On May 13, prices at the Colombian Stock Exchange suffered the largest fall in the exchange's history, of 6.17%. The accumulated loss of the previous two weeks (beginning April 27) in the IGBC (Colombia's version of the Dow Jones Index) was 21.5%. It was a taste of what can happen within two years, a taste of the end of the speculative surge which, as is said in Colombia, 'went up like a palm tree and will fall like a coconut".
The IGBC increased by 340% between November 2001 and April 2004. For that reason the drop on May 13, even though it would stretch any market, seems like just a blip in Colombia, considering the size of the bubble. The key question: have Colombian enterprises really increased 340% in value? According to official statistics production has grown at one-hundredth the rate of stock prices. A fall is inevitable under such extreme conditions of speculation.
The IGBC bubble is only one of those waiting to burst. The motor of the speculative process is the government's indebtedness that comes via its treasury bills (titulos de tesoreria or TES), which it offers at high interest rates to international investors. Dollars become pesos and buy TES, which pay higher interest rates than the US or European equivalents. This causes a reevaluation of the peso and the real interest rate earned is even higher for the foreign investor, who then decides to reinvest the interest in more speculative activity with TES or stocks.
Analysts attributed the May 13 drop in the stock index to the rumours of an interest rate increase in the US. This is undoubtedly a key factor in triggering the explosion of the bubble. Capital flies fast and massively. May 13 made it possible to see a little of what could happen: no one will want to buy more TES - they will just want out of the Colombian market. The government will have no way of responding and the whole thing will become an economic catastrophe.
But why are international interest rates increasing? It is partly the economic recovery in the west, which started with the war in Iraq. But it is especially because that recovery has crashed against the hard facts that the US cannot accomplish its objectives in Iraq, that the Iraqi resistance grows, the great 'reconstruction' enterprises are flailing, and the price of oil has increased instead of decreasing.
The Iraq war had caused such enthusiasm that Colombia produced its own little Cheneys and Rumsfelds to follow the Iraq war's progress and produce a documented study by the ex-President of the Bogota Exchange, Carlos Caballero Argaez, demonstrating how US military spending contributed to the Colombian economic recovery. Now they have to follow the war in Colombia too and everything depends on the TES, on the "Yankee Bonds" (the external debt), and the money coming from the US for Plan Colombia. If things don't work out for their bosses in Iraq, catastrophe is inevitable.
It would all have worked out perfectly if only the government, as Uribe's first Defense Minister promised, could have destroyed the guerrillas in 18 months. But now the President is laboriously working for his re-election, promising that with just another four years he can overrun terrorism permanently. But the state's finances won't hold for that long. Even after the tax reform based on taxing food consumption, increases in the price of gas and medical insurance, increases in retirement age, and reduction of transfer payments to local governments, there isn't enough.
The hallucinatory speculative bubble initiated at the end of the previous government came to a head accompanied by a recovery of production, which went from net decline to annual growth of 4%. Industry reported growth of 7% in the past 12 months. All this at the expense of workers, who suffered a 'labor reform' that took the pennies out of their wallets, reduced their savings and consumption drastically, and proliferated low-quality employment, 'underemployment' that makes the unemployment rate fluctuate dramatically from 17 to 13 to 17 to 15%. All this at the expense, too, of public enterprises, agrarian institutes, and hospitals, privatized.
'Uribismo' can be summarized with this data: the construction of housing for middle- and high-income households in 2003 grew by 26%; the amount of social housing was lower by 20% than in 2002. Compared to 1999 the area of luxury housing had grown by 250% while low income housing decreased 25%. Loans for social housing fell 2.5% but for non-social housing loans grew by 13%. This is a government of the rich, for the rich, by the rich.
Years of terror against unions and peasants have permitted Uribe to impose his agenda, but facing the spectre of a fiscal and financial crisis, all that terror may have been for nothing. New methods are necessary. To these new methods will be added another dose of what the chiefs in Washington demand, a new 'bilateral' 'free trade' agreement. To impose these, Uribe is pushing forward a massive package of anti-democratic constitutional 'reforms'.
But the workers won't be so easily smashed. If in May the stock exchange leveled a warning, the workers clamoured. The oil workers struck for 35 days. There was a strike and confrontation 8 days long in northern Medellin. 14,000 banana workers went on strike. One thousand workers from public enterprises in Cali occupied the company building for four days fighting privatization. The peasant-black-indigenous convergence approved a national mobilization before the end of the year. The May Day demonstrations were massive and politicized, against Uribe's re-election and constitutional reforms. On May 18 500,000 public sector workers stopped the country, protesting the free trade agreement, and in Cartagena a major demonstration denounced the beginning of the negotiations of that agreement with the US in that city.
The Cartagena demonstration was brutally repressed by land and air. The Defense Minister said that if the constitutional reform had been law, all of the congresspeople and union leaders who had promoted the protest would "all be in jail". "Demobilized" paramilitaries massacred 30 indigenous in La Guajira and 13 peasants in Arauca. May has been a prophecy of the good and bad to come: decisive struggles before the end of the speculative bubble.
translated by Justin Podur