. If IOCU can broaden the debate to this extent it may well be able to push for more consumer involvement in future lending policy. First World consumers, angered that their taxes are going to be used to write-off the debt, should ask themselves: "How is it that these funds were given for a project that was not viable in the first place?" said Professor Jasper Okelo, of the Kenya Consumers Organization. "The consumers in Britain and the United States should have a say in terms of what kinds of investments they are allowing their financial institutions" to undertake, Okelo says. Despite the debate, IOCU's resolution was strikingly vague. Noting that "debt and overcommitment has increasing negative and serious consequences for consumers in developing countries," the Congress resolved "to consider how this issued can be resolved, and what strategies can be adopted by consumer organizations." But the fact that IOCU has taken up the debt issue may be a sign that the debt crisis will no longer be left to creditor countries, finance ministers, multilateral development banks and their commercial counterparts. -Ellen Hosmer ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR January 1988 VOLUME 9, NUMBER 1, JANUARY 1988 Argentina's Embattled Economy BUENOS AIRES, Argentina--According to economist Javier de Villanueva, "If there isn't a way to grow out of the debt, then there's a problem." In Argentina, where per capita income has been eroded to 1960- era levels, there is a problem. In 1987 people showed their growing discontent with the government of President Raul Alfonsin in the September elections. Alfonsin's party, the UCR (Radical Civic Union), which started out with a broad base of support, suffered a grave setback in the elections when Peronist candidates gained enough congressional seats to end the UCR's control of Congress. Critics of the government, pointing to monthly inflation rates above 10 percent, assert that the government's Austral plan to control hyperinflation by controlling prices and wages has failed. Each week there are strikes and rumors of strikes as disgruntled employees in all segments of the economy express their dissatisfaction with the state of the economy. Argentina, with its well-developed economy, infrastructure and social service system, is not a stereotypical impoverished, "Third World" debtor nation struggling to provide essential services for its citizens. Indeed, a visitor to Argentina could be forgiven for thinking that Buenos Aires was a West European city. But no West European city has a black market for dollars where one can receive 50 percent more for a dollar than the official exchange rate. The economy's hunger for dollars, along with the strikes and the demonstrations in the streets, reveal that Argentina, despite its relatively mature economy and society, struggles with the debt problem as much as any other debtor nation. What makes the economic problems of Argentina even worse is the fear that the military will seize power once more if the democratically-elected government cannot take the political and economic measures necessary to ease Argentina's woes. Experts in academia, government and finance all agree that there is a problem with Argentina's economy. They are, however, baffled when it comes to proposing a solution. The essence of Argentina's economic woes lies in the sluggish economy's inability to generate sufficient activity and surpluses to produce growth and hard cash. "The country wants to pay its debt," said Villanueva, who works at the Instituto Torcuato DiTella. "It always has. But there is a growing preoccupation about our ability to do so. Our democracy has to cut the deficit and reduce spending, but that means cutting wages, and that's what produces strikes." Some critics argue that Argentina's problem stems from excessive government involvement in the economy (45 percent of the GNP comes from government-owned companies). They point to the fact that the government bureaucracy has produced an underground economy that is so large that the official economic statistics account for only 60 percent of the country's actual GNP. These critics argue that "privatization," the sale of government assets, is the only way to get the country growing once again. "The central issue in this controversy," according to Villanueva, "is the restructuring of the state in a form that will be acceptable to the unions." At this point, however, the unions appear opposed to restructuring. Carlos Rodriguez, an economist at an economic consulting group, CEMA, is one such critic. He blamed the government for not taking stronger measures to increase the economy's surplus. "The government uses the debt as a whipping boy. They blame all of the country's problems on the debt, but the situation is not as bad as they say. The real burden is the trade surplus: our $70 billion economy is generating a $1 billion surplus. The economy, if privatized, could generate a $4 billion surplus, but that is a political impossibility." The deterioration in the balance of payments, plus the public debt and tensions created by the Austral plan will, Rodriguez predicted, result in a rollover of Argentina's debt by mid-1988. "By then, Argentina must get fixed interest rates and a cut in the principal to get in line with reality." Jose Luis Nicolini, an economist at the Finance Ministry, reflected criticism of the Austral plan and proposals for privatization as simplistic. Such radical changes, he maintained, "would not take Argentina anywhere. Calls for privatization are a signal that something has to be done because as it is now, the problem has no solution. But they are not the appropriate responses." Nicolini defended the government' s handling of the economy and predicted that the government could continue to work toward a negotiated solution with Argentina's creditors. The director of a money center bank's branch in Argentina also expressed dismay about the current political and economic situation in Argentina. "Alfonsin missed an opportunity with the Austral Plan because he didn't reduce the state's role in the economy." While he freely acknowledged that banks erred in the 1970s by trying too eagerly to recycle petrodollars through liberal loans to Latin American countries, he also maintained that there is more than enough blame for the debt crisis to go around. "No one expects the debt to be repaid in full," he said. "I do hope, though, that Argentina can generate dollars to pay interest on its debt in a free market system. There wouldn't be any discussion in Argentina about the debt if the country could continue to pay interest, but even this is stopping." The banker was especially critical of the government's involvement in the economy. "It's time to give employees more of a share in the company." At this point, the banker was at a loss for solutions, and he expressed a sentiment that has overtaken many people in Argentina: "Everyone wants to keep the system going, but a fatigue has set in. Nobody has been able (in the past five years) to change things." Nobody can avoid concluding that Argentina cannot pay. -J.C. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR January 1988 VOLUME 9, NUMBER 1, JANUARY 1988 Debt Relief During the five years since the debt crisis began, there has been little progress in moving beyond short-term relief schemes. The Reagan administration's solution to the one trillion dollar debt crisis, the embattled Baker Plan, has yet to receive widespread acceptance or to produce concrete results. As a result, it is becoming increasingly likely that Congress will step in and take legislative action to head off the possibility of default and global economic collapse. Announced at the World Bank-lMF annual meeting in Seoul, South Korea in October of 1985, the Baker Plan's objective is to enable debtor nations to grow out of their debts by encouraging debtor countries to enact economic reforms. Crucial to the plan, however, is that private banks would lend an additional $20 billion between 1985 and 1988. Neither of these two measures has been popular: debtor countries resent reforms such as elimination of economic subsidies, and banks are reluctant to throw good money after bad. Under the Baker Plan, debt has continued to mount and the net outflow of resources from debtor countries to lending countries has not slowed. Two years after he unveiled the "Program for Sustained Growth," Treasury Secretary James Baker remains optimistic about the plan that bears his name. Speaking at the World Bank-IMF annual meeting in Washington on September 30, 1987, Baker defended the "basic principles" of his plan - economic growth, "market- oriented reforms," and additional capital in the form of equity saying that they "remain as important and valid today as when initially proposed." But Baker realizes that criticism of his plan is mounting. In his statement in September, Baker vigorously attacked rival reform plans. He warned that "we should not be attracted by generalized debt relief schemes" because they "do not really offer significant short term relief, and they pose major long- term risks to the debtors. They also ignore the reality that many debtors have inherently strong economies with unlimited potential. Their course into the 21 st century must be built upon increasing their trade and financial linkages with the rest of the world, not undermining them." Baker may have good reason to feel that his proposal is threatened by rival reform proposals. Skepticism in Congress about the validity of the Baker Plan in Congress led several legislators to introduce rival proposals just a few months after Baker unveiled his plan. In the past few months, the pressure has increased. During the Venice summit in early September, Rep. Charles Schumer, DN.Y., said it was time for a "new way to get us out of this mess." Schumer said that "just about everyone, from one end of the political spectrum to the other, debtor countries, creditor countries, bankers, have agreed that the Baker Plan is more or less over." One of the earliest counter-proposals came from Sen. Bill Bradley, D-N.J., who introduced his "3-3-3 plan" in June of 1986. This plan