Central America
Neoliberalism in Central America: More Than an Economic Plan
Nitlápan-Envío team
World Bank-imposed structural adjustment programs have now become so prevalent in Latin America that the Economic Commission on Latin America (ECLA) predicts that the foundations have been laid for a thoroughgoing transformation of the region. These programs have engendered staunch popular resistance, introducing an element of ungovernability and, therefore, instability in each nation in which they have been implemented. It is not happenstance that the recent military coup attempt in Venezuela is regarded as occurring within the general current of social unrest created by an adjustment program that has generated conflict since its beginning. For countries that are following the World Bank's recipes, what happened in Venezuela is not just a tale from a distant land. That "tale" has become a prospect for all given the increasing marginalization of the poor majority provoked by structural adjustments everywhere.
In spite of evidence to refute it, the prevailing point of view on political stabilization and development opportunities is a conservative one, wrapped in the banner of greater political realism. Several Latin American governments, with the aid of millions of dollars authorized by the World Bank, have even deterred their political oppositions, winning their consensus that these problems should be addressed "pragmatically." The oppositions' willingness to negotiate has been heralded as an "ideological un-polluting" of political relations, touting the merit of "reality" over political differences. The Nation, Efficiency and the Market come first.
These simple ideas, upheld as common sense but unfortunately very far from reality, contain a dose of very dangerous misconceptions. They facilitate the conservative restructuring of society, without creating conditions for resolving, in any permanent way, the problems afflicting the majority in each country, and their sweeping social consequences obstruct the possibility of developing popular alternatives.
Below, we take a close look at the global phenomenon of conservative modernization embodied in the neoliberal adjustment, tearing aside the ideological veil that hides the underlying project being promoted by the region's new right; in so doing we expose the political scalpel concealed behind the facade of fate and realism accompanying the governments' technical proposals. We then examine the economic development of the adjustment process in Central America and end by outlining a few pivotal alternatives with which to confront this neoliberal torrent.
Structural adjustment, structural poverty: A solution for a privileged few It is tediously repeated that the neoliberal adjustment is inevitable: it is not presented as one of several solutions to the crisis but the only solution. On this inevitable journey, it is said, there is a temporary underpass of suffering, but greater social equality and welfare, with economic efficiency, lie at the end of the tunnel. Shifting metaphors, the fundamental task after reaching stability is "to make the pie bigger."
Nevertheless, this script continues to clash with the scenery. The tendency from 1989 to the present suggests that the changes introduced by the adjustment are creating a new model of selective growth and that its productive strategies for steering us out of crisis are not very reliable.
Economic contraction and accelerated liberalization policies are weeding out those sectors considered inefficient, without providing alternatives for their reinsertion into productive and social life. At the same time, unemployment and low salaries have become an instrument of permanent adjustment and supposed competitive advantage.
The reduction of the state sector has diminished its regulatory capacity and weakened public services. Privatization continues to transform production and social groups, reinforced by the increasing transfer of land and business enterprises into the hands of a privileged few.
Financial liberalization contributes to the formation of business groups that manage resources in short-term speculative and commercial activities, as well as facilitating capital flight. The private capital markets currently forming are not reinforcing the country's productive base, while the state banking system continues to weaken. The hoped-for repatriation of capital has not materialized, nor has private investment replaced public. The bourgeoisie and part of the middle class obtain credit and consumer benefits, but at the expense of reducing transfers toward other majority social and productive sectors.
As for its productive strategy, the neoliberal adjustment presumes export-based growth, but its approach does not make the export sector an effective motor force for development. While that sector benefits from a massive transfer of resources, a cheap labor force and the availability of natural resources and land, it cannot be argued that a strategy based on competitive enclaves without an industrialization process and food security envisions bringing the rest of the economy along with it.
Exporting raw materials instead of finished products does not disseminate technology or prepare skilled laborers. As long as "competitive advantage" is based on low wages, social inequality will be reinforced.
Together, all this promotes growth that is both unequal and extremely vulnerable due to its exclusive dependence on the external market. This strategy contrasts with the recent experiences of Japan and Southeast Asia, which promoted industrialization based on technological transfer and the creation of a skilled labor force.
