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Archive 1999

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December 20, 1999

Summers: “Welfare” reform at the IMF; triangulation goes global

    U.S. Treasury Secretary Larry Summers, in a Dec. 14, 1999 speech in London, railed that the International Monetary Fund “should not be a source of... long-term welfare for countries that cannot break the habit of bad policies.” Back in the United States, Republican Senator Phil Gramm applauded Summers (who Gramm got to know better during the sell-out of the U.S. Community Reinvestment Act in October 1999). “Having a leaner, tougher agency is always good,” Gramm said, adding his prediction that other major IMF countries would support the changes Summers proposed.

     Well, that has not been the case with Japan, which nearly immediately trashed Summers’ “welfare reform at the IMF” speech. Germany is saying they like Summers’ views -- but mostly because they want the U.S. to support a German, Caio Koch-Weser, to replace the retiring IMF chief Michel Camdessus.

     Meanwhile, the U.S.’ largest bank, Citigroup, issued a report pitching Latin American investments, but listing as a risk-factor the possibility of a collapse in Argentina’s currency board regime. In Argentina, several provinces, Corrientes on the border with Paraguay chief among them, have stopped paying salaries to government employees. It’s just the kind of austerity that Citigroup, Phil Gramm, and apparently Larry Summers, like.

    With a continually withholding IMF, the Ecuadorian crisis continues. Most recently, the Quito newspaper El Comercio of Dec. 16 reports that Ecuador will propose swapping its sovereign bonds for state banking assets at its meeting with bondholders in January. Central Bank president Pablo Better will freeze the amount of money any person can withdraw from the bank accounts to finally be unfrozen at $5,600, to prevent runaway inflation. It appears clear the Ecuador was one of the targets of Summers’ “New Democrat” rant, about stopping “long-term welfare for countries that cannot break the habit of bad policies.” Ah, if only the Ecuadorian legislature had agreed to the doubling of sales taxes, as bondholders demanded...

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December 13, 1999

    As the clock ticks down to the return of the Canal to Panama at noon on December 31, Standard & Poor’s has downgraded the outlook for the country form “stable” to “negative,” dashing hopes of Panama’s debt achieving investment grade status. While Republicans try to whip up fear around the transfer, calling for an investigation into Hutchison Whampoa, the Hong Kong company which runs two of the Canal’s four ports, the larger risk would seem to be from Colombian guerrillas, who increasingly cross the border at will. Guerrillas spilling over the border one side, S&P on the other. Welcome to the Y2K squeeze play, underbelly of globalization... (and see final item, below).

    The Ecuadorian crisis goes into overtime. At a Council of the Americas meeting in New York on December 7, representatives of Ecuador’s creditors indicated that they will not even seriously listen to any restructuring proposal from Ecuador until the IMF package is in place. The earliest the IMF board will consider the situation is at the end of January. Meanwhile, the newspaper Hoy quotes U.S. management consultants Mackenzie Associates as predicting the Ecuador’s banking crisis will cost the country up to 30% of its gross domestic product. GDP stands as $14.5 billion, compared to foreign debt of $13.5 billion. The math is not pretty...

    At the same Council of the Americas meeting, Citigroup’s Vice Chairman William Rhodes was selected as chairman of the Council, beginning January 1, ensuring that the largest American bank will be have its voice heard (and more) on developing country issues... Citigroup hardly lends to Latinos in Queens, New York (where Rhodes is from, by the way) -- but is sure to continue squeezing Latin America.

    Meanwhile, U.S. Under Secretary of State Thomas Pickering indicated in a speech at George Washington University last week that the U.S. will not oppose continued IMF and World Bank lending to the military regime in Pakistan. The deputy head of the IMF, Stanley Fischer, told the Emerging Markets Traders Association on December 9 that both Ecuador and Pakistan face “more fundamental solvency crises.” Despite speculators’ attacks on the IMF, J.P. Morgan’s Emerging Market Bond Index has returned over 18% to investors this year. Morgan’s chief emerging markets analyst Jose Luis Daza says that “the fixed-income asset class absorbed an enormous amount of bad news, and despite that has delivered a very good return.” So what’s all the crying (and hard ball) about?