consisted of annual cuts of 3 percent in both interest rates and principal over three years. It also recommended that the World Bank loan debtor nations an additional $9 billion. Although the "3-3-3" plan never received widespread support, it nonetheless had a significant impact on how creditors and debtors looked at the debt crisis. The importance of Bradley's proposal lay in the fact that a member of Congress sympathized with the plight of debtor countries and was trying to offer relief. One Brazilian economist said Bradley is "a hero" in Brazil. "I don't know how seriously his plan was taken, but his idea was important because of its international impact." Bradley's proposal also prompted other legislative solutions to the debt crisis. There are two broadly similar debt reform plans currently pending in Congress that may eventually supplement or replace the Baker Plan. Both propose creation of a debt management facility to help ease the debt crisis for borrowers and debtors alike. But these two bills, while similar in substance, have different objectives. The House bill places more emphasis on easing the plight of debtor nations, while the Senate bill leans more toward addressing the problems faced by the banks. The House legislation, which is based upon proposals made by Rep. Bruce Morrison, D-Conn., and Rep. John LaFalce, D-N.Y., is incorporated in the omnibus trade bill, which passed by a vote of 290-137 on April 30, 1987. This plan, which is one of the most comprehensive debt relief proposals ever offered in Congress, would create an international debt management authority set up by the Secretary of the Treasury to reduce banks' exposure to troubled loans and to foster growth in the stagnant debtor nation's economies. This debt management authority would purchase privately-held loans at a discount, the theory being that many banks would rather sell their loans at less than par value in exchange for liquidity rather than hold on to fully-valued, non-performing loans. The authority, which would assume the banks' role as creditor, would then negotiate with the debtor countries for restructuring or swapping of their loans in exchange for economic reforms or equity. If the facility works as planned, everyone benefits: the banks get liquidity, regulatory relief and reduced exposure, while the debtor nations obtain debt relief in the form of discounted loans. The ultimate result, it is hoped, will be increased economic growth in the developing world as a result of a diminished debt burden. The Senate proposal, which was passed on July 21, 1987, is an amended version of the House bill, but it is not as explicit about how the debt management authority is to work. The Senate version allows the Secretary of the Treasury to decide not to create the debt management authority if it can be demonstrated that the authority would cause a rise in the prevailing discount rate for debt, an increased likelihood of default on the debt or a higher possibility that service of the debt would be disrupted. The most important difference between the two proposals lies in the financial support for the debt management authority. The House bill suggests options for funding the authority, while the Senate bill requires that the authority be self-supporting and prohibits it from receiving money from the U.S. government. Although the two houses may not be able to settle their differences without a watered-down bill, there is growing support for the idea of a multilateral organization to come in and do what the banks and the governments of both the creditor and debtor nations have been unable or unwilling to do. Carlos Rodriguez, an economist at CEMA, an Argentine think tank, welcomed the plan: "The bankers alone can't make Argentina change its internal economic policies. Perhaps we need a third party to come in and execute long-term conditions to make Argentina pay back a realistic figure and to make necessary economic reforms." In the meantime, the situation of troubled debtor countries such as Brazil, Argentina and the Philippines will continue to deteriorate, thus making the job of the debt relief authority, if it ever comes into existence, even more difficult. -J.C. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR January 1988 VOLUME 9, NUMBER 1, JANUARY 1988 The Debt Dilemma An interview with Rep. Bruce Morrison Connecticut Congressman Bruce Morrison has introduced an innovative debt relief plan that provides a concrete framework for debtor countries and creditor banks to begin to come to terms with the mounting Third World debt. The second term Democrat recently spoke with the Multinational Monitor about his debt relief plan, H.R. 4123, a modified version of which is part of the trade legislation bill (H.R. 3) in the House. Multinational Monitor: Why did you decide to seek legislation attempting to deal with the debt crisis rather than allowing the current players - the private banks, the IMF and finance ministers - to find a workable solution? Rep. Bruce Morrison: The Third World debt problem is one of the world's major economic problems. It has a dramatic effect on the economic stability of the United States and the rest of the world. The debt creates instability in the banking system which is dangerous to our economy. The inability of debtor countries [to buy American goods] deprives America of markets and deprives American workers of jobs. Many debtor countries are of interest to us geopolitically - our foreign policy and national security interests are at stake. From the standpoint of long-term U.S. interests, solving the debt problem will probably be the shortest distance to giving us long-term, stable relations with friendly democratic regimes. Failure will make it much more likely that we will have problems [with] unfriendly regimes. It is a global problem and each of its aspects ties into the global and economic security of the United States. Monitor: How does your proposal, which creates a debt restructuring facility, differ from other legislation before Congress attempting to ameliorate the debt crisis? Morrison: This is about the only proposal around that is a mechanism. This is a mechanism through which most of the other, if not all of the other proposals for particular substantive changes could be implemented. This is a vehicle for debt relief, for capitalization of interest, for debt-equity swaps, for securitization of the debt and for creating mechanisms by which local currencies rather than hard currencies could be used to pay. All of those things can be done under the umbrella of this institution. Why an institution? Because we cannot depend on people with differing interests from our national interests to carry this out. What we currently have is bankers negotiating with countries. That's bad for the bankers and bad for the country. The banks have no national interest. Their only interest is the interests of their stockholders. They don't care about the future democracy in Argentina except in a very attenuated way. That's not their problem. We can never really [count] on a bunch of private sector bankers to take the big picture here. Monitor: Your plan allows banks to take 30 years to amortize losses. But since the losses are already there, is this really going to change the way the debt is perceived on the market? Morrison: The stock values already reflect the expected losses, and they will continue to at every point. You can't make value out of nothing. Those values are already there, but they are locked in without liquidity. Even the value that continues to exist - the 65 cents on the dollar - is theoretically being valued at 100 percent. But the market has long since discounted [the value of the debt]. You can see that by the fact that Citibank's stock went up when they took the reserves. Now the reserves are another indication of the fact that these losses are there. Those reserves still count as capital. The critical step, which is to book the loss, creates only one new problem. The markets already know what's going on out there. The new problem it creates is capital adequacy. The bill doesn't say they shall be amortized over 30 years, but no longer than 30 years. Any time period is arbitrary. The mechanism has a very simple purpose, which is to give the banks liquidity in exchange for their taking market driven discounts and giving them regulatory relief so that the process of restoring capital to offset the losses can be done over an extended period rather than creating a capital crisis. Monitor: What is the long term goal of this plan? Is the aim to get back to voluntary lending or is voluntary lending no longer a valid concept? Morrison: Voluntary lending will have to be restored. Voluntary lending does not now exist in any significant amount except to service existing debt. Voluntary lending is not helping the countries, it's making it worse. It is piling more debt on debt. In the short run it is more important for countries to have their export earnings available for reinvestment than it is to expect new infusions of investment in loan form. New infusions of direct investment, equity investment that doesn't have anything to do but pay whatever return the country can pay that's valuable. We want to go away from debt service to reinvestment of export earnings and to equity investment. Down the road bank credits will become important again. Monitor: How are you going to convince the bankers to participate in this program and how do you convince voters that this is not a bailout of the banks? Morrison: Anything you do in dealing with international economics and banks has the risk of being misconstrued or intentionally misstated by people as being a bank bailout or foreign aid. Those are real problems. But the banks are in trouble with these loans. These banks aren't going to get paid back 100 cents on the dollar - no way, no how, never. They're already troubled loans. There's already a secondary market evaluation of what they are. Sooner or later, and starting already, the banks are going to take losses including tax losses, and they're going to get that help. We're not helping the banks with federal dollars at all in this; we are preventing