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HANK PAULSON'S OCTOBER REVOLUTIONWhy This Republican X-Banker Has Decided to (Partially) Socialize Our Entire Banking SystemJames S. Henry "

 "We have made changes, Sire. Yes, it is true, we have made changes. But we have made them at the right time. And the right time is, when there is no other choice."

-- Conservative adviser to King Edward VII, explaining his support for liberal reforms

We may have just reached a critical turning point in American political economy -- not only in our efforts to overcome the burgeoning global banking crisis, but also to overcome the pernicious influence of free-market fundamentalism, which has dominated US economic policy for the last 30 years.

Ironically enough, the person who deserves more credit than anyone else for helping us to reach these goals is our current Treasury Secretary, a lifelong die-hard Republican and former Wall Street king-pin.

Last night, a few hours after the US stock market closed,  the Bush Administration, embodied in Henry M. Paulson,Jr.,  announced that in order to stem the continuing turmoil in capital markets,  in conjunction with other G-7 countries, the US federal government will begin "as soon as we can" to use taxpayer money to buy preferred equity in private financial institutions, especially banks.

Depending on how it is implemented, this could very well amount to a partial nationalization of the entire US banking system by the US Government. Are you paying attention here, Hugo, Fidel, and Evo? 

This marks a very sharp U turn in recent US policy. Indeed, just two weeks ago, in their September 23rd testimony before Congress, Paulson and Federal Reserve Chair Ben Bernanke dismissed such equity investments as a "losing strategy," compared to their preferred scheme, a government-run "reverse auction" to buy up to $700 billion of "toxic" bank assets.

HAIL MARY

This policy U-turn was not due to sudden new insights generated by careful academic analysis or some precise economic model. 

It feels more like a Hail-Mary pass,  coming at the end of  one of the most disastrous weekly stock market performances in US and global history.

That, in turn, was preceded by ten exhausting days of political goat-rodeo and Congressional negotiations over the infamous "$700 billion bailout," on top of the preceding six exhausting months of  more or less ad hoc, increasingly expensive but largely unsuccessful one-off  interventions in money markets and the banking system by the US Treasury, the Federal Reserve, and a myriad other US bank regulators. 

Meanwhile, there has been an even more quirky set of poorly-coordinated improvisational remedies administered by diverse regulators in the UK, Germany, France, Iceland, and Belgium. 

At the end of all this,  fear, uncertainty, and doubt (FUD) have continued to spread across global capital markets, as policymakers stumble into each other, national banking systems compete for deposits, the US Treasury becomes (ironically) a huge depository for safe-haven flight capital, and no one manages to get ahead of the crisis.

If the FUD continued to spread, and global credit remained on lock-down,  the forthcoming global recession -- already likely to plunge real growth in Europe and the US  to zero or less next year, China to 6 - 8 percent or less, and the rest of the developing world to 4-6 percent -- would become dire indeed. 

So one answer to the riddle of Paulson's "sudden conversion" is that he simply had no alternative. Given that ad hoc bailouts, coordinated interest rate cuts, increased deposit insurance, the extension of government insurance and liquidity to money market funds, the commercial paper market, on top of the takeovers of AIG and Fannie/ Freddie, had not done the job, nationaliziation -- really internationalization, since global banks are involved, and other countries will presumably be asked to contribute -- is one of the few arrows left in his quiver.

A GREAT TRADITION

This will hardly be the first US experience with quasi-nationalization. On September 16, the Federal Reserve had effectively "nationalized" the giant insurance company AIG, acquiring 80 percent of its equity in exchange for an $85 billion loan.

Way back in the 1930s and 1940s,  the US Reconstruction Finance Corporation seized and recapitalized many banks. The FDIC has also done this many times since then.

European governments have even longer histories of direct intervention in banking markets.  And several of them moved almost too quickly in the last year to nationalize particular banks -- for example, the UK's Northern Rock in February 2008 and Fortis in September 2008.

Of course, most of these recent cases have involved failing institutions, where the government was a "lender of last resort." As discussed below, Paulson's plan is rather different.

Even farther back, in the early 19th century, states like Virginia and Pennsylvania often invested directly in state-chartered banks to set them up and keep them going. Those were not especially happy experiences with government ownership.

But this is hardly a great time for champions of private capital markets to be quibbling about the efficiency costs of government intervention -- private markets in the US alone have just lost $7 trillion of market cap in the last year, including $3 trillion in the last 3 weeks. And the global "opportunity cost" of the crisis is probably at least twice this high.     

A GLOBAL RECOVERY FUND?

 If done right,   Paulson's PIP  (Public Investment Program) will be much broader,  more proactive and more innovative than previous bank nationalizations.

