KATHOLIEKE UNIVERSITEIT LEUVEN

FACULTY OF SOCIAL SCIENCES

MASTER OF CULTURES AND DEVELOPMENT
STUDIES

The World Bank and the International Monetary Fund: A new

approach for Latin America:

Promoter: Prof. Dr. A. Cassiman

Thesis presented to obtain the Degree of Master of Cultures
And Development Studies by:
Gloria ALVAREZ
Academic year 2008-2009
20 August 2009

Table of Contents
Chapter I
Introduction.
Chapter II
1. The West and the so called Western Culture According to the International
Development System..
1.1 The West and its harm in the Rest..
1.2 What is the West? .............................................................................................
1.2.1 Differences along the West
1.3 De-Westernization: The Real Latin American Influence.
2. The Five principles of Latin Americas Oppression: Causes and Effects of their
survival in Latin Americas Involution
2.1 How to Involve in 500 years of state oppression?
2.2 Foreign Aid comes to enforce the Five Principles of State
Oppression
3. The Failure of the Washington Consensus
3.1 The Consequences of Misunderstanding Latin Americas causes of
Oppression
3.2 What the Washington Consensus did accomplish
3.3 What the Washington Consensus did not accomplish
3.3.1 Economic mistakes: Well-intentioned efforts; mistaken realities
3.3.2 The negative outcomes of a mediocre judicial system
4. The Aftermath: Ignored causes, avoided symptoms and unchanged realities.
4.1 Latin America vs. the World Bank and the IMF..
4.2 Indigenism, Populism, Corruption and Violence: The equal discriminatory
response to 500 years of state oppression..
5. A New Approach: The Latin American Development for the XXI century
Chapter III
1. Conclusions..
Bibliography
Annexes

Introduction
When you come from a country where 17 violent deaths take place everyday; where only
two percent of the homicides go to trial; a place where 56% of its population lives in
poverty and 49% of the children between 0 to 5 years old are malnourished
You start asking why this is happening.
Guatemala is a country of 14 million people where weak institutions have resulted in a
security system that does not protect its citizens. The civil society does not participate and
the youth is completely indifferent. Our economy does not grow sufficiently as to provide
the adequate development to everyone. We bear a corrupt and clientelistic political
system that has allowed our territory to become the bridge and the storage house for
international drug trafficking. Guatemala is one of the 3 most violent and backwards
country within Latin America, which bears the same shameful and harmful reality.
Everywhere you turn you find problems. Yet for some reason it seems that all of these
conflicts have a deeper root causing them beyond the superficial consequences
commented in the local news or throughout the international community. You face
poverty, corruption, illiteracy, hunger, crimes and violence. Every possibility runs
through your head when trying to give an answer of why Latin America is like it is.
You think that maybe culturally, we are doomed to underdevelopment or that maybe it
is all the fault of the Spaniards or the North Americans for all their oppression, some
even target our failures on the backward Indian populations and their anti modernizing
cultures.
You blame the government, for being a corrupt and bureaucratic apparatus benefiting
only a few with a capricious legislation far from providing the Rule of Law. Yet, it is
ironic how throughout the region with the despite that governments receive everyones
first instinct is demanding more of it. Somehow Latin Americans still hope that their
governments will act as their potential saviors someday.
This contradictory behavior comes together with a servile attitude towards everything
foreign; to the recommendations made by Europeans and the developed world which
have nourished our compromising democracies. For more than half a century, the
United States and Europe have managed their influence through the World Bank and the
International Monetary Fund and thousands of NGOs promising since the 1950s what
has not yet been delivered. These intuitions are highly pleased with our democratic
systems paying high attention to our complying governments yet ignoring the claims,
struggles and discontents of their citizens. Unless they are anthropologically interesting,
the Latin American people have not yet been heard.
At looking elsewhere in the planet, you find the same signals that may have caused
underdevelopment elsewhere. But somehow Latin America remains different.
Rich countries did not develop because of industrialization. On the contrary:
industrialization followed development, which in many Western nations was already in
the old agrarian economy. Manufacturing, as Peter Bauer has said, is not a cause, but a

symptom of development. Importing capital goods in order to augment investment, or

using foreign aid to invest in local industry, does not produce development.
Unless you are narrow minded, an elitist or an absurd racist (as many persons are in the
region), you come to the conclusion that obviously the Latin American common
populations as well as our culture, are not the ones to blame.
And the fundamental question comes to mind:
If governments are the source causing this backwardness, why the international actors
keep empowering them and why we keep on wanting more of it?
This question is then followed by new ones:
Why is there an international community feeling proud that for the first time in history
every Latin American country (except for Cuba) is living under democracy while any
normal citizen from Buenos Aires to Mexico city, lives with fear and resignation under
collapsing systems?
Why democracies behave like dictatorships and private enterprises like government
bureaucracies, why laws and constitutions amount to fiction and real people are forced to
spend their lives struggling to survive in hostile environments?
You come to the conclusion that a reform is needed because the problem lies in our poor
institutional system rather than our culture. You come to understand that institutions and
culture desperately need each other. Excluding either from a discussion about
underdevelopment as the World Bank and the IMF have done is a mutilation.
I understand institutions as the rules by which individuals relate to one another, and
culture as the set of values that determine human culture in the broadest sense. But the
institutions of Latin America have throughout history impeded the Latin American
culture from developing a labor incentive culture dragging it instead to a mentality where
social mobility and up scaling in society can only be done illegally or by becoming part
of the system. As John Waterbury has written Culture modifies but does not determine.
Culture cannot be disassociated from institutions that themselves may be a-cultural or
extra cultural.
You are tired not only of people complaining; but of the ones complaining by saying yes
everyone complains, but no one does anything when they are also to be included in that
same category.
The following, is my personal attempt to never again be included in that complaining
category and the victimization industry that have plagued my region. I hereby contribute
to what I am aiming to make my future career, my personal fight and my firm
commitment of materializing hope for Latin America.

To understand the importance of answering the questions that the International

Development System keeps on ignoring (such as the examples above); for the purposes
of this study I find it useful to first describe:
What exactly is the West and which historical characteristics and events formed it?; What
are its main institutional pillars?
Once it is understood what the West is, I will proceed to explain how some nations that
today are considered part of the West, have actually deviated from the Wests original
track.
The study then proceeds to focus in Latin America. The backbone of the theories here
exposed come from the work of the Peruvian journalist and writer Alvaro Vargas Llosa,
portrayed in his book Liberty for America: How to Undo Five Hundred Years of State
Oppression. (Vargas, 2005, p. 13-62)
The main purpose of Vargas book is the political reform of the local governments in
Latin America. My work, takes his studies further to explain why all the attempts at
developing Latin America (specially the ones from the World Bank and the International
Monetary Fund) have failed due to the lack of understanding the Latin American culture,
which has evolved under, above (and some times even outside) of what Vargas has
identified as the five principles of oppression in Latin America:
Corporatism,
State Mercantilism,
Privilege,
Wealth Transfer and;
Political Law.
By exposing the theoretical conditions that explain how Spain and Portugal were not that
western during the time they discovered and conquered the Americas, I attempt to
prove that in fact Spain could not impose the West in the New World, since one cannot
not transmit what one doesnt posses.
By explaining the how these five principles of oppression have survived throughout the
Latin American pre-Columbian, Columbian, independent and contemporary history, I
parallel describe the shared and fatal conditions of Spanish Monarchy with the New
World, which have since then contributed to Latin Americas underdevelopment.
Once the real Latin American culture is exposed, the second part of this study explains
how the International Development System (commanded by the recipes of the World
Bank and the irrationally conditioned loans of the International Monetary Fund), has
mistakenly diagnosed povertys symptoms, instead of its real causes.
From advising nationalization and the substitution of imports in the 1960s, to writing the
magic formulas of economic liberalization to undo this disaster, (provoked by them in the
first place), the World Bank and the IMF have done it all instead of what they were
supposed to: which is empowering Latin Americans so they can finally get out of
underdevelopment.

After demonstrating why the policies of the Washington Consensus failed in the region, I
will give a brief country by country X-ray on the most recent events regarding the
democratic failure suffered in Latin America in the past 3 years.
By showing the urgency of the worrisome situation, I finally demonstrate my conclusions
based on the main idea that the only way that the World Bank and the IMF have to assist
Latin America in achieving sustainable development relies in these institutions capacity
of quit empowering the corrupted governments that keep on reinforcing the Five
Principles of Oppression in the Region, to finally empower the Latin American peoples:
who are the one and only development motor of their own lives, and of their own
countries.

Part II: Conceptualizing the Actors and Influences in International Development..

1. The West and The so called Western Culture According to the International
Development System
When it comes to International Development, the West is the term popularly
established to define that culture which is shared by the most developed nations of our
time; that is, those industrialized and technologically developed countries that after the
historical events of the nineteen and/or twentieth centuries were able to develop certain
economic, political and social characteristics that today contributed to position them as
the dominant (and therefore, some of them as the resented) powers of our time. (Hobart,
1993, p.2-3)
Thus, this broad definition includes traditionally, countries such as the United States of
America and Western Europe and recently Eastern Europe after the fall of the Berlin Wall
as well as countries in the South Pacific such as Australia and New Zealand. It is
debatable to include countries that had entered the list of developed countries due to an
accelerated economic growth despite their original alienation from the Western culture.
This list nowadays would include countries as heterogeneous among themselves such as:
The Asian Tigers (including Japan, Taiwan, or Singapore), the Baltic nations (specifically
Estonia); China, India and some countries within the African continent such as Botswana
among others. (Cowen, 2002, p.19-47)
1.1 The West and its harm in the Rest
The traditional West concept, (which includes USA and Western Europe) is strictly linked
to the concepts that identified these nations realities such as: Colonialism, Capitalism,
exploitation, Imperialism, and Slavery among others. (Hobart, 1993, p.7-13)

For the purposes of the International Development System (IDS); the anthropologists, the
development experts, along with some economists, historians and scholars (who
accuse the West for their lack of cultural sensitiveness), claim together that the colonizer
nations of Europe and the Imperialist tradition of the United States was unsuccessful in
identifying the Rests cultural and grassroots differences limiting themselves to impose
their already known artistic, economic, political, scientific, social and religious western
models. Therefore, these models were doomed to fail because the original values of the
conquered cultures, (contradictory by essence with the Western ones) would impede any
positive assimilation of the western culture by the populations of the Rest. (Ortega,
1929, p.27-30)
This West conception identified by the International Development System as the
individualist and Capitalist vehicle to achieve development could not have positive
results in trying to be implemented on the collective societies of the local knowledge of
African clans or Latin Americas Incas.
Critics affirm that these exploitation mechanisms were not dismantled along with the end
of the Colonial era. (Arce & Long, 1998, p.18-19) They identify a contribution from the
International Development System (IDS) to the Wests modern alternative oppression.
The excessive loans attached to several conditions (favoring the benefit of the Wests
interests and needs), along with Foreign Aid in general, are seen by the critics as the ideal
masquerade to hide that once again the West is exporting exploitation, this time in the
form of Neoliberalism1. Through Globalization, the gap between rich and poor becomes
more evident, as well as the need to close it. The excessive foreign aid conditions result
in a new form of dependency for the Rest who has no choice but to comply to the desires
of the West allowing the penetration (among other things) of Multinational Corporations
in the Rest.(Hobart, 1993, p.12-13)
Even though different cultures and systems have been a constant characteristic of human
history throughout the centuries, the classification of the world in two main types of
nations, is quite recent.
The definition of the West started being officially adopted among the academic and
diplomatic arenas since 1949; when the speech of President Harry Truman provided the
first clear (and eventually harmful) differentiation among the West and the Rest;
formally giving responsibility to the former for the development of the latter. 2
Due to the White Mens Burden dilemma3 which morally reinforced this duty, since
1949 the world was divided into these two sectors to take action in such task for the
formal establishment of what we know today as the International Development System.
(Gardner & Lewis, p. 6)

Describe it
Since then, the Rest would be used to address the Wests former and current colonies (at the time);
placing in the same category regions as heterogeneous as Africa, Latin America and South East Asia.
3
The 1988 edition of the Merriam Webster Dictionary defined the White Mans dilemma as: the alleged
duty of the white peoples to bring their civilization to other civilizations.
2

Since then, the official organizations that today are in charge of ameliorating poverty4 (as
well as the non official ones, traditionally known as NGOs), have increasingly expanded
in number, influence, participation and of course, budget.
But after 60 years of existence, all these increments havent been able yet to decrease the
first reason for which they were formed in order to consequently amplify the second
reason for which they were created. Those reasons respectively being: poverty and
sustainable development.
Another major confusion that emerged from the narrow West and Rest definitions
was the carelessness in identifying the differentiations among the Rest nations; and
even more forgotten was the need of pinpointing the heterogeneity lying among the
West countries.
Today, the International Development System is suffering the consequences of this
conceptual irresponsibility that has generally led to practical irresponsibility each time a
field project cant adapt to or transform the reality of the poor.
Why is that no one asked questions such as:
In which aspects has the West most influenced the North Nigerian culture in contrast
to the Southern Nigerian culture?;
Has the West succeeded in transferring entirely its economic tradition in Singapore?;
Has the West failed in transmitting its political theories to this same nation?;
What have been the repercussions of the British westernization of India? Are these any
different from the French westernization of Senegal?;
If the Wests protestant religious nations hold cultural differences compared to the
Catholic western nations; are the colonies of both also different? If so; in which
aspects?
Have the West protestant nations been more successful in transmitting the economic
values of the West, compared to their catholic counterparts?
Were Spain and Portugal sufficiently westernized by the time they discovered and
conquered the Americas? Were Spain and Portugal successful in westernizing Latin
America?; Were they absolutely or partially successful?; Were they more or less
successful than Britain and France in Africa?; Are there differences? If so, Why? and
How have these differences determined and still continue to influence all these colonies
situations?
And the questions which I find most intriguing:
If by 1949, social sciences (such as history, politics, Darwinism) had already discussed
several differences among the Western nations and more obviously among the nonwestern nations; Why is it that no one found it important to make such distinctions at the
time that the first international project of our era was about to be launched?
4

Including among them the World Bank and the IMF; which are the central focus of this study on their
performance in the Latin American region.