further losses of federal dollars by getting the loans out of the banks to places where the government isn't the guarantor, where the government isn't the insurer. The losses aren't going to be any greater under this than they were already. The losses are going to be what the market is already evaluating these loans at. In fact, if the system works, the losses will be less because the loans will be repackaged in a form that is easier for the debtor countries to pay and their value will rise, not go down. Now, people will say that you're helping the banks. Well, to the extent that helping the banks means keeping them from going broke, yes. Do taxpayers want the banks to go broke? I don't think so, because when they go broke taxpayers pay. In that sense, creating a mechanism so the banks can get out from under [their debts] not for nothing, but for a fair discount which is what the market says the stuff is worth, that's just letting the market work. Monitor: With the value of loans in the secondary market often falling well below 50 cents on the dollar, how do you think the secondary market will work? Morrison: First of all, it's a very thin secondary market and almost everybody in the secondary market is buying only when they want to do a debt equity swap. It's not a real secondary market. There are two things wrong with it. All you can buy is the loans in their present form. It is not a securitized secondary market, therefore it's not providing the kind of breadth of investors that exist out in the world to keep the market values up. Nor does it allow for the restructuring of the debt. Everything that improves the long-term viability of the payment of the debt, the viability of the country, will improve the value of these assets. [If] values would rise, the banks would be happy to hold at least part of what they currently have. It's going to be a bank's choice. This is not an enforced sale, it's not a fire sale. Now, I predict that it will make economic sense for them to get liquidity. That's a market judgment. The current market is not a viable market. What is needed is a restructuring and securitization. The benefit of having it done by a multilateral public sector entity rather than by somebody on Wall Street is that there is no profit needed by this entity. This entity does not need to give a return on its capital. All it needs to do is get back from the secondary market whatever it has to give to the banks. Monitor: Should all of these loans be repaid? What is your position on loans that were made to dictators or which were wasted by their governments? Morrison: From a moral standpoint there are lots of debts out there that were incurred by dictators who looted the money and there's very little moral obligation to pay. I think that's a domestic political dispute within the countries involved and they sort of have to make their case against a particular loan made by a particular bank which has the earmarks of being part of defrauding the country because the banks were giving it to a government that everyone knew or should have known was looting the money. That really isn't the central focus. The central focus is to recognize market realities as you would if these countries were companies and this were Chapter 11, in which case you would be saying we want this company to survive because it's got a viable future. People take losses, banks take losses. Eventually banks also loan money to those newly restructured companies and things go on. Monitor: Under this plan, where is new money going to come from? Morrison: In the long run it's going to come from banks and other sources of capital. In the short run it's going to come from trade earnings. There's a huge amount of trade earnings that are going to service the debt. Those dollars can be invested in the country to the extent that they don't have to be used for current debt service. That's a significant source of new money. Beyond that, restructuring can lead to investment funds. One thing is local currency funds, local currency that has to be reinvested in the country. I imagine countries would be willing to pay a premium, that is give more, redeem more, take less of a discount. They'd even do 100 cents on the dollar for local investment because that would create funds that had to be reinvested in the country and securities dealers could resell that around the world. In fact, that's already going on to some extent. So the point is that there's still the availability of equity investment based on the long-term viability of the particular enterprise or the country as a whole. That viability is enhanced, not diminished, by the reduction of the short-term debt load and so it's going to be a more attractive place to put your money when we go through this restructuring. Now down the road the banks are going to come back in. Maybe this time they'll come in with a little more prudence. That's one of the reasons why they're in such deep trouble. They allowed countries to make very bad investments by not saying "what factory are you building with this [and] is it going to produce earnings that are going to allow you to repay it?" They didn't ask those questions. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR January 1988 VOLUME 9, NUMBER 1, JANUARY 1988 Growing Out of Debt An interview with Isaac Cohen Isaac Cohen is director of the Washington office of the United Nations Economic Commission on Latin America and the Caribbean. Multinational Monitor: What do you see as the major trends in Latin American development in recent years? What has happened to the major economic indicators and the peoples' standards of living? Isaac Cohen: The basic threshold in Latin America would be the 1973 and 1979 oil shocks. In 1973 traditional exports from Latin America did relatively well in international markets, and the countries were able to pay for the oil bill without constraining imports. At the same time, the oil price increases initiated the recycling of funds from the oil producing countries into what are now the debtor countries. In 1973 a period of considerable international lending started as well as a boom in export prices not only for oil but for all the other raw materials and basic exports of Latin America. Consequently the 1970s were a decade of positive evolution of economic indices. Monitor: Including income distribution? Cohen: Well, that's the problem in Latin America. The macroeconomic indicators do not necessarily translate into the betterment of the majority of people. In countries that have better income distribution like Argentina, Costa Rica or Uruguay, progress in macroeconomic indicators will immediately be better distributed than in those countries that have a relatively skewed income distribution as is the case with Mexico, Brazil, or Guatemala. The way progress is absorbed and channelled and distributed depends on the prevailing structures. Monitor: By some indices countries like Guatemala seem to have gotten worse during that period since there was greater concentration of land holdings. Cohen: Definitely. The basic flaw in Central American development under the 30 years of sustained economic growth since the Second World War--which was impressive because the growth was around 5 percent a year--was that it was very badly distributed. But at least the economies were growing. And then comes the second oil shock of 1979, which finds the Latin American countries in debt and with the prices of their exports going down. From then on, the whole situation changes dramatically. We move into a decade which I guess can be called a lost decade for Latin American growth and development. The region falls into the debt trap. It faces the impossibility of servicing and paying the debt. The whole external situation is aggravated because the prices of raw materials and non-fuel commodities fall to the lowest level that they had experienced since the crisis of 1929. Simply, growth stops. And whatever growth there is is destined to pay debt. So we move from a situation in the 1970s when we were growing, though probably not distributing very well, to a situation in the 1980s when we are not growing and not even distributing at all. Monitor: Have the past few years begun another phase, the phase of adjustment to the debt problem where the countries have to respond to the International Monetary Fund (IMF) and the banks and not merely worry about paying off the debt but also about having to comply with the plans which the creditors impose? Cohen: The problem of the debt in Latin America is not the difficulty of paying, it is the impossibility of paying because there is an economic crisis. The debt is an issue because there is no growth. There is no capacity to pay, there is no capacity to import. Trying to service that debt in the middle of this very negative circumstance aggravates the situation because adjustment has to take place with no growth. Let me give you an example. Adjustment is required from the most indebted Latin American countries. By what means? By generating an external surplus. But you cannot generate that surplus by exporting more because your products are not getting good prices in the international markets. The only way you can generate a surplus exporting less is by reducing your imports. If you reduce imports in open economies, as the Latin American economies are, consequently you decrease your productivity and consequently you do not grow. On top of that, you use the surplus you generate to finance and service your debt. That's what makes the situation very bad. We have always said the solution to the debt problem is to grow out of it. But in order to grow in Latin America you have to give these countries the resources to grow. That's why the issue is not so much what is already owed, but how much new money you need in order to grow and consequently pay your debt. From a region which in the 1970s was importing capital, Latin America has become an exporter of capital. So here you have paupers exporting capital, which is absolutely terrible. There is no way you can have any progress at all if these countries are exporting capital instead of exporting raw materials or manufactured