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Life And Death In The Free Zone

Structural Adjustment
World Bank

new internationalist
issue 257 - July 1994

Life and death in the free zone
The IMF and the World Bank have imposed a pinstripe revolution on Latin American governments
made vulnerable by debt. Mark Fried counts the cost for those caught in the crossfire.

In the cool of the early morning, hundreds of young women leave their shanties on the denuded hills that surround the town of San Marcos in El Salvador and flock toward the ‘free zone’, a collection of Taiwanese-owned assembly plants on an enormous field at the edge of the highway. Under the passive gaze of guards armed with automatic rifles, the women stop to chat, then stroll through the high gates topped with razor wire to begin their shift.

This scene, which can be found in many parts of Mexico, Central America and the Caribbean, is one face of the new Latin America. A decade ago these women would have remained in rural villages to subsist on dirt farming or migrated to the city to work as maids for the middle class. Today they’ll spend ten hours sewing clothes for export to earn the equivalent of what seamstresses in North America make in an hour.

In the jungles of eastern Bolivia, thousands of migrants are cutting down the forest to plant coca, the raw material for cocaine. Ten years ago many of them were miners who earned steady money supplying the world with tin and precious metals. The state-owned mines are closed, their union is all but broken and many of the miners who have not become coca-growers are hawking baubles on the streets of La Paz. Others are freelances – digging holes in backyards and fields to extract by hand whatever minerals they can find.

At the Mexico City stock exchange, once a sleepy and irrelevant club of the region’s wealthiest élite, 13 new millionaires have muscled their way in since 1985 by capitalizing on the sale of dozens of state enterprises and the dramatic inflow of foreign capital. Nearly all the region’s countries have achieved remarkable rates of economic growth following years of negative growth in the early 1980s – and equally remarkable increases in such areas as infant mortality, illiteracy, and every other indicator of human misery. At the General Hospital in Tegucigalpa, capital of Honduras, even aspirins are in short supply and patients must beg passers-by on the street to buy their medicine.

All of these changes reflect the succession of one development model by another – a wrenching transformation known in development-finance talk as ‘structural adjustment’. The prime movers behind it are the international financial institutions (IFIs) founded at Bretton Woods – the International Monetary Fund and the World Bank – though the Inter-American Development Bank also plays an important role. Their vision of Latin America’s future has transformed the lives of millions, some for the better, many for the worse. A look at the key aspects of ‘adjustment’ reveals the lopsided development it promotes.

Though Chile has been ‘adjusting’ since shortly after the coup of 1973, the continent-wide process began in earnest nearly a decade later when Mexico could no longer meet its obligations to foreign creditors. The debt crisis that ensued brought the contradictions of the old development model to a head, placed the reins of power in the hands of the IFIs and severely weakened all who would resist the change.

Under the old model, pursued since the 1950s, the state owned or supported key industries and maintained high tariffs to protect them. This ‘import-substitution’ strategy depended on rising consumption by a growing middle class and in the larger economies allowed militant labour movements to exact better wages and working conditions. Though gross inequalities and abysmal poverty persisted profits from state industries financed expanded social services and led to higher living standards and educational levels for broad sectors of society. The results were astounding: from 1950 to 1970 Latin America’s GDP tripled and in per capita terms it rose by two-thirds. Domestic industry provided 95 per cent of Mexico’s and 98 per cent of Brazil’s consumer goods by the early 1960s.

But by the mid-1970s things had begun to break down: government protection had led to bloated state, corporate and union bureaucracies. The goods produced tended to be costly and shoddy. Services were abominable. And without significant redistribution of wealth – something local élites would not allow – the purchasing power of the wealthy alone proved insufficient to maintain growth. State companies, once a source of revenue for social development, became a serious drain on government coffers. Governments staved off collapse with voracious borrowing and high inflation. But by 1982 it was all falling apart: the debt crisis was on.

In return for rescheduling debt payments, the IFIs insisted on a series of radical policies to stem inflation, improve government balance sheets and open the economy to market forces. Interest rates shot up. Subsidies to the poor were all but eliminated. Health and education budgets were slashed. State enterprises were privatized or shut down completely. Controls on prices and imports were eliminated. Currencies plummetted in their international value. And there were unprecedented concessions to foreign investors. Underlying these policies was a new vision of the proper path to Latin America’s development. Exports would replace domestic consumption as the motor of the economy. The private sector would replace the state as the prime economic institution.