If differentiations were so important in other sciences, why were generalizations so

convenient to establish the international development system? (Perhaps because
annulling them would have resulted in a de facto collapse of the system leaving Harry
Truman just as the speaker of another inconsiderate and biased speech pronounced by a
U.S. president when referring to the rest of the world?)
Several anthropologists5 have blamed the West for mistakenly succeeding in imposing
their western system to the Rest whom by essence have been classified as alien
cultures rejecting these values and yet suffering the counterproductive effects of this antinatural imposition. (Hobart, 1993, p.15-17)
But with the questions above left unresolved; one last question comes to mind:
Can we blame the West for something they might actually not have succeeded in doing?
Nowadays, a failed international development system (IDS) desperately preaches that it is
finding a new path to de-westernize some regions that might have never been westernized
at all, not because of their intrinsically rejection to the west values, but rather due to the
failure of the West in exporting what they preached. (Easterly, 2007)
Without even considering this possibility, aid agencies such as the World Bank, have
adopted several buzzwords (empowerment, ownership, local knowledge, culture
sensitiveness), to demonstrate that this time they are willing to dismantle Trumans 60year-old biased generalization in order to finally eliminate poverty by bringing real
sustainable development in accordance to the demands of the thousands of local cultures
existing in the Rest.
Considering the urgent importance of answering the questions that the International
Development System keeps on ignoring (such as the examples above); it becomes
consequential analyzing:
What exactly is the West? Which are the historical characteristics and events that
formed it? Which are its main institutional pillars and reforms?
This reflexive description on the consistency of this West concept will clarify which
aspects of the traditional Western World6 were and were not acquired by Spain; thus
further establish precisely which parts of the Western Culture were transmitted; how were
they transmitted and which ones were left behind; and the reasons behind it; during the
conquest and colonization of Latin America.
The result of this deduction will demonstrate the connection between these two
civilizations which together, have perpetuated the Five Principles of Latin American
Oppression throughout all its history.
1.2 What is the West
5

In the case of Latin America, Escobar is one of the major defendants of this vision.
Generally including the United States and Western Europe.

As a matter of conceptualization, the West is understood as that culture that conceives a

person as a free and responsible being, possessing an inalienable dignity which comes
prior to any political system imposed. Democracy, the Rule of Law, Human Rights and
individual freedoms are the base of the original Western Society. (Chauffour 2009, p.2530)
The West is a system of current values in a society. Is a culture which has been
conformed (and confronted) through the pass of the centuries by many peoples and
societies which have assumed it and enriched it with one or other particularity departing
from universal values initially coming from three main civilization and institutional
pillars: Greece, Rome and the Judeo Christian tradition; supported by further periods of
intellectual and scientific advancements in the European world such as the Renaissance,
the Illustration, the Scientific and the Industrial revolutions, among others. The
foundations of the West as a culture were the result of the spontaneous evolution of the
centuries. From each of its three institutional pillars the western culture delimited its
basic political and philosophical principles. And the main contributions of each pillar
were:
Ancient Greece: The establishment of the polis conceived the concept of Resemblance
and the idea of equality under the law known as Isonomy. (Aznar, 2007, p. 14)
From the conjunction of these two ideas it also evolves the concept of freedom under the
law under the comprehension that the norms would depend no longer from the arbitrary
will of the monarch, but that instead they are general and abstract rules approved by an
assembly. The norms then become the consequence or reasoning and debate, open and
general to all.7 They are not longer conceived as the arbitrary or capricious will of the
monarch.
Rome: Adopting the principles developed in Ancient Greece, the Roman Republic (rather
than its Empire period); contributed to the Western tradition by implementing the Law
which is basically a system to determine mine from yours (Aznar, 2007, p. 13).
It results from the need of establishing a mechanism to resolute frictions among citizens.
Its long chore of jurisdictional conformation allowed building a whole system of norms
and institutions to establish ownership and property along time. From the determination
of ownership among properties the distinction of the life of each individual was possible
since property was no longer misunderstood as a communal magma. It was clearly
established what belongs to whom in all times. Eventually, each individual of the
community begins to have a vital differentiated trajectory. It is no coincidence that it was
in Rome where we first see the appearance of the word Person. A concept that is not
conceivable without that prolongation of the individual through its property. (Aznar,
2007, p.14)
7

It is worth noticing that the participation of people in structuring legal norms within the Latin American
societies has been the exception rather than the rule. Populist and military governments have suppressed
and imposed oppression to the Latin American societies especially in the poorest sectors of such. But the
West and the International development institutions have also been part of these absent democracy
because they have not only supported but also flooded these corrupt governments with financial aid and
monetary bribes in exchange of political compliances.

10

The Judeo-Christian tradition: The Fundamental value implemented by the third pillar
of the Western civilization was the idea of compassion. This is a concept that goes
beyond Justice; its Greco-Latin predecessor. It comes from the idea of the essential
dignity, intrinsically in each human being, which ultimately grants him an independence
sense that places him before his sense of belonging to one or another group. From here
on, the conception of time is no circular (as it was for the Greeks and Romans), and it
comes to be a lineal time which makes it possible to conceive the idea of a past, a present
and a future, making it clear that the choices from before will have a further repercussion.
This is how the West adopted the idea of progress. (Aznar, 2007, p. 15-16)
From these three institutional pillars, the conception of a person, as a free and responsible
being, with an inalienable dignity, equal to its fellow men, holder of Rights which come
prior to any post political constructed system; will further shape every historical event of
the Western society be it to defend, or to attack some or all of the principles above
described. (Ashford, 2004, p. 36-65)
With the further contributions resulting from Renaissance and Illustration periods as well
as from the Scientific and Industrial revolutions; the West expanded that main conception
of what a person is, to further elaborate on the action sphere that this person could have
within the political, economic and social aspects of his life.
Even with this individualistic concept of personhood, one must not forget that for the
majority of time of the Western societies evolution the modern political expression of
liberal democracy has been the exception rather than the rule. The empowerment of the
majorities as to take important political (and therefore) social decisions was only possible
after centuries of non participatory arbitrary and hereditary ruling, as the necessary
response that came to be fully compatible with that basic concept of personhood, whose
dignity and rights act together at the same time as the origin and as an absolute limit to
the exercise of power, even for the will of the majorities.
The rights and liberties beholding an inclusive democracy include: the right to life and to
integrity, the right to a due process, to intimacy and privacy, the right to property and to
equality under the law as well as freedoms of expression, association and religion.
(Chauffour, 2009, p. 37) These rights among others, must be recognized, guaranteed and
protected. They are the base of any system that claims to be democratic in the western
tradition.
A democracy nourishes itself from tolerance and pluralism. Without them, the Western
civilization could not have conceived this political system in the first place.
As already explained, the West has also that scientific and critical-thinking component.
The scientific method demands for its existence an open society. The truth is an ideal
pursued by all the members of society in different ways. It is not the imposition of power.
The truth differentiates itself from the concept of certainty which by definition is
temporary. (Aznar, 2007, p.16)

11

Regarding the economic matter, the western conceptions of personal freedoms and
pluralism are further extended concerning the individuals exchanges and transactions
with the rest of members in society translating these actions in a market economy. A
system based on the free initiative which recognizes the capacity of embarking on a
project or idea and trade within communities. This system has demonstrated to be the
most efficient in generating wellbeing and prosperity. (Chauffour, 2009, p.49)
Thus the West is not the patrimony of one nation. It has had multiple incorporations. It
has expanded itself thorough the centuries. Some of its legacy has been forgotten by
some processes experienced by nations that we would categorize as traditionally
western. Some of its heritage as well, has been adapted by modern societies that in the
past were completely alien to the evolutionary process of the West as a culture; because
within them they have seen an opportunity of enhancing certain political, social or
economic factors of their own8.
Therefore, the West cannot be perceived as a static or never-changing concept because as
any culture, it is the product of any every-day experience. It evolves, transforms, adopts
and leaves behind customary values according to the utility that any given society can
find within it as time goes by.
1.2.1 Differences along the West.
It is important then, to make a theoretical distinction of the West within itself, to
understand its current Twenty-first century definition. Thus it is worthy exploring the
differences among Western nations through time. And most important becomes
understanding the reason for the different decision-making processes that each western
country has taken.
By making this distinction we will find the West is an endangered and transformative
concept contemporarily threatened even by its original beholders and yet, assumed by its
adoptive societies, primarily opposite to the western evolutionary trend.
Therefore, the Wests influence throughout the own history of heterogeneous societies is
undeniable. However, understanding the different paths that this influence has taken
happens to be highly relevant for the purposes of eliminating the narrow generalizations
produced by denominations such as the West and the Rest.
It was the result of a bottom-up surge of private realities that after long, arduous
evolution, turned into policy by governments usually desperate to obtain revenue.
Private property, specialization, and particularly trade, together with private systems of
dispute adjudication, were the offspring of such events, with Venice, Flanders and other
places emerging as early hotbeds of capitalism.

Such is the case of recently developed countries in Asia such as Japan or Taiwan.