    Finally, for this week, in U.S. (South Bronx) news: the Federal Register of December 9 disclosed the award of “Worker Adjustment Assistance” under the Trade Act of 1974 to the (ex-) employees of Keepshapes, Inc. and Majestic Shapes, Inc., some of the first tenants of the Bathgate Industrial Park in the Bronx. The FR reports: “The workers were engaged in the production of shoulder pads for the apparel industry” and that the businesses “closed in early 1999.” This  too is called: the under belly of globalization...

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September 13, 1999

    The illuminating Ecuadorian debt crisis continues. Ecuadorian officials postponed their visit New York to meet with investment banks representing holders of its bond for at least a week. Credit Suisse First Boston on Sept. 9 redeemed $176 million in Ecuadorian bond derivatives, claiming it could do so once Ecuador fell five days behind in payments. Meanwhile, the Quito newspaper HOY reported that Ecuador will, in fact, make the delayed $96 million debt payment, after the current one-month moratorium passes. An aide to just-installed Finance Minister Alfredo Arizaga, Augustin Hurtado, said “the normal thing is that the payments are made.” Ecuadorian bond prices then jumped to their highest levels since the current crisis began, on August 23: $35.42 for Ecuador’s discount bonds, $21.92 for Ecuador’s past-due interest bonds. “Some of the hedge funds are accumulating positions in Ecuador debt,” Walter Molano, head of Latin American debt research at BCP Securities in Connecticut told Bloomberg on September 10.

    The speculators, along with the IMF, descend. What are they demanding? Along with a raise in Ecuador's sales (or “value added”) tax, they want Ecuador to slash its tax on financial transactions from 1 to 0.3 percent, and to eliminate its luxury tax on yachts, private airplanes and vehicles worth more than 200 million sucres. This is not a Brecht play -- this is “reality,” reported on Bloomberg on September 9.

     Meanwhile in Venezuela, the assembly’s second vice president Aristobulo Isturiz is trying to woo foreign “investment,” saying that the new Venezuelan constitution will have “strict guarantees” of property rights. The Assembly’s president, Luis Miquilena, is implying that President Hugo Chavez will have to stand for re-election as early as February, 2000, barely a year after he won office. Both officials say they want more foreign investment as “a source of a possible recovery of the economy.” It’s a race to the bottom...

   In the Philippines, local government has pledged to remove “squatters” from the site of a P2.6-billion project that will be funded by Japan’s Obuchi Fund, which has set a September 15 deadline.

   Theme: while before we had political colonialism, now decisions are being made at the express demand of investment banks and hedge funds who buy bonds. Sadly, “developing...”.

    These are stories from the front line -- we’ll wait to accumulate more (we're collecting below on this page) before venturing to theorize. Here’s an overview:

    We are now affected more, and more quickly, by global developments than at any earlier time in history. Unity based on geography appears less and less relevant.  Stock traders and bankers on Wall Street in Manhattan are in more constant contact with, and are more similar to, their counterparts in Singapore, Mexico City, Tokyo and Brasilia than with the residents of the Bronx, barely eight miles from their networked skyscrapers.

    The rise of the Internet, lower telecommunications costs, the collapse of the Soviet Union, the forced opening of all markets to the 24-hour flow of opportunistic capital -- all these forces converge in a process of globalization, at once homogenizing the world and making new distinctions. The communities cut off from the flow of money, from the high-speed wires, become a sort of disconnected Fourth World, theoretically united in their exclusion, but only unconsciously or potentially so. The communications and capital investments of others flow around them, over them, beneath them, but the connections remain to be made.

   Inner City Press, headquartered in the South Bronx but looking outwards, launches this project, of and for “Global Inner Cities.” An incomplete roll call, or itinerary, begins to emerge, in concentric circles that soon run together:

    Rio Piedras, Puerto Rico. San Pedro Macoris, Dominican Republic. Cite Soleil, Haiti. The shadow towns of la frontera, from which profit is squeezed: Matamoros, Nuevo Laredo, Juarez, Tijuana, Mexicali. Mexico City, Tegucigalpa, Managua. Caracas, Medellin, Sao Paulo, Rio, Bueno Aires. Gaza and Belgrade. Karachi, Calcutta and New Delhi. Soweto and Nairobi. Manila, Jakarta and the capital of post-modernism and disparities of wealth, Hong Kong. Where tenements tilt precariously while the Internet flows. Like here, in New York City and the Bronx.