Though the poor protested – there were riots in Caracas, Rosario, Santo Domingo and elsewhere – adjustment and the ‘neoliberal’ model of development were embraced by a new generation of US-trained technocrats who came to power over the 1980s. They were convinced that the pain it inflicted would lay the groundwork for renewed growth.

The pain at least was real enough. Real wages in Mexico were halved as unemployment quadrupled. Advances in health, nutrition and education were reversed; the nineteenth-century scourge cholera reappeared and wreaked havoc in slums across South America. The sale of state enterprises and the opening of the economy to foreign competition sent thousands of workers to join the ranks of street vendors (in Sao Paulo alone 260,000 lost their jobs). This helped break the power of the labour movement and industrial production was gutted. The stage was set for unprecedented levels of corruption. Even the new foreign investment in assembly plants and agro-export schemes destroyed more jobs than it created – disrupting the traditional means of survival of peasant communities and accelerating the exodus from the countryside.

The drastic budget cuts required to eliminate chronic deficits rent gaping holes in the admittedly insufficient safety net on which the poor depended. Efforts to attract foreign investment relied more often than not on driving down the cost of labour and domestic consumption along with it. Falling standards of living were obvious to anyone who cared to look. The new policies were particularly onerous for women. They not only bore the burden of feeding and clothing their families but they were the cheap labour that fuelled the new export industries. The policies were also disastrous for the environment – encouraging the spread of chemical-intensive export agriculture and the frenzied extraction of ever more natural resources. Industries seeking to evade Northern environmental regulations flocked to the region.

The first wave of adjustment wrought a terrible recession – despite the incentives to fell more forests, dig more minerals and plough under food crops to plant for export. Latin America expanded exports by 23 per cent, but the freefall of commodity prices meant that their value actually fell by 1 per cent. The volume of imports dropped by 60 per cent and their value by 41 per cent. Cutting imports and expanding exports gave the region a new-found trade surplus and transformed it into a net exporter of capital – in the form of interest payments on the debt – to the tune of $198 billion between 1982 and 1990. That’s an astounding $70 billion more than entered the region in the days of easy loans from 1975 to 1981. Despite this fortune sent overseas Latin America remains deep in debt today.

The vaunted opening to market forces did sweep away many of the obstacles to doing business, particularly for foreigners. Investment began to return. What’s more, budget cuts and privatization stemmed the flow of resources to entrenched bureaucracies, undercutting their political power. But in doing so adjustment policies dismantled or rendered ineffectual the regulatory structures by which governments had in the past channelled investment toward national development goals. The streamlined state was no longer able to temper the concentration of wealth the market achieves with such efficiency. The more the economy grew the poorer most people became.

Despite the model’s relative success in attracting foreign capital, investment remains largely speculative. Since it is virtually untaxable speculative investment provides little if anything toward social development. Latin Americans now make cars and computers with state-of-the-art technologies but their schools, hospitals and houses are crumbling. With the rising tide of cheap imported goods, not only is unemployment sky-high but culture is changing. The producer mentality – the notion that one’s life is defined by what one does – is being eroded and replaced by the mentality of the consumer – the notion that one’s life is defined by what one has. Ironically this is happening even as people’s buying power declines.

By the end of the 1980s the reforms had achieved stability on the macro-economic level: inflation was under control, currencies were stabilized and in some countries growth was spectacular, as high as eight per cent. Stock exchanges boomed with foreign investment and Latin America was once again the darling of Wall Street. Peru, Brazil and Argentina struggled to catch up with the rest of the region – there, adjustment was held back by strong labour movements and recalcitrant national business lobbies. But the IFIs are a step ahead and are turning their attention to fine-tuning the model. In this way they hope to forestall a popular backlash due to the rising misery and unprecedented corruption which has accompanied the new export-led growth.

‘Poverty alleviation’ and ‘social sustainability’: phrases like these have now joined the lexicon of neoliberal verbiage at the World Bank. New funds are being disbursed to target social services to the poorest and ease the harshest aspects of the adjustment package. Necessary as these measures are, they seek to contain the problem, not to resolve it – on the debatable assumption that economic growth will eventually help the poor catch up. In fact, GDP growth fell off again in 1992, stock markets nosedived and investment began to slacken.