12

Along the way, the western governments offered limited property rights and exclusive
privileges. In England and the Netherlands, the movement was toward full, universal
rights; in France; toward a much less healthy mixture of mercantilism and property
rights; and in Spain and Portugal (that conquered Latin America), toward a system
bearing against the individual. They were oftentimes nobles or the producing and
propertied elites wanting to secure their personal interests. (Ortega, 1929, p.57)
Identifying which was exactly the Wests influential path adopted by Spain in the Fifteen
century will provide the first fundamental pillar as to precisely understand which are the
Latin American western bases. The exclusive trans-culturization among Spain and its
colonies was eventually broken when Latin America became independent. Since then, the
region suffered a secondary western wave produced by its openness to the rest of the
world.
Therefore, a parallel importance emerges from understanding which were the western
paths chosen by the rest of Europe during that time and consequently by United Sates of
America during the Sixteen century because Latin America managed to overlap these
with its indigenous and Spanish traditions (its main institutional pillars) in a way that
allowed the perpetuation of the Five Principles of Oppression during the nineteen and
twentieth centuries.
1.3 De-westernization: The Real Latin American Hindrance
The property of this country is absolutely concentrated in a very hands, having
revenues of from half a million guineas in a year downwardWhenever there is any
country uncultivated lands and unemployed poor, it is clear that the laws of property
have been so far extended as to violate natural rights
Thomas Jefferson, 1785. (After a year in Paris as the U.S. ambassador)
Latin America is the historical fruit of the expansion that began in the fifteen century
when Spaniard and Portuguese Europeans arrived to the New World producing a fusion
and mestizaje process never experienced in other colonization events.
Throughout more than three centuries, the original nations of the American continent
started this blend with the human contributions coming form the Old World; being the
most significant the incorporation of all those societies to the idea of the West in the
Spanish and Portuguese own style, thorough the extension of Christianization which
acted as a transmission method of the traditions of the moment as the incorporation motor
of the American societies to the West.
Contrary to the common belief we must remember that the West has not expanded these
ideals in a homogenous or even positive way wherever it penetrated.
The colonization process of Latin America used Christianity to annihilate and destroy the
cultural and religious essence of the indigenous civilizations of the Aztecs, Mayans and

13

Incas, to mention the largest civilizations only. Spain didnt export the Western concepts
of liberty, or equality under the law to this region. (Ortega, 1929, p. 50-52)
The Indian population was oppressed, robbed and again denied to their enjoyment from
its rights to life, dignity and property; especially of their land.9 These legal deprivations
would have repercussions for the following centuries in the Latin American historical
evolution until today. The understandable (yet misled) rejection to what the West
represents will begin with this process.
Spain failed in implementing the three western institutional pillars in its colonies: The
Greco-Latin tradition with Christian hindrance. Instead, Latin America was plagued with
Spaniard cultural, economic, political and social abuses.
Furthermore, the Renaissance humanism and the scientific rationalism; defended through
fundamental liberties and rights; had no effect in producing a separation and equilibrium
of powers. Still Latin America became part of the West, but it in its own particular way
of being so; in the same way that the nations that would further comprehend the region
have each one, a unique way of being Latin American10.
The misled rejection to the West was further expanded through the eighteen and nineteen
century by the USA and the European nations actions that were not western at all. And
these impositions have ultimately resolved in the perpetuation of the Five Principles
oppressing Latin America.
For the International Development System, it is imperative not to overlook this past. For
this, reason, a thorough analysis of Latin Americas crooked westernization is in order. It
is within it where the causes underneath the failure of a pseudo application of
development, progress, individuality and empowerment are to be found.
That old real Western tradition, in which Europe and the United States were established,
was well expressed in George Washingtons words on his Farewell Address:
Commercial Policy should hold an equal and impartial hand; neither seeking granting
exclusive favors or preferences; consulting the natural course of things; diffusing and
diversifying by gentle means the streams of commerce; but forcing nothing. (Vargas,
2005, p.77)
Nevertheless, throughout Latin America, the Spanish, American and European powers
have only focused on establishing an Imperial mercantilism rather than the western
9

I emphasize with again because the greatest pre-Columbian civilizations were also ruled by totalitarian,
regimes which imposed coercive political, economical and social methods to their subordinated
populations.
10
Desde el Rio Grande hasta la Patagonia; todos somos iguales this is a common saying reflecting that
all Latin Americans share the same past, history and culture as at the same time each country has its own
particularities. For example due to its highly indigenous populations, Guatemala has more in common with
nations like Peru, Bolivia and Ecuador than with its immediate neighbors such as El Salvador, Honduras or
Mexico with scarce indigenous populations. Argentina and Chile have the most cultural European
influences of the region and Mexico and Central America are more Americanized. So just as Belgium and
Sweden are both Western, they still have each a particular way of bearing this legacy, as well as they
have their particular way of being European.

14

Capitalism described above in George Washingtons statement. This system only

produced corrupted and populist leaders that were financially and morally supported by
the developed nations to perpetuate a structure full of deficient bureaucracies and huge
monopolies benefiting the interests and needs of foreign US and European industries
suppressing local empowerment and ownership.
This reality has been greatly ignored by the current Foreign Aid arena. The United States
as well as the European nations, have promoted in Latin America through the World Bank
and the IMF, values contrary to those triggered in the rise of todays major economies.
Under the crony westernization inherited from Spain, the Latin American refutation to
western values would then be enhanced by the American interventionism which began
with the United States victory over Spain during the war in Cuba in 1898; positioning
the former as the Twentieth centurys dominant power not only for Latin America, but
worldwide. (Montaner, 2003, p.127)
Since World War I, but particularly since the 1930s, the U.S. government began to adopt
internal policies that reduced the sphere of liberty in order to promote social justice.
The concept of judicial review whereby the courts were supposed to uphold the law in the
face of intrusive legislation was eroded.
The dimensions of this phenomenon did not rival Western Europes Bismarck-ian welfare
state11 or Latin American populism demonstrating that even in free societies (as were the
ones of the Western World), the impulses of intrusive governments are alive and are
gaining place.
Furthermore, the New Deal era brought a number of changes in labor management
relations, welfare programs, and federal regulation which since then are engraved in the
not so capitalist-American economy.
After the Korean War, the size of the U.S. government was the equivalent of over one
fifth of its GNP. In the 1960s, 1970s and 1980s, due to government transfer payments
including Social Security, it went up to 38 percent an it has remained at around one third
of the total size of the economy ever since. (Fishlow, & Jones, 1999, p. 21)
After World War II, but especially since the 1960s, a succession of government programs
has taken a toll on American and European tax payers and put in place considerable
wealth transfer mechanisms. But at least when this trend started in the Western nations,
they were already developed. When Latin America justifies its statist policies by pointing
to the fact that the West has also relied on big government in the last half century, it
evidently misses the point.
The most brutal and oppressive military dictatorships in the region were completely
supported by the U.S. governments in sake of satisfying the economic and imperialistic
interests of the mercantilist American monopolies that were operating freely and in
11

That nineteen century creation that to this day, absorbs half the wealth produced by most European
countries constituting the essence of the Foreign Aid financial pillar.

15

contemptibly ways supporting these unsuitably dictatorships while signing peace and
democratic agreements with the region.12
The Alliance for Progress which aimed to suppress communism in the region (Harry S.
Trumans 1949 Point Four program) also reinforced Latin Americas dependency through
the establishment of foreign aid policies for the underdeveloped region. It stated in its
very charter that most of its $20 billion would come from public funds, therefore it is no
surprise that between 1961 and 1965 the amount of U.S taxpayers money for this
program doubled. The origin of the money was as much a problem as the destination,
because funds provided by a foreign government tend to go to programs blessed (if not
run) by the receivers countrys authorities. Even when they do not, the result was
favoritism and discrimination in the market place, not competitive trading. When this
Alliance promoted trade among Latin America, the practical effect was that some policies
of economic nationalism became regional rather than national. (Fishlow & Jones, 1999,
p. 137-155)
The United States protected agriculture no less than the Europeans did. Policies designed
to stimulate foreign economies (whether preferential trade or most-favored-nation status),
excluded or limited key products. They went from agricultural imports to textiles and
apparel, but other types of products such as steel, were also restricted directly or
indirectly.
Safeguard quotas on textiles and clothing have been hurtful for Andean nations (as well
as for the Caribbean and Central America). Additional obstacles hindering Latin
American trade derive from consumer and environmental protections; they include
sanitary regulations on plant products and marketing orders that require incoming
products to match the quality or size of U.S. and European domestic orders. (Fishlow &
Jones, 1999, p.70)
Impeding free trade has been yet another, deep wounding attack against the values that
the United States and Western Europe were supposedly promoting in the corporatist and
state mercantilist underdeveloped countries that so mirror the distant past of todays
leading nations13.
For instance, in Bolivia, the American cause of free markets was in question in part
because the U.S had promised access to the its markets for Andean products while coca
was being eradicated but did not deliver on time and without heavy conditions. The U.S
12

As an example, the dictatorship of Manuel Estrada Cabrera from 1898-1922 in Guatemala, was
completely supported by the Americans to protect the imperialistic monopoly of the United Fruit company
UFCO and its benefits in matters of taxation and indigenous labour while this president was committing
highly known atrocities against human rights well recorded in the Nobel prize winner novel: El Seor
Presidente of Miguel Angel Asturias. Furthermore, the Americans signed in 1904 a treaty guaranteeing the
autonomy and democracies of our nations condemning any support or recognition of a dictatorship in the
region. Nevertheless, they still provoked the artificial revolution and independence of Panama establishing
a non elected regime just because it was convenient for them to build the Panama Canal.
13
Western Europes obsession against genetically modified food, incidentally, will hurt Argentina and
Brazil, both recent producers of these crops. In the tale of Latin Americas perpetual corporatism,
mercantilism, entrenchment of privilege, wealth transfer and political law, the leading nations of the world
have played their part too.

16

governments actions, particularly domestic agricultural subsidies that total $50 billion
(or 21 percent of the farming industrys income), so contradicted western promises of
free trade that many Bolivians lashed out against the very idea of free trade (as it
happened generally across the Hemisphere), urged on by agitators who found in the
devastating results of the drug war a perfect pretext for America bashing. (Vargas, 2005,
71-76)
The Good Neighbor Policy, which ostensibly sought to promote free trade, provided
funds for industrial development, which in practice meant import substitutions. The flaws
of U.S policy towards Latin America were compounded by American protectionism at
home. Franklin D. Roosevelt protected agriculture, D. Eisenhower protected oil, and the
successive presidents by and large maintained tariffs and nontariff barriers that did not
make the case for Latin American progress. (Vargas, 2005, p. 64-66)
And still all over Latin America and even Europe, scholars, economists, anthropologists
and NGOs, blame the yanqui capitalist machinery which is poisoning this and other
underdeveloped regions with free market.
What the international community needs to understand, is that the U.S. current
imperialism goes completely opposite with the ideal of expanding free markets. As
showed above, it was precisely at the same time that the U.S. started its imperialist thirst
that this nation left behind what the founding fathers established as a limited government
incapable of interfering in the wide civil sphere of the individual in his pursuit of
happiness.14
Thus Latin America blames the west for the only thing it hasnt done: and that is
imposing itself. This failure represents the real origin behind our current chaos.
Intrinsically, Latin America fell short in creating the minimal conditions of welfare and in
extending to wider sectors of its population the opportunity of bettering their quality of
life and their participation in public matters making it difficult to establish basic
consensus and political alternations.
The Western social institutions that we associate with trading entrepreneurship and labor,
from property to merchant courts, were born out of the free intercourse of people making
private decisions and contracting with each other, not out of government policies. Latin
America, meanwhile, under the influence of Iberia and its own tradition, had instituted
similar government structures and institutions that the mercantilist Europe gradually
abandoned.
As it happened in the rest of the world, the economic development that came in the 1940s
until the 1960s had its abrupt stop in the 1970s. First, the majority of the countries were
14

To understand how free market started disappearing in the United States, it is worth revising the case of
butter producers who during the 1890s behaved as the nations first rent seekers lobbying to the Congress
to put tariffs on the newly margarine competitiveness, with the pretext that it was an artificial and unhealthy
product. This was officially the first form of market protectionism that the U.S. ever saw. Today more than
70,000 market regulations take place in the nation including safety and health laws.