For example, one idea would be to establish a "Global Recovery Fund," permitting fresh private capital, "sovereign wealth funds" like those in Norway and the UAE, and European, Latin and Asian countries that have a clear stake in restoring the world's financial sector to health to invest alongside the US Treasury.

Even, Heaven help us, the IMF and the World Bank's IFC might participate in such a fund.  They have run out of developing country crises to solve, are looking for a new role, and have $billions in untapped credit lines. 

Such an approach would help to share the heavy burden placed on US taxpayers, and make this program more politically palatable than the TARP bailout proved to be.

A global fund would also help to diversify investment risks across many more countries and banks. 

Indeed, the USG and its new partners might even become lenders of far-from-last resort, clearing the way for threatened but essentially-healthy institutions  to survive the financial contagion, raise much more private capital as well, and, most important, turn each and every  new $1 of equity into $10 to $15 of new lending.

If the fund is successful in reviving the world's financial system, and restoring banks to financial health, taxpayers and investors will no doubt all be paid back handsomely. But the most important benefits may be the "hidden" ones -- the catastrophic losses that would be avoided by preventing further chaos and market decline.

This is very different from Paulson's original TARP buy-back scheme, which promised to boost bank equity informally by way of overpaying for toxic assets with highly-uncertain values. 

Ironically, that approach just rewards those companies with the very worst  portfolios and lending practices,  while enabling much less increased lending.

Indeed, TARP's only comparative advantage seems to have been that by avoiding direct government investment in the private sector, it did not violate any red lines of so-called free-market conservatives.

In hindsight, however, given TARP's birth pains, plus the fact that the market value of all US publicly-traded stocks fell from $12.9 trillion on September 19 to $9.2 trillion in the three weeks after Paulson Plan I was announced.

So respecting this neoliberal ideological taboo may well have just cost US investors -- most of whom are taxpayers -- at least $1 to $2 trillion of  market value that might have been saved with an immediate recapitalization plan.

With that much extra dough,  we could almost afford to wage another Iraq-scale war somewhere. 

Bolivia's Growing Regional ConflictJames S. Henry and Donald K. Ranvaud

The new year is already off to a turbulent start in Bolivia. During the week of January 7 to 15, up to six thousands supporters of President Evo Morales' MAS party-- mainly cocaleros from the Chapare coca-growing region,  campesinos, and indigenous groups --  showed up in Cochabamba,  Bolivia's third largest city of 800,000,  in the country's center. 

They had come to demand the resignation of Cochabamba's   right-wing Governor, Manfred Villa-Reyes, who has become an outspoken supporter of the "autonomista" movement, which is seeking greater "states rights" for the country's nine provinces -- especially the wealthier, "whiter" eastern and southern provinces of Beni, Pando, Santa Cruz, and Tarija, where most of Bolivia's natural gas and richest farms are located.

As shown in this exclusive video footage from Cochabamba (See Parts I and Part II). shot by Bolivian film crews working under the direction of  our colleague, award-winning Hollywood producer Donald K.Ranvaud (The Constant Gardener, City of God, Central Station, etc.), the MAS supporters encountered a fierce reaction from the city's middle-class residents and pro-autonomista forces, including a crowd of more than well-organized thousand stick-waiving people who reportedly attacked the cocaleros and campesinos aggressively on January 13th. In the ensuing conflict, at least two people were killed and more than 150 were injured.

By Saturday January 14th, calm had returned to the city. Governor Manfred returned from Santa Cruz, where he had apparently fled out of concerns for his own safety, and  Evo Morales also returned from Nicaragua, where he had been attending Daniel Ortega's inauguration. Steps have been taken on all sides to pacify the situation.

However, as we'll discuss below, the potential for renewed conflict is very high. This is not only because none of the fundamental economic and political causes of the conflict have been addressed. It is also because on all sides,  Bolivia's political leaders have not exactly shown the capacity for compromise and the maturity that will be essential to avoid a "lose lose" outcome for Bolivians of all backgrounds and social classes.   

CUBA'S HEALTH CARE REVOLUTION, LATIN AMERICA'S HIDDEN HOLOCAUSTSomething for Fidel to Be Proud OfJames S. Henry

While US media conglomerates like Time and Fox have been obsessing for months about whether or not 80-year old Fidel Castro is finally about to meet El Fabricante,  Cuba has been busy setting health records -- helping its 11.4 million citizens achieve lower mortality and longer lives than almost anywhere else in the developing world.

Now that a leading Madrid surgeon has made it clear -- contrary to USG agitprop -- that Fidel is not suffering from terminal cancer, and, indeed, is recovering well from last summer's stomach operation,   perhaps this other Cuban health story will finally receive the attention that it deserves. 

Just this month Cuba announced that its infant mortality rate has reached the First World average of just 5.3 per thousand -- on a par with the latest rates for the UK, Canada and New Zealand, even lower than the 6.7 US average,  and less than half the 14.1 average rate for all African-Americans in the US.