    Some common themes emerge. Environmental degradation. Land invasions, words re-coined by the United Nations as “spontaneous settlements:” homesteading, shantytowns, townships and favelas.  The lack of access to credit for individuals, crushing debt on whole nations, the First World operating as a predatory lender.

    Theorists can sketch abstract stages of development, but time has speeded up, and societies are segmented at different stages.  England, Canada and South Africa are considering laws like the U.S. Community Reinvestment Act.   Bank of Scotland applies to open a bank in the United States, with televangelist Pat Robertson, and Scottish activists fill the streets of Glasgow and Edinburg.   The U.S. press barely notices.  Chase Manhattan turns its eyes to “emerging markets,” ignoring the Bronx, Bridgeport and Houston. The rich create their own banks, accessible only over the Internet. There is talk of eliminating FDIC insurance on bank deposits, and of signing treaties, like the Multilateral Agreement on Investment, that would outlaw U.S. consumer protection laws, as restraints on trade.

    To say that excluded communities oppose globalization misses the point -- they are victims of globalization. But as the Luddites could not stop the factories, this process will not slow.  Inner cities must work for accountability, alternative information flows, counter-technologies. Non-Governmental Organizations.  Adapt, and make use, or be left further behind. Somehow to balance localism and an effective, outward-looking view. To make connections, as those on top have been doing for years. These are the issues, and we will do our best, starting looking out from the South Bronx.

Globalization in the South Bronx

    Jose Torres is a South Bronx resident who has worked for years in an iron works in Northern New Jersey, as a welder. In the Fall of 1998, he was told to begin only coming in to work three days a week. The reason? The company he works for has become increasingly dependent on sales to Asia, and purchase orders have slowed to a halt, given the economic crises in Asian countries. Mr. Torres in turn has less to spend on consumer goods at stores in the Bronx -- and on housing...

    On East 185th Street between Washington and Park Avenues there is an abandoned house. The front door is closed with a chain and padlock; the basement door is covered with a clanging sheet of tin. Who owns this house?  Deed research reveals it is owned by the supposedly wholesale Bankers Trust, which Frankfurt-based Deutsche Bank is currently applying to the Federal Reserve Board to acquire, to form the world’s largest financial institution. Bankers Trust works to help the high interest rate subprime lender Delta Funding turn its loans in the Bronx and Brooklyn into mortgage-backed securities; when homeowners can’t pay, Bankers Trust forecloses. In the future, hard-pressed homeowners will have to direct their pleas to... Frankfurt. Good luck.

   Meanwhile, in the Belmont section of the Bronx,  Kosovar Albanians meet in cafes and in the offices of Illyria, an Albanian-American newspaper. [2003 addition: we suggest the Drini Cafe on Arthur Avenue: it's quite good.]  The televisions surf the channels for scraps of news about the NATO bombing, the refugee camps, the Unites States’ shifting immigration policy. Over 30,000 Albanians live in the Bronx, most of them in Belmont, where cafes and stores have sprung up to serve them. Some went to the press conference in Yonkers last week, to join the Kosovo Liberation Army....

   In an immigration (and Freedom of Information Act) story from the United States, the chief medical examiner of Arizona’s Pima County has rejected a FOIA request for the autopsy photos of attempted immigrants who have died in the desert, from dehydration or in some cases, shootings by U.S. border patrols. For example, Antonio Martinez, 26, was recently shot by the Border Patrol near San Luis, Arizona. The Patrolman, with only 78 days on the job, claims Martinez threatened him with a rock, and so he shot him in the back with a .40-caliber hollow-point round. Martinez was 4-foot-11 and weighed 92 pounds. The coroner’s report states that his blood-alcohol content at the time of his death was .192. Pima County’s chief medical examiner, Bruce Parks, has refused to release the photos of Martinez’ autopsy for publication, allegedly based on the privacy rights of Martinez’ (uncontacted) next-of-kin. Arizona law provides that autopsy photographs are public record. The medical examiner and Pima County Attorney General’s Office are making a distinction between allowing viewing of the photos by one person at a time at their office, and publication of the photos. “The county attorney’s interest here is secrecy, not privacy. They’ve clearly gotten comfortable with the concept of the border as a war zone where people die in a grisly fashion,” says Scott Stanley of the publication, Tucson Poet.