17

able to evade the consequences of the successive international economic crises thanks to
the massive affluence of capitals which were seeking this new profitability. The abrupt
retrieve of this capital and the consequent crises of the foreign debt revealed the
weaknesses of that growth model and resulted in the collapse of the Latin American
economies.
The last quarter of the XX century presents a black and white scenario for Latin America.
The deficient growth rates in human development of the 1980s, leaves the region with
the name: the lost decade. Since then, the participation of the region in world trade has
been drastically reduced to a six percent and the interregional commercial influxes are
today in the lowest worldwide.
But also the 1980s brought the transition to democracies for the region when in the
beginning of the decade this model was the exception rather than the rule. While the
establishment of democracy did not resolve the political instability; it at least made
possible a change of attitude towards the necessary economic adjustments.
The discredit of the economic nationalism (commercial protectionism, substitution of
importations, hypertrophy of the public sector, etc), supported by international credit
institutions such as the World Bank and the International Monetary Fund IMF, allowed to
push incipient reforms of liberal orientation in the 1990s. But these lacked the needed
profundity or the sufficient reach in most of the countries that began to apply them. Some
countries were just left out from these reforms.
These incomplete, timid and soon aborted policies didnt achieve in protecting the main
Latin America today is in many ways a twenty-first-century snapshot of Western
Capitalism suddenly stopped halfway into its formation, right in the middle of that
labyrinth tangle made of exclusive bargains struck between the privileged corporations
and the political authorities, before individual rights could ever flow from that struggle.
The political instability and the profound social convulsions were used as a pretext for the
propagation of revolutionary movements that in several countries resolved in violent
conflicts which then were the excuse for military coups, authoritarian regimes and
political repressions.
The current situation in Latin America is that the growth is lower than expected, the
chronic inequalities are not backing down, the middle classes keep on being low, and the
violence is increasing to the levels of organized crime mainly in the form of drug dealing
cartels and youth gangs known as maras or pandillas. (UNODC, p. 49-51)
The growing maras issue in Central America is a concern with a different set of cause
and effects than those involving maras in the United States. As virtually all mara activity
is the result of disproportionate resource allocation, a good first step in a study might be
to follow the money trail in our global society. At the head of the table is the West (North
America and Europe) with a whopping 63% of the worlds money flowing through the
hands of citizens, companies and government. Next comes South and East Asia with 21%
of the monetary resources and virtually all of that cash moving through Japan, China and
India. After the East you have Latin America which attracts a respectable 9%, but the

18

majority of these funds are found in Argentina, Brazil, Venezuela and Mexico leaving
Central America and much of South America with a tiny share of the global marketplace
that is far below what its population might be expected to command. (Saltsman & Welch,
2008, p.2)
The lack of real capital in this gap of countries between Mexico and Brazil is one
catalyst for mara creation. Another is the urbanization of the local populations. Latin
America is fast becoming the most urbanized region in the world as virtually the entire
rural youth appears to be moving toward the cities. Into this fertile ground for mara
creation come the waves of expelled, undocumented, Latino citizens from the United
States who first came to Los Angeles, Houston, Phoenix and other cities as children with
their parents. They are individuals in their teens and early twenties who have little or no
ties to the countries of their birth. In this displaced state they obviously hold more
allegiance to their brothers and sisters in the maras. (Ibid)
The corruption is also increasing. In some countries democratic regimes which began in
the 1980s have even surpassed the levels of the former military dictatorships, the
perception of political reform is an exhausted one and the opinion polls reflect a high
distrust towards the democratic institutions and their capacity to better the quality of
life for the citizens. (UNODC, p. 87-91)
The political parties and movement appealing to the feelings and emotions before reason
to win the elections are recovering a huge strength and are winning popular support. It is
the old and failed discourse of the economic nationalism of anti-imperialistic rhetoric of
historical victimization and that inverse racism which denies the European root of the
Latin American societies.
Nevertheless, the high amounts of Latin American immigrants15 voting with their feet,
against their failed political systems and in favor of achieving progress in the United
States and more recently in Europe; together with the local support for signing Free Trade
Agreements, is demonstrating that even if there is a general rejection to what the West
once imposed, Latin Americans do want progress and development. And they have
understood that their local governments are not capable, willing or efficient enough of
providing the desired incentives to achieve these conditions in a sustainable way. This
explains why these people are not afraid of finding development by their own means and
they keep on demonstrating it.
Before explaining in additional detail the actions and consequences of the failed
development policies recommended by the World Bank and the IMF in Latin America
along the last 60 years, we will now go back further in time to the origins of Latin
American history. We will find a long-time ignored reality that needs to be recognized by
the International Development System if we ever want to overcome the actual causes
impeding sustainable development within this region.

15

By the year 2007, the research held by the Institute PEW Hispanic Center, estimated that to that year
there were approximately 45,504,311 millions of Latin American legal and illegal immigrants in the USA.

19

With the purpose of offering a new alternative for the type of processes that the World
Bank and the IMF should start supporting for the region, the following section of this
study is dedicated to describe the five principles of oppression harming Latin America.
2. The Five principles of Latin American Oppression Causes and Effects of their
Survival in Latin Americas Involution
If one factor has been constant throughout the circular (rather than linear) Latin American
history, is that the five principles of Oppression have survived from pre Columbian times,
through the Spanish Conquista and the colonial eras, through the regions independent
movements, the not so republican, revolutionary and dictatorial periods; to finally
march as strong as ever into the Latin America reality of the Twenty First century.
Describing how these Five Principles have managed to absorb the institutional and
cultural evolutions and (involutions) of Latin America provides the first theoretical basis
towards an effective and sustainable reform of the International Development System in
what refers to this region.
From mercantilism, to economic nationalism, to free trade, the oppressive institutional
system in the region has managed to impede the necessary empowerment of the Latin
American citizens. If these principles remain being ignored as the real causes of Latin
Americas underdevelopment, that indispensable empowerment of the local people will
never occur in a sustainable way.
Regardless the type of developmental efforts that may come from the World Bank; the
IMF and the International Community in general; if that primordial condition is not in
place, any project will have failed before even being implemented, just as it has happened
during the last sixty years.
For the purposes of this essay, the concept of oppression is understood as:
The emergence of a pattern in which a particular class of people dominates a wide
number. The subordinated are forced to produce a surplus in order to pay
redistributions; and the powerful who no longer need to work for their own
subsistence, constitute the ruling class. (Vargas, 2005, p.13)
The five principles of Latin American Oppression are:
1. Corporatism
2. State Mercantilism
3. Privilege
4. Wealth Transfer
5. Political Law (which legitimizes the other four)
The periods that these five principles have managed to survive are:
1. Pre Columbian America (origins and establishment)

20

2. Spanish Conquista and Colony (how the West adapts to the regions non-western
model)
3. Independence of the Latin American Republics (The fraud of change. Lack of
ideologies and civil society, promote the rise of the caudillo as the political figure).
4. Latin America in the eighteen and nineteen centuries (the negative aspects of the first
globalization. Conservatives and Liberals: more similarities than differentiations)
5. The Twentieth century. The Century for the people (Military Dictatorships: the only
solution to the lack of civil society; the Yanqui imperialism, the European curiosity and
how once again the West didnt behave western).
2.1 How to involve in 500 years of oppression?
The question above resembles those recipes in the style of the World Bank and IMF
development experts who plagued the region with magic formulas for success
including incompatible ingredients such as economic nationalization in the 1950s and
1960s; to free trade liberalization for the 1990s. The mixture of these and other
ingredients only produce negative effects because the main ingredient for the recipe to
succeed has not been considered yet. This ingredient consists in the sustainable
empowerment of the Latin American populations, to finally achieve development.
Without it, the five principles oppression will keep mining the path towards a real reform.
Anthropological examples that describe the consistency of these five principles are useful
in detecting their effects along each historical period starting with the pre-Columbian
Latin American life (where these principles were first conceived); to continue with a
theoretical analyses through the further colonial and postcolonial stages. In an attempt to
clarify the importance for the International Development Process to start considering
these five principles as the main obstacle to bring Latin America out of the poverty trap,
below is a detailed recapitulation of the 500 years of Latin American oppression caused
by: Corporatism, State Mercantilism, Privilege, Wealth Transfer and Political Law.
Corporatism:
Nowadays several anthropologists such as the North American professor Brian Bauer,
marvel themselves when considering the vast corn amounts of the Mayas and the even
greater surpluses of the Incas, who stored major substantial amounts of food with a
prudence that is missing from modern Latin Americas fiscal policies.
And until now we disregard two facts about these symbols of success: they were the
result of collectivism. Of systems where political supremacy organized the population
into herds, and they constituted a wrenching redistribution of resources (similar to the
Soviet Empire in recent times).
The state had a corporative view of society: its laws and authority did not relate to
persons but to groups determined by function.
State Mercantilism:
The machinery of the state was mercantilist because it was not a neutral entity that
existed for the peoples convenience; it required instead that commoners, the immense

21

majority, devote their efforts to the maintenance and enhancement of it and its cronies.
Since then, privilege governed the relationship among the different corporations of
society and between them and the state. The economic principle of bottom-up wealth
transfer stemmed from this institution.
Privilege:
The five principles of oppression have been working against the empowerment of the
Latin American individual since pre Columbian times. Social mobility since then has
been difficult because a person was not considered a person. He or she was primarily a
component in a larger mechanism. The nobleman was different from the priest, the priest
from the warrior, the warrior from the artisan, the artisan from the peasant and the
peasant from the slave. People did not work for themselves but for the maintenance of an
entity that coercively exercised power over them. And this has been the Latin American
reality ever since. They did not work in order to subsist; they subsisted in order to work
for the state and its attached parasites16.
Under the Aztecs, Montezumas code regulated clothing with implacable restrictions, just
as the Incas regulated water, wood and animals.
Everything from the economic system to outward appearance was designed to distinguish
the noble class from the common people. It was not so much a feudal privilege as a statesanctioned privilege. The noble class was protected by the state, to which it also belonged
because it managed the bureaucratic empire and, through the network of priests, who
controlled the religion.
Wealth Transfer:
Among the Aztecs, the nobles received rights to land, labor and tribute under state
concession. Thus wealth was redistributed in the form either of goods or services, to the
top rank in society. The structure was enforced by a system we now call the state.
Political Law
The king or emperor descended from the gods and therefore exert an absolute authority.
The law was an extension of the king: not an ideal against which everyday rules could be
measured, or an offspring of living, ever evolving institutions and customs, but the
incarnation of divinity itself as dictated by the godlike will of the ruler. This legitimacy
thus enabled the state to rewrite history and establish an official truth. Both the Aztecs
and the Incas practiced this subtle art of rewriting history so that the past became
synonymous with the will of the supreme ruler. If the ruler had power over the truth, he
also had power over life. This is why the Mayas and the Aztecs practiced massive human
sacrifices.
Together, these five principles address to the use of political means of predation rather
than economic incentives of production and exchange in order to sustain an elite.
(Oppenheimer, 1926, p. 12-13)

16

Like the Inca, Mayan, Aztec religions which then were substituted by the catholic religious monopoly in
the region.

22

By the time of the Spanish Conquista, during the sixteen century, the central unified
monarchy continued and prolonged the tradition of negotiating not universal but rather
horizontal rights cutting across the different sectors of society, although very specific
concessions were made to groups according to the standing or recognition the state
wanted to grant them.
When they conquered Central, South and part of North America, Spain and Portugal were
at the zenith themselves of a long corporatist tradition that had placed tight restrictions on
the individual spirit.
The nation-state emerged in Spain at about the same time that the New World was
discovered. Spain never had the time to become Western as to be able to break with the
five principles of state oppression and efficiently imputing the Western system throughout
its empire. 17 The Metropoli18 immediately faced the question of how to sustain itself and
grow. The state began to appropriate the wealth of the country. Fiscal revenue (an
obsessive pursuit from the beginning), increased more than twenty times in a matter of
three decades, making it clear that the nations resources were exclusively destined to
satisfy this new entity which had acquired a life of its own, independent from the needs
of the people over whom it ruled.
A direct and fundamental conflict emerged between fiscal necessity and property rights.
The individual again succumbed. The state decided that either the individuals and
different groups became wealthy and the state perished, or the state and its satellites
became affluent and society had to pay the bill.19 The state realized it could not take
money from all sectors all time. The property rights of one party were the price the state
was willing to make another party pay in order to obtain wealth. When the time came
when selective property rights and general taxation did not suffice, the state expropriated
private wealth directly.
The encomiendas, large grants of serf labor handed out by the state as a reward for
military victories or other reasons, were perhaps the greatest symbol of privilege.
If the top sector failed to produce wealth, the bottom was left to create it.
There were other, unintended forms of redistribution such as inflation, caused by the
money coined out of the incoming bullion from the New World. As a result, price ceilings
were set on wheat. The effect on agriculture was crippling and migration to towns
torrential. The supposed beneficiaries of the measure (the poor), became the primary
victims.
While the western system in its essence nourishes a spontaneous method where an
individual freely exchanges and trades ideas, information, goods and/or services freely
17

For a detailed understanding of the political, economical and social precarious situation of Spain at the
moment of the Conquista, refer to the political philosopher J. Ortega y Gasset; La Espaa Invertebrada.
(The Backboneless Spain)
18
Term used in the colonies to refer to Spain.
19
It is not true that there were no property rights and that no private property economy existed, a frequent
misunderstanding of the system that was soon transplanted to Latin America. Both existed, but they were
considered an action mechanism by which only the party or parties most able to provide what the state
needed could benefit from an exclusive concession.