As demonstrated throughout the region, export alternatives such as nontraditional crops and maquila industries do not sufficiently alleviate the situation, while in the short term the traditional export sector, particularly coffee and cotton, becomes less and less viable.
The narrow opportunities for participation in foreign or domestic production allowed by the adjustment's productive strategy lead to a "solution to the crisis" that embraces the most internationalized factions of the bourgeoisie and excludes the vast majority.
Neoliberal adjustment and the transformations that accompany it are, thus, not a solution for all; the adjustment process is demarcating the social and economic foundations of the country within very defined interests. Nor are the measures simply technical adjustments to control inflation or a neutral economic plan that can be used by any government representing different social interests.
Future equity made impossibleAnother weak tenet of neoliberalism is its blind faith that the market will stabilize the economy, lead to growth and then eventually incorporate all those who have been excluded by managing the model more progressively. This, however, is made impossible by the very fact that, from the beginning, the model aborts all possible strategies that would foster social integration. Even when the adjustment is "successful," its success is based on reduced growth, exclusive to certain sectors. It maintains a low inflation rate but generates structural unemployment, decreases the state's capacity for social regulation, creates permanent adjustments in jobs and wages and sacrifices the domestic productive base.
Finally, the adjustment has a profound impact on the correlation of forces, which weakens, with lasting consequences, the popular sectors, again structurally reducing the possibility of incorporating greater equity into the model.
The social—and, therefore, economic and political—space for the model's progressive implementation thus remains closed, as demonstrated by the Chilean experience. There, the current centrist government coalition has not been able to modify the model inherited from the Pinochet era, even to the degree that a lukewarm attempt at progressive tax reform did not make it beyond the inkwells of economic policy-makers.
The limits of timeModerate political opposition parties have fallen for the illusion that they have time to build new political spaces while the popular sectors survive by working in the informal sector or receiving aid from social compensation policies. The truth is that popular resistance to the new model has been weakened and divided by the growth of the informal sector, unemployment and increasing general social decomposition.
This resulting desperation for individual survival clouds collective interests with a ferocious opportunism that generates cynicism and apathy. The ground is, thus, fertile for individual cooptation through populism and the solitary vote, detached from any vision of collective solutions to one's own needs and interests.
At the same time, social conflicts generated by the adjustment are not recognized as such and are labeled "outside the sphere of institutionality" and, therefore, illegal. This further divides the popular sectors and coopts those who can get some kind of wage, job or property concessions. One example of this in Nicaragua is the contradiction between the corporative interests of National Union of Small and Medium Producers (UNAG) leaders and their peasant base, which is being starved by the lack of credit and marketing possibilities.
Corporatism is, thus, reinforced and the possibility of alliances among the popular sectors reduced. Those excluded—that is, the majority—are again left to isolated individual survival, available for cooptation by clientelism and populism, facilitated by assistance programs, the reestablishment of local "distinguished" citizens' influence and the management of municipal programs as rewards instead of rights.
The Economic Consequences of Neoliberalism: Dependence on foreign capitalIn 1991, Central America attained one benefit from the recession in the North: the drop in real international interest rates encouraged a flow of foreign capital into the region while, at the same time, reducing interest payments on the foreign debt. The conservative financial policies that maintained the old nominal domestic interest rates even in a less inflationary context increased the real interest rates in the region, thus encouraging the influx of capital.
But the US recession also brought difficulties. It meant an even further drop in demand and prices for the region's exports for yet another year. And while the greater influx of capital increased the demand for imports, it increased more for nonproductive, luxury consumer goods than for inputs for productive reactivation, largely due to the trade liberalization policies being promoted in the region.
This could lead to further problems. First, by increasing the domestic money supply through the accumulation of international reserves, the positive flow of capital could explode the tightened corset of conservative financial policy. Second, that influx of capital will have to continue to keep up the supply of imports. Third, the current flow of capital is volatile; it is "anxious money," attracted by the positive differential of the region's real interest rates. If those rates rise, this capital will again be pulled out of the region.
The neoliberal adjustment ostensibly reduces the region's vulnerability to the foreign market by strengthening its pro-export domestic price structure, but the opposite has actually happened. The increase in real exchange rates means that it is "cheaper" to import finished products instead of the inputs needed for domestic production, which has become more expensive. It becomes "cheaper," then, to dismantle the national productive apparatus than to compete.