goods. Monitor: Is there any possibility for a realistic growth strategy? Cohen: It depends on how the economies of the industrialized countries evolve and it depends on the way the debt issue is confronted. That has moved in different stages also. The first stage was the period of adjustment for the Latin American countries to their initial burden. They adjusted severely in the 1980s. Imports were constrained severely and they ended up paying considerably. The second stage was one in which the Baker Plan was announced and the opinion there was, OK, it is necessary to grow in order to pay it. The third stage is the stage in which we are now where you see the banks incurring some losses because the real value of the debt - if you view it from the perspective of the secondary market that has emerged - is almost half of what it is worth. This has been resisted up until now, but more and more what you are seeing is a recognition that the debt is not worth its nominal value, its face value. The market has, in that sense, made a decision on the value of the debt. Monitor: Is that likely to decrease pressure on the debtor countries? Cohen: Yes, if and when the debt could be traded in the market as any other kind of asset, that would decrease the amount of principal. Countries could buy back part of the debt at reasonable prices. Instead of paying, the best thing to do would be to buy back these loans if they become tradable as securities. The present negotiations by the Brazilians are focused on the possibility of transforming some of their debt into marketable securities at their market value. That is going to be important because it means that, first of all, some kind of securities will have to be created that will have to be taken by the banks in exchange for the debt. They would be thrown onto the market and bought by whoever is willing to assume the risk. This is the way that the third stage is beginning to appear. Monitor: How can the Latin American economies address the problems of poverty and malnutrition? Won't any infusion of capital be insufficient if the economies are not structured for self-sustaining growth? Cohen: The key is employment. If these economies are not able to generate sufficient employment, there is no way you are going to solve those problems. International lending on favorable terms can help with some problems like hospitals or very basic, urgent needs, but you must find an alternative that generates sufficient employment because the only way to break the cycle of poverty is to employ people. People are willing to work, but there is no employment. Monitor: But since there are so many jobless people, is it really possible for the manufacturing sectors in Latin America to undergo the massive expansion that would absorb them all? Would there be more prospect of generating domestic jobs if in addition to the exporting you had to do to get the hard currency you need to buy supplies, you also put an emphasis on producing for the internal market? Cohen: Both are important. You need to expand your internal market. That you can do by generating employment, which gives people income and boosts domestic demand. But in some cases the internal markets of these countries are too small to sustain manufacturing levels which are of a scale required to be efficient. You could expand the market through economic integration and arrangements of free trade among the Latin American countries and at the same time, the emergence of a structure that competes efficiently in the international market. That would be the ideal solution, together with addressing the basic needs of the population through economic assistance from multilateral institutions under soft terms. That would be important. Take the case of Central America. It illustrates how important external assistance is for the survival of any kind of regime you find there. More and more countries are receiving considerable amounts of foreign assistance. Nicaragua gets around $600 million a year in economic aid. Costa Rica gets about $500 million, Honduras, $300 million to $400 million, and El Salvador, $700 million. So all of these countries are receiving some kind of external support because the fact is that for such small economies, it is very hard to become self sustaining. You need the expansion of the internal market, you need the expansion of the regional markets through economic integration, and you need the international market. But in order to be able to export, to compete, you need to be efficient. And the markets of the developed countries have to remain open. I am supposing that protectionism in the industrialized countries would be defeated. I am optimistic, I am not pessimistic. I wouldn't like to give the impression that I don't see a way out of this. But we have to confront reality. These years have been very severe. Take Central America. Eight years without growth. That is terrible. Everything is being wiped out. Whatever was accomplished in the previous two or three decades is being wiped out by this terrible crisis. Monitor: What does the debt crisis do to the prospects for integration? Cohen: Resources are being channelled to service the debt, so those resources cannot be used to import the necessary raw materials and equipment to industrialize and to invest. That issue hinders the expansion of internal demand and the generation of employment, because servicing the debt does not generate employment. On the contrary. If you service your debt by importing less, that does not generate employment. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR January 1988 VOLUME 9, NUMBER 1, JANUARY 1988 Peru's Predicament By William Steif William Steif is a freelance writer based in the U.S. Virgin Islands. LIMA, Peru--Dr. Alejandro Toledo Manrique, like many in this Pacific Coast nation three times the size of California, is clearly worried. "The future is grim--we're in one of the most severe crises of the last 55 years," says Toledo, director of the Institute of Economic Development within Peru's prestigious Graduate School of Business Administration. "Our critical objectives have been delayed, postponed. The government [of President Alan Garcia Perez] is trapped in a fireman's role." The latest manifestation of this fireman's role, a desperate move born of the failure to achieve adequate new internal investment, was Garcia's nationalization of Peru's 10 privately- owned banks, 17 insurance companies and six, bank-owned finance companies in mid-October. The nationalization, which Garcia originally announced in a July 28 speech, was accompanied by police strongarm "invasions" of the bank premises, demonstrations in the streets of Lima, and much rhetoric, pro and con, including denunciations by the largely bank-owned media. The nationalizations signalled that Garcia's honeymoon with the private sector was over. Since the populist Garcia's inaugural in July, 1985, as the first-ever elected president from the American Popular Revolutionary Alliance (APRA), Garcia had been carefully cultivating business, which tends to be organized in Peru in consortia of family empires. Two of the private banks' chiefs were among a small group of business leaders, commonly known here as "the 12 apostles," through whom Garcia had originally tried to concentrate major new investment ventures. Garcia's "heterodox" economic strategy, succeeding the orthodox strategy of the more conservative President Fernando Belaunde Terry of the Popular Action Party (AP), seemed to work for a while. One of the 38-year-old Garcia's first acts, on assuming office, was to announce that Peru would limit foreign debt service to no more than 10 percent of the value of yearly exports, a pledge which troubled the World Bank, Inter-American Development Fund, International Monetary Fund (IMF) and bilateral lenders and which was not kept because of foreign pressures. Debt payments in 1985 equalled 35 percent of exports of goods and services, according to the central bank, and 29 percent in 1986, though the figure is now dropping, precipitating clashes with the lenders and a shutoff of funds. The "heterodox model" was based on wage and price controls, cost stabilization, a freeze on the dollar exchange rate, low interest rates, a "de-dollarization" of the economy, stimulation of demand with wage increases and emphasis on the use of idle capacity. Initially these bold moves worked. In 1986, the gross national product (GNP), sum of the value of all goods and services produced, rose 8.5 percent, inflation was held to around 63 percent for the year, real wages were up 8 percent, open unemployment dropped from 12 to 10 percent and under- employment decreased from 46 to 42 percent in a workforce of about 6.5 million. "Even reserves increased considerably," says Toledo, "[I]n the short run this was impressive. But more critical is this recovery's durability. In 1986 businessmen made a lot of money. The government expected reinvestment, but this didn't happen." When APRA won both houses of the Peruvian Congress in 1986 elections, Garcia's government enacted legislation forcing businesses to make a 25 percent investment of profits in "obligatory" bonds. Toledo says the businessmen had been getting "misleading signals" and they said "Hold it!" The economist says "Peru needs to invest $4.2 billion" internally in the next few years in order to maintain a five percent annual growth rate through 1995. He asks: "Where's the money going to come from?" The internal level of savings is low, about 8 percent of GNP. National and private foreign investors and the World Bank have not been anxious to invest in Peru. The economic indicators for 1987 fall far short of those for 1986: inflation ran at a rate of between 110 to 115 percent, the budget deficit remained at about 7 to 9 percent, excluding interest on foreign debt, and the foreign debt was around $15.2 billion, with reserves of only $450 to $500 million, down almost $1 billion from a year earlier. Meanwhile, capital flight took $560 million out of the country, and the country's exports of a little over $2.7 billion worth of goods just about equalled the country's imports. "In summary," Toledo says, "we'll show