23

with another individual; Spain in Latin America exported a mechanism that was suitable
and compatible with the former Aztec, Inca and Mayan societies and contradictory to
those fundamental values of the Western culture.
In North America in the other hand, in the absence of strong political establishments,
colonizers and immigrants did not have to force the law or official institutions to adapt to
their bottom-up, emerging society based on enterprise and commerce. Instead, their
representative institutions and laws flowed from their grassroots activities and therefore
closely reflected their liberties.
When, George III attempted to tighten the screws on the thirteen colonies - that is, to
expropriate the wealth of American individuals through taxation and tariffs that limited
freedoms- they rebelled. At that very moment, Latin America was undergoing reform of
the wrong kind under the inspiration of both Charles III, the Spanish monarch and the
Portuguese prime minister, the Marquis of Pombal, who further centralized government,
consolidated the bureaucracy and encouraged a system of limited property rights.
(Vargas, 2005, p.93)
The colonial elite in fact, took land and mines from the Indians, a direct form of
redistribution. The state all throughout the Spanish empire tolerated private
encroachments and takeovers, against which the Indians responded unsuccessfullythrough the affirmation of their own property titles. The Crown thus redistributed wealth
produced by Indians by awarding their labor on the land and in the mines to private
claimers whom it wanted to please. (Vargas, 2005, p. 124)
The Indians, and later the African slaves produced all the goods, and the state rewarded a
small elite with property, attached to which were wealth and prestige. Unlike the English
colonies of North America, where small agricultural properties made for a more extended
distribution of income, Latin Americas large estates linked to the regions natural
resources and raw materials economy has ever since concentrated wealth on small groups
of people, not due as the product of their own labor, but as a result of the exploitation of
the other.
This system of rigid wealth transfer muted the colonial general public and created a social
divide that lasts to this day along with a concentration of property that still constitutes a
visible characteristic of the Latin American economy. The Spanish and Portuguese
domains did not enter the world economy until the eighteen century. Before that time,
agriculture was mainly geared toward the local market.
Only the countries with a small Indian population and where immigration was less
restricted, such as Argentina, Uruguay, and Costa Rica, were spared the gross inequalities
that came with bottom-to-top redistribution. They went on to develop larger middle
classes than countries like Mexico, Peru and Brazil. Where property was, and still is
severely concentrated. Back in Spain, the Crown produced a labyrinth of norms,
including the minute details of every regulation, regardless of the practices, customs,
aspirations and wishes of the people in the Latin American territories. Almost one million
norms were passed in three centuries of colonial life. (Vargas, 2005, p.90) This legacy is
still kept alive in all the state constitutions of the modern Latin American republics which
wind up being abolished and replaced by new ones. A chasm opened between the letter of

24

the law emanating from the Crown and its interpretation and application by the Crowns
representatives and then by the elite in charge of enforcing the endless number of rules. It
created a gulf between the law and real life. The colonial officials themselves reserved
the right to obey but not comply with (Acato pero no cumplo) many of the laws they
were meant to enforce. This system survived so that when Independence movements
sprang up in the early nineteen century, there was a culture in which the law had no real
roots.
Spain never exported these principles in Latin America and that is why speaking of the
imposition of Neoliberalism is a misleading concept implying that there once was a
Liberal system in operation in Latin America; trying to be re-imposed by the Western
world. But in fact, in Latin America there has never been a liberal system successfully
imposed, for which speaking of a Neo (new) liberal one, taking power over the region is
just a ambiguous conceptualization and more dangerously, a misunderstanding of the true
Latin American essence and historical characteristics on behalf of a blind international
community leaded by patronizing and misguided institutions such as the World Bank and
the IMF.
As Vargas explains in the following metaphor, the new independent republics didnt
succeed in establishing the basis for proper development because:
The Latin American republics that fought and defeated the colonial enemy drove a
sword through a phantom disguised in human flesh; the sword went through, and the
human flesh of the enemy succumbed, but after all that sound and fury, the colonial
phantom was still intact. By the time the blood dried, he had become a republican.
(Vargas, 2005 pg. 28)
The path followed by property rights in the United States mirrored the process earlier
experienced in Europe with governments acknowledging the spontaneous contracts made
by individuals and respecting through political institutions the multiple private
arrangements of society in order to honor the economic rights of citizens. While this was
happening elsewhere, Latin American elites having recently won independence from
Spain and Portugal were instituting firewalls around their exclusive rights and denying
the masses access to ownership.
Until the late nineteen century, only 1 or 2 percent of the Latin American population were
allowed to vote.20 (Sokoloff, 2002, p.95-98) Constitution after constitution reserved
emergency powers for the government and vested absolute authority in the executive
branch. In absence of grassroots civil society (nothing like New England town hall
meetings existed) and of state checks and balances, whose roots were in the militias
created by the colonial state in the second half of the eighteen century, was the
determining political agent.
Through various means including the use of violence, discriminatory legislation, elitedominated municipalities that replaced the local and village colonial governments, and
plain infringement, the land was quickly appropriated by the privileged few.
20

Basically the way to determine who could or could not vote was determined by the accuracy in which a
person could feasibly demonstrate that he had no indigenous hindrance and that he wasnt illiterate. Of
course women werent allowed to vote in the region until the 1920s.

25

Agriculture emerged in countries that were still primarily rural as a sphere of highly
concentrated property and high marginal product of labor, with little incentive to
revolutionize technology. Whereas in the western entrepreneurial system resources end
up being manufactured by the most appropriate hands; in Latin America, the land was
ultimately owned by the inefficient privilege-granted elite who lacked incentives to
acquire the needed technology to develop these given territories. The privileges first
given by the Spaniard monarchy and now granted by the republican discriminatory
scheme impeded the preservation of a labor culture. Instead, the wealthy in Latin
America were the non workers benefiting from the exploitation of the oppressed workers.
Furthermore, corporatism and state mercantilism enthroned privilege which was both a
result and a cause of wealth transfer from the productive members of society to the
parasites upstairs. And wealth transfer hurt savings and investment, thus keeping
domestic markets from developing because of insufficient demand, and widened the
social divide by preventing the emergence of a solid middle class.
Consequently, this reality is often confused as a failure of the market system, known
nowadays as Neoliberalism, providing a dangerous mis-conceptualization which is
ultimately expressed in a rejection from the Latin American population to anything
coming from the West.
Colonial Corporatism, State Mercantilism, Privilege and Bottom-up wealth transfer were
underpinned by political law, the fifth principle of oppression. Rules that emanated from
the government were holy, unquestionable.
In his thesis for the CADES degree, Neoliberal Inputs, alternative outputs and what
happens in Between; Robert Kupfer talks about how: Historically, being Christian was
one of the gateways to modernity. Nevertheless, in the case of Latin America Christianity
in the form of the Catholic Church has been one of the main pillars impeding
modernization in this region since it was this institution the one investing under the name
of God, the right and duty of the Spanish monarchy to conquer the Americas and expand
the Lords faith.
By awarding this religious support, the Catholic Church consented all the exploitations,
oppressions and violations which occurred in Latin America21. In the name of the church,
the government indistinguishable collected a special tax; the church controlled land,
influenced education, and held hegemonic positions in the field of intellectual endeavor.
It received income from land rents, mortgages, charitable organizations, investments of
various kinds, and contributions by parish owners, making it the largest banker. As the
foremost corporation in the corporatist family, the church owned more than half the land
of Mexico and a quarter of all the buildings in Mexico City and Lima Peru (the two
greatest political powers during the Spanish colonization). This institution has been one
of the main beneficiaries of the backwards system that has kept the Latin American
region underdeveloped. Thanks to its support to the Spanish conquest; without working
21

Of course several religious figures who noticed the atrocities happening in the region, advocated for the
rights of the Indians and the hypocrisy of their own church. Fray Bartolom de Las Casas is one example
and thanks to his Historia de la destruccin de las Indias (1561) the conditions of the Indians were
somehow improved in countries like Guatemala. But in general, the situation remained the same.

26

for the enjoyment of their benefits, the Catholic Church is until this date, 500 years after
the Conquista, the worlds number one landowner.22
Even when the so called liberals across these new republics proclaimed they were
seeking to finish with the intrusive role of the church, managing to free land from it in the
late 1850s, they also ended up favoring new interest groups that in addition concentrated
most of the property and pushed the wider indigenous population off the fertile lands.
Such was corporatism in republican Latin America.
Since the experiment of the Cadiz constitution in 1812, every time a liberal has been in
office, he had end up behaving like a conservative; not in the western idea of the term,
but as a bureaucrat that would endlessly strengthen the five principles of oppression
without changing the stagnant hierarchical status quo which impeded social mobility in
the region. (Vargas, 2005, p.122-123)
Liberals were Rousseau-type liberals with their centralist, organic and hierarchic idea of
power. Liberals as well as conservatives saw the government as a great arbiter of
opportunity. Both sides understood that through the exercise of political power one could
have access to jobs and, thus to private property. Government was the only vehicle of
social mobility available. (Wiarda, 2003, p.6)
Rather than western liberal principles, the circumstances described above correspond to
an imposed arrangement which sustained itself from the exploitation of the other; instead
of reflecting a spontaneous system under which people have the right to hold the property
they legitimately have acquired in a free and non coercive way, aloof from the
exploitation of a third party.
Furthermore, during the colonial times the political and economic power was deeply
centralized. The crown acted through the four viceroyalties spread from Mexico to South
America. Local governments existed, but they had no real power and could not levy
taxes. The structure was highly centralized. Spain and Portugals aim was not to develop
the colonies but to obtain as much wealth as possible from them.
The Spanish Consejo de Indias (Council of Indies) held power over all political decisions
and the Casa de Contratacin (House of Trade) governed all commercial transactions
under a monopoly arrangement that forbade the colonies to trade with other countries.
Local government and colonial bureaucratic posts were constantly bought and sold; an
exchange that provided for the only type of social mobility. Colonial society, then
promptly learned that its survival depended on getting around the law of a mercantilist
state because the only productive rewarding activities were smuggling, buying and/or
selling public office.
Extracting, rather than producing wealth and channeling it toward the state was the only
way to of getting hold of some economic benefit. This is a Latin American reality
pending this day. Like any system based on fragmented property rights, the colonial
society was driven by privilege: the third principle of oppression.
22

Followed by a close second place is the McDonalds Multinational Corporation.

27

The relationship between the Crown and the privileged few was tortuous because the
state did not want the landowners, the clergy, the military, or even its own officials to
become too independent. But sustaining a transatlantic empire required concessions to be
made.
The Republic also perpetuated privilege and state mercantilism. The Iberian-born were
the most privileged followed by the locally born Creoles Iberians23. Land, money and
access to the legal profession or to the priesthood and local government posts were
reserved for top tiers of society, particularly those of Iberian descent.
The first globalization wave perceived in the region, during the nineteen century, tended
to reinforce, rather than to mitigate, that old-known system by which proximity to the
state and the capacity to fund it were the conditions that private interests had to meet in
order to succeed.
It is a paradox that would keep recurring in Latin America further along to the twenty
first century: globalization opened markets for Latin American products in Europe and
provided capital for those countries, but since the governing institutions caused (and they
still do) a bottleneck repercussion which slowed or simply prevented the flow of property
rights to the wider public, the effects were felt solely among the elite and, in smaller
proportion, by the tiny middle classes.
Only countries like Argentina, where the absence of indigenous population mined the
existence of discriminatory legislation together with massive European immigration,
allowed a more horizontal spread of rights which were permitted its population to benefit
from globalization to a point where by the start of the twentieth century, Argentina was
one of the twelve wealthiest nations on earth. 24
Unfortunately, globalization generally contributed to the stagnation of social mobility in
countries like Brazil where exclusive access to ownership diminished the countrys
ability of boosting the potential benefits of a coffee plantation economy. Instead, since
property rights were restricted, the huge wealth divide remained consolidated. 25
The Latin American countries liberated from Iberia, and still imported word for word the
legal codes enacted by Napoleon (replicated across the European continent including
Spain). They mirrored the constructivist top-down approach that derived from certain
transcendental principles, every possible rule in order to govern the behavior of
individuals without regard to their costumes and norms or their comings and goings. The
last became a permanent and devastating intruder. The day-to-day practice interpreting
and writing the law, and leaving judges simply to follow the ever-changing rules imposed
by the politicians, increased the divide between theory and reality.
23

Distinctions were made between natives tied to the old power structure, whether it was the ruling cast or
the local chiefs, and the rest. In between, the mestizos were discriminated as well but they slowly found
ways to move up among the ladder; something the Indians could not do.
24
During the first decade of the twenty first century, this same nation descended into a state of collective
hysteria as its economy collapsed and almost six out of every ten people became unable to meet their basic
needs.
25
Today, Brazil is considered the worlds eight-largest economy and yet in 2002 it saw its currency drop by
a 40 percent.