LATIN AMERICA'S HIDDEN HOLOCAUST

Even more to the point, Cuba's infant mortality rate is also the lowest in Latin America and the Caribbean, and indeed, the lowest for any developing country in the world.

The corollary is another important story. This is the fact that while Fidel's tiny, isolated, centrally-planned, highly-inefficient, antediluvian island economy has managed to set record after record on public health, education, poverty reduction, and gender equality since the 1970s,  the "non-revolutionary" rest of Latin America has lagged far behind. Over time, the cumulative impact has been huge.

For example, as we'll see below, if other Latin American and Caribbean countries had simply kept pace with Cuba's percentage improvements in infant mortality from the 1960s to 2005, an additional 6.4 million infants -- an average of 184,000 per year for the region as a whole -- would have survived the first year of childbirth.

In effect, all these "missing children" amount to nothing less than a continuing hidden holocaust -- attributable at least in part to the pro-elite development paths that most of these countries have pursued.

Many of those critics on the Right who like to rail against the deficiencies of Castro's regime -- its admitted lack of US-style national elections and market freedoms, its shortage of big fancy cars and other consumer goods -- also profess to be profoundly concerned about human rights,  the welfare of Elian Gonzalez, "the rights of the unborn," and so forth.

Perhaps they will now bring themselves to admit that at least in one respect, Fidel's Revolution is actually a role model -- and that naked capitalist development also has very high costs. 

This goes a long way to explain why, far from being the pariah that USG has tried to make him, Fidel is today treated with greater respect and admiration throughout Latin America than ever before -- certainly in comparison with former US-backed right-wing thugs like Pinochet, Rios Montt, Banzer, Fujimori, and the Argentine and Brazilian juntas.

Consistent with this, on October 28, 2006, the UN General Assembly voted for the 13th year in a row to condemn the US embargo on Cuba. Every Latin American and Caribbean country voted to support the resolution, joining 179 countries that did so. Only four countries voted against it -- the US, Israel, the Marshall Islands, and Palau.

In any case, whatever the quality of life in Cuba for adults today, the fact is that if you are an unborn infant of average means who somehow gets to decide where in the entire developing world to be born, there's no contest.

(For all the gory statistical details, read on below):

 

REMEMBERING THE GENERALPart I: OverviewJames S. Henry

---

I was born a Chilean,  I am a Chilean,
I will die a Chilean.
They, the fascists, were born traitors,
live as traitors, and will be remembered forever as fascist traitors.

-- Orlando Letelier, 1932-76

---

Both Chile's General Augusto Pinochet and Saddam Hussein, two formerly US-backed dictators, have at last had to confront Higher Authorities that they were unable to intimidate, compromise, or evade.

However, unlike Saddam, who was hanged in the middle of a night on December 30, 2006, by a nervous Iraqi Government tribunal,  Pinochet managed to escape human justice for his crimes, and died of natural causes at the age of 91. 

How does the General deserve to be remembered? Did he not richly deserve the same fate as Saddam? And how did he manage to avoid it? 

Was he simply a ruthless, corrupt right-wing tyrant, the puppet of foreign interests and their handmaidens, like ITT,  Nixon, Kissinger, the CIA, George H.W. Bush, Margaret Thatcher, and Reagan?   

Or was he, as many of his defenders still maintain,  an essential bulwark against the Leftist Horde in Latin America?

If perhaps not exactly the world's staunchest defender of political liberalism, was he at least -- as Thatcher, some neoliberal  economists, The Wall Street Journal, and even supposedly "liberal" newspapers like The Washington Post now maintain --  a staunch defender of  "free markets" who deserves much of the credit for Chile's economic performance since the 1970s?

As we'll see,  most conventional portraits of General Pinochet are flat-out wrong, not only with respect to his alleged role in combating Soviet expansionism, but also with respect to his regime's alleged beneficial influence on Chile's economy.

First,  Pinochet was at best only a non-essential bit player in the anti-Soviet struggle. Allende's broad-based social democratic "revolution" was never taken seriously by Moscow or Havana. Nor was it strong enough to mount a Cuban-style revolution, or even to precipitate a civil war. Left to its own devices, Allende's "leftish" alliance would probably have burned itself out by the next election or plebiscite in 1974.

Furthermore, even if Chile's leftists had somehow managed to create a "Soviet Republic of Patagonia," tiny Chile was already completely surrounded by other countries that had much greater strategic importance to the West.

By 1973, they either already had their own right-wing dictatorships (Brazil, Paraguay, and Bolivia), or were well on the way (Argentina and Uruguay).

In short,  killing off Chile's long-standing democracy was gratuitous -- the political equivalent of exaggeratinging Iraq's "slam dunk" WMD threat.