four to six percent growth in 1987, but my concern is for 1988, 1989 and ahead. This government needs a strong dose of pragmatism. We need internal savings, export capacity and the government, with its social sensitivity, has to find a way for lasting redistribution of wealth. There's no point in redistributing poverty. We have to reduce the extreme discrepancy between the haves and have-nots." In a nation of 20.5 million people, the GNP this year hovers between $19 billion and $20 billion, for a per capita income of about $900. But the discrepancies are enormous and historical in a society whose roots go back to pre-Inca times. Racism is a fact of life here, at least on the economic and social fronts. That racism, which tends to be upheld by the country's Spanish-mestizo economic oligarchy, ties in directly with two further Peruvian problems: terrorism and drugs. Terrorism means the 7-year-old insurgency of the Maoist-line Sendero Luminoso (Shining Path) Marxist guerrillas, founded in 1970 in the old colonial city of Ayacucho by Abimael Guzman, then a 40-year-old philosophy professor at Ayacucho's San Cristobal de Huamanga University. Guzman and his cadres indoctrinated a half-generation of students and teachers at the university with an indigenous Maoism. They went underground in the late 1970s and in 1980 decided to begin armed action in the belief that the conditions for revolution existed and that the road to Peruvian communism lay through "prolonged popular war." In the poverty-stricken high countryside and Andean cities the Sendero had--and has--a certain appeal to the Indian campesinos, whose average annual income is just above $200 per person. In 1980-82 Sendero staged hundreds of dynamite attacks in the Ayacucho area and in other parts of the highlands and in Lima. The targets invariably were the "corporate state" and "imperialist technology." Larger land owners and rural traders were executed after "popular trials" and their lands and possessions were split up among poorer campesinos according to family size. Belaunde's government initially ignored the threat, but changed its attitude in October, 1981, with the first Senderista attack on a police post. The government's counter-insurgency forces swung into action and proved to be effective recruiters for Sendero. Trained by U.S., Israeli and Argentine "advisers," the heavily armed government forces stole, raped and killed indiscriminately. By early 1984 the Ayacucho district attorney's office had received 1,500 complaints of "disappearances." And several massacres alleged to be the work of Senderistas appeared, on investigation, to have been the work of the counter-insurgency forces. The best estimates are that about 10,000 people have died in this ongoing "dirty war" of the 1980s. With Garcia's inaugural in mid-1985, the military has been somewhat more disciplined and restrained. The government regained control of Ayacucho City and some parts of that Andean province and neighboring provinces. But Sendero has still spread throughout the country. The demographics of Lima tell the story, at least in part. As late as 1981, Lima was a city of 4.2 million, nearly double what its population had been a dozen years earlier. Today metro Lima certainly has six million residents and probably close to seven million. In a Catholic nation with a natural population increase of 2.6 to 2.7 percent yearly, hundreds of thousands are coming out of the mountains to try to find better lives in the cities, which means Lima, primarily. Almost two-thirds of Peru's population is now urban. All around Lima is desert, and these people bring their poverty to sandy shantytowns of 300,000 or 400,000. The Sendero comes with them and suffers further provocations such as the military-police massacre of 267 prisoners in the three prisons outside Lima in June, 1986. Many of those killed were Senderistas, who had organized within the prisons and resisted discipline with homemade bows and arrows, seizing six police and five guards as hostages. The Senderistas have not only seeped into Lima and the other coastal cities, but also have moved into the eastern jungle, where they levy "taxes" in the cocaine belt. Since Peru provides about half of all the coca that eventually is turned into cocaine and merchandised in the U.S. and Western Europe, the Senderistas have a natural clientele among what one expert dubs the "mom-and-pop campesinos" of the Upper Amazon Basin. While Garcia's anti-drug police are battling cocaine traffickers and Senderistas in the Upper Huallaga Valley (the chief coca area, where the police killed 31 people in a day-long clash in mid October), the central bank admits it is encouraging cocaine traffickers to open non-taxable dollar accounts in Peru. The traffickers, taking advantage of the tax break, reportedly are depositing nearly $3 million daily in these accounts. Daniel Carbinetto, the Argentine engineer who is Garcia's main economic advisor, says this "parallel market dollar supply of about $1 billion a year from the cocaine trade" is necessary for the Peruvian economy. It was the lack of control over capital that spurred Garcia to nationalize the banks, a move which Carbinetto says was "justified" by "dollar speculation and the control of banks by a few families." He adds: "We don't have a surfeit of entrepreneurs. They should be totally concentrated in productive activity....We only ask one thing of businesses: That the surplus generated here be invested here, in assets." With the government in control, he says: "State investment will be pushed, but very selectively. . .to sectors where the modern state needs it--to generate foreign exchange, for example." But he cautions: "Businessmen have been standing back passively when the life of the country is at stake--if this heterodox model fails, the country will move toward civil war." But it is the debt that is more a daily worry than revolution. "We got indebted in a frivolous manner in the 1970s through irresponsible spending and irresponsible creditors who played along with us in the economic shock after the 1974 oil crisis," says Toledo. "We weren't concerned that this money go into productive investment--only 29 percent was dedicated to productive investment, only 0.6 percent to health, only 0.4 percent to education, but a substantial proportion went to armaments, and a not insignificant proportion to the private accounts of those who had the responsibility of governing this country"--the military from 1968 to 1980. With the 1980s, he says, the IMF "told us to put our house in order--we took the medicine and the patient got worse. We didn't recover on our balance of payments or economic problems, we increased social inequalities and nourished Sendero Luminoso." By 1985 Peru was "bitter and the government couldn't understand it." Garcia stepped in at this crucial time, but his job has been difficult. The APRA, the president's own political party, has often stood in the way, even though it's left of Belaunde's worn-out party. To the left of APRA is Izquierda Unita (United Left or IU), a coalition of a half-dozen leftist parties pushing for quasi-Marxist economic solutions, and pushing hard. To the right of APRA is Libertad (Liberty), a new movement opposing nationalization of almost anything and led by Peru's best-known living writer, Mario Vargas Llosa. Despite Peru's size, agricultural production and productivity are low, with the chief crops grown along the coast and limited by water availability. The big haciendas have long since been nationalized, usually into co-ops, but these are now disappearing, too, as the land is split into small plots, then re-sold to entrepreneurs. Rice has replaced the more expensive beans as the country's basic food, with rice increasingly imported and subsidized. Peru is known as the home of the potato, but last year 10,000 tons were imported; similarly, 40 percent of Peru's corn was imported last year, 90 percent of its wheat, some beef and lamb and a fifth of its non-fat dried milk. Several hundred thousand tons of sugar were imported even though Peru exported its 1987 U.S. quota of 33,000 tons of sugar--at 21 cents a pound. The country is self-sufficient in poultry and fish, but this year got $20 million worth of U.S. Public Law 480 food (wheat and corn), a give-away, at the same time it was subsidizing rice to the tune of nearly $80 million. Garcia's government jacks up some food prices--corn, for example, is three to four times the world price--and uses its profit at the state purchasing agency to try to reactivate the agricultural sector through low-interest loans. That's helped a bit, but doesn't seem to have slowed the migration to Lima. Copper, largely from the old multinational Cerro de Pasco complex in the Andes, was the single leading Peruvian export in 1986, garnering $436 million from the nationalized mines. Zinc mined in the same area was worth $238 million the same year, followed by oil and oil products ($236 million) and fishmeal ($205 million). The 1986 plunge in oil prices hit Peru hard, cutting its oil export earnings almost two thirds. The country's oil reserves have fallen to 500 million barrels, enough for less than eight years' supply at present production rates. That doesn't, however, mean there's no more oil offshore and, more particularly, in the eastern jungle, as both neighboring Ecuador and neighboring Colombia are proving with wide-open exploration by a dozen or more multinational oil companies. The problem is that Peru will have to change its laws before the petroleum heavyweights will sink big capital into the country. Under present law the national oil company, Petroperu, is the owner of oil resources. Occidental, Armand Hammer's company, is a small producer (8,000 barrels a day) in a small north coast joint venture with an Argentine firm, but it's the only international oil company actually producing in Peru. Petroperu took over an offshore field from Enron of Texas at the end of 1985 after failing to agree on new contract terms. Enron is a creditor, as well as a Japanese company that financed a $400 million jungle exploration and construction of the north Peruvian Pipeline in the 