Chapter 70 The Falklands War and the Mexican Debt Crisis

It is no exaggeration to say that without the aggressive monetary shock policies of Margaret Thatcher and Paul Volcker, the Third World debt crises of the 1980s would not have been possible. With the Iranian oil shock in early 1979, the average price of oil imports rose by almost 140% in dollar terms.This time, the developing countries found that due to the influence of Volcker's policy, the interest rates in the United States continued to rise, and the dollar in local currency terms also soared like an Apollo rocket.Since the oil crisis in 1974, in order to make up for the oil deficit, developing countries have had to borrow a lot. High interest rates not only overwhelmed most developing countries in difficulties, but by 1980, they faced a whole new problem—— The Eurodollars they borrowed also carried floating interest rates.

As previously noted, as early as 1973, Anglo-American Bilderberg financial authorities had discussed recycling new OPEC oil in the Eurodollar market centered in London, using private commercial banks in New York and London dollar surplus. The surge in OPEC oil money in the 1970s, which suddenly flooded London's banks, was the origin of the wildest lending binge since the 1920s. Since the 1960s, for a considerable period of time, the Bank of England has made it clear that it will not try to regulate or control the Eurodollar market formed by the circulation of foreign currencies among London banks, and London has thus developed into Eurodollars The geographic center of the "offshore" market.This is just one step in their efforts to rebuild London as the financial center of the world.This means that despite bankers' public ambiguity about the safety of Eurodollar loans, in the 1970s billions of Eurodollars from London banks flowed into the accounts of borrowers in developing countries, and the oil The dollar has no backstop — no country is legally liable for a major default on bank loans.

As long as the wheels of Eurodollar roulette keep turning, no one worries about this.According to calculations by the International Monetary Fund, the external debts incurred by developing countries have increased fivefold, from US$130 billion in the "peaceful" period before the first oil crisis in 1973 to about US$550 billion in 1981, and more than US$612 billion in 1982 Dollar.This does not include a large number of short-term loans of less than a year.Walter Reston of Citigroup, a New York banker at the time, argued that private banks were right to lend to countries such as Mexico and Brazil because "governments have more assets than they owe. In short, governments won't go bankrupt...'.

A key feature of these private Eurodollar loans to developing countries has been overlooked due to the fallout from the first oil shock.New York-based Hanwah Industrial Trust, a major Eurodollar bank, was once a pioneer in the recycling of petrodollars, allowing large amounts of petrodollars to flow to developing countries such as Mexico, Brazil, Argentina, and even Poland and Yugoslavia.Developing countries could get more favorable loan terms if they ensured that they met the IMF's conditions economically, but the Anglo-American banking consortium squeezed out an unobtrusive concession pioneered by New York's Hanwah Industrial Trust.All Eurodollar loans to these countries are fixed at a specific par value that exceeds the London Interbank Offered Rate (LIBOR).LIBOR is a "floating" rate that is determined by short-term interest rates in New York and London and may move up or down. Before the summer of 1979, this seemed like an innocuous prerequisite when borrowing money from banks to cover the oil deficit.

However, in June 1979, when Thatcher's government embarked on an interest rate shock policy, followed by Paul Volcker's Federal Reserve in October, the interest rate burden on Third World debt rose sharply overnight as London's Eurodollar market rates increased from an average of 7% in early 1978 to nearly 20% in early 1980. This factor alone would put third world debtor countries in a position of insolvency.Because the creditor banks forcibly modified the terms of repayment, the debtor countries of the third world added new debts that could not be repaid on top of the heavy old debts, making them miserable.Even more disturbing is the fact that major bankers in London and New York subsequently implemented a similar policy, effectively a complete replica and absurd reenactment of the Versailles war reparations in the 1920s.This policy was thrown into disarray in 1929 with the collapse of the New York stock market.

