Posted by: davesnewadventure | January 17, 2009

An Excerpt from Jackfruit: Don’t Cry For Me Argentina, and it’s relevance to today’s economic crisis

Today’s economic crisis was really forshadowed in the 2001 Argentinean debt default. I know about it, because I was in South America studying it. Here’s an excerpt about the crisis from my book, “JackFruit”., which you can download to read from the book page.

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“All through the night, I rode on the long distance bus with Edward and Megan. During one section of the trip, where I felt the driver twist and turn, I began to feel nauseous for the first time, so I opened up a window. The bus smelt of stale, humid air, and human odors, and I figured everyone was breathing everyone’s already spent air. Someone immediately slammed the window shut. In a daze, I looked up, and opened it again.

“Please keep this window closed!” griped a young woman. I stood up, looked her and smiled, as I tried to put her at ease.

I’m feeling nauseous, and it’s stuffy in here.”

I don’t want that window open!”

Across from me, Ed looked to the young woman, and said, “excuse me ma’am, but he’s feeling sick.”

I don’t want my child getting sick.” I looked to the other seat, and in the dim light, I saw the little child.

“It’s OK, Ed.” I said.

“Are you sure?”

“Yeah, it’s cool.”

I put up with worse before. I chose to deal with it, and tried to go to sleep. I never slept well on moving vehicles. After a night of twists and turns, we finally arrived at the enormous Cochabamba bus station, where I immediately stumbled outside at 5:30AM.

“Ugh.” I muttered.

That, was a long bus ride.” Said Megan.

Yeah, let’s find a hostel.” Replied Edward.

We found a hostel near the station, got two rooms, and I fell asleep for a few hours. When I came too, Edward was knocking on my door, “are you up, Dave?”

“Yeah, give me a moment.” I said as I put some clean clothes on. We went out to tour the mansion of an 18th century tin baron. Back in the 1800’s, Bolivia was populated with some of the richest people on the planet, during the days of the tin, silver, and rubber robber billionaires. As we toured the lavish palace, I admired some of the intricate woodwork, and walked over to Ed and Megan.

“This is disgusting.” Said Edward.

“Really?” I inquired.

“Yes. With this country’s history, and extreme levels of poverty, this is just unbelievably disgusting.”

“I see what you mean.”

Extremes like this, with little to no system in place for advancement, a government which aims to keep it that way, and an enormous population which, paradoxically, was marginalized, although how to marginalize 90% of a population is quite a feat, was a brewing fire bomb for revolutions. Not surprisingly, there were constant blockades and protests, which were the only way for the 90% to have a voice. The month before we took our trip to Cochabamba, all the roads leading into Cochabamba were blockaded for several weeks, and it effectively shutting down much of the economy.

The blockade was in protest of the US drug war, which was rife with human, environmental, and indigenous rights violations and abuses. The locals were upset, and as a result, a US marine had disappeared into the hills, a few miles from us into the highlands region. Rescue efforts never found or recovered him.

For a long time, I heard many stories about the destructive and inhumane results of US foreign policy, but every time I heard about them, they were, to me, purely anecdotal. Usually, an errant European would complain about the US, but I always considered them as jealous first worlders.

In Bolivia, however, it was the first time I witnessed and spoke with economic refugees, who were escaping the rampant destruction wrought by the USA’s proxy institutions, namely the World Bank and the International Monetary Fund. While I was in Sucre, I’d initially made arrangements to enter Argentina, but at the same time, Argentina’s economy and society imploded. Streams of Argentineans were making their way into Bolivia, Chile, Brazil, Uruguay, Paraguay, Europe, and USA.

When it came to economics, I was more in favor of capitalism than socialism, but to a point. Argentina’s downfall tempered much of what I thought was appropriate. We picked up a local newspaper, and read how Argentina went through six presidents in two weeks. This was a former first world country, that plunged into violent chaos from defaulting on their loans. Argentina became the only non-African member of a group of several nations to default on their loans.

All through the 90’s, Argentina was the “successful” poster child for the IMF, and the World Bank. They listened, and implemented every single request of the IMF and the World Bank. Not surprisingly, as a result of those policies, all through the 90’s, half of that decade was spent under economic hardship, despite the world press parroting it as a paragon of their policies. Push came to shove in 2001, when the trigger of the IMF, on December, 2001, withheld 1.2 billion dollars in loans. They imposed more conditions that Argentina had to fulfill. The country couldn’t, and it defaulted.

The chaos in Argentina was unbelievable. Long lines formed outside of banks, who, due to following the Washington consensus, were a fractional reserve banking system. They only carried just enough for day to day transactions, and there wasn’t enough actual money for depositors to reclaim. Violence erupted, and I saw a photo of a Bank Boston building with a hole in it.

Food riots grew out of control, as markets were bereft of inventory, since they couldn’t buy inventory with their devalued peso. I saw a picture of starving children, who lay dying, and it looked like something from Africa, if it weren’t for the blond hair and blue eyes. Riots broke out, and half the country was unemployed, and for the first time, there were mass migrations to Europe and the USA. Just a month before the collapse, the Argentineans weren’t required to purchase a VISA for entry into the US. At the moment of the collapse, the US slammed the door shut after the crisis, and the Argentineans, suddenly became like the rest of Latin America.