1970s. Conoco has been ready for 18 months to start Peruvian exploration if the law is changed, and Mobil is also interested- -if the terms are more agreeable. Early in 1987 Royal Dutch Shell, looking for oil in Peru's southern jungle, discovered an enormous new gas field, equivalent in energy to more than a billion barrels of oil. The new field makes Peru's gas reserves third in South America, behind only Venezuela and Argentina. The natural gas could revolutionize the country's energy supply system, now dependent on oil and hydro power. But developing the gas field will take more than $1.2 billion, including a 375-mile pipeline over the Andes. Shell's willing, but it wants a better deal from the Peruvian government, and that may not be in the cards politically. Enrique Cornejo, 35-year-old economist who previously headed Garcia's secretariat, became president of the new Peruvian foreign trade institute in 1986. His mission is to expand his nation's exports, and one way he's doing it is to barter with the Soviet Union (an unused Peruvian shipyard is building fishing boats for the Soviets) and to push debt-for-products programs, such as a recent deal in which Britain's Midland Bank agreed to accept copper, iron and other raw materials as part payment on the $160 million Peru owes the bank But Cornejo also points out 70 percent of Peru's exports are still in only 10 products, five minerals, oil, fishmeal, cotton, sugar and coffee--the latter represented the second biggest export, at $262 million, in 1986. Cornejo wants to jack up prices on these 10 items slowly and diversify Peruvian exports into such goods as flowers, mangoes, bananas, asparagus and other high-priced vegetables, and he is aiming at the Latin American market, though most of Peru's trade is now with the North. Toledo is not wholly pessimistic. He notes that Peru's foreign debt is "peanuts, only 4.8 percent of the overall Latin American debt." He says the country is not ready "to go back to the IMF," but at the same time acknowledges "we can't ignore or evade our debt...What we can do is argue why we're not in a position to pay." "We need to push exports aggressively and a key element is to regain trust"--not only from the world community, but from Peruvians, too. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR January 1988 VOLUME 9, NUMBER 1, JANUARY 1988 Up from Ashes by Sandy Smith Sandy Smith is a freelance writer based in San Salvador, El Salvador. MEXICO CITY--It's now more than two years since a massive earthquake devastated downtown Mexico City and its grimy, bustling textile district. Commuters exiting the San Antonio Abad subway station no longer turn to look at the nearby heap of twisted beams and concrete slabs, once an 11-story building housing 15 textile factories. About 500 such semi-legal sweatshops were destroyed in the quake, leaving close to a thousand women textile workers dead and 40,000 jobless. After the quake, the textile barons wasted no time in declaring bankruptcy or collecting their insurance money and setting up operations in other parts of the city. But the workers who survived were out of a job. There was no clause in the women's contracts covering job loss due to earthquakes. In fact, the quake provided a good excuse for factory owners to get rid of garment workers, or "costureras," with seniority and replace them with cheaper labor, hired on "temporary" contracts without benefits. But two years later, the owners of the textile factories are realizing that the quake generated wide cracks not only in the bricks and mortar of their buildings, but in the hegemony they'd long exercised over an unorganized workforce. In a country where the official government-controlled unions have long been little more than an arm of management, the textile industry has been shaken by the emergence of the radical 19th of September National Garment Workers Union, the first independent union registered with the Mexican government in more than a decade. The new union, named for the date of the 1985 earthquake, has now secured compensation for most of the costureras who lost jobs due to the quake and won collective contracts for over a thousand costureras in 12 factories. Intense labor struggles are ongoing in more than a dozen other factories both inside and outside the city, and the union is challenging a new government policy exempting "maquiladoras" - export-oriented factories run by multinational firms - from abiding by Mexican labor law. In just two and a half years, the women of the 19th of September Union have gained international attention as pacesetters for the popular Mexican labor movement. The unlikely headquarters for the controversial union is a scattering of tents and tin huts in a sunbaked parking lot across from the San Antonio Abad ruins - the same site where the costureras held their first sit-ins only hours after the earthquake. For 15 years Evangelina Corona, secretary general of the 19th of September Union, had been earning 33,000 pesos (about $30) per week in a textile factory. On the morning of September 19, 1985, she dropped off her daughter at school and was on her way to work for her 8:30 shift when the quake hit. She was greeted by a scene of bedlam. "Eight of the 11 floors had collapsed. It looked like a sandwich with the insides squirting out. Cloth and equipment [were] everywhere," recalled Corona. "Some workers from the early shift were being rescued by their coworkers with fabric ropes. We could hear cries and screams coming from inside. I had an aunt and a cousin in there. But it wasn't long until police cordoned off the zone putting an end to our rescue efforts." "They said it was for our safety, in case there was another tremor," explained unionist Isabel Quintana, but they let "the factory owners bring in crews and heavy machinery to rescue their equipment and the safes with money. They made no effort to rescue the trapped workers." "One owner was heard to say that the costureras were 'cheaper dead than alive,"' said Corona. After a few days' standoff with the police, the women began to congregate in groups to prevent employers from removing their sewing equipment from the ruins. "We felt we had the right to hold the machinery because we had not been paid," said Quintana. "We also wanted compensation for those with seniority who had lost their jobs. The garment workers were left with nothing." Under Mexican labor law, laid-off costureras are entitled to three months salary plus 12 days pay for every year worked. But the factory owners claimed bankruptcy when the women asked for their money. The official textile workers' unions, controlled by the Congress of Workers - the state-sanctioned labor federation - took no interest in the women's claims. Known as "charro" or "yellow" unions to workers, these paper organizations function mainly to satisfy Mexican laws requiring employers to negotiate with a union. These union leaders usually strike a contract with owners without consulting the rank and file. "The only way we knew the unions existed was because they subtracted the dues from our salaries," said Corona. "But the union officials never listened to workers' complaints and the owners preferred to pay off the union leaders rather than address our problems." And by U.S. Iabor standards the problems of Mexican costureras seem endless. An estimated one million Mexican garment workers, half the textile workforce, are paid less than minimum wage - under $25 per week at current exchange rates - for 50-55 hour work weeks. And garment workers are often forced to work in substandard sweatshops. The 19th of September Union blames the huge earthquake death toll in the garment district on the substandard construction of the factory buildings - the buildings were not designed to hold the weight of heavy garment-making machinery. Corona said that the ruined building next to the San Antonio Abad stop was only 13 years old. "We had been told that the building had been constructed with special safeguards and would not be damaged in an earthquake." In fact, survivors of the building's collapse charge that when the tremors began, their supervisors closed the exit doors and told the women to calm down and keep working rather than letting them flee. Elaine Burns, a North American volunteer working with the 19th of September Union, points out the eerie similarities between the collapse of the Mexican sweatshops and the famous 1911 fire in a New York City textile factory. The fire took the lives of 146 garment workers who were locked inside the Triangle Shirt Waist factory. Over 100,000 workers marched in a memorial parade for the victims and the disaster spurred the formation of the International Ladies Garment Workers Union which registered 20,000 women in the last two years. In Mexico, the costureras set out to build "a union that represented not only the interests of the garment workers who lost their source of income in the earthquake, but also those working in other businesses who were living with the same problems and the same violations of their most elemental human rights," said Corona. In the first months the primary struggle was for compensation for those who had lost their jobs. A month after the quake, thousands of costureras marched on the Presidential Palace. A new Mexican telecommunications satellite, sent into orbit just days before the quake, enhanced international coverage of the garment workers' plight. President Miguel de la Madrid yielded to the pressure and recognized the union. Over the next year the union obtained compensation for over 80 percent of the costurera quake victims. In 1986-87 the union has focused on building membership and securing collective contracts with textile firms. By mid-1987 about 4,500 costureras were affiliated with the union and over 700 were represented in new labor contracts. Union demands in the negotiating process have included the establishment of a linkage between wages and the cost-of-living, acceptance of a standardized minimum wage, social security registration for all workers and a reduction in the current 9-hour workday. Although many of the demands seem modest by U.S. Iabor standards, the 19th of September