Interview with the economic and political analyst Eric Toussaint (Last part)

“Paraguay should speed up assistance to small producers”

29 December 2008 by Roberto Irrazábal


The Government is examining measures to be taken to deal with the global economic crisis. The Belgian adviser suggested to President Fernando Lugo that he should speed up the agrarian reform and regional integration as a protective block.

The economic and political analyst Eric Toussaint suggested to the President, as a measure to tackle the global crisis, to accelerate the agrarian reform so as to support small producers and protect the local market. The Belgian adviser thinks the crisis will get worse and affect the region in various respects.

What is your view of the global economic crisis currently developing?

- The crisis is a multidimensional one, i.e. it is a financial, economic, climate, energy, food crisis and it is also a crisis of global governance, because there is no institution which has the capacity and legitimacy to seek solutions.

What about the G20 G20 The Group of Twenty (G20 or G-20) is a group made up of nineteen countries and the European Union whose ministers, central-bank directors and heads of state meet regularly. It was created in 1999 after the series of financial crises in the 1990s. Its aim is to encourage international consultation on the principle of broadening dialogue in keeping with the growing economic importance of a certain number of countries. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, USA, UK and the European Union (represented by the presidents of the Council and of the European Central Bank). ?

- In my opinion the G20 is not a democratic institution and it cannot propose solutions for all nations; this rather falls within the UN’s competence.

How will Paraguay be affected by the crisis?

- What is clear is that there is a sharp fall in commodity prices; Paraguay will be hit by the plummeting price of soy bean, which will fall very low compared to the peak observed in 2007 and 2008. It will result in a sharp decrease in the export revenues, something that will also hit the other Latin American countries.

And what will be the financial impact?

- The cost of external debt will increase, in spite of lower interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
in Europe and the US. This is due to the fact that private banks and financial markets are now reluctant to grant new loans to the South because of the falling price of commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. and the financial and economic crisis.

What urgent measures need to be taken by Latin America in relation to the global economic crisis?

- Latin America must quicken the pace of integration. Too much time is being lost.

What key points can be outlined in this perspective?

- Certainly an emergency plan, which could be a joint one, in order to sustain employment. There have not been many lay-offs so far, but in the coming months, probably in several countries such as Brazil and Argentina, there will be job losses.

How could workers be protected ?

- There must be an agreed programme, and in my opinion governements should consider the need for funds aimed at creating jobs, sustaining the purchasing power of the citizens to support their consumption. The launching of the Bank of the South must be speeded up so as to have a common multilateral organisation able to fund these projects.

At the national level, how must Paraguay prepare for this?

- I think Paraguay should pace up its assistance to agriculture, to all small producers who do not have enough land or do not have land at all, and who could produce and meet the domestic demand for food, so as to reach food sovereignty in the country.

What policies must be implemented in that field?

- Create jobs, produce wealth, improve domestic supply from local producers. In a country like Paraguay, where agriculture is prominent and where land distribution is totally unequal, it is fundamental to implement an agrarian reform.

What is the overview for agricultural products?

- The prices of food products will remain low because I don’t see how the price of oil could recover. As a consequence, the production of agrofuels will not be profitable and the production of food will go to real consumption, which will not rise significantly.

Is there a real opportunity to redesign the global economic model?

- The crisis is so harsh that it forces some changes, but the present governments are not moving towards those necessary changes. The economic team of the newly elected President of the Unites States Barack Obama is composed of people who are responsible for the current crisis, namely Lawrence Summers, who deregulated the bank sector, and Robert Rubin, the head of Citibank which almost went bankrupt and was granted a 40-billion-dollar aid by the Government.

What will happen in the world then?

- Maybe what will happen is an even deeper crisis in the US which will force it to make a real change of direction, but not with this team. The same is happening in Europe and in other countries such as Japan.

Will the South keep picking up the pieces of the North?

- The South has the opportunity to refuse to pick up these pieces and accelerate its integration so that it does not depend on the North for its growth. We should look at things from an historical angle: in the 1940s, in view of the international crisis, the Latin American countries suspended debt repayment, initiated a model of industrialisation via substitution of importations and had very high growth rates until the 1960s, before submitting to the neoliberal model in the 1970s under the dictatorships.

SENTENCES

The G20 is not a democratic institution and it cannot seek a solution for all nations; this rather falls within the UN’s competence.

Private banks and financial markets are reluctant to grant new loans to the South because of the falling prices of commodities.

Latin America must quicken the pace of integration (…) and of the launching of the Bank of the South so as to have a common multilateral organisation.

Here, where agriculture is prominent and where land distribution is totally unequal, it is fundamental to implement an agrarian reform.

Published by the paraguayan daily paper ULTIMA HORA



Translated by Stephanie Jacquemont

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