All the repression was for nothing.

On the economic front, Pinochet's interregnum was also a costly, needless detour. 

Indeed, one key reason why Chile's so-called "economic miracle" has proved to be so successful in the long run -- with great help from human capital finally brought back home by many well-educated returning "Leftists" who were  driven out of country in 1973-90 -- was precisely because Pinochet's first decade of experiments with "Los Chicago economics" proved to be so disastrous. Giving Pinochet credit for the subsequent corrective reforms is like crediting Leonid Brezhnev with last decade's revival of economic growth in Eastern Europe.

(For more details, see Parts II and III...)

 

   

ANOTHER CONJUGAL DICTATORSHIP?Twenty Years Later, Near-Martial Law Returns to the PhilippinesJames S. Henry

At first glance, this week's news from the Philippines is even more dismal than usual. But the deepening crisis also discloses some interesting possibilities for fundamental change.

The bad news has arrived in bulk. First, the search for more than 1050 victims of the recent Leyte mudslide has been called off without any progress.

Second,  President Gloria Macapagal-Arroyo has seen fit to declare a state of emergency -- 20 years to the day after "People's Power"/ EDSA I brought an end to the Marcos dictatorship on February 25, 1986.

Officially, Madame Arroyo attributed her "Proclamation 1017" -- an open-ended declaration of a "national emergency" -- to the supposedly imminent but actually rather vague threat of a coup, purportedly organized by a cabal of dissident officers, politicians and professors -- in alliance, she claimed, with the Communist Party of the Philippines (!).

Technically, this was not a full-fledged declaration of martial law.  But for those on the ground the distinction is theoretical.  At Arroyo's direction, the police moved quickly  to round up (without warrants) at least three Congressmen, a university professor, 25 protestors at an anti-Arroyo rally, and a half dozen senior miltary and police officers -- including a West Point graduate and and a former Chief of the National Police. All permits for political rallies were cancelled. A leading opposition newspaper was raided. 

Meanwhile, Arroyo produced no hard evidence that any members of this disparate group had done anything more serious than join former Presidents Corazon Aquino and Fidel Ramos  in calling for her to resign.

Even if there had been a coup attempt in the offing, that could have been dealt with under existing laws -- as Aquino did with at least seven coup attempts during her years in office, without requiring emergency powers.

FULL CIRCLE?

In this respect, to long-time Philippines observers,  Arroyo's declaration is reminiscent of President Ferdinand Marcos' 1972 "Proclamation 1081." That was also justified by a fairy tale  -- a bogus assassination attempt against Defense Minister Juan Enrile that, years later, turned out to have been a theatrical production by his own security guards.

It is likely that Arroyo's move is a desperate attempt to head off growing popular demands for her ouster.

Left unchecked, those demands might well have culminated in a huge "People Power" rally this weekend, demanding her resignation.

This popular movement is not based on a disgruntled cabal, much less on some left- or right-wing plot.

Rather, it is based on widespread,  rational disgust with President Arroyo's dismal performance since taking office in 2001.

• Despite rising levels of economic growth -- 3-6 percent per year since 2002 -- the Philippines "oligarchy" remains firmly in control, less than 10 percent of the population perceives that its economic situation has improved under Arroyo, and  more than 71 percent of the population now considers itself poor.

• In yet another striking parallel to the "conjugal dictatorship" of Ferdinand and Imelda, Arroyo's own husband Mike has been forced to live in exile because of his involvement in several gambling and corruption scandals.

• Arroyo is widely believed to have stolen more than 1 million votes in the May 2004 Presidential election, a charge that was only strenghtened by the embarrassing "Gloriagate" tapes. Her position has only been preserved by virtue of her party's dominance in Congress, and her control over the 15-member Philippines Supreme Court, which she has managed to pack with 9 appointments.

Even before the state of emergency, President Arroyo's popularity rating had fallen below that of any of the last four Presidents -- including Joseph Estrada, who was ousted by popular demand at EDSA II in January 2001. Indeed, by January 2006, "net satifaction" with Arroyo (% satisfied minus % dissatisfied)  had reached -30%, a record low. And well over half of the population simply want her to resign -- ala Marcos and Estrada.

US INTERVENTION?

In this situation, one might have hoped that the Bush II Administration would have followed in the footseps of Reagan/ Bush I, circa 1985-86,  and strongly "suggested" to Madame Arroyo that she "do the right thing" and board a plane to Hawaii -- not just for the sake of democracy, but also for the sake of the US' long-term relationship with the Philippines people.

Unfortunately,  this kind of intervention is unlikely,  at least for the moment. 

• President Bush is much more concerned about the Philippines' contribution to the "war on terror" than its domestic  problems. Arroyo has been very accomodating on the "terror war"  front.