women are also confronting the more sensitive issues behind the role of working women. "The challenge for us is to address our role as women and mothers, as well as costureras," Corona said. For example, although Mexican social security laws contain clauses guaranteeing child care facilities in the workplace, most employers ignore the rules. One 19th of September demand is that all employers provide child care - a revolutionary concept even in the United States. At the end of May, 1987, the union opened its own child care center. The center, funded by foundations in Holland and the United States, will offer education, meals and health care to children at the same rates as over-filled government-run centers. The union also sponsors adult education classes for members and training workshops that teach new skills to older workers and those who have lost their jobs. The Union has also opened a women's clinic. The union's strength, however, depends on its ability to attract new members and secure collective contracts. The going is slow. Union organizers first have to find the workers, many of whom are employed on three-month contracts and crowded into clandestine cut-and-sew shops. They then must confront an arsenal of company tactics aimed at intimidating organizers. The organizing drive in the Comercializadora plant which produces clothing under the brand name "Gents" - is typical. The owners amassed a long record of violations: paying salaries below minimum wage, hiring underage workers, denying benefits, and deducting pay for time spent going to the bathroom. The costureras were represented - on paper - by the Mexican Workers Confederation (CTM), a charro union, but no one had seen the contract they worked under. When costureras asked for 19th of September representation, the company used a variety of union- busting tactics: 26 workers were fired CTM "goons" were hired to harass organizers and workers were imported from other plants to vote against the 19th of September contract. Despite these efforts, 19th of September leaders claim the final vote was 54 to 15 in favor of the new union. When Comercializadora refused to recognize the vote, 19th of September leaders appealed to the Local Labor Arbitration and Conciliation Board, presenting proof of the vote count. When the board ruled in favor of the company, 19th of September workers held a 10-day sit-in at the National Palace until they were forcibly removed by police on the morning of May 1. The large Roberts textile company of Mexico City has used similar tactics to undercut union organizing. The company has demanded that the government nullify registration of the 19th of September Union. Roberts executives have objected to the "extraordinary" way the union was recognized. Because government labor offices were destroyed in the earthquake, the union was registered by the signature of the Secretary of Labor himself, rather than through the normal procedure at the labor office. The pretext that the union was not properly registered also was used by the army and special anti-riot forces as an excuse to prevent the costureras from marching with other unions in the traditional workers' march on May 1st. The day after the march, the government issued a bulletin questioning the validity of the union's registration, a move that 19th of September leaders say has signalled a hardening of attitudes on the part of labor authorities. Although most of their organizing has been in Mexican-owned plants in the city, 19th of September organizers have been invited to represent workers in foreign-owned maquiladora plants. In the fall of 1986 costureras at the Korean-owned Textil Maya plant in the Yucatan requested help from the 19th of September Union after 17 workers were fired for protesting working conditions. Union representatives and striking workers were met with violence when they staged a sit-in to prevent owners from removing the plant's machinery. 19th of September Union leaders report that several workers, including one pregnant woman, were beaten in the incident. "The government is allowing maquiladoras plants to remain outside the law," Corona said. "The women are only given 'piece work' and are expected to work at a high speed for less than minimum wage, [even though] our minimum wage is only a fraction of the minimum in the U.S. or Canada." "We welcome policies that will bring more jobs, but we fear that the maquiladoras plants will reduce working conditions even lower because all they are interested in is producing goods for export with cheap labor," she said. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR January 1988 VOLUME 9, NUMBER 1, JANUARY 1988 Britain's Banks On the Dole By Robert Beasley Robert Beasley is a researcher on the debt crisis for War on Want. LONDON, England--The major British banks ended 1987 with vastly increased loan-loss provisions and the prospect of a substantial cushion--a billion pounds or some $1.75 billion at current rates--against the costs of their adventures into Third World lending, courtesy of the British taxpayer. Following Citicorp's decision in May to boost loan loss provisions - or reserves - against its Third World loans, the British banks quickly followed suit. NatWest put aside an additional £496 million ($868 million), Midland £916 million ($1.6 billion), Barclays £570 million ($997 million) and Lloyds a huge £1.06 billion ($1.8 billion). Because this money can offset profits for tax purposes, the banks are expecting to receive up to a billion pounds in tax relief from the British Government--the equivalent to every man, woman and child in the United Kingdom giving the banks £18 ($31.50) each. British company tax law, however, gives the final say on the billion pounds to the Inland Revenue. It is they who have to assess each specific provision and decide whether the banks are entitled to tax relief. While the Inland Revenue is officially conducting negotiations with each of the banks independently of the British government, the conservative government of Prime Minister Margaret Thatcher has made it clear that it wants the Inland Revenue to be as generous as possible. While Chancellor Nigel Lawson denies any direct interference and claimed in July to be opposed to "bailing out the banks" after their own commercial misjudgments, he said it is "wholly proper" that the banks' increased provisions will "mean a significant cost to the taxpayer." Critics argue that this effectively subsidizes highly profitable institutions that, throughout the debt crisis, have pushed the burden of repayment onto the poor of debtor nations. War On Want Campaigns National Organizer, John Denham, accused the Thatcher government of "joining in the banks' attempts to have the burden of repayment pushed onto taxpayers." Instead of simply granting tax relief, Denham says, the British government should use the billion pounds to buy debt from the banks, at a 50 percent discount, which reflects its value on the secondary market. This way the government would get £2 billion ($3.5 billion) of debt, which could then either be cancelled, generously rescheduled or used in debt-development swaps. The banks could dump their worst debt in exchange for a billion pounds of "real" money and then take a paper loss of a billion pounds on their asset sheets. Although this would not solve the crisis, "it would at last start to make the banks pay for their past 'mistakes' themselves," says Denham. "It would also mean that taxpayers would actually get something for their money, and [it would] allow the government to provide immediate debt relief in areas where it is desperately needed." To date, however, the Thatcher government, although stressing the banks' legal entitlement to tax relief, has insisted that it will not get involved in the commercial affairs of the banks. But forcing taxpayers to pay out a billion pounds in tax relief is an involvement that has not been popular with the British public. Thousands of protest letters have been received by both the Chancellor and individual MPs, and members of the Shadow Cabinet have taken up the issue. The banks themselves have also been forced to respond publicly to the critics. Midland, for example, produced a 16-page document outlining its role in the debt crisis. The bank claimed that per capita incomes in Latin America have risen by 32 percent since 1980. Per capita incomes have actually fallen in all but four Latin American countries since 1980. Real incomes among industrial workers have fallen by around 50 percent. Until this year, the big four British banks have done very well out of the debt crisis. In 1985, repayments from Latin America were equivalent to around 80 percent of Midland's pre-tax profits, 40 percent of Lloyds' and 20 percent of both NatWest's and Barclays'. It was also another year of record profits, reaching over £3 billion ($5.2 billion at current rates of exchange) between the four. Despite efforts in the last four years to build up their business elsewhere, repayments from Latin America remain essential to all four main High Street banks in the United Kingdom, especially in terms of cash flow. Before Mexico's three month suspension of repayments in 1982, all four main British banks had been active lenders in the Third World. British banks are now the third largest source of commercial loans to developing countries, behind only their American and Japanese competitors. For years it was an easy source of profit and there was little concern as to how the loan money was spent. As they come under increasing fire for their role in the debt crisis, however, the banks are claiming that most of the lending actually was used constructively, helping to develop the industry and infrastructure of developing nations. (balance of this article omitted here; unscannable) ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR January 1988 VOLUME 9, NUMBER 1, JANUARY 1988 Union Politics By David Kusnet David Kusnet directed publicity in organizing campaigns for the American Federation of State, County and Municipal Employees (AFSCME). He was a speech writer for the late AFSCME President Jerry Wurf and for Walter Mondale during the 1984 campaign. Four