by Norman Lowe
Faced with escalating economic and social problems, the military decided this was an appropriate time to hand power over to civilians. In 1985 the presidential electoral college chose the 75-year-old Tancredo Neves as the first civilian president for over 20 years. Sadly, he was taken ill almost immediately and died before he could be sworn in. His deputy, Jose Sarney, took over and for the next four years struggled to stabilize the economy. In February 1987 the government announced that it was suspending interest payments, but the IMF came to the rescue with credits amounting to $41 million. Brazil was able to pay the interest on time, but Sarney’s emergency policies caused hyper-inflation, and in the 1989 election he was defeated by Ferdinando Collor. In an attempt to stem the rocketing inflation he introduced even more stringent policies: the currency was devalued, government expenditure was reduced, bank accounts of over 50 000 cruzeiros (about £1300 US at that time) were frozen for 18 months. This was a disastrous move since it meant that the economy was deprived of some $80 billion at a time when it was most needed. The result was a wave of business failures and massive unemployment. In the midst of the chaos Collor was accused of corruption, impeached by the Senate and forced to resign at the end of 1992.
The 1994 election was won by a coalition of right-wing groups with Francesco Cardoso as president. He had produced a Plano Real designed to bring inflation under control. This involved large tax increases, wage reductions for public-service workers, and the privatization of many government enterprises. This had great success in lowering inflation from a thousand per cent when the plan was first put into action, to single figures by 1997. Overseas markets began to revive and there were marked increases in exports of agricultural produce and manufactured goods. Cardoso was re-elected president in 1998. Just as it seemed that Brazil had at last achieved some sort of stability, there was another crisis. Some of its foreign customers, including Russia and south-east Asia, reduced their imports from Brazil, government spending and borrowing were still much too high, and inflation began to rise again. Once more the IMF stepped in to help stabilize the currency with massive credits of $41 billion. There was considerable unrest among the working classes, many of whom were poverty-stricken, and there was an increase in crime and violence.
The year 2002 was when things began to change, with the election of the left-wing Luis Ignacio da Silva (popularly known as ‘Lula’) as president. He was re-elected in 2006 and remained in power until the end of 2010. It was during this period that Brazil at last began to fulfil its promise, so that by 2011 it was viewed as potentially one of the world’s leading economies (see below).
(b) Venezuela
Venezuela is one of the wealthiest states of Latin America because of its oil resources. Until 1945, however, profits went to foreign oil companies (mainly American and British) or to the small group of wealthy people who ran the country via a military dictatorship. The great mass of the population received no benefit from this wealth and remained poor and illiterate. In 1945 Romulo Betancourt, the leader of a progressive left-wing party called Acción Democrática, was placed in power by a group of young army officers after fierce fighting in Caracas, the capital, had led to the overthrow of the military government. Betancourt introduced a new constitution which allowed full civil rights to all citizens. A programme of land reform was introduced, heavy taxes were placed on the foreign oil companies, and plans were prepared to exclude the army from politics. These reforms were bitterly opposed by foreign companies and by rich landowners, and in 1948 Betancourt was driven out of office by an army coup.
For the next ten years the country was under ruthless military dictatorship. Political parties and trade unions were banned, and a strict press censorship was imposed. On the other hand, with the removal of Betancourt the USA was once again prepared to invest in Venezuela. American dollars flowed in and some progress was made with the building of steel plants to exploit local iron-ore deposits. Iron and steel soon became Venezuela’s most valuable export, but still very little of the country’s wealth filtered down to the ordinary people. In 1957 Archbishop Blanco of Caracas publicly condemned the great wealth and corruption that was rife among the country’s leaders, while the majority of Venezuelans lived in poverty and often subhuman conditions. In 1958 a general strike broke out and a section of the army removed the dictator Marcos Pérez Jiménez (1952–8). Democracy was restored and Betancourt was voted back into power.
Betancourt immediately raised Venezuela’s share of oil revenues to 60 per cent, but this disappointed the growing communist party which had expected him to nationalize all foreign companies. However, he proceeded cautiously, not wanting to alienate the USA in case aid was stopped. Although measures were introduced to improve education and health, his popularity gradually waned, though he was able to complete his presidency, stepping down in 1964. Democracy survived, with the presidency alternating between Acción Democrática and the other main group, the Christian Social Party. Venezuela was now the main supplier of oil for the Central American states and to a lesser extent for the USA, and was doing well out of the great oil boom of the early 1970s. In 1976 President Carlos Andrés Pérez nationalized part of the oil industry and created a new state oil company known as PdVSA.