• Indeed, throughout Southeast Asia, Bush and Secretary of Defense Rumsfeld have also been turning the other cheek to mis-democracy  -- resuming arms sales to Indonesia's horrific military, indulging the Prime Minister of Thailand in his offshore companies, and so forth. Arroyo is just another example.  
  

• Arroyo has also carefully cultivated key US interest groups. She's Bill Clinton's former classmate at Georgetown, who still looks him up on trips to New York. She's also an outspoken fan of neoliberal policies, who has good relations with US  companies, Congress, and, indeed, President Bush.

• Unlike 1986 and 2001, the opposition has no clear leader that would be acceptable to the US.

• President Bush may well sympathize with an unpopular President whose electoral legitimacy is questionable, and who also repeatedly violates the Constitution and hides behind the skirts of a hand-picked Supreme Court and Congress.

In sum, from Manila, Bangkok, Egypt, the West Bank, and Iran, to Palm Beach County, Haiti, Caracas, Peru, Colombia, and Bolivia,  the US Government only finds "people power" as desirable as the results that it produces. The people of the Philippines should not expect any help from GMA's cronies in Washington.

BEYOND "PEOPLE POWER"?

So to rid themselves of this new usurper,  Filipinos will have to depend on yet another round of Manila popular democracy --  perhaps this time in the face of even more repression. 

Are they up to it? 

Some pundits have recently concluded that, having been through EDSA I and II without achieving very much, and now more economically beleaguered, Filipinos no longer have much stomach for mass resistance.

Indeed, according to one fall 2005 poll, in hindsight, just 36 percent of the population supports EDSA I, 10 percent supports EDSA II,  and 42 percent believe that doing nothing would have been preferrable.

On the other hand, 6 out 10 Filipinos still reject martial law as the way to solve the country's problems, while at least 58 percent are willing to support another round of mass demonstrations if President Arroyo is clearly shown to have "cheated in the elections" -- e.g., to have violated the law.

Proclaiming a bogus state of emergency and violating civil rights en masse without a "clear and present danger" should surely cross that threshold.

Furthermore, while everyone now recalls "People Power" as a mass movement, in fact i only 7 percent -- 20 percent in Manila -- of Filipinos over the age of 18 actively participated in  it. That is far below the proportion that now says it is still prepared to demonstrate against Presidential illegality.

As usual in revolutionary situations, however, everything comes down to leadership and initiative -- plus a hefty dose of sheer fortuity. The importance of political entrepreneurship is often underestimated by revolutionaries. However, given such decisive opposition leadership, and its ability to avoid being crushed by GMA's supporters,  her newborn "conjugal dictatorshp" could well be headed for history's dustbin. She has just  made, as they say, "A mistake the size of her life."  

                                                     ***
(C) JSH, SUBMERGING MARKETS, 2006. ALL RIGHTS RESERVED.

"PORT WHINE, DUBAI-OUS LOGIC"The Impressive Power of Sheer DemagogyJames S. Henry

We must realize that it is very hard to save a civilization when its hour has come to fall beneath the power of demagogues. For the demagogue has been the great strangler of civilization....(One) is not a demagogue simply because he stands up and shouts at a crowd...The real demagogy..is rooted in...irresponsibility toward... ideas...Demagogy is a form of intellectual degeneration.

-- Jose Ortega y Gasset, History as a System

World oil markets may be tight, but evidently the world has an inexhaustible supply of ethnic and religious enmity -- and not only in the Middle East. If we are looking for a sustainable alternative energy source, perhaps we should start here.

Just this week,  at least five more Palestinian "terrorists" --  or "freedom fighters" and "martyrs,"  as many Palestinians regard them -- were shot dead by Israeli paramilitaries in the West Bank. Seven US soldiers were blown to bits in Iraq, more than 165 Iraqis perished in fighting between Sunnis and Shiites, and at least 100 Nigerians died in conflicts that were aggravated by Denmark's gratuitous Muslim-baiting cartoons. 

Meanwhile, back on the center stage of Western democracy,  many of our best-known  Congressional Democrats and Republicans -- including Senators Hillary Clinton (D), Charles Schumer (D), Bill Frist (R), Richard Shelby (R), and George Allen (R), as well as many media pundits -- were focusing on the Bush Administration's decision to approve the acquisition of a P&O Ports, a leading British ports services company,  by DP World, a Dubai government-owned ports services company that already operates 22 container terminals in 15 countries.

On closer inspection, that opposition amounted to little more than a combination of knee-jerk prejudice, dubious economics, even more gratuitous Muslim-baiting, and the worst form of political pandering.

If recent experiences with similar port licensing conflicts in the US are any guide, it is likely that the Dubai company will eventually get its way.