28

Every new government appointed or removed judges at will, rewrote the constitution, and
reinterpreted or extended the codes.
The stage was set for a republican tradition of executive norm bombardment that persists
until today. For instance, the presidency and the ministries of Peru produce slightly fewer
than thirty thousand norms, regulations, decrees and laws every year, and since the 1980
s Venezuela has produced three thousand annual executive orders governing economic
activity. In countries with high illiteracy rates, and low educational levels, this
complicated system was left for those privileged ones to accommodate it according to
their specific wants and wishes, leaving the grand majority outside of it.
The nineteen-century archetype, the caudillo, was larger than the law because he was the
law. Whether that caudillo was Jos Gaspar Rodriguez Francia in Paraguay, General
Santa Ana in Mexico, Manuel Rosas in Argentina, Rafael Carrera in Guatemala or Ramn
Castilla in Peru; despotic or democratic, federalist or centralist, liberal or conservative,
pro or anti slavery, bigot or anticlerical, from peasant or oligarchic background, he was a
variation of the same republic. A republic in which order was not a balance arising from
inside the society but a pressure exerted from outside. Political power was now, if in
more sophisticated ways the instrument by which a powerful ruling class satisfied its
desires and ambitions at the expense of the rest. (Ortega, 1927, p.17)
Since the independence era of the 1820s the reformist injected the symptoms of economic
liberalization in the region. They were convinced that Latin America was the land of the
future. But they were concentrating property, political power and economic opportunity
in the hands of the landed elites. They were convinced the region needed to become
industrial, but without the institutional framework that could develop a contractual
society (where everyone could have the opportunity to participate); the nineteen century
liberal reforms only meant more for the less. The town, for instance, as Stanislav
Andreski wrote, had a parasitic relationship to the village: it consumed agricultural
products without producing and supplying almost anything in return. (Andreski, p. 16070)
Even the homogeneous Chile (that historically stayed at the margin of the Spanish edifice
for which the republic was less suffocated by its colonial heritage); only managed to have
a conservative environment in which a global entrepreneurial elite was able to set a state
that embodied national interests and encouraged investment and development among
privilege property owners. 26
The new foreign commercial groups could find, as Vargas explains accommodation
among the oligarchys old boys club. But the state kept a leading role as the engine of
progress involving in infrastructure, education and cultivating a cozy relationship with
the business elite. Property would come through legislation, but its tool would be its
26

Together with the obsession that Latin America had for Augusto Comtes idea of Positivism which
dictates that progress is a rational, deliberated process whereby central authorities accelerated development
through social engineering and the mentality of export or die , the whole period from the positivism of
the late 1800s to the export of the early 1900s, was the greatest attempt at the capitalist development
prior to the one that took the region with the Washington Consensus in the 1990s.

29

legislative and political engineer. This is why despite impressive growth, some industrial
expansion, abundant foreign investment, and political and fiscal stability; prosperity did
not flourish. The very fact that these years were followed by economic nationalism
testifies to the basic failure and speaks directly to the nature of development (the
quintessential difference between the exterior manifestations of prosperity and the real
cause of the wealth of nations).
The twentieth century in Latin America began with what purported to be a capitalist
revolution under Porfirio Diaz in Mexico, and resulted in what many took to be a
capitalist revolution from the Rio Grande to the Patagonia in the 1990s under the
planning of the World Bank and the IMF in what was called the Washington Consensus.
In between, there were two major developments that shaped most others: Revolution and
Economic Nationalism. Both constituted the major influences for the Latin America
during the twentieth century.
Revolution, or the rise of the people, led to the new state, which was supposed to
replace the oligarchic and illegitimate nineteen century republics. Economic nationalism
(the ideology that seeks to protect a countrys economy from the outside world through
political means in order to correct the adverse terms of trade), became the philosophy
of the new state in its effort to reform the old one. Everything left and right, democratic
or dictatorial came under total or partial persuasion from the double phenomenon of the
rise of the peoples state and economic nationalism.
And the paradoxical result of the insurgence against tradition was the perseverance of
tradition once more, in the form of the five principles of oppression because the
fundamental set of rules by which those changes took place was not modified. The only
factor varying this time, was who enforced them and under which model.
A century of independent republican life had produced an illegitimate state amid at a sea
of excluded masses (Vargas, 2005, p. 37). It was only a matter of time before political
actors would give expression to the sentiment of the majority. It came in 1911, by the way
of the Mexican Revolution. Across the continent, most of what followed in the century to
come would be done in the name of the people. And most of what would happen in the
decades to come, in politics and economics, was influenced by that revolution.
Throughout the formation of official state-parties (the PRI party in Mexico, military
dictatorships in Central America and South America); regional armies and power groups
became the columns of a new corporate edifice. Whereas the exclusion of the masses had
deprived the former state of legitimacy, the people now had to become the bedrock of the
new creation. But the only technique for a state to incorporate millions of people in the
absence of universal individual rights was through the use of a juridical abstraction, that
remote roman legacy, operating as a form of representation.
By absorbing individual identities into this collective abstraction, the state became a kind
of corporation; that is, a juridical fiction performing in the name of the people, whose
legitimacy lay exactly where the precious states legitimacy had rested. The rise of the
people at the beginning of the twentieth century was not so much the physical rise of the
masses as the subsuming of all the individual identities into a body-politic that now
acquired the legitimacy of universal representation. Where property rights were not

30

confiscated, they were limited by the fact that the government was the repository of all
rights, which it might temporarily allow to be exercised by, or allocated to private parties.
Under this new system, the Congress, the judiciary and state governorships were
subservient powers. They had to be, if the state was going to legitimize itself through the
exclusive representation on the peoples collective identity (Vargas, 2005, p.40)
If the state was the owner of rights, and the state was now personified by the president
and the executive power, then the political authorities were the effective owners of the
people. 27
Members of society were divided by function into peasants, workers,
functionaries, intellectuals, the military, and others. Each group was organized
from the top down on a national and local level. Only by sharing within the corporate
identity of the group to which one belonged, could the individual go about his own
business. The new state targeted the church and particular business groups linked to the
foreign capital, redistributing that wealth to the new beneficiaries.
The state incorporated certain business groups into the system by allowing them to write
their own rules, that is, by granting them exclusive privileges. Tariffs went up to protect
national industrials while all the regions governments under the influence of the United
States that had just installed in 1913 the Federal Reserve, consequently were persuaded to
establish National Banks; guaranteeing for themselves and their protected enterprises the
needed money flows.
In order to make more credible commitments, politicians and bureaucrats became
businessman as well. Thus, corporatism, state mercantilism and privilege hinged on
wealth transfer through the tool of political law, in this case embodied in the new state
that based its legitimacy on the people.
Once those corporate pillars of stability were in place and the system could be
perpetuated, it did not mater which policies were pursued, whether liberal or
protectionist, fiscally responsible or profligate, as long as they were all done with the
same framework of institutionalized interests binding together the new state.
In the specific case of Mexico, nothing attests more aptly to the many contradictory
ideologies and policy inclinations of the countrys revolution than the fact that by the end
of the 1980s there were 380 amendments to the constitution. Other countries followed the
example of Mexico, with the same unsatisfactory results. The Guatemalan revolution in
1944; the Bolivian revolution in 1952; the Cuban revolution in 1959 and the Nicaragua
revolution in 1979 were all revolutionary in the classical sense, although in Bolivia
revolution meant nationalism and in Cuba and Nicaragua meant communism. The
Chilean revolution triumphed in 1970 through the bourgeois electoral system whereas the
1970 Peruvian and Panamanian revolutions resulted in military dictatorships that
purported to be revolutionary. None of the constitutions that were produced consequently
to these revolutions remain as the Magna Cartas in any of these countries. With the
exception of the Cuban constitution which has also been recently amended by Raul
Castro.

27

Perhaps, these collective visions widely spread not only in Latin America but in other former colonial
countries, provided the initial clue for the International Development System to focus on empowering the
state apparatus -since the beginning- with the well intentioned interest of empowering its

31

The numerous similarities among the Latin American revolutions can be reduced to the
two main ideas marking the region in the past century. The first is the emergence of the
state as the expression of peoples identity. If the state was the people, then redemption of
the people from the old, illegitimate republic could take place only through a new,
legitimate state that embodied the collective identity.
The second idea relied in the fact that the state was the repository of this collective
identity and therefore the redeemer of the people from the oligarchic republics from the
past. This concept had no meaning until translated into a political and economic structure
within a fresh set of rights and institutions. In reality, the revolutions ended up
reinforcing rather than correcting what they had rebelled against. 28
This counter productive cyclical effect would be further prolonged by a new reality that
soon adapted its methods to perpetuate the oppressive principles just described as the real
causes for Latin Americas underdevelopment. By the time the Foreign Aid System was
implemented, superficial solutions contributed to the privilege granting system and the
expansion of the corruptive statism that had been plaguing the region for centuries; only
that this time, it would hold the support of the entire international community.
The goal was progress and development. Instead, the result turned out to be more of the
same
2.2 Foreign Aid comes to enforce the Five principles of Oppression.
By the 1930s it might have not been obvious that there was a connection between the
right-wing corporatist regimes that were about to embark successively on half century of
economic nationalism and the left wing movements. But they were akin just as the liberal
and conservative enemies were analogous when on each ones opportunity benefited
through the state by exploiting the populations. These twentieth century right and left
wing currents were tied not only by a long tradition weighing against the individual.
Whether in the name of the people and their symbol, the state, or in the name of the
motherland; whether in the pursuit of social justice or in pursuit of order; whether in the
light of proletarian universality or Hispanic nostalgia, economic nationalism was born.
And it was supported by the entire international community under the newly created
International Development System.
Raul Prebisch, the Argentinean who in 1948 (just one year before the famous Harry
Truman speech) headed the Economic Commission for Latin America and the Caribbean
(ECLAC), and later became the first secretary general of the United Nations Conference
on Trade and Development (UNCTAD), was the ideological engine behind the new
28

Among the interests favored by the rules of the game was the state itself, which became a major winner
in the game of economic power. After taking over mining, oil, fishing, banking, insurance, commerce,
agriculture, and other business interests, the Peruvian revolutionary government of the 1970s controlled
more than a third of the productive economy. The 1952 Bolivian revolution under Victor Paz, expropriated,
from both foreign and local owners many sectors of the economy, including the powerful tin mines whose
revenue for the three proprietary families exceeded the entire fiscal revenue of the government. Ironically,
today Evo Morales is going back to the measures taken in 1952, demonstrating how circular Latin
American history really is. The same case in Guatemala, where the revolution of 1944 tried to establish an
agrarian reform and today this nations president wants to return to that model (Powelson & Stock, 1990)

32

philosophy of structuralism, which impregnated governments, social institutions,

intellectual circles and public schools. No other body of ideas in the field of political
economy had a greater, more pervasive impact, and longer lasting influence on the
century (Vargas, 2005, p.43-45).
With the entire support of the lately established World Bank and IMF, Structuralism
sought to explain underdevelopment as a condition derived from, and preserved by,
unjust terms of trade between cheap primary exports coming from the periphery world
and expensive manufactured goods going out to poor countries from the center. 29
According to the ECLAC model, the shift in trade patterns was the main mechanism
transmitting the Depression from the center to the periphery in the 1930s. The
inflexible wages in rich countries and the very flexible wages in poor ones meant that
unemployment was worse in the developed world, affecting the profitability of primary
exports from the underdeveloped world. (Bauer, 1972, p.234-71)
Therefore, Structuralism would come now to correct the terms of trade with tariffs,
quotas and exchange rates for domestic production to thrive unhampered by foreign
manufactures. Imports would still be necessary but would be limited to capital goods
essential to sustain investment. (Ibid)
Once again, the state became the guarantor of national economic growth. It could not
direct one area and leave the others untouched because the model required an organic
systematic way of fitting all the elements into the puzzle. Governments had to subsidize
urban consumers at the cost of agricultural production. It needed to assure that resources
would be allocated in the right place.30
Soon the Marxist elements that echoed J.A. Hobsons and especially Lenins view of
imperialism and an international version of domestic class struggle, would integrate to
this theory. From this unity, the Dependency Theory was born.
Since Latin America and other underdeveloped zones were the victims of a structural
dependency that not even the import-substituting measures could entirely remedy, the
solution was then Foreign Aid primarily channeled and managed by the World Bank and
the IMF into political and economic strategies, in the form of loans, project planning and
recommendations for all Latin American governments.
Raul Prebisch himself had proposed through UNCTAD, the idea that rich countries could
contribute to the development of poor countries by devoting 1 percent of their national
income to foreign aid. The dependency theory gave a philosophical justification to the
need for an international reallocation of resources parallel to the one the governments of
the underdeveloped world would need to conduct at home via economic nationalism.
The moral power of Structuralism and the Dependency Theory was such that all manners
of organizations and leaders, of very contradictory natures and ideological dispositions,
embraced import substitutions, government-planned industrialization, and foreign aid
29