The country remained politically stable right through until the early 1980s; the government legalized the Communist Party and opened diplomatic relations with the USSR. But then there was a fall in world oil prices that adversely affected Venezuela’s revenue. At the same time there were difficulties in maintaining the levels of its other main exports – iron and steel. In March 1985, President Lusinchi (Acción Democrática), who had been elected in 1983, complained about the ‘obstinately protective policies’ of industrialized nations, which ‘obstruct our trade possibilities’. He was especially critical of the USA which had just announced that it would reduce imports of Venezuelan steel from 550 000 tonnes a year (about 85 per cent of its total steel exports) to 110 000 tonnes for the next five years – a disastrous blow for Venezuelan industry. By the early 1990s the country was falling into arrears with debt repayments, and the government was trying to cope by following IMF requirements: this involved reducing imports and government spending. At the same time unemployment was rising and inflation was running at not far short of 40 per cent. Throughout the period there had been very little improvement in social conditions; the early advances in education and health care had not been maintained and dire poverty was rife. There was growing discontent and riots and in 1992 Colonel Hugo Chávez, a young military officer, was so disgusted when the government sent troops into poor neighbourhoods to put down the protests that he organized a coup to overthrow the dictatorship. Although the coup failed, it brought Chávez to the public’s attention and demonstrated the split in the ranks of the military.
Meanwhile the economic situation worsened and in 1994 half the country’s banking system collapsed. In 1997 the government announced an expansion of gold and diamond mining in an attempt to reduce its reliance on oil. After another failed coup in 1994, Chávez decided to run for president in the 1998 election. Campaigning on a programme of increased social spending and trading agreements with Cuba, he won a convincing victory, as voters turned away from the two main parties.
26.3 MEXICO, GUATEMALA AND NICARAGUA
(a) Mexico
The Mexicans won their independence from Spain in 1821 and until 1877 they were ruled by an assortment of two emperors, several dictators and some presidents. Important events included the loss of Texas after a short war of independence in 1836. Large numbers of Americans had settled in the thinly populated northern area of Mexico, known as Tejas. Calling themselves Texans, they declared themselves an independent republic and defeated a Mexican army sent to suppress them. Texas became a state of the USA in 1845. Mexico was defeated again in a war with the USA (1846–8), which resulted in the loss of about one-third of Mexican territory, including the areas now known as California, New Mexico, Nevada, Utah and Arizona, together with parts of Wyomi
ng and Colorado. However, the USA did pay Mexico $18 million and waived its debts.
From 1876 until 1910 the country was ruled, except for one short interlude, by a dictator, Porfirio Díaz. This was a period of relative stability: oil production, mining and manufacturing industries were developed, largely thanks to foreign investment, while education, health care and the country’s infrastructure were improved. The problem was that most of the industry was owned by foreigners, and little of the wealth generated percolated down to the masses. When workers formed trade unions in an attempt to improve their conditions, they were quickly suppressed. Also Mexico had become uncomfortably dependent on the USA. In 1910 Díaz decided to stand for re-election, although he was 80 years old by that time. He was declared the winner by a huge majority, but the election was so blatantly fraudulent that a revolution broke out, forcing him to resign.
The following decade was extremely confused and the revolution became a civil war as revolutionaries and counter-revolutionaries fought to gain control. In 1916–17 the USA sent troops into northern Mexico against the revolutionaries, and a war between Mexico and the USA was only narrowly averted. After 1920 the party eventually known as the Institutional Revolutionary Party (PRI) gradually gained control. It was dominated by revolutionary and reformist politicians and its programme was based on economic reform designed to narrow the gap between rich and poor. The PRI remained in power until 2000. In 1938 President Lázaro Cárdenas (1934–40) nationalized the oil industry, much to the delight of the general public. However, this was not welcomed by the USA or the UK, both of which started a boycott of Mexican goods. This forced Mexico to sell oil to Nazi Germany and Fascist Italy, but after a compensation agreement was reached in November 1941, the USA was prepared to buy Mexican oil again. In fact after the USA entered the Second World War in December 1941, Mexican oil became vital. Following the sinking of some of their oil tankers by German submarines, the Mexicans joined the Allied side in 1942. An air-force squadron known as ‘the Aztec Eagles’ worked alongside the American Fifth Air Force in the liberation of the Philippines in 1945.
For 25 years following the end of the war, Mexico enjoyed a period of economic progress. The government invested in agriculture, fuel production, the railway system and primary education. A modest, but consistent annual growth rate averaging 3–4 per cent was achieved; Mexico became a major producer of petroleum – the sixth largest in the world; and exports of cotton, coffee and sugar were also important sources of revenue. By 1960 the number of workers employed in manufacturing industries had overtaken those working in agriculture. However, in the late 1960s the economy began to show signs of strain, partly because the government had accumulated massive external debts thanks to its extravagant borrowing. Confident that oil revenues would always be sufficient to cover interest payments, successive governments seemed to have abandoned restraint.
There was wide protest, and on 2 October 1968 troops fired on a demonstration by an estimated 10 000 students in Mexico City demanding a revolution and a return to democracy. Estimates of the numbers killed vary between 30 and 300. The government claimed that snipers among the demonstrators had fired at the army first. It later emerged that the snipers were actually members of the presidential guard who had been ordered to fire on the army in order to provoke them to attack the students. Coming as it did ten days before the Olympic Games were about to open in Mexico City, this caused grave concern about security; in response the USA sent riot control experts, weapons and ammunition to Mexico in case of further violence.