years ago, organized labor auditioned for a major role in the Making of the President--and ended up being cast as a big loser in the politics of 1984. Now, as the 1988 campaign gets underway, the unions are preparing to play a more modest role. And, partly because the movement's goals are more realistic, labor may find itself in the winner's circle this time around. For the unions, 1988 maybe a better year than 1984, not only because of the lame-ducking of Ronald Reagan, but also because big business is replacing big government as the target of public anger, and the unions are displaying a new strategic shrewdness in their organizing, communications and political action. This year, the unions are gearing up new efforts to stress family as well as workplace issues, communicate more effectively with their members, change their image in the mass media, and avoid conveying the impression of institutional arrogance they projected in 1984. The Lessons of 1984 For unionists, the first step toward succeeding in 1988 is learning the lessons of 1984 when labor undertook its most high- profile, high-risk and ultimately high-loss effort in history. By this time in the 1984 race, labor had already done something virtually unprecedented: endorsed Walter Mondale for the Democratic presidential nomination before the first caucuses and primaries. For labor's national leadership, there were many good reasons to endorse Mondale. As an activist in Minnesota's Democratic Farm Labor Party, a progressive senator and a respected vice president, Mondale had racked up a record of consistent support for labor and its causes. With the withdrawal of Sen. Edward Kennedy, Mondale had no serious rival for the support of most union leaders and activists. And, left to its own devices in 1972 and 1976, the Democratic nomination process had produced candidates viewed as inexperienced in national politics and indifferent to working people. However, while amply justifiable, the Mondale endorsement may never have been successfully justified to the media, the electorate, or even to much of labor's rank and file. While not equalling Mondale's lifetime commitment, several of his rivals-- Gary Hart, John Glenn, and, certainly, Alan Cranston and Jesse Jackson--had pro-labor records and appealed to segments of labor's rank-and-file membership. Critics asked why the AFL-CIO and the powerful and unaffiliated National Education Association (NEA) had each endorsed Mondale before Democratic voters had the chance to cast their ballots--and in many cases, without even polling their own members. Whatever the merits of the Mondale endorsement, its symbolism coincided with and contributed to the image problems that dogged his doomed campaign. Unfairly for a man whose career began in Minnesota's participatory politics, Mondale became typecast as the ultimate Washington insider. In the media and among much of the electorate, labor's endorsement of Mondale was seen not so much as a recognition of his accomplishments but as one more powerful national institution falling into line behind a political operator. What began as an internal debate within the Democratic Party ultimately injured Mondale, the party, and the labor movement. First John Glenn and then Gary Hart attacked organized labor as a special interest and Mondale for accepting the AFL-CIO endorsement--rhetoric that was recycled by Reagan and the Republicans in the fall campaign. Meanwhile, in the primaries and the general election, labor had a mixed record of delivering its own membership. In his upset victory in the New Hampshire primary, Hart carried union members by a margin estimated at seven-to-six--significantly less than his share of the entire electorate but a rebuff to a labor campaign in which more than 20,000 union members were contacted personally. Hart also carried the union vote in Massachusetts, Rhode Island and other strong union states and did surprisingly well among union members in California, Ohio and Indiana. However, after the early primaries, labor's political operation rebounded, lacing into Hart on the relatively few issues where he parted company from the unions, including his support for decontrol of natural gas and his opposition to the rescue of Chrysler and trade protection for workers in the auto, steel and apparel industries. Together with Hart's being labelled as a "yuppie" candidate by Mondale and the media, labor's political effort succeeded in polarizing the Democratic electorate in favor of Mondale, with blue-collar workers and the poor supporting Mondale or Jackson, and the less numerous upper income voters favoring Hart. Ironically, Mondale and the unions were less successful in introducing class conflict into the campaign against Reagan. The most optimistic union estimates showed Mondale capturing between 50 and 60 percent of the votes of union members and their families significantly less than successful Democratic candidates had won in the past and little more than George McGovern, Adlai Stevenson, and other losing Democrats not known for their appeal to working people. So labor's 1984 effort went down in the history books as a failure. Most of the blame for Mondale's lack of appeal to working Americans rests not with the labor movement but with the campaign itself. As John Sweeney, president of the Service Employees International Union, explained in a post-election speech, the unions tried to sell Mondale to their members with the message that he supported full employment, tax justice and programs like Medicare and Social Security. That was Mondale's successful message in the primaries, but, in the general election he stressed the budget deficit, called for a tax increase that would hit the middle class as well as the wealthy, and refused to call for new jobs programs. In some ways, organized labor's active participation, despite the ultimate outcome, was not without important successes. Badly bruised after the unsuccessful PATCO strike and years of concessions at the bargaining table, defeats in Congress, and declines in its membership figures, organized labor had to do something highly visible to prove that it was still a force to be reckoned with on the national scene. The early and active support for Mondale may have been an effort to prove to the members and the media that the movement was still a movement. By proving it could help a candidate win the Democratic nomination after being one punch away from a knockout in the early primaries and by being attacked by its enemies as a powerful special interest-organized labor proved that it still had some of its fabled clout. Just as important, the 1984 experience taught the unions new lessons on how to mobilize their own members. To old-line union leaders at the national and state levels, rallying the troops meant appealing to institutional loyalties fostered during the Great Depression and the organizing drives of the 1930s and 1940s. Not surprisingly, this message had little appeal to a new generation of workers who had not experienced the struggles of a half century ago. As the campaign continued in Illinois, New York, Pennsylvania and other industrial states, the unions learned to address their members as individuals and to explain why Mondale was better for steelworkers, auto workers, teachers and public employees. While the unions learned a lesson about message, they mostly failed to learn a lesson about methods. Before the 1984 campaign got underway, several unions, most notably the Machinists, experimented with a new program called "one-to-one." This program trained shop stewards-the workers who represent their co-workers in their problems on the job and are most members' immediate link with the union-to discuss political as well as union issues with their co-workers. Conducted on an experimental basis in the paper-mill town of Berlin, New Hampshire, "one-to- one" produced a Mondale landslide of 60 percent in that community, while he lost the rest of the state by a comparable margin. The reasons for the program's success were explained by Ed Draves, a union political operative who coordinated the effort in Berlin: "There's been a lot of talk about special interests, big labor, a top-down endorsement. The one-to-one program is the reverse. Instead of the member getting a letter from Lane Kirkland or the state AFL-CIO, he's been contacted by the guy who represents the union on the lowest level." Since 1984, the "one-to-one" program has been continued, on a limited and experimental basis, by the AFL-CIO's Committee on Political Education (COPE) and by several unions. But a major effort hasn't been made and the lack of such an effort may be felt in October and November. A Lower-Profile Effort in 1988 Learning from its experience in 1984, the AFL-CIO is taking a lower-profile effort this year, one that emphasizes listening to as well as talking at the members. In an innovative use of communications technologies, the AFL- CIO has produced a videotape with statements by every announced presidential candidate from both parties appealing for the support of working people. National and local unions have ordered more than 13,000 copies of this videotape--which also includes irreverent commentaries by actor Ned Beatty and columnist Mark Shields--and are showing the tape at local union meetings. Following the distribution and showing of the tape, many national unions are polling their members on their presidential preferences. The NEA is conducting a similar process, producing its own candidate video and polling its own members. Unlike 1984, the unions are pursuing a multi-candidate strategy in an effort to send labor delegates to the Democratic convention, win a favorable hearing for labor's concerns, and build a working relationship with whoever is nominated. With the AFL-CIO and the national unions declining to make endorsements at this stage in the process, there was support for every major candidate except Gary Hart, Bruce Babbitt and Albert Gore. As the political year began, Richard Gephardt enjoyed support within the United Auto Workers and other industrial unions for his stand on trade issues, (balance of this article omitted here; unscannable) .