For many Latinos, they felt it was poetic justice. For too long, Argentineans looked down on the rest of Latin America, thinking that they were Europeans, not Latinos, and proclaimed themselves to be better than the rest of the mestizo, indigenous continent. Now, they were worse off than the rest of the continent, and Bolivians noticed how they started to enter the borderlands of Bolivia, looking for a place to stay and work.

The IMF and the World Bank, both of whom have their headquarters in Washington D.C., are extensions of the Federal Reserve. Any country which takes a loan, usually at the behest and bribery from an “Economic Hitman” has to comply with several requirements. All major national industries, services, and utilities were to be privatized. Tariffs and taxes on trade were to be removed. Officials and wealthy members are bribed, and told to embark on massive infrastructure projects: highways, electrical generation, airports, ports, and industrial parks. The caveat is that the US or Europe must build the projects. As a result, the money never touches the hands of the local people. When the project is complete, the company that built it maintains ownership, so the local government has no say in how it is managed. Prices are raised, and recently privatized industries are absorbed by foreign corporations. Layoffs are almost always the next step, and then suddenly, not only do the local governments and people find themselves unable to pay their basic utilities, but with the loss of revenue in the form of taxes from laid off employees and once national utilities, the local governments are trapped between cutting off basic social services and administration, and raising taxes just to pay the interest off on a debt that their official was bribed into accepting.

Argentina was caught in that bind, hence the budget shortfall of 1.264 billion, which the IMF withheld in the form of a loan, all while the IMF were the ones who made the conditions which created the problem in Argentina in the first place!

Bankruptcy and devaluation resulted, and even then, there was still a loan to pay in now devalued currencies, for a product which they never, and could never own. With a nation on its knees, they are then forced to submit to in-equal treaties, a long forgotten relic that’s still alive and well, and descended from the mercantile colonialist policies of Britain and the USA back in the 1800’s. These in-equal treaties include submission to have a foreign military base planted in their soil, or to give up primary resource control over a national resource, such as oil, tin, gold, etc. The list goes on and on.

As for open, “free” trade, the first to go is usually agriculture. Agriculture is the biggest industry in the world, and Argentina has some of the richest farmland in the world. They produce eight times the amount of food than their population requires. Yet, while the Argentineans were starving, they were exporting their produce in order to bring in foreign capital!

To add insult to injury, at the behest of the IMF, Argentina pegged their peso to the dollar, and supported it with the issuance of government bonds. Much of the bond sales and handling was via foreign banks, located in New York. As a result, all Argentinean products were uncompetitive, since they were priced in dollars. No money was being made, nothing was being exported, and almost all the money going into Argentina was from foreign investors speculating on the bonds. Bond holders, naturally, expected a high interest rate of return. Interest in government debt is paid for by either tax revenue, or via national industries.

So, what happened when most of the population wasn’t able to produce and sell their goods overseas? Those revenues went down. The revenue that came from once public industries was also gone. The government still had services and administration to pay for, but their sources of revenue dried up, so they issued more and more bonds, which, I’m sure, were “backed with the full faith of the Argentine government”. When the budget shortfall occurred, they petitioned the IMF. The IMF refused, and Argentina became the largest sovereign debt default in history.

Argentina, from the moment she signed those agreements with the World Bank and the IMF, had signed away her sovereignty, her freedom, and her future. And all it took to collapse the country was less than a decade. Not surprisingly, Argentineans had few kind words for the World Bank, the IMF, or the USA.

Bolivia was effected by this as well, but unlike the Argentineans, the Bolivians have a powerful bullshit meter in their indigenous populations. When ex-president Lozada privatized many of the national industries and utilities, among them was water. Water, is rare in the high Altiplano, and for thousands of years, the Quechua and Aymara worshiped water. Bechtel corporation, located in San Francisco, bought the utility, and immediately raised the price and cut services in Cochabamba. Protests ensued, people died, and the company left, but not before asking for 12 million in compensation loss from the government, which is like a bully, after getting his ass kicked, requesting payment for emotional damage.

As we toured Cochabamba, we noted how many of the buildings had large rain catches. It looked as if the protest was still on going, as people chose to be self reliant on water. All of these things made me temper my libertarian, pro-capitalist leanings. I understood that I also had a responsibility to both the people around me, and people I effect, as well as the environment. After all, we all live on one earth, and what goes around, comes around, and when it comes around, it often comes back in multiples.

We finished our tour, and met a family from La Paz: Christian, a 28 year old man, Elsa, his mother who was a scientist and director of eduction, and Chyang and Claudia, a married couple from Santa Cruz. They invited us to see them in La Paz, and Christian, after I told him about some of the things I’d seen and learned about in Cuzco, as well as my theory on the device, was excited enough to ask that I spend a week with him exploring some of the more unknown parts of the Altiplano.

