Third World

For much of the developing world, this last year has been one of continuing recession and economic hardship. For the big debtor countries, meeting bank and IMF guidelines meant the adoption of strict austerity budgets requiring lower real wages and cutbacks in health and human services-moves that brought thousands of people to the streets in protest from Chile to Brazil to the Philippines. The cutbacks also meant a drastic slowdown in imports-sales to non-oil developing countries from the U.S. and other Western countries were down $24 billion last year-which worsened conditions for the recovery of Third World exports. And even when production improved, Third World countries found markets blocked by protectionist measures in the advanced countries.

The most serious debtor countries were in Latin America; at the end of 1982, the eight principal debtors there owed $286 billion to foreign banks, while Asia's top six borrowers had debts of $112 billion. Latin American countries also suffered from a much lower rate of exports -the exports of goods and services from Latin America equalled 15 percent of the GNP compared to 35 percent in Asia.

The slowdown south of the U.S. border has caused some multinationals to shift executives out of Latin America. "There's a heck of a trend towards Asia," says Robert Richmond of the U.S. Chamber of Commerce.

But higher growth rates in Asia did not necessarily mean greater political stability. In the Philippines, shaken by its most serious political crisis in years with the assassination of opposition leader Benigno Aquino, capital left the country at an unprecedented rate, and bankers and investors are waiting the crisis out before committing any more loans or investments. South Korea was shaken by financial scandals and continuing disputes between American multinationals and Korean businesses. The only country in the area where foreign investment was growing to any degree was Singapore, a favored location of many multinational electronic and computer firms.

In South Africa, a secret State Department study revealed that U.S. direct investment is almost twice as high as previously thought, indicating a deep American involvement in that racially divided country.

But the biggest issue was the debt crisis and the potential for massive political unrest unless some solutions are found that bring not only economic growth, but economic justice and democracy as well. Whether solutions are possible within the constraints of the present political and economic system was a question posed by many economists and Third World leaders.

What follows is a summary of the economic and political situation in four of the Latin American debtor nationsBrazil, Argentina, Chile, and Mexico.

BRAZIL. With total debt expected to reach M billion by the end of the year ($22 billion owed to U.S. banks), Brazil was a major concern to the financial community during the year. After a long series of discussions, agreements were finally reached with the major banks and the IMF in September to renegotiate its debt. Under the agreements, Brazil agreed to a strict austerity program and a cutback in imports; at year's end it was moving toward a trade surplus of $6.5 billion promised to the IMF, mostly through increased exports to the U.S.

The country's workers and unemployed continually expressed their anger at their country's precarious economic situation. In April, an unprecedented series of demonstrations and riots of the unemployed took place in Sao Paulo, one of the largest industrial cities, while Brazilian workers staged two major general strikes during the month of July. In the demonstrations, many workers carried signs denouncing the IMF. Hundreds of unionists were arrested, and a number of unions were taken over by the government.

Various actions were directed against multinationals. According to the New York-based Brazil Labor Information, workers at a General Electric iron plant protested low wages and the firing of union activists, while both labor and church groups have protested Alcoa's forced eviction of 20,000 people off their land to clear the way for an aluminum smelting plant.

Multinationals in Brazil, especially in the computer, pharmaceutical, and shoe industries, were hit hard by Brazil's inability to import. Investments by American multinationals, which account for 20 percent of the sales of the country's 500 largest manufacturers and 31 percent of total foreign investment, slowed considerably. In a move to protect domestic industry, the government limited foreign. investment in the computer, telecommunications, and digital chip industries. PhilcoFord and RCA announced they will pull out because of the moves, and Germany's Siemens is close to a similar decision.

Next month, MM will have a special focus on Brazil.

ARGENTINA. In December, many Argentineans welcomed incoming president Raul Alfonsin's decision to place members of three previous military juntas on trial for murder. But the first civilian government in 7 years still faces the serious problem of paying back the country's $40 billion debt, $8.2 billion of which is owed to U.S. banks.