As the 1970s progressed Mexico’s exports were badly hit by the world recession, leading to a shortage of capital for investment, to inflation and to difficulties in meeting interest repayments. Unemployment was rising and the gap between rich and poor continued to widen, until by 1980 it was estimated that about nine-tenths of Mexico’s total wealth was owned by fewer than half a million people out of a total population of 85 million. In 1982 the government introduced desperate measures: the banks were nationalized, the currency was devalued by 70 per cent and there were drastic reductions in spending on public services. The new president, Miguel de la Madrid, elected in 1982, negotiated a deal with the IMF for a loan and a rescheduling of half the country’s overseas debts of $96 billion. However, Mexico failed to fulfil the conditions attached, and in 1895 the IMF was preparing to cancel the agreement when Mexico City suffered a severe earthquake (measuring 8.1 on the Richter scale) which caused widespread damage and killed at least 7000 people. Clearly this was not the time to cause Mexico any further misery, and so the agreement went ahead. Meanwhile the PRI government was fast losing popularity and it came under further criticism for what was seen as its incompetent handling of the earthquake relief efforts. For the first time since the 1930s the party began to face challengers at elections.
Worse was to follow: in 1986 there was a sudden collapse in world oil prices and a consequent reduction in Mexico’s oil revenues. There seemed a real possibility that Mexico would have to repudiate its debts. As President de la Madrid put it: ‘We have reached the limit of being able to sustain this net transfer of resources to the rest of the world, which violates economic logic and is tremendously inequitable.’ The more pessimistic economists were predicting the collapse of world-trading financial systems if Third World countries were to begin a mass repudiation of debts. In 1990 Mexico again had to appeal to the IMF, which saved the situation by promising relief of $3.6 billion dollars for the next 30 years, while the World Bank rescheduled its debts. The next president, Carlos Salinas (1988–94) reduced domestic spending and embarked on a policy of privatization; although this did nothing to solve the unemployment problem, it did help to bring inflation down to single figures and eliminated the budget deficit. Mexico joined the North American Free Trade Association (NAFTA), along with the USA and Canada, which came into force in January 1994. This removed tariffs on more than half of Mexico’s exports to the USA and on about one-third of US exports to Mexico. All tariffs between the two countries were to be removed after 15 years. Opinions differ on whether or not this has been beneficial for Mexico. Certainly Mexican exports to the USA increased, and the country was opened up to US and Canadian investment. On the other hand, Mexican farmers suffered because imports of US agricultural produce, especially meat, increased substantially.
The year 1994 saw two shocking events which did nothing to enhance the reputation of the PRI government. First, on 1 January, there was an armed uprising in the southern province of Chiapas by the Zapatista Army of National Liberation (ZANL). Chiapas was one of the most deprived parts of Mexico; the majority of the population were poverty-stricken Mayan Indians who had no land of their own and were angered by the blatant corruption and incompetence of the ruling elite. Demanding land reform, full civil rights and genuine democracy, the Zapatistas (as they called themselves, after Emiliano Zapata, one of the leaders of the 1910 revolution) occupied several towns, setting fire to police stations and army barracks. Within a few days they were crushed by the Mexican army, suffering heavy casualties. Having decided to abandon violence, they concentrated on an internet campaign that brought them widespread publicity and growing support. Then in March 1994 the PRI candidate in the coming presidential election, Luis Donaldo Colosio, was shot dead at a political rally in Tijuana. Mario Aburto, a factory worker, was jailed for the murder, but many still believe that he was a scapegoat, and that the murder was arranged by the PRI itself. It was alleged that with his promise of drastic reforms of the corrupt political system, Colosio was breaking party ranks and therefore had to be eliminated.
Both these events frightened off investors at a time when outgoing President Salinas had just indulged in a year of high spending resulting in a huge budget deficit and inflation. This was made worse when members of his family helped themselves to enormous illicit payoffs. With falling oil prices compounding the problem, Mexico was heading for an economic crisis. The new president, Ernesto Zedillo (1994–2000), decided to devalue the
peso. Within the space of one week in December 1994 the peso fell from 4 to the dollar to 7.2. With many private banks apparently on the verge of collapse, and some US banks involved in Mexico also threatened, Zedillo appealed to the IMF and the USA. US president Clinton, working with the IMF, arranged loans of around $50 billion. Economic collapse was averted and over the next six years there was a modest recovery. But the crisis had important results. In the words of Peter Calvocoressi:
The Mexican crisis called into question the ability of international finance to meet such a crisis and therewith the willingness of financiers worldwide to support Latin American governments pursuing economic policies dependent on foreign loans and investment. The collapse of the Mexican peso dismayed all Latin American countries, where economic growth was desperately needed for its own economic ends and as a prerequisite for political stability. In Mexico the gap between rich and poor widened, and insurrection became more widespread and better armed.