Bogota, Columbia -- In the last of this week’s absurdities, the head of the New York Stock Exchange, Richard Grasso, met in the jungle with the leader of the Revolutionary Armed Forces of Columbia (FARC), “to discuss foreign investment and the future role of U.S. businesses in Columbia.” Reuters, June 26, 1999. Clearly, global capital has its own foreign policy...

  As confirmed by the transnational HSBC, which is negotiating with South Korea's government to buy 71% of Seoul Bank.  HSBC already got a sweet deal on Mexico's failing Banco Serafin -- HSBC got a guarantee to get $150 million of its investment back in three years, while Mexico investors get nothing back at all... HSBC calls for the intervention of the Hong Kong Monetary Authority to raise mortgage interest rates (Business Times of Singapore, June 24), while in the United States, HSBC avoids making mortgages to minorities and in lower-income neighborhoods, and has closed its only consumer facility in the South Bronx, while applying to buy Republic National Bank.  HSBC says it will list its shares on the New York Stock Exchange on July 16.  Mr. Grasso?  Where are you?    HSBC has told the U.S. Securities and Exchange Commission, in connection with its application to list its shares on the NYSE on July 16, that "it may not be possible to service process... on HSBC Holdings in the United States or to enforce judgments obtained in U.S. courts against them or HSBC Holdings...".  South China Morning Post, June 28, 1999.  On these terms, why should HSBC be listed on the NYSE?  ICP is inquiring into this.  Click here for HSBC Report.

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     Who pays for globalization? In Mexico, taxpayers are stuck with a tab approaching $100 billion, to bail out banks which engaged in speculative derivative transactions with U.S. investment banks, then got “blown up” when the peso was devalued. Foreign investors, however, were protected: witness HSBC’s “guaranteed” 19.9% investment in Banca Serfin, which HSBC now proposes to buy, after the government had to take it over. An analyst from Moody’s Investors Service says, “The Mexicans are going to be paying this off forever.” Reuters, July 9, 1999. While some lay all the blame for Serfin’s failure on Mexican bank regulators and their Fobaproa rescue fund, Frank Partnoy’s (relatively uncontested) book, FIASCO, describes in detail Morgan Stanley’s selling of derivatives to Serfin 1994. Now who picks up the pieces for a song, the same week its getting its new NYSE listing?   HSBC, those masters of globalization, that country unto itself. As even Moody’s says, “The Mexicans are going to be paying this off forever...”.

     HSBC is also negotiating to buy SeoulBank from the Korean government, which took the bank over in late 1998, and, also in Korea, is buying ten TGI Friday’s restaurants, from Asian Star.

     From margaritas to inverse floaters, some pokers games are always fixed...

August 30, 1999

    The crisis of the moment is in Ecuador, which has decided to defer interest rate payments on its Brady Bonds. A team from the International Monetary Fund flew to Quito last week; by week’s end, the IMF’s Francisco Baker said “discussions with the Ecuadorian authorities on an economic program covering the period through the end of 2000 are making progress. We hope that they will lead to an agreement soon on policies that could be supported by the use of IMF resources.” And so, the old catch-phrase: “belt-tightening.” How much more is possible? Wages have already been compressed, as a share of national income, from 34.8% in 1980, to 15.8% in 1992, and less since then. (Source: CEPAL).