This constitutes the first mistake ever made by the International Development System which identified
Neoliberal causes as the reasonable explanation for Latin Americas underdevelopment.
30
This strategy was denominated careful segmentation planning by the Swedish economic nationalist
Gunnar Myrdal. (Vargas,2005,p.45)

33

directed toward myriad government programs as a way to break the structure of primary
export dependency. (Ibid)
The time passed without anyone considering the importance of empowering the people of
the region by directly channeling the foreign aid funds to personal development projects.
By the end of World War II, all governments in Latin America were already the
monopolistic owners of vast industrial sectors. They also inputted capital and exchange
controls as well as price controls to stem the effect of inflation. If credit was essential for
greasing the industrial machinery, then credit needed to be subsidized. If expanding
demand was the objective, then extensive collective bargaining, in many cases by trade,
would help ensure that workers had enough money to acquire goods and services.
Brazil, Argentina and Mexico became the engines of economic nationalism across the
region. By the end of the 1960s these three nations accounted for 80 percent of industrial
production, while Chile, Colombia, Peru, Uruguay and Venezuela produced 17 percent of
Latin Americas industrial goods. (Vargas, 2005, p. 48-49)
And yet the international community through the Foreign Aid system, insisted in
empowering these wrecked governments with inflows of international loans because they
had convinced themselves (and the Rest) that the problem of underdevelopment lay in
dependency. Despite vast amounts of money given to Latin America in the 1970s by
governments and banks in the developed world, investment rates did not exceed 6 percent
of GDP, whereas other underdeveloped zones such as Asia were already approaching a 25
percent. (Mendoza & Montaner &Vargas, 2007, p. 279-282)
But the basic economics of this model whose statistical results did not reflect comparable
improvements in standards of living and in consumption levels, demonstrated to be
flawed. They incubated a crisis that was amplified by massive foreign lending in the
1970s that eventually exploded by the 1980s. As Vargas questions;
What incentive could there be for efficiency and the use of new technology in
companies that operated in highly protected markets? How could high prices and
costs resulting from trade barriers and other government guarantees given to
domestic industries be sustained indefinitely? How could an economy that was living
in a cloud, in a fiction environment, keep importing the ever-increasing quantity of
capital goods and even raw materials needed to feed industrialization?;
How could the foreign exchange pressures caused by these imports allow for the
acquisition of first trade technologies in order to be competitive beyond reduced
domestic markets? How could agriculture survive in nations where everything was
geared toward industry, including subsidies and price controls favoring urban
workers against the Argentinean pampas, the Brazilian land or the Mexican ejidos?
And how could industrialization be sustained in the absence of a solid agricultural
base without massive food imports?; And finally, if rural areas were going to be
depopulated as a result of the urban drive, how could these highly regulated
economies absorb millions of new workers? (Vargas 2005, p. 49-50)

34

Not only these and other questions which should have been asked by the regions local
governments as well as by the International Development institutions were never asked,
but what is worst, when the results werent the expected ones and Latin America entered
its 1980s lost decade, no one was held accountable for this major debacle31.
The government deliberately determined success and failure among their citizens
privileging the chosen corporations that included the labor and business elites, attached to
the political authorities that derived their power from them; along with bottom-up wealth
transfer because peasants subsidized the urban world, consumers subsidized the
industries, taxpayers subsidized businesses favored by government intervention, and the
elites maintained social representation and peace32 through the state; and finally, of a
legal wilderness, in which political law (ever changing and discretionary), was the
tributary of the authorities will.
By the 1980s, poor countries werent able to repay the petrodollars that had been recycled
in the form of bank loans in the previous decade. A major debt crisis made it evident that
import substitution had failed to achieve development, its single most important goal
from the very beginning.
Just as in the early years of the twentieth century the failure of the nineteen century
republics unleashed the destruction of the old regime either through revolution or through
the emergence of the new state, in the 1980s, the spirit of revolt against the elitist system
could be felt in the street.
Even if they ultimately produced the same effects, the causes of both revolts were
seemingly different: the nineteen century republic had deliberately excluded the
masses; the state of the twentieth century alleged to include everything and everyone- but
the magnitude of the reaction indicated common frustrations. The state that encouraged
participatory government became unable to give real meaning (economic substance) to
the promise it signified in its collective embrace of the people. The crisis of the 1980s
was the cause breaking the spell of economic nationalism, but the failure had been a long
time in the making with new factors which were not present in the nineteen century
discourse: those factors were the World Bank and the IMF influences.
During the Lost Decade some of the biggest Latin American countries were more
dependant than ever on natural resources, particularly oil, and on the developed worlds
funding, except that this time it was not insufficient money resulting from the sale of
products in the markets of the rich world so much as generous money lent or donated by
those rich countries in order to finance the very same economic nationalism that was
supposed to break the chains of dependency. 33
31

Instead, as we will further see, a decade later brought more democratic than military governments, but
they kept dragging the same corruption problems as their antecessors, and were now influenced by the
same international organizations to give an extra new push, this time under the holy concept of
Liberalization through the Washington Consensus.
32
The term peace is relative, since during the 1980s the region was plagued with guerrillas fighting against
the system.
33
In Mexico, the growth of the economy was cut in half, and unemployment reached double digits in 1982,
despite record revenues from oil in the previous decade. Capital flight in the same country amounted to an

35

Multilateral bodies including the IMF became the last resort for desperate governments,
which in turn were accused by hungry street hordes of selling out to those foreign powers
perceived within reason as part of the cause of Latin Americas instability.
In the meantime, the political and business elites demanded, and the streets cried for,
more economic nationalism.
Absurdly, the multilateral bodies themselves pushed through measures that worsened
matters and took governments farther down the devastating path of economic
nationalism.
In exchange for aid, the IMF demanded that countries devalued their currencies in order
to artificially generate export earnings while correcting the imbalance between inflation
and exchange rate levels, but in anticipation of devaluation, inflation boosted.
Phenomenal pressure was exerted on governments to raise taxes, thus suffocating the slim
taxpaying elites and increasing evasions and further alienating the underground economy
from the legal taxpaying economy. High tariffs were tolerated, even applauded, by the
IMF as a way to limit the trade gap with a view to achieving an export surplus that would
allow for debt servicing.34
In practice, the international financial community ended up backing expansionist
monetary and fiscal policies, protectionism and the growth of government; and private
banks did not want to lend additional money to countries that had already defaulted or
were on the verge of doing so.
In the case of Mexico, the economist Roberto Salinas Len explains how the IMF and the
World Bank have played a major role in perpetuating the legacy of statism in Mexico
(Bandow &Vasquez, 1993). The World Banks third largest debtor after Russia (second)
and Brazil (first), relied on the World Bank loans to expand its state owned industries
from 300 in 1970 to as many as 1,200 by 1982- when Mexico announced its inability to
pay its foreign debt, marking the onset of the world debts crises. (Daniels & Radebaugh
& Sullivan, 2004, p.124)
No statistics can capture the atmosphere of utter failure among the people of Latin
Americas recent (recovered?) democracies. What had started as a social malaise had
turned to violence, hatred of the political class, distrust of government, distrust for the
law and calls for resolving the republics that once were supposed to have replaced the
oligarchies of the past; precisely the social rebellion that the state of the people and
economic nationalism had set out to avoid in many countries decades before.
The more money that came in form multilateral institutions and private banks, and the
more money that came in from natural resources such as oil; the more the governments
spent and were forced to borrow. And the more dependent they became35
estimated $68 billion during the 1980s, more than the combined loans by the IMF to the entire developing
world between 1982 and 1989 (totaling some $54 billion). The situation, devastating for any notion of
dependency reduction, would have been much worse had oil and foreign aid not existed.
34
Clearly no attention was being paid to Chile, which, despite its own financial crisis, was heading the
opposite way and, after having slashed tariffs to 15 percent, was showing that export surpluses are not
necessarily in order to service debt as long as you have a trusted and stable currency, and enough tax
revenues.
35
By the mid 1980s public spending in Mexico and Venezuela, both Rich in oil, reached 61 and 57 percent
of GDP respectively; the Venezuelan government employed almost one and half million people; Mexicos

36

Across Latin America, with some exceptions, oil, electricity, railways, banks, mines,
water, telephones, steel, airlines, hotels, fishing, sugar, coffee, rice, beans, corn, trading,
foreign exchange, and much more, were under government control. (Vargas, 2005, p.57)
The state entitlements encompassed almost every aspect of peoples lives: their
occupation, their retirement, their health, their education, their businesses, their transport,
their consumer needs, their leisure time. Of course this was fiction. The wealth was
simply not there to be distributed. The system, through which the government attempted
to allocate what was not real wealth, was itself a major impediment of wealth creation.
As the Guatemalan economist and professor of Francisco Marroquin university, Manuel
Ayau has reasoned: foreign aid encouraged income and labor tax policies that sought to
milk more money from small groups of people who were already paying too much
(though income tax did not produce more than 1 percent GDP in most countries), with
millions in the informal and subsistence sectors not contributing fiscal revenue. (Ayau,
1992)
However, many transformations did take place. Latin American countries went from
being primarily rural to decisively urban indicating that there was at least much shift in
sociological terms as there was in the economic model and in patterns of economic
production. But still Latin America was not proficient to break the chains of
underdevelopment and it entered the final decades of the twentieth century with the
burden of the Five Principles of State Oppression.
The manifestations were manifold, from the underground economy overflowing the legal
framework of government, to the proliferation of evangelical cults gnawing at the roots of
the once unshakeable Catholic church; from the emergence of mass movements and
political and economic development outsiders that rose out of nowhere and pulverized
traditional parties to word-of-mouth phenomena in the surrounding poverty-stricken
shantytowns of major cities displacing advanced technological means of communication.
It was a revolt against the same entity that had come to rescue them from the illegitimacy
of the old republic, pretending to give a sense of belonging to the destitute and the
underrepresented; a promise of vindication to those who had been excluded from the
republican feast.
Corporatism, state mercantilism, privilege, bottom-up wealth transfer and political law
made sure, as always, that particular beneficiaries of the system (this time of everything
from subsidies, to license monopolies, to price controls, to specific exchange rates to tax
exemptions; and labor laws) had a vested interest in perpetuating it. Rent-distributing
economies do not exist without rent-seekers. (Vargas, 2005, p.57)
The thorough analysis given on how the Five Principles of Latin American Oppression;
as well as the contribution for their perpetuation provided by the whole International
Development System,(especially through the World Bank and the IMF);both offer the
government four million . Counting all levels of government, Brazil more than doubled this figure.