Unfortunately, given President Bush's weak political position and the paucity of principled statemanship and wisdom in both of our two leading "cartel-like" parties,  we are likely to see much more of this kind of demagogy in the next few years.

  (c) SubmergingMarkets, 2006.

EVO'S HISTORIC VICTORYBolivia's Democratic RevolutionJames S. Henry LaPaz, Bolivia

The mood at Tuto Quiroga's well-appointed campaign headquarters at the Hotel Radisson in downtown LaPaz was funereal, while across town at MAS Party headquarters in the former Brazilian Embassy, and later on in the impoverished township of El Alto,  people were chanting and singing in the streets late into the night. Not long after the polls in Bolivia closed late this Sunday afternoonn,  it was already clear that the country's impoverished majority had finally elected one of their own as the country´s next President -- and by a much larger margin than any foreign policy expert, journalist, or Latin America political pundit had expected.

This is easily one of the most surprising and important elections in the history of Latin American democracy. For fans of the "neoliberal," free-market approach to development, as well as coca eradication, it is also a time for soul-searching.

Evo Morales, the 46-year old working-class meztizo, cocalero organizer, and leader of the neo-left "Movement Toward Socialism" party, has soundly defeated the seven other Presidential candidates in the race, capturing close to 50 percent of the nationwide vote.

While the final vote tally still has to be certifed by Bolivia's Electoral Court,  this clearly puts Evo within reach of becoming the first Bolivian President ever to have won a first-round victory outright -- without having the choice default to Bolivia`s fractious, "rent-seeking" Congress.

From an historical perspective, Evo's performance is an all-time record for a Bolivian Presidential candidate, far surpassing the 31 percent received by the second-place candidate, the free-market oriented-former President, Tuto Quiroga. It also surpasses the previous all-time high registered by Hernan Solis in 1982, as well as the 34 percent captured by neoliberal businessman "Goni" Sanchez de Lozada in 1993.

For that matter, relative to other recent elections in the Western Hemisphere, Evo has also outperformed the victory margins achieved by the US´President Bush, Brazil´s Lula, and Argentina's Kirchner. Whatever one thinks of Evo's economic platform -- and it certainly contains more than a little wishful thinking-- there is no doubt that, at least for the moment, he has far more credibility with the Bolivian people than his opponents.

A DEMOCRATIC REVOLUTION?

Even more important than the historical records,  Bolivians have clearly voted en masse in favor of at least three fundamental changes in Bolivia`s social and political landscape -- all of them supported by MAS.

 

• Reasserting public control over Bolivia`s natural resources, especially its huge natural gas reserves -- already, in official terms, the second largest in Latin America, and quite possibly much more.

  Evo's vague, rhetorical shorthand for this is "nationalization," but there is a whole range of policy options that MAS is considering to increase the public`s share of the income generated by its natural resources, and add more value, and generate more jobs by using these resources at home. Whether or not any of these will make practical economic sense is far from clear. But it is hard to argue that this program will  necessarily be any more disappointing for ordinary people than the last two decades of neoliberal policies.

 

• Rejecting (US-backed) coca eradication programs. This supply-side approach to cocaine trade has been pursued by Bolivia since at least the mid-1980s, especially under the Banzer-Quiroga administration from 1997 to 2002.

  Unfortunately, as most observers outside the "drug enforcement complex" now agree -- including good solid conservatives like Milton Friedman and Steve Forbes --  the impact on ultimate cocaine supplies have been limited at best.

  At the same time,  the social, political, and economic impacts on countries like Bolivia, Columbia, and Peru have been disastrous.

  Oddly enough, with respect to drug enforcement, Evo is the true "neoliberal."  He believes that a poor country like Bolivia has a right to grow crops like coca if it makes economic sense, that punishing them for doing so is like punishing Dupont because some of its chemicals end up in illicit drugs, and that Bolivian farms should not be made to pay for the fact that  Americans and Brazilians can't control their bad habits.

  From this angle, his election is just one in a growing series of "corrective interviews" that Andean countries are giving to Washington on the huge costs of the failed supply-side drug control strategy. To summarize the matter quickly -- wouldn't the American people really have preferred to be buying several million cubit feet per day of LNG from Bolivia this winter, rather than pursue coca eradication policies in Bolivia that have had little impact on drug supplies while fostering a hostile political movement?

• Much greater effective representation for Bolivia´s impoverished, excluded, indigenous and meztizo majority. In this case the cliche happens to be true -- for centuries, the Bolivian people have stood by and watched the country´s incredible raw materials -- silver, tin, iron ore, guano, rubber, and now natural gas -- being expropriated by private interests or elite-controlled state companies, while the vast majority have remained dirt poor.