As in Brazil, there has been strong public reaction against the country's relations with foreign banks. In October, the country's chief banker was arrested shortly after returning from a Washington meeting of the IMF, and charged by a nationalistic right-wing judge with "violations of sovereignty" over an agreement reached with New York banks over the financing of Argentina's national airlines. In response to such sentiment, Presidentelect Alfonsin has said the country's debt will be repaid, "but not if it means hunger for our people." In December, the new government asked its creditors for a six month moratorium on all loan payments.

With inflation running at 200 percent-the highest in the world-and with trade unions promising major demonstrations against the IMF and the foreign banks, Alfonsin is in a tight spot. Although the country was "very profitable" in the late 1970s for multinationals, one U.S. Commerce Department official said "he can't imagine any new investments" in the near future.

CHILE. "The most unstable spot in Latin America. The Pinochet government could be overthrown at any moment." That was how Business International, the weekly newsletter for corporate executives, characterized this country in September, after months of demonstrations against the military dictatorship and its "free market" economic program.

Experiencing their tenth year under military rule, Chileans began to openly rebel against the disaster brought by the Pinochet regime in 1983. With unemployment at the 30 percent mark and prices spiralling out of control, the middle class has joined Chilean workers in saying they have had enough. Starting in May, the first big demonstrations against the government since the 1973 coup took place. Organized by trade unions, the demonstrations led to massive repression and arrests of union leaders and human rights activists. Dozens were killed in battles with police and the military.

These demonstrations were stark proof of the failure of the "Chilean experiment" so praised by free market economist Milton Friedman. In January, nine key banks and finance houses were taken over by the government, and most of the "Chicago Boys" responsible for the debacle were out of power. The head of Chile's largest industrial group was arrested for falsely reporting the financial status of his bank. With industrial production at 50 to 60 percent of the 1969 level, many American banks wrote off their loans to the country. Total outstanding debt stood at $18 billion, $4 billion of which is owed to U.S. banks.

Foreign investors have not been eager to commit new resources to Chile, and the Pinochet government has taken steps to reverse the trend with a new law to encourage investments in the copper industry. But the generous terms of the law has sparked a new round of street demonstrations. And although the U.S. Overseas Private Investment Corporation reached an investment guarantee agreement with Chile in September, a U.S. Department of Commerce official said he was "not aware of any significant new investments" in the country. "There's always a danger a future government may turn over the very favorable investment legislation on the books now," he said.

MEXICO. Last year, when Mexico informed U.S. bankers that it was nearly bankrupt, a shudder went through the entire financial system. But a crisis was averted by renegotiation of the country's $80 billion debt-only now the price is being paid by Mexico's workers. Under a strict austerity program, government budgets are down, and imports have dropped nearly 50 percent. The GNP is expected to drop between two and five percent this year.

The program has meant the ending of government construction projects, which has cost over 500,000 jobs. In the auto industry, over 40,000 workers have been laid off. Ford, GM, Chrysler, AMC, and Nissan have all reduced their work forces and sales are down almost 40 percent in the industry. Producers in the appliance industry have been hit hard as well.

Total investment in Mexico during 1983 stood at $11 billion, 70 percent of which came from the U.S. Foreign operations are responsible for 30 percent of Mexico's non-oil exports, which are now 75 percent of the total. With the country unable to absorb any more loans, the government is looking towards foreign investments to help the country overcome its shortage of capital and growing unemployment.

The only area where corporate interest has grown, however, is in the "maquiladora" or export processing factories on the border. Under new guidelines, investments in these areas has grown by over $200 million this year, according to the Journal of Commerce. By the end of the year there will be 800 such plants, up from 600 last year.

These policies have brought increasing criticism from the Mexican left, nationalists within the ruling party, local businessmen, and workers: a strike at a Zenith plant in November focused attention on the low wages in the border factories.

Although the country will have a record trade surplus this year, some exports have run into protectionist barriers in the U.S. Last month, Mexican businessmen and government officials issued a bitter criticism of U.S. Steel for its request for protection from Mexican steel producers.