After 1980, the third world's foreign debt interest rate burden grew to the limit and became overwhelming.The industrial countries that once played an important role in the process of repaying debts and were also the main markets for the exports of third world debtor countries have fallen into a crisis since the Great Depression of the world economy in the 1930s due to the impact of the Thatcher-Volcker monetary shock policy. The worst economic downturn of the 1990s, the third world's solvency collapsed completely. Third World debtor countries began to sink into the abyss of deteriorating commodity export conditions, export revenues fell, and debt service ratios rose sharply.In short, this is what Washington and London call a "third world debt crisis".But this crisis was manufactured by London, New York, and Washington, not by Mexico, Brasilia, Buenos Aires, Lagos, or Warsaw.

In the summer of 1982, the trend of the situation gradually emerged.It was clear that Latin American debtor nations would soon collapse under the new onerous debt burden, and some in the Margaret Thatcher and Reagan administrations who could influence policy, notably Secretary of State Alexander Haig, Deputy President George Bush, along with CIA Director William Casey, began planning to set a "model" to dissuade debtor nations from defaulting on US and British bank debts. In April 1982, Prime Minister Thatcher declared in the House of Commons of the British Parliament that "Britain will not renounce resort to force" to take back the disputed Malvinas Islands, also known as the British Falkland Islands, located in the South Atlantic Ocean in Argentina Desolate waters along the coast.Years of negotiations went nowhere, and the Argentinian government of Galtieri claimed the islands, which they took back on April 1, but that was not the problem, nor were there large untapped oil reserves in the surrounding area; The real intention of Argentina's military action is to adopt the new model of "gunboat diplomacy" in the 19th century to force collection of third world debts. In April 1982, two-thirds of the British naval fleet was sent to the South Atlantic for a fierce battle with Argentina. In the war, because Argentina used French Exocet missiles, Britain was almost defeated.

With changed loan terms and high floating interest rates, the UK's real intention was to spark a crisis in order to mobilize the full military power of NATO to serve as bodyguards for their debt repayment policy.Argentina was the third-largest debtor country at the time, with $38 billion in external debt, and one of the countries most likely to default on its debt repayment obligations.It was suggested that Thatcher looked to Argentina as a trial run.Details revealed almost a decade later that the battle for the Malvinas Islands was staged merely as a pretext to persuade other members of NATO to support military action outside the so-called "jurisdictional sphere".On May 7 of the same spring, another tentative step in this direction was taken at the NATO Nuclear Program Conference in Brussels, but, in addition to US support, Britain advocated the expansion of the North Atlantic beyond the defenses of Western Europe Convention-wide requests went largely unresponsive.

As a result of the British military campaign against Argentina in the spring of 1982, relations between Washington and its Latin American neighbors deteriorated severely.After repeated internal wrangling, the Reagan administration was persuaded to back British gunboat diplomacy against Argentina.In fact, this is contrary to the Monroe Doctrine of the United States [Monroe Doctrine: On December 2, 1823, U.S. President James Monroe proposed the principle of dealing with American affairs-opposing European countries to continue to plunder colonies in the Americas. America of the Americans.This principle became a tool of the United States against European intervention in the Americas, thereby clearing the way for American expansion in the Western Hemisphere. ——Translator].

Perhaps unbeknownst to President Reagan, Undersecretary of State Thomas Enders secretly visited Buenos Aires in March of the same year to assure the Galtieri government that the United States would not be involved in the Malvinas between Argentina and Great Britain. Islands dispute.In Buenos Aires' view, the assurance was the "green light" for Washington to remain in the game.This bears a striking resemblance to the pledge made by the U.S. ambassador to Saddam Hussein of Iraq in July 1990, days before Iraq invaded Kuwait.The establishment in Washington fully supported the policy of the London Foreign Office.Argentina was calculated and turned into an excuse for British military action.