The region in 1991Neoliberal adjustment has hit the Central American isthmus with the force of a tropical storm. Its economic stabilization and adjustment policies were particularly intense for the majority of the region's countries in 1991. Overall, the long recessionary period of the 1980s has continued into the 1990s, despite a slight increase in production this year. Last year's 10% regional increase in total export income was not enough to even begin to compensate for overall economic decline. Statistics for 1991 show that the economies of El Salvador and Guatemala are at a virtual standstill, while Costa Rica, Honduras and Nicaragua clearly continue in recession.
It is important to note that stabilization policies were particularly drastic in these latter three countries, and were combined with trade liberalization programs as part of a package of accelerated structural adjustments. Honduras and Nicaragua have been forced to implement the international financial organizations' recipes without independent negotiation with their respective governments; consequently, they have been executed excessively fast. For Costa Rica, which until now had been implementing its structural reforms gradually, last year's acceleration began to undermine the material foundations of its broad social pact—the provision of an extensive network of public services and job stability. In Guatemala, the adjustment slowed economic growth last year. Panama is a special case, still showing economic recovery after an abrupt 18% drop in production in 1988. But since the accumulated growth for these past two years has not been enough to compensate for that decline, production is still below 1987 levels.
Throughout the region, the political consequences of the neoliberal reforms introduced or worsened the problem of governability in each country. The undeniable anti-inflationary gains in almost all cases, except Panama and Costa Rica, were obtained at tremendous social cost and by compromising the sustainability of future development.
The relative 10% growth in total export income in 1991 took place in an increasingly adverse international framework. Prices fell for coffee and sugar—two of the region's most important exports—and, at the beginning of 1992, cotton prices also crashed. The traditional crops constituting the foundation of the region's agroexport model are in a seemingly terminal crisis. At the same time, however, the value of imports increased an average of almost 7%, though with large differences between countries.
For the region as a whole, the deficit decreased in its current account balance (which includes not only the commercial trade balance but also services and foreign debt interest payments) from 1989 to 1991, but increased in Honduras, Nicaragua and Panama. In 1991 alone, the regional current account deficit dropped $350 million, thanks to a substantial drop in Costa Rica's and a slight drop in El Salvador's deficit, and an increase in Panama's surplus. But deficits in Honduras, Nicaragua and Guatemala increased. A brief economic summary of each country's foreign trade indicators for this past year follows. (Increases in imports and exports refer to value, not volume.)
Costa Rica. Costa Rica's exports in 1991 rose in value by 10%, given the increase in both the international price for bananas (which more than compensated for the losses occasioned by last year's earthquake) and the real exchange rate. Total imports dropped 7% due to measures applied to overcome the balance of payments deficit, such as increasing foreign exchange restrictions, as well as more pronounced currency devaluations, mainly in the first half of the year.
Guatemala. Export income increased only slightly (3%), mainly due to the decline in international prices for traditional products. Coffee production also fell, as did the previous year's inventories due to the elimination of a quota system that had previously maintained reserves. Nontraditional exports (vegetables, fruits, ornamental plants, etc.), however, continued to show significant growth rates. At the same time, imports increased 15%, primarily in production inputs and consumer goods.
El Salvador. The export sector grew 7% primarily due to the sale of nontraditional products to other Central American countries. In traditional crops, the value of coffee exports dropped slightly, while sugar increased substantially. Imports, however, increased 15%, primarily due to inputs and capital goods (machinery and equipment). While the trade deficit therefore grew, the country's current account deficit decreased due to a drop in net interest payments on the foreign debt.
Nicaragua. Nicaragua's exports dropped 10%, aggravating the past 10 years' depression. This was the result of problems caused by restructuring the export sector in the midst of the crisis and the drop in traditional export prices. The volume of imports increased as a consequence of inflation control policies, but their total value dropped slightly.
Honduras. Honduras' export income dropped almost 2% for the second consecutive year, mainly due to the decline in the production of banana and coffee, its principal export products. Adjustment measures aimed at resolving macroeconomic imbalances contracted imports.