  Futhermore, since the 1990s, Bolivia has been a virtual laboratory for neoliberal economics, as well as coca eradication. The country ended up with its most valuable assets in private hands, while more than half the population remained poor and inequality increased dramatically. Evo´s election sends a message, loud and clear, that Bolivians have had enough. Indeed, from this standpoint, their voting behavior is not particularly radical -- in capitalist terms, they are  simply a group of shareholders who have finally decided to show incompetent managers the door.

This  is a message that will reverbrate throughout the region -- in next year's elections in Peru, Colombia, and even Mexico, for example. This is a message that the US, in particular -- so obsessed with implanting "democracy" in the Middle East, and recently so careless about paying attention to Latin America's troubled democracies closer to home -- ignores at its peril.    

EVO'S ALLIES?

There is an old Russian proverb that says, "Keep an eye on your friends -- your enemies will take care of themselves."

Of course it is to be expected that hard-line America haters like Venezuela's Hugo Chavez and Cuba's Fidel Castro, as well as leading Latin leftlists like Lula and Kirchner,  will take pleasure in Evo's victory, just as many simple-minded American neoconservatives will regard it as an unmitigated setback. 

But Evo's erstwhile left-wing allies should be careful not to celebrate too soon.

In Fidel's case, the key question is, how soon is he prepared to give Cubans the same democratic rights that Bolivians have just exercized?   

In Hugo's case, the question is, is he prepared to make up all for the economic aid, debt relief, and lost exports that Bolivia will lose if it alienates the US and the international community by adopting policies like coca legalization and gas nationalization?  Isn't it just possible that he may well prefer for Bolivia's gas to stay in the ground, where it can't compete with Venezuela's proposed pipeline to Brazil and its proposed LNG exports to the US? 

In the case of Lula's Brazil and Kirchner's Argentina, the question is, are they really willing to renegotiate the lucrative gas export contracts they now have with Bolivia, helping Evo by sharply increasing the prices that they pay, while increasing their Bolivian investments? Assuming that Bolivia is going to export at least part of its gas, shouldn't it consider competitors to Brazil and Argentina, rather than continue to be a captive supplier to these monopsonists?

Overall, therefore, it is easy for Latin America's kneejerk Left to celebrate Evo's rise as yet another defeat for Yankee imperialism -- and, indeed, there is just enough truth in that story to keep the brew bubbling. 

But every day that  Evo wakes up, he needs to remind himself that it was not the Yankees who are responsible for the fact that his country is one-half the size that it was 150 years ago;  that it is not Yankees who consumed most of his country's silver and other resources; that it is not Yankees that are consuming up to 30 million cubic feet per day of Bolivian gas at prices less than a fifth of US market levels (but Brazil and Argentina -- and Chile, by way of Argentina);  that it not Yankees who are content to keep Bolivia landlocked. On the other hand, it IS Yankees who have provided Bolivia with more foreign aid per capita than almost any other Third World country since 1948 -- much of which was admittedly wasted, but much of which undoubtedly did some good. 

In short, now that Evo is President, and not just an angry outside critic of the system, he will have to take responsibility for governing, and admit that Venezuelan, Brazilian, Argentine, and Chilean imperialism -- or, indeed, Chinese imperialism --  are no better than gringo imperialism.

As I`ll argue in Part II, none of these changes will be easy for Evo to implement within the bounds of Bolivia's existing political system, with its increasing regional polarities.   

Indeed, he faces an extraordinary list of challenges -- the least of which will be to become an effective head of government.  He will need a great deal of help. The US could usefully start by lifting its ban on holding discussions with him, and by granting him a visa. 

Despite all the obstacles, it is not too early to pronounce the strong, unified outpouring in favor of this program a ¨democratic revolution.¨

And what is perhaps most striking about this particular one is that Bolivia's people have made it on their own -- without the costly outside intervention that has been required to construct Lego-democracy in other well-known energy-rich developing countries.

(c)SubmergingMarkets, 2005

MONGOLIA'S FOUR HOURSA Special Report from the Front in Ulaan BataarJoachim Nahem**

Not usually known as a world traveler, President George W. Bush has recently been behaving like an itinerant Lonely Planet ghost writer. On November 21,  he and his 300-person entourage  -- including Ms. Bush and US Secretary of State Condi Rice -- stopped off in Mongolia for four hours on the last leg of an 8-day whirlwind tour through Asia.

With the mass protests of early November in Buenos Aires and Seoul still ringing in their ears,  it must have been a relief to be greeted in Ulaan Bataar by just three well-mannered lonely souls with one placard, urging the US to sign the Kyoto Agreement.

The President could also take enormous pride in the fact that he is the very first US President in history to have visited Mongolia --  a land-locked, Alaska-sized grassy flatland with a per capita income below $500 and 2.8 million people, a third of whom are sheep herders, live in round huts called "yurts," and dine on endless varieties of mutton stew.