“If you want to see some unusual things, come to our home. You must,” he said.

Yes, David, you must come,” replied Elsa.

And, Claudia will find you a pretty Bolivian girl,” joked Chyang.

But I already have one,” I protested.

You’ll change your mind when you meet her. But you must come see us,” said Elsa.

For lunch, we went out to eat in Govinda, one of the many vegetarian restaurants run by the Krishna’s all over the world, before parting ways. Then we went to the market. Cochabamba’s market was famed in Bolivia for the sheer variety and quantity of goods available. I loved to walk around the markets. The scents, and smells of peppers, dried spices, fresh fruits, and freshly baked bread wove a sense of dignity amongst the campesinos. I stopped in front of a cholita, a plump Quechua woman, with brown skin and a bowler cap, and asked questions about her produce. Always, their Spanish was halting, and I noted how Quechua was still their first language.

I strolled through the market. Food, pants, equipment, and parts, TV’s, stoves, ranges, and bicycles, a market is an organic expression of human labors, desires, wants, and needs. Like a cornucopia, it all depends on individuals and teams of people seeing a place for themselves in society to provide for a need and a want. I found myself in the “taller de bicicletas”, a bicycle shop, looking at their cheap Chinese and locally made frames. Despite the quality, it always fascinated me of what people did to fulfill the needs of the populace. I started playing around with one heavy duty clunker of a bicycle, a cheap, heavy, steel bike that didn’t have wire cables for brake control. It used solid steel tubes.

I met up with Megan and Ed, and we went to a Mexican restaurant for dinner, where Ed noted a linguistic error I made as we walked by a girl vending sandwiches at a stand.

“You know, Dave, when that girl in the market asked if you wanted a taste, you basically said that you wanted to eat her because she’s pretty.”

“What? I did?”

“Mmhm.” Nodded Megan, who was smiling at my naivety.

“I was trying to say I’m sure it tastes wonderful, because you’re pretty. Whoops!”

“Yeah. So, how’s your Spanish tutoring going?”

“It’s going well, I’ve been using this.” I pulled out a copy of Schaum’s outline of Spanish, and showed it to Ed. He and Megan looked at each other, frowned, and said to me, “You don’t want English in your studies. That’s like a crutch.”

“That’s how the Peace Corps does it.”

“Have you noticed how we are with Spanish and how they are?”

“You two are much much better. The Peace Corps people still have trouble with it, even after two years. OK, I see your point. I’m getting a full Spanish text when we get back.”

On the ride back, which was during the daytime, we got to see where and why the driver drove with so many twists and turns. The road twisted from one close call of a canyon to another, on dirt roads with no safety rails, and along the way, we saw a carcass of an overturned bus. At that moment, Ed, next to me, panicked, and yelled out, “We’re gonna die!”

I looked at him, smiled, and said, “Ed, I’ve come close to death several times. Believe me, unless I go, you’re not going. And I’m not going anytime soon.”

Megan tapped his shoulder, and calmed him down, as I watched and enjoyed our razor edged bus ride on the edge of doom. We didn’t die, and we got back to Sucre, where as we walked into the Plaza, Claudia spotted me, and jumped into my arms.

“Where were you?” she exclaimed as she kissed me on the lips. She looked at Edward and Megan.

Hello Edward, hello Megan, where did David go?”

He came with us. Don’t worry, he didn’t misbehave,” smiled Megan.

Misbehave?” I asked, as Claudia kissed me again.

Yes. I can be very jealous.”

“Oh. Well, see you Ed, see you later Megan.” I waved to them as the walked back to their apartment. Claudia and I walked to the Central Plaza, and I breathed in the fresh air in the mid summer night.

“Did you miss me?” Claudia asked.

Of course.”

You didn’t flirt with other women, did you?”

Me? No, you know me, I’m very friendly.”

That didn’t answer my question. Did you or no?”

I didn’t. Claudia, you know the only woman on my mind, other than my mother, is you.”

She kissed me as we strolled through the plaza, and as we walked, I told myself, no, there was one other woman on my mind, and she started reappearing again.” – excerpted from Jackfruit: A Two Wheeled Adventure Through Latin America

Now, the reason I highlighted some of these passages is what we’re seeing today is really a default, but in this case, the large banks are the one’s in default. At the core of the default is something I have yet to see in the headlines, which is the derivatives bubble collapse of several hundred trillion dollars, which is on the order of many times the world’s GDP. Derivatives are always billed as being, among other things, “too complex to understand”. That’s a misnomer. The easiest way to look at a derivative is to see it as the financial system’s attempt to manufacture it’s own money outside of the purview of sovereign governments. That’s really all it is. Anything can be turned into a derivative, whether it’s oil and corn futures, to stocks and bonds, to home mortgages and student loans. All that mattered was the promise to pay based on, in this case, revenues collected from loan payments, the infamous ARMS, or oil deliveries. Because derivatives have no inherent value than what’s on paper, it’s currently, collapsing. Just like Argentina did when it couldn’t pay the interest on it’s loans. The difference is, it’s world wide.


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