Panama. The rapid recovery of exports continued, increasing in value by 21%, to a level almost 80% higher than in 1980. The suspension of the US economic embargo and the normalization of the political situation also led to a rapid expansion in imports.
The net transfer of resources to Central America in 1991 was slightly positive. But it is important to remember that the region as a whole has traditionally received net transfers from abroad. In 1990, the reduction in the net transfer of foreign resources was due principally to an increase in debt service payments. But in 1991, the situation improved in the majority of the region's countries due to the influx of voluntary capital, not in the form of credit, but as direct foreign investment and financial arrangements. Nevertheless, a significant portion of this capital is in short-term investments and is, therefore, easily reversible.
In 1991, in spite of improvements due to falling interest rates, the total foreign debt of both Panama and Guatemala increased, primarily due to the accumulation of late payments. Nevertheless, some progress was made in resolving outstanding debts in the region, principally in Honduras and Nicaragua. The US government agreed to pardon over 90% of their bilateral debts, which was enough to more than neutralize the effect of new debt accumulation, including late interest, and thus contribute to an absolute decrease in the total foreign obligations of these two countries. In addition, Nicaragua refinanced its debts with the World Bank and Inter-American Development Bank to eliminate outstanding payments and renegotiated its debt to Paris Club nations at the end of 1991 (see "The Foreign Debt: Lengthening the Chain," this issue).
In summary, the region is suffering from economic paralysis and the weak productive base it inherited, while the neoliberal adjustment promotes further denationalization of its economies and greater social deterioration. Each country has been left to its own devices within the international financial framework. "Aid" currently authorized comes tied to the adaptation of stabilization and adjustment policies recommended by international financial organizations.
Within this very restrictive framework, some countries, such as Nicaragua, have obtained substantial reductions of their foreign debts, but even then only to levels they have a limited real capacity to pay. The possibility of payment is restricted by the adverse international panorama facing all of the region's countries. In spite of efforts to attain general macroeconomic stability, their exports have not become more competitive because the search for competition and efficiency is based on spurious foundations: reducing real salaries and denationalizing the economy.
As long as popular opposition does not coalesce as an alternative to contain and redesign the neoliberal adjustment, current tendencies can lead to only two possible outcomes. The first would be "Chilean-style," supposing growth based on competitive islands or enclaves, but insufficient for the country's social integration. Such growth would thus be accompanied by continued marginalization of the popular sectors, with general political stability and varying doses of internal repression. The second would be "Bolivian-style" stabilization combined with economic paralysis, social decomposition and drug trafficking, but could also include small islands of growth.
While it is not possible to resolve all the region's problems overnight, it is urgent to begin. This means braking social deterioration, restraining the adjustment and the imposition of neoliberalism and opening space for a development model based on equity.
An alternative strategy The new regional political model combines formal democracy with a high degree of economic authoritarianism, if not political repression. This makes a country's political stabilization and democracy a matter of decorum, based on greater institutional efficiency but without any more substantial commitments to uphold it. The pledge of governability assumed with this kind of political stabilization further constrains the popular sectors, guaranteeing their right to certain formal public liberties—elections and freedom of the press—in return for the imposition of the neoliberal model.
Perhaps this "normalizes" the country, but it does not assure stability, democracy or social equity. The adjustment and its structural transformations require order and stability, yet, because of their narrow social support base and the number of people adversely affected, produce a high degree of conflict and ungovernability. This, in turn, demands severe internal repression. Under these conditions, formal political stabilization thus reinforces the need for repression, since the government cannot corral conflicts with broad-based economic solutions.
For governments and the new right, the situation could not be better. In effect, it blackmails the political opposition and, through it, the popular sectors. Any movement outside of this narrow scenario—protected by the government's electoral legitimacy and the country's political stabilization—thus appears to be an attack on that stability and democracy itself, marginalizing all those who want to oppose the logic of the government's economic strategy. This political dynamic thus ties the opposition's hands.
