The Bubble and the Fleet
The economics team of Colombia's Uribe government proposed, and won, an increase of $16 billion USD in the state's external debt. That is an increase of 80% for the state, and an increase of 42% of the external debt of the country as a whole.
The government needs to increase debt and all kinds of taxes to continue its main functions of military spending, doling out patronage, and of course-paying the external debt! The Colombian government uses 82% of its tax revenues to pay internal and external debts. The external debt is 63% of the country's annual Gross Domestic Product (GDP).
The international lending agencies are the creditors: the World Bank provided $3.3 billion, the IMF $2 billion, the Inter-American Development Bank another $2 billion, and the Andean Development Corporation $3.4 billion. This 'generosity' is a tacit endorsement of Uribe's plans and an attempt to maintain his regime's stability.
The rest of the debt comes from 3-year, high-interest bonds sold on the open market that mature at the end of 2005. In order to pay them, the budget reforms have an immediate tax increase and delayed one-that comes into effect in 2005.
The waterfall of new taxes started with a special 'war tax' of 1.2% on wealth. This would seem to be a one-time payment, but the debate today is whether to apply it again if the war demands it. Uribe has bet on a rapid victory against the guerrilla, which in the Colombian context is like betting it all, double or nothing, on number #666. If any other number comes up, Uribe loses (and falls?)
Another increase in the tax burden, and worst of all, is the increase in the sales tax, which now includes basic necessities and food and will include all foods in 2005. The increase in the sales tax has already provoked a price increase in staples. The government blames 'speculators' and 'incorrect application of the tax', to distract and divert the growing protests.
For the business community, the government has provided ample compensation: a labour reform that saves employers $2.8 billion USD a year (at the worker's expense, of course). This was justified as a measure that would create jobs, but as soon as employers were allowed to use workers for longer days without paying overtime, the government itself fired 10,000 workers and left 30,000 workers near retirement without pensions. To this quota of layoffs the government hopes to add another, this time by way of a referendum that will remove government monitoring of police, and privatized parts of the public sector.
The whole irresponsible gamble produces some short term gains, while creating two bubbles: one economic, and one political. The arrival of credit dollars in a country that has not stopped receiving narco-dollars will reactivate the economy but also increase prices and the intake in the Colombian Treasury.
The political bubble is full of hopes for government contracts and patronage that will fill the coffers of the politicians. It will produce political dividends in the short term to military contractors, subsidized African palm plantations, and the failed housing programs proposed by Canadian economist Lauchlin Currie. These programs assist urban landholders (like banks) to whom the state will pay the excess interest of its deficit budgets. The landholders, who are connected to politicians when they aren't politicians themselves, do not hesistate to approve the government's projects.
But this bubble could well burst if Uribe's number doesn't come up. That's why the Colombian President has passed political reforms to go along with the economic reforms, that are intended to attack protest and the people's movements. The first step is a referendum that will make some of the first reactionary amendments to Colombia's constitution. The social movements have united to call for abstention from voting and make the referendum null. The government failed in its attempt to get a reform through Congress that would give judicial powers to the military. A previous series of constitutional reforms will try to restrict democratic rights including the rights to protest or agitate for collective social, economic, or cultural rights.
The more the government impels its antidemocratic reforms, the more the social movements organize resistance against them and especially against FTAA, whose imposition would have grave consequences for Colombia's agriculture in particular. The government promised it would protect agriculture in the FTAA, but the next day it revoked its promise after a threat from the US Secretary of Commerce who demanded 'free' access to Colombian markets of agricultural products subsidized by the US.
When the time comes to pay the debt and the numbers show Uribe's lost his bet, the social explosion and economic collapse could be difficult to contain. That's why Uribe has said he hopes the fleet from the US comes quickly back from Iraq to gather on the Colombian coasts of the Caribbean and the Pacific, ready to launch planes and troops into the Amazon where they have failed to stop the cultivators who, fleeing fumigation, have reached the borders of Lula's Brazil.
Between the fleet and the bubble, Uribe has thrown his lot in with military intervention against the popular processes in Brazil, Venezuela, Ecuador, and all of Latin America. In doing so, he's thrown his lot in with the US which, according to a majority of the world's population, is "the biggest threat to world peace."
[translated by Justin Podur]
HÃ©ctor MondragÃ³n is an activist and economist based in Colombia.