Only one country believes that Washington should not support Thatcher's policy, because it is a repeat of British colonialism in the 19th century, and that country is Mexico, which borders the United States.Since President Jose López Portillo took office in late 1976, Mexico's modernization and industrialization program has made remarkable progress.Portillo's government decided to use its "oil heritage" to modernize its country.Ports, roads, petrochemical plants, agricultural complexes with modern irrigation techniques, and even nuclear power programs are in the works.The vast oil resources controlled by the state are the guarantee of Mexico's modernization. After the Volcker rate shock, by 1981, some in Washington and New York policy circles considered a strong, industrialized Mexico "intolerable," and elements of the U.S. establishment derisively referred to Mexico as "with the We border Japan to the south".With the lessons learned from Iran, an independent and modernized Mexico cannot be tolerated by some Anglo-American interest groups.Their decision to impose foreign debt repayments at extremely high interest rates interfered with and undermined Mexico's industrial ambitions. A well-orchestrated run on the Mexican peso was staged in the fall of 1981, signaled by a New York Times interview with former CIA chief William Kirby, who was then a consultant on "political risk" to multinational corporations .Kirby stated that he is advising his clients that investments in Mexico "will be subject to a devaluation of the Mexican currency ahead of next year's elections."Kirby's views were reproduced in articles by various American media, including the Wall Street Journal. Kirby has been associated with a "private" international consultancy called Discovery International, whose board includes Lord Caredan (Hugh Ford), intelligence specialist for Middle East and American affairs at the British Foreign Office , and one of the pioneers who advocated the implementation of Malthusian population control policies in developing countries.This policy stands in stark contrast to increasing industrial and agricultural productivity. The president of Discovery International, a former top U.S. State Department official, Benjamin Wiener, in a few weeks in early 1982, published articles in U.S. newspapers declaring that the Mexican economy was about to collapse and that smart businessmen were racing to move money , converted into U.S. dollars, and transferred to Texas and California to engage in real estate.The articles were reproduced verbatim in Mexico's leading newspapers, further fueling capital flight.In a radio address to the nation on February 5 of that year, President López Portillo attacked what he called "hidden foreign interests" that were trying to devalue the peso against the dollar by spreading panic rumors and capital flight. Mexico's economy.Three years ago, the same Discovery International was instrumental in driving the outflow of funds and weakening the Shah's rule, paving the way for Khomeini. On February 19, 1982, in order to stop the transfer of funds from Mexico to the United States, the Mexican government had no choice but to impose a strict austerity plan.To stop capital flight, foreign exchange controls should have been tightened and capital flows re-taxed, but powerful financial vested interests put enormous pressure on President López Portillo to prevent him from doing so.Capital flight has further intensified. On February 19, 1982, amid internal and external difficulties, the government of López Portillo capitulated.In order to prevent capital flight and stabilize the situation, the Mexican peso was immediately devalued by 30%.The domestic consequence was that private Mexican industry, represented by the once mighty Monterrey Alpha Group, went bankrupt overnight because it had borrowed heavily in dollars for investments made a few years earlier.Its income is denominated in pesos, while its debt payments are denominated in expensive dollars.Just to maintain the previous debt service, the company will have to appreciate the peso by 30%, or reduce costs by reducing the labor force.The currency devaluation has also forced Mexico to cut industrial projects and lower living standards, fueling domestic inflation.Mexico, which only a few months earlier had been the fastest growing economy in the Third World, was in turmoil by the spring of 1982.After the series of drastic measures, an IMF official covering Mexico declared, "This is exactly the thing to do."Hudson made an in-depth analysis of the control process of the International Monetary Fund to bring other countries' economies (such as Mexico) into the dollar system. Now, Mexico has become a "problematic borrower" and a "high-risk country" and has become the focus of international attention.Eurodollar banks in London, New York, Zurich and Frankfurt, and banks in Tokyo quickly scaled back their lending programs. Under the double pressure of devaluation of the peso, capital flight, which led to the loss of billions of dollars in funds, and the decision of major international banks not to extend the extension of old debt, under the double pressure, by August 1982, Mexico faced a huge crisis in repaying the loan. On August 20 of the same summer, at the Federal Reserve headquarters in New York, more than a hundred major U.S. banks were called together for a private meeting to hear Mexican Finance Minister Jesse Silva Herzog’s Description of plans to repay $82 billion in foreign debt.Silva Herzog told all the gentlemen of international finance that his country could not even pay the next installment of its foreign debt, that its foreign exchange reserves had been exhausted. In Mexico, faced