Opposition to the adjustment and this model of exclusive growth must cut loose from political and economic premises and take on popular interests as its foundation. It is upon these interests that national integration—the real basis of political stability and democracy—should be built. The nation should be raised from the perspective of those whose interests have historically been postponed. If not, the "resolution of the crisis" will be political, short-term and subordinated to the neoliberal model, leaving open the very likely medium-term possibility of renewed social crises. This scenario would not bring the region the lasting peace so lauded by the governments themselves and desired by the population.
This new model is necessarily different from both Nicaragua's recent experience with the statist Sandinista model and the old oligarchical agroexport model rejuvenated by the World Bank. There is no room for the paralysis or confusion generated by the crisis of paradigms associated with ECLA's industrialization models or the models of social change inspired by the so-called true socialism. The future is not closed for lack of alternatives. They are constructed through social processes and political forces—the only elements capable of opening or closing the future.
Our alternative proposal looks explicitly at the transformation of production with equity. An egalitarian development model must begin by recognizing existing inequalities and the lack of resources obstructing the productive capacity of the poor majority. Equity for economic agents with unequal wealth and income is not attained through the neoliberals' "equal opportunities." The disparities at the starting gate are not only substantial but also structural. This means redistributing wealth and productively empowering those who have been penalized by ongoing differentiating tendencies. If the region needs a more effective external insertion, it also needs the domestic insertion of the majority of its population. To accomplish this, it is vital to guarantee broad and real possibilities of accumulation for the peasantry and small and medium industry.
This alternative requires two things: clearly prioritizing popular economic subjects and building a social and political subject capable of championing this process. In a period of conventional democracy and markets, one can at least broaden democracy and regulate the market as necessary, in order not to continue strategically postponing the popular sectors' interests, and in order to contain the dualism and exclusion promoted by neoliberalism. Within the framework of the neoliberal model, individual survival strategies, like business, sectoral and local strategies, constitute partial and insufficient solutions.
Short-term strategiesBecause resources are very limited in comparison to needs, nonessential spending should be eliminated. Three key priority areas should be addressed immediately, in order to stop social and productive disintegration.
First, health and education systems must be rescued. A consistent program to broaden the coverage and quality of health services must be implemented, as well as a program of technical programs to prepare the population. This differs from the neoliberal proposal, which prefers to limit the work force's educational level to elementary school. Further training is indispensable to develop skilled laborers who can be incorporated into technical progress and assimilate appropriate business and management capabilities.
Second, productive employment and public construction programs are urgently needed for immediate reactivation. These programs should primarily be oriented to rehabilitating productive, housing and social service sectors, as well as basic infrastructure. It is a problem that international financial organizations impose economic policy conditions that leave only a narrow margin in which to maneuver, especially in El Salvador and Nicaragua due to their post-war situations. These restrictions conflict with the region's vast social needs.
Third, credits should be immediately redirected to meet the financial demands of small and medium producers for reactivating production and for increasing their productive potential in general, instead of being directed to large producers who could finance themselves. In fact, the allocation of credit to small and medium producers is more efficient: they generate more jobs and greater production per unit of capital; they also have better pay-back records. Priority should also be given to state enterprises and to worker participation. These enterprises have been the victims of a systematic financial blockade by the region's governments.
The high opportunity costs for short-term foreign resources require that public investments and credit allocation be clearly tied to an immediate economic reactivation strategy. At the same time, this reactivation should not be limited to the short term, but should be simultaneously combined with an agreed-to production strategy with a long-term vision. Otherwise, any short-term reactivation will have a precarious footing.
Finding a solution for allAn equitable development strategy would be broad enough to integrate the greatest possible range of sectors. We defend the state's regulatory capacity, which would predominantly integrate popular interests, in all their multifaceted diversity, into that strategy. At the same time, this proposal would establish a commitment to reinstate and respect a consistent macroeconomic framework.
As for sources of financing for this effort at equitable growth, foreign savings should be an important complement but should not replace domestic savings. In trying to increase the level and autonomy of fundamental economic decisions and promote a sustainable model, it is essential to consolidate the nation's capacity to generate its own savings. This becomes even more important when the restrictive conditions of international capital markets are taken into account. Thus, while prioritizing basic goods consumption, an alternative strategy stresses an austere development style, explicitly recognizing the need to limit luxury and imitative consumption through fiscal instruments and other measures. Levels of consumption beyond the country's economic possibilities are only acquired temporarily, and only by mortgaging the nation's future.