Meanwhile, popular anger at the decline in the quality of life is directly challenging neoliberal policies. The February 1992 coup attempt by nationalist officers in Venezuela sounded the first alarm. Next, voters in Uruguay rejected a referendum on privatization. There was a second coup attempt in Venezuela and social democrats won elections in Honduras, Costa Rica and Venezuela in 1993 and 1994. In Mexico and Brazil, too, electoral challenges to the technocrats in power are gaining strength.

But the room for manoeuvre by these new leaders is narrow indeed. National industry has been effectively dismantled, neither loans nor investment are forthcoming for alternatives and the state remains largely strangled by the fiscal impossibility of improving services. Faced with the enormous advantages afforded business by the new technologies in communications and transportation – which allow companies to transfer production around the globe virtually at will – policy makers have little choice but to embrace the logic of adjustment. Otherwise they will be strangled by debt and capital flight.

So even dissenting politicians echo much of the IFIs’ thinking, forced as they are to focus on the distribution of the limited wealth still under the state’s control. Few can imagine an alternative to today’s orthodoxy and the only attempts being made are at the most local of levels, by co-operatives and community organizations.

At the behest of the arbiters of Latin American development – bean-counters who measure progress by cold statistics – the continent has bet its future on a vision of modernity that shunts aside millions of people. Policy makers have yet to find a formula for correcting the neoliberal model’s failure to provide a better living for the women who walk the dusty paths each morning to the sweatshops of San Marcos, for the ex-miners of Bolivia or for the patients in Tegucigalpa’s public hospital. Until they do – or until an alternative gains credence – structural adjustment seems bound to push Latin Americans’ remarkable capacity for suffering to new extremes.

Mark Fried, the former editor of the bimonthly NACLA Report on the Americas, is a writer and translator based in Ottawa, Canada.


Omega Bula – Kenya

Omega Bula Omega Bula has an infectious laugh. But her gracious smile and warm personality disguise a deep passion for justice. Over the past five years Bula has headed up an ambitious program with the growing churchwomen’s network throughout Africa to expose the disastrous impact of World Bank/IMF policies all over Africa.

In 1989, when Zambia-born Bula became director, the Women’s Desk of the All-Africa Conference of Churches, based in Nairobi, launched a campaign for ‘economic literacy’ to mobilize women across the continent. Churchwomen at the national level committed themselves to train women at the grassroots because, in Bula’s words, ‘Economic literacy for women enables them to speak of their own experiences of the economic crisis and structural adjustment and the effects on their lives in the areas of education, food security, child survival, violence, family life, political participation and poverty in general’.

Economic literacy provides women with an important space to reflect, organize and mobilize for change. ‘It benefits not only women,’ says Bula, ‘but the whole community as poverty is reduced and productivity increased with the confidence women build up when they cease to “blame the victim” and come to recognize the real sources of their problems’.

The Women’s Desk’s analysis of SAPs and their impact on women is unequivocal. African women have been pushed to the margins and become ‘the rejected of history’. ‘The economic crisis that the World Bank and the IMF have contributed to is killing us,’ Bula notes angrily. ‘It is dragging all of life down to the level where hopelessness is the major problem. The crisis is total and it’s about everyday survival.’

The basic survival needs of families are at stake. The removal of subsidies on health care and education have hit very hard indeed. An increase in spousal abuse, suicide and alcoholism are only some of the side-effects of the growing social and economic dislocation wrought by Bank and Fund policies.

Bula has produced a teaching video on the effects of SAPs on the women of Africa. Entitled To Be A Woman: African Women’s Response to the Economic Crisis, the video is moving testimony to the ingenuity of women trying to cope with the withering array of upheavals brought about by World Bank/IMF policies.

‘I know women who are physically building schools for their children saying “We know the Government won’t do anything for us, so we’ll do it ourselves”. I know women fishmongers in Ghana who figured out how to smoke their fish and sell them for export. What women are doing in our economies has never counted, has never been measured. Our governments and the international banks have been supporting the wrong policies. Our priorities are that women eat well, that families live healthily, that people get the education they need and that communities decide their own destinies.’

John Mihevc

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New Internationalist issue 257 magazine cover This article is from the July 1994 issue of New Internationalist.
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