Later, in a speech before a packed assembly of Mongolian troops and lawmakers,  Bush declared that the US is now Mongolia’s “third neighbor.” According to the President,  the two countries are “standing together as brothers in the cause of freedom…..”  He added that Mongolia is  "an example of success for the region and for the world… a free society in the heart of Central Asia.”

No, really. These hyperbolic assertions must have been somewhat perplexing to Mongolia's neighbors, Russia and China. But they no doubt amused and delighted the Mongolians, who gave Bush a thunderous ovation.

What was this mutual admiration all about? Does Mongolia really deserve all this praise because it has indeed established a thriving market democracy?

Or do the tributes perhaps have more to do with the fact that Mongolia has volunteered for two very difficult assignments -- a prolonged series of neoliberal economic policy experiments, and die-hard duty in the rapidly dwindling "Coalition of the Less-and-Less Willing?"

 

BUSH HEADS SOUTHReceives Rousing Welcome In Argentina...Fox News Analysis

President Bush received an incredibly warm welcome at the 34-nation Summit of the Americas in Mar de la Plata, as thousands of ordinary people from all over the Continent turned out to hail his presence.

The effervescent US President was clearly buoyed by polls that showed that he still commands the support of an incredible 80 percent of Republicans -- otherwise known as his "base."

True, "non-base" support is reportedly a little less certain. Overall, in this week's latest polls, 59 percent expressed "disapproval," while 42 percent expressed "strong" disapproval." A quarter of the US population surveyed reported "violent morning sickness...."

However, knowledgeable insiders have called this a "temporary setback" that will be easily corrected if and when Presidential advisor Karl Rove, recently distracted by the Pflame investigation, starts covering the bases again.

The President, speaking through an interpreter, voiced optimism that "Free trade and liberal investment policies, plus a few billion dollars on defense, corn subsidiies, and our brand new military base in Paraguay" would completely change the lifestyles of the estimated 100 million Latin Americans who remain below the $1 per day world poverty line.

Said Bush, "These policies have only been tried for a decade or two. They need to be given a chance. Right here in Argentina, you've seen how well they've worked, right?"

Bush's sentiments were echoed by Vincente Fox, Mexico's amazingly popular lame-duck President, and Paul Martin, the astonishing Canadian PM, whose own popularity ratings have recently been taken to record levels by the Gomery Report, which documented the disappearance of $250 million of government funds, mainly by way of Mr. Martin's own party.

Said Martin: "We are quite pleased to have become a wholly-owned subsidiary of US multinationals. We didn't think we'd like the sensation, but it has become an experience that we really look forward to every night. You will also learn to enjoy it. Now if only the US would pay us that $3.5 billion...."

Said Fox: "Yes, it is true, millions of Mexican small farmers have been wiped out by free trade. But this criticism is baseless. Just look at all the remittances they are sending back home from the US !"

Meanwhile, the US President had an especially warm greeting from Diego Maradona, the famous Argentine soccer star, now in recovery. Maradona used a colloquial Argentine expression to describe just how delighted he is to finally have this particular American President visit his country.

Elsewhere, Cuba's Fidel Castro, who was not permitted to attend the summit, was reported to have decided to remove all restrictions on US trade and investment with Cuba, after having listened to President Bush's persuasive arguments.

Said the aging inveterate leftist leader, "I knew we were doing something wrong. Now I finally know what it was. We were way off base!"

After a prolonged negotiating session on Saturday, in which Summit delegates basically agreed to continue to debate the merits of free trade for a long time to come, Bush departed for a Sunday meeting in Brasiia with yet another embattled President, Luis Ignacio da Silva ("Lula.")

Brasilia is a pretty lonely, desolate, and distinctly un-Brazilian place on a Saturday night, because all the whores and politicians have flown back to Rio or Sao Paulo for the weekend, and one is just left with all these 1950s-vintage monuments to Brazil's cement industry. But perhaps President Bush will find a little solace taking a moonlit walk on the empty esplanades, wandering through the otherwise flat, lifeless landscape that Robert Campos once called "the revenge of a Communist architect against capitalist society."

(c)SubmergingMarkets, 2005

GREEN-'HOUSING' GAZANSJames S. Henry and Andrew Hellman

The US government, the Palestinians, and indeed most Israelis are delighted that the Sharon Government has finally stood up to some settler extremists, and is still on track to pull out of the Gaza Strip by mid-August.

However, we should all pay closer attention to the precise way that the Israelis are leaving.  There appear to be several missed opportunities to leave a much healthier economic base for Gaza's 1.4 million Palestinians when the Israelis leave-- a necessary, if not sufficient, condition for eventual peace. 

In particular, Israel is  now on a path to dismantle or destroy over 1500 homes and 1000 acres of greenhouses, which already provide thousands of jobs for Palestinians, and might provide thousands more....