This alternative development model has clearly defined core points, as summarized below.
The Socioeconomic Core. Small and medium agricultural and industrial producers, in all their forms of individual, cooperative or participatory property, should be given priority as the economic subjects of recovery. These subjects, in the midst of the crisis, have initiated their restructuring with great difficulty, abandoning the former subsidized schemes and strengthening their technical efficiency and capacity for efficient productive response. Economic policy should facilitate access to resources that would make their full productive conversion and greater efficiency possible.
The goal of this transformation is to establish growing productive ties between small and medium producers and other economic sectors, which infrastructure, financing, storage, processing and marketing programs should accommodate. These producers themselves should play an important role in establishing these links, by stimulating the domestic market to generate productive employment.
Exports should finance recovery, while efforts should be made to generate a new and dynamic export sector that becomes increasingly integrated into the country's productive structures through the growing interchange of production and services. This does not suggest either enclave production or the concentration of property and wealth. On the contrary, it signifies increasing democratization of financial and technical resources, as well as an accompanying social policy that would promote massive investment in human capital, through education, health and technical training.
Any reactivation and economic development process necessarily implies the conscious and planned intervention of the state. The importance of this point should be obvious. State control over the allocation of productive and financial resources is vital to promote and give priority to the efficient insertion of vast social and productive sectors, who are currently very marginalized and poor, into production. The contraposition of state control and state decontrol is a false disjunctive. As long as there is a state, the issue, rather, is identifying where, when and how to establish controls, and to what ends. In this alternative, the state would pragmatically establish the controls necessary to best promote a democratic development strategy.
The Socio-political Core. In order to introduce the necessary economic changes, a national and democratic development strategy should be based on the broad consensus of all sectors involved. The institutional mechanisms for this are the concertation processes of negotiation between labor, business and government sectors. We cannot delude ourselves about the willingness of the dominant sectors to cooperate in this kind of negotiation. Experience shows that these processes are only possible where confrontation has a high political cost and where one party cannot simply impose its will on the other. This suggests the existence of underlying conflict, but implies strengthening a scheme of governability based on managing that conflict, not repressing or augmenting it.
The government's implementation capacity should be ready to legitimate the accords arising from this forum, conferring on the political system the credibility and stability necessary to introduce the social and economic changes accepted by the different parties. To be effective, this cannot, then, follow a pattern of bilateral negotiations plus de facto actions and repression, ending up with the application of the government's point of view after all. The government's true leadership should be based on coordinating the search for consensus among the participating institutions.
Neoliberalism brings with it the tendency toward concentration and exclusion, which structurally reduces the possibility of achieving development with equity. Concertation processes restricted to day-to-day issues lose legitimacy when faced with the real evolution of the model being imposed: with the majority turning to the informal economy and increasing poverty. Popular participation must thus be permanent, instead of sporadic and concerned only with the present moment. In addition, the space won in the political sphere by the popular sectors in many Central American countries in the 1980s must now expand into the economic and social spheres, thus assuring their progressive presence in the broadening of democracy as well as in each nation's development.
This requires socioeconomic institutions that legitimate and facilitate participation. An alternative strategy is impossible to conceive without in-depth discussion about the allocation of resources and their link to productive strategies that effectively constitute an economic and social solution for the majority. It is thus vital to unite popular interests beyond organizational and sectoral borders, incorporating the majority of those who are marginalized into a common alternative.
Participation requires institutionalization to regulate its operation and to guarantee the strength of the agreements made around a development strategy. This would offer a vision of the future based on economic and social goals for all the players, reducing uncertainty and channeling conflicts toward these goals.
The ungovernability created by successive conflicts would, then, diminish, unless the market were to marginalize or eliminate different social sectors, generating more points of conflictive inequality. The search for a negotiated consensus around the level of public services, social welfare and the orientation of productive efforts that all are willing to accept constitutes the first step toward creating this vision of the future. The core points already mentioned would be the underpinnings of a process from which the Central American region could reach the end of the century on a path toward development that would resolve the horror of poverty. Only then will we have advanced toward an economically and socially authentic peace.
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a monthly magazine of analysis on Central America