37

necessary theoretical foundations to currently comprehend why the liberalization reforms

of the 1990s constituted a failure in the region.
3. The failure of the Washington Consensus:
3.1 The consequences of misunderstanding Latin Americas causes of oppression
It took many years to understand that fiscal disaster along with default, astronomical
inflation, and currency debasements were all symptoms rather than causes.
Had Mexicos 1982 default on its $86 billion debt not taken place, had Argentinas,
Perus, Bolivias and Nicaraguas four and five digit annual hyperinflation not taken
place; had external mistrust of the region not reduced capital to little over one percent of
the combined GDP, the stage would not have been set in the 1990s for one of the most
radical attempts at reform in two centuries.
Three quarters of the debt (more than $1,000, the equivalent of some countries per capita
income for every man, women and child) was held by commercial banks, many of them
in the United States. So Latin America made international headlines.
The chasm that had opened between the authority of government and the respect of the
people for anything associated with representative or official institutions is the logical
result of a decrepit republican state across the region.
The Latin American government had never been larger in 160 years of independent
republican life, yet it had never been more devoid of meaning and consistency of
legitimacy.
Although many Latin American governments held elections, they were (and are) often
not bound by the Rule of Law and simply meant that communism and military juntas
were not in control. Everything else, (human rights abuses, political persecution,
subservient judiciaries, lack of accountability, widespread corruption, virulent
demagoguery, social upheaval, and the absence or individual economic rights) continued.
And twenty five years later, democratic governments have demonstrated to be even more
inefficient and better peasants of the Five Principles of Oppression than their ancestors.
The century was to end where it started, with a massive assault against this never
changing status quo. But the 1990s would bring absolute reaction from the elites too. It
would be called many things (capitalist revolution, liberalism, Neoliberalism,
free-market reform), and it would constitute, first and foremost, a new attempt to marry
the citizens of the republic with the institutions gone adrift.
The twentieth century had brought new representations to a stage in which the individual
was still the eager actor being pushed out of scene. But the axis of the machine making
that stage gyrate had remained the same. In this context, the Washington Consensus tried
to come to a rescue.
When Latin America suddenly became crazy for capitalist reform; not the United
States, neither Europe had a clue as to the real causes of the crisis. In many ways, the

38

European and in a higher level U.S. policies have been strengthening the Five Principles
of Oppression south of the Rio Grande.
Although the primary responsibility for the failure of the economy rests with Latin
Americans themselves; the already described development strategy could have at least
avoided reinforcing the corporatist, state mercantilist, privilege ridden, wealth
transferring and political law conditions that inspired Latin Americas underdevelopment.
American interventionism together with Europes misleading understandings of the
regions own characteristics have propped up governments that were as corrupt as the
enemies the U.S. struggled against (and that Europe has admired as revolutionary)
which have also driven the region to more underdevelopment supported by the Foreign
Aid lent by these same nations.
American Interventionism might have contained communisms spread and even
prevented the Nazi party form establishing a foothold in the region. But it certainly did
not favor the interests of the rule of law and sustainability (as it proclaimed).
On the one hand authoritarian, corrupt and mercantilist institutions were reinforced and
on the other, it caused many Latin Americans to direct their resentment toward the other
values that Americans and also Europeans purported to stand for. Ironically, when the
World Bank and the IMF jumped to help Latin America in the 1990s, towards a
capitalist and free trade systems, the countries behind the sponsorship for these
institutions werent practicing at home what they were preaching to us.
We have seen how inadequate reform has plagued the region no less than its
corporatist, state-mercantilist, privilege-ridden, wealth transferring tradition under
political law.
Liberal reforms have not managed to produce empowered societies based on liberty
even less than a truly fair system of human endeavor.
Several development economists and researches such as William Easterly have identified
the flaws committed in the conception of Latin America by the International
Development System. Easterly reiterates that there was nothing wrong in the original
ideas of the Washington Consensus. The implementation in the practice was the error
(Easterly, 26-05-2007):
The first mistake was conceiving development as a deliberate national achievement rather
than the natural consequence of individual human action. This mistake was further
committed by the IMF and World Bank expert policies and attempts through the
Washington Consensus. It was believed, even as private property was respected, that
legislation alone could have positive effects in the economy. Top-bottom political
decisions, rather than institutional arrangements taking place from voluntary cooperation,
were the source of economic incentive.
The second basic flaw; closely connected to the first, was the idea that freedom could be
treated as a set of compartments and not as a whole. Political and economic freedom (and
therefore empowerment) was separated in the belief that vertical political authority could
spur the type of stability, protection, and stimulus that chaotic and fragile democratic

39

institutions could not. The false dichotomy presiding over government action marred
progress during the positivist years, yet it also compromised the future because
dictatorships were followed by democracy, but not by the rule of law.
Positivism constitutes the third flaw. Derived from the previous two, was the idea that
development was attached to certain outward signs, particular machines, specific
industries, strategic sectors, and chosen elites rather than to a general environment.
Consequently, resources were deployed and arbitrarily allocated toward conveniently
desired targets. Whereas the history of progress in the original western sense confirms
that the process must be spontaneous, (as the unintended result of millions of individual
minds and hearts pursuing own goals through a market based allocation of resources and
dissemination of information), it is rational to affirm that in Latin America there was
everything except capitalism. And the Washington Consensus would suffer the
consequences of this.
The reforms of the 1990s have one more precedent, traditionally ignored by the WB and
the IMF and in general, by the whole international community: the South American
military dictatorships during the 1960s and 1970s (In the case of Central America until
the mid-late 1980s).
Capital inflows which fed strong local currencies, cheapened imports and made exports
more expensive. This resulted in an import increase as well as the servicing of the debt,
leading to an important outflow of foreign exchange. Governments, instead of letting the
currencies depreciate according to market forces so that they would reflect and therefore
correct the imbalances, maintained high exchange rates. Consumption outgrew
investment, and in the absence of structural reform, with taxes rising in order to preserve
high public expenses, local industries had a hard time competing with imports.
But this situation did not represent a threat while foreign capital continued to enter.
However once it stopped, especially with short term capital going back out, recession set
in and the real economy was exposed.
It became clear that the winners had been those businesses that received government
support. It was now also evident that the government, while reducing its scope in some
areas, had actually grown.
For instance in Brazil, three quarters of the total gain in income was absorbed by the
richest 10 percent of the population: the concentration, not the dispersion, of wealth was
the reality behind statistical growth.
This pseudo-capitalist reform (crony capitalism) consolidated, rather than attenuated the
traditional flaws. Fiscal collapse, monetary chaos and productive stagnation brought what
was left for Latin America in the 1990s. As the state lost legitimacy (once again), and at a
time when foreign lending and aid were no longer available, reform paved the way
(again). By turning on one another, in the form of intellectual attacks on economic
nationalism and of popular upheaval, the elites opened the way for transformation.
3.2 What the Washington Consensus did accomplish

40

The USA quickly backed the reformist reaction against statism without regard to the
ethical nature of the new regimes, or to their origins and methods, Thus, Mexicos PRI
dictatorship and Fujimoris autocracy in Peru, (both very corrupt systems), received the
same American benefits that Pinochets military government had enjoyed in the 1970s.
What was not socialist had to be capitalist, it was one of them.
Latin America became one of the laboratories for what was named the Washington
Consensus. Basically a set of policies backed by multilateral bodies including the WB
and the IMF; several think tanks, and centered on fiscal discipline, economic
liberalization, and privatization. This attempt was applauded internationally in London,
Hong Kong and the Wall Street.
The intensity and depth of the reforms were not the same in every country. It was
stronger in those counties that had performed poorly in the 1950-80 period and it was less
profound on those where previous performance did not seem to warrant an urgent need
for radical change.
Chile, Argentina, and Peru in South America, and El Salvador and the Dominican
Republic in Central America and the Caribbean, were the leading reformists. Mexico in
North America was equally, if not more audacious in many areas but more modest in
others, as was the case with Bolivia and Uruguay in South America. Colombia was
modest; Venezuela due to its oil revenues tended to lull impetus for anything too radical
as happened in Ecuador. Paraguay in its behalf was in perpetual political chaos, and
appeared not to have time to consider reform. (de Val, 2001, p. 265-67)
Central America joined the feast with less passion. In Guatemala for instance the national
telephone company became private in 1996. But the television channels remained a
monopoly owned by the Mexican millionaire Angel Gonzalez. In the same year the
electricity company was semi privatized giving concessions to some private companies
for the logistics and administrative issues of the business. The results of this mediocre
pseudo-reforms, led to that ambiguous path that Latin America finds so hard to abandon.
The results of Guatemala under the Washington Consensus logically follow the intensity
of what caused them: Regarding the telephone communications, Guatemala obtained the
lowest cell phone service rates worldwide. By July 2009, Guatemala had 2 million more
cellular phones than citizens (Hurtarte, 2009). The free and unregulated competitiveness
allowed these businesses to absorb an additional innovative market as internet providers.
After ten years of phone privatization, wireless internet has reached the same remote
areas that the national electricity company (with more than one century of being in
operation), has been unable to cover.
The fact that the five national television channels remain under a foreign oligarchic
monopoly has its counterproductive results every time there is a corruption scandal and
the national news channels are incapable of providing objective political information in a
country that is desperate to cultivate civil society.
Between these two extremes, a middle case is found with the electricity services in which
Guatemala has one of the highest rates under the Latin American standards. (Gudiel
2008) And even when there have been initiatives to lower the costs, free competition is

41

impossible due to governments regulation. The same case is perceived in the Guatemalan
public transportation system.
Fiscal and monetary stabilization aimed at ending inflation and restoring sound
housekeeping. The structural or secondary reform meant tax, trade, and labor reform as
well as financial investment and privatization. And the switch from pay-as-you-go
pension schemes to private account retirements.
The Latin American economies had behaved for far too long as if there was no
connection between the volume of money that was printed and the volume of goods and
services produced; or between the amounts of money that governments spent in contrast
to the amount of taxes collected. Without resorting to the gold standard, many
governments pegged their monetary policies to reality.
Nevertheless, all governments attacked the two most significant causes of fiscal deficit:
subsidies to producers or consumers and inefficient state companies. But none of them
did it equally and privileges in different areas were maintained.
Unlike citizens in developed countries, (even those that sustain large welfare states), who
are conscious of the fact that public spending is paid for with the wealth produced by
their efforts; The problem in Latin America arises from the fact that few people pay direct
taxes, and the causality that relates the governments expenditure to societys wealth had
for a long time been lost in the minds of most ordinary citizens.
Shock Therapy policies involved lifting controls and therefore led to traumatic
realignments of prices. In Mexico and Peru, letting fuel and food prices float freely
provoked spectacular one-time rises. But the benefits were soon felt. The reduction of
inflation (in Chile, Bolivia, Peru, and Argentina, it was actually hyperinflation) benefited
both consumers and producers after the initial one-off shock.
By 1996, due to monetary restraint and fiscal prudence that reduced two digit deficits to
single digits, the average inflation across the region was 17.7 percent. In many countries,
including Brazil and those that had suffered hyperinflation, it was below 10 percent, in
line with international standards. (Paunovic, 2000, p. 27)
Tax systems were simplified. Only Bolivia dared to instate an almost flat income tax.
Commercial policy reversed decades of import substitution.
Tariffs and other types of barriers were lowered, quota restrictions eliminated and import
licenses limited. (Ibid)
Against what economic nationalism used to maintain, in some countries the opening of
trade helped develop local industries in ways import substitution had been unable to.
Trade with the rest of the world was aggressively expanded. Of the more than twenty
bilateral and regional commercial agreements signed during the reform years, The North
American Free Trade Agreement is the best known. But it did not promote proper free
trade, because people were excluded from the liberties conferred to goods and capital
movements, and even these were subject to limits and exceptions in a text, that included
thousands of pages of preamble and twenty two chapters, with in some cases an
extremely long calendar for the adoption of the new measures (CAFTA, 2003).

42

Nevertheless, it still made things freer than before. MERCOSUR, NAFTA and DRCAFTA among others equalized trade among the region.
By 1997, nearly 20 percent of U.S. exports were destined for Latin America. The United
States was exporting more goods to Brazil than to China, more to Argentina than to
Russia, more to Chile than to India, and twice as much to Central America and the
Caribbean as to Eastern Europe. (Vargas, 2005 pg. 144)
The scheme served as a catalyst for a number of other trade agreements, for instance
between Canada and Chile, Canada and Costa Rica, and between Mexico and a number
of Latin American countries including Chile; As well as both of these nations with the
European Union and South Korea.
However, considering the fact that these discussions were held at the same time that the
Doha Round of world trade talks occurred, what emerges is a truly labyrinth web of
government negotiations, all of them producing their own political bodies and separate
arrangements for a purpose that ultimately should have little to do with governments: the
free exchange of goods and services among people of various nations.
Financial liberalization demolished restrictions on foreign investment from Mexico to
Patagonia. From 1993 to 1996, direct investment by U.S companies in Latin America
increased by 40 percent to a cumulative of $144 billion, 18 percent of total U.S. direct
foreign investment abroad.
Investors could not get enough of Latin America. During the 1990s, nearly U.S. $400
billion of capital rushed into a region; from where money had been escaping frantically
in the precious years like its emigrants, aboard anything that floated In the active second
half of the decade, Brazil Argentina, Mexico and Chile were the principal recipients of
direct foreign investment. (de Val, 2001)
Labor regulations were reformed, reducing hiring costs, making it easier to fire workers,
and limiting collective bargaining by trade (as opposed to by company) in an effort to
break the stranglehold of Marxist unions on production. But this area of reform varied
greatly form country to country. Brazil, Colombia and Nicaragua emerged with the most
flexible labor laws and Mexico, Bolivia, El Salvador and Guatemala with the most rigid.
Peru and Argentina were mingling in the