    By August 28, the accord was announced: Ecuador’s president will move to raise the country’s sales tax. The financial minister, Ana Lucia Armijos, will resign. And the IMF will lend Ecuador $400 million. “Restructuring” of the Brady bonds is now expected to extend into October. Global capital is already bad-mouthing Ecuador (while shorting its debt). For example, HSBC’s emerging markets economist David Lubin says from London, “When Mexico and Argentina did voluntary swaps, it was easy to achieve because creditors actually wanted Argentine and Mexican credit risk. But it’s likely that Ecuador’s creditors want the collateral but not the country risk.” Bloomberg, August 26. Drive down wages, raise the sales tax -- meanwhile the investment banks make fees underwriting the bonds, selling them, restructuring them, trading them some more. Globalization has its victors - and its victims.

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Some Resources

The theoretical pioneer in this field to date: sociologist Manuel Castells.  Beginning in 1983 with "The City and the Grassroots," up to his recent trilogy, "The Information Age" (click here for a  positive review;  click here for a more critical review), Castells has zeroed in on, and documented, exclusion, opposition to globalization, the decline of the nation-state. Nearing the end of his career, Castells' renown with only grow.  Click here to view one of Castells' relatively few articles currently available on the Internet: "The Rise of the Fourth World."

Recent books:  "The Lexus and the Olive Tree" by Thomas Friedman (Farrar, Straus & Giroux, April 1999). An unabashed proponent of globalization, but at least one also favoring a social safety net.  Anecdotal but on point.

"Turbo-Capitalism: Winners and Losers in the Global Economy" by Edward Luttwaf (HarperCollins, 1999).

"Globalization: The Human Consequences” by Zygmunt Bauman (Polity Press, U.K., 1998). Emphasizes the dichotomy between the mobile and the immobile, the second intriguingly defined as “localities” (workforces, cultures, communities) whose engagement is controlled by the elites’ speedy and weightless business network. “Castells-ian,” if that’s a word yet.

One World, Ready or Not: The Manic Logic of Global Capitalism” by William Greider (Touchstone, 1998). By the author of one of the better books on the Federal Reserve, “Secrets of the Temple,” this more recent book, now out in paperback, details the human costs, especially to workers, of globalization. Case in point: the 1993 fire at the Kader Industrial Toy Company in Bangkok, Thailand, which received little attention from the press, buyers, or boycotters. A good starting place, though the elites’ “Economist” calls it “pop economics.”

Jihad versus McWorld” by Benjamin Barber (Ballantine Books, 1995). Title (almost) says it all - Jihad as fight for local dignity, often seen as nationalistic or tribalist. Question: who has connected “multi-culturalism” in the U.S. with more far-flung attempts to assert and defend local identities versus McWorld?

Some articles available on the Web:

Managing Social Transformations in Cities, c/o UNESCO

Article comparing Chicago and Sao Paulo c/o

Article on successful community activism in Brazil

Report on the Right to Housing c/o U.N. Commission on Human Rights

Border Crossings: NAFTA, Regulatory Restructuring, and the Politics of Place, by Ruth Buchanan. Abstract:

Professor Buchanan begins her paper by questioning whether recent economic and political shifts towards notions of "globalization" (e.g., the NAFTA) have failed to consider the politics or economics of change in particular places. Her prime example of a "place" where integration is illogically forced against a background of differentiation is the U.S.-Mexico border region. Through the scope of a "regulatory complex" (a complex of legal, institutional, regulatory, and social orderings), she departs from the common view of the NAFTA as a productive tool of North American integration, and instead views the NAFTA as exacerbating "differences between localities, industries, and labor markets." She argues that the debate over the NAFTA underemphasized its different local, sectoral, and regional impacts. In places such as the U.S.-Mexico border region, the various forces of labor, capital, and regulation interact in complex ways; the complexities (and realities) of these interactions were perhaps overlooked during the NAFTA debates. The author briefly examines this growing region, focusing primarily on the social and economic aspects of the maquiladora industry, including labor migration into the United States and the potential for increased migration because of the NAFTA. She concludes by arguing for a shift in perspective from the outdated, territorial concept of "borders" to the richer, more complex concept of "borderlands."

Homelessness and Urban Restructuring (with example of Berlin)

A few selected news sources:

Brownsville (TX) Herald

Buenos Aires (Argentina) Herald (in English)

Africa News

China News Digest

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