with an increasingly chaotic economy, President López Portillo decided to act first to stem the flight of funds and then to deal with the crisis. On September 1, the President announced to the people of Mexico that the country's private banks and the then private central bank, the Bank of Mexico, would be nationalized and compensated. part of a series of emergency measures. In a three-hour nationally televised address, he attacked the "speculative and parasitic" private banks, detailing how they stole profits from Mexico's industrialization process and exchanged them for dollar flight, speculating in the US real estate market.Capital flight totaled $76 billion, which is equivalent to the total external debt of the country as it industrialized over the past decade. López Portillo had developed a close and friendly relationship with Ronald Reagan and made it clear to Reagan personally that his excesses were motivated by urgency facing the country, not by irresponsible aggressiveness against the United States doctrine. Then, at the annual meeting of the United Nations General Assembly held in New York on October 1, President López Portillo called on all countries in the world to act to prevent the phenomenon of "regression to the European Middle Ages".He strongly condemned the crisis caused by the unbearably high interest rates in the financial system and the policy of plunging raw material prices. The Mexican president emphasized that “it is a double-edged sword that threatens to curtail the gains achieved by some countries and cuts off the progress of others.” He then warned bluntly that if a The possibility of a unilateral suspension of debt repayments by the third world is not ruled out, provided that a universally beneficial solution is also prevented. "It's in no one's interest to stop paying debts, and no one wants to do it. However, if this happens, the responsibility is not entirely on the debtors. The same situation leads to a consistent position, and there is no need for conspiracy." López Portillo attacked the new debt service conditions imposed by Thatcher and Volcker. The current situation is completely different from the situation when the repayment period agreement was signed. Mexico, as well as many other third world countries, cannot abide by the previously agreed repayment period... We developing countries do not want to be vassals.We cannot paralyze our economy or subject our people to greater disaster in order to pay off debts that already pay three times as much interest.These are conditions imposed on us without our participation, not our responsibility at all, and our efforts to fight hunger, disease, ignorance and vassalage are not the cause of this international crisis. Later, Lopez Portillo talked about his ideas to the United States and other industrialized creditor countries, hoping to work together to find a solution so that countries like Mexico can find a way out of the crisis.His remarks were echoed by the heads of the largest debtor nation, with Brazilian President João Baptista Figueiredo later saying that they "recall very vividly some of the symptoms of the 1930s, when high Under the influence of interest rates, there is a global suffocation in production and investment.” Throughout the summer of 1982, White House policy debates continued behind the scenes on how to deal with an explosively expanding debt crisis.With the U.S. economy in a severe downturn under the weight of high Federal Reserve interest rates, President Reagan was lobbied for a plan that would solve the debt crises in Mexico and Latin America while stimulating U.S. industrial investment and exports. For the indecisive Reagan, the opinions of Wall Street and Henry Kissinger's friends in the Foreign Office and the City of London were more influential.To win the support of the powerful Wall Street establishment, as part of his campaign "deal," Reagan agreed to appoint former Merrill Lynch chairman Donald Regan as Treasury secretary, along with a number of other key appointments, notably the appointment of the former Tripartite Committee member George Bush was made vice president and James Baker, a close friend of Bush's, was appointed White House chief of staff.They believed, "We must save the Bank of New York at all costs." By October 1982, their solution to the Mexican and other debt crises had become the policy of the Reagan administration. The World Debt Tables for early 1980 (series, World Bank: Washington) show an exponential increase in external debt over this period. Just a day before López Portillo spoke at the United Nations General Assembly, the newly appointed US Secretary of State made America's position clear.George Schultz, a friend of ex-UChicago economist Milton Friedman and a key figure behind Nixon's August 15, 1971, announcement that the U.S. dollar would be de-pegged from gold, told the United Nations General Assembly The delegates announced the Reagan administration's final reply.Schultz unveiled Wall Street's simple "solution" to the debt crisis. After Mexico declared insolvent in early August, Paul Walker met with top officials in the Reagan administration to lay out a plan to gradually ease restrictions on the big New York banks.This is the "Reagan Economic Recovery Plan" proclaimed by Schultz.The plan did not analyze the root causes of the crisis in the United States or developing countries. Schultz proposed that the International Monetary Fund supervise the debt repayment of debtor countries and stimulate the purchasing power of American consumers.It is said that this will be part of a "renaissance" plan to attract more exports of goods from the Third World. It was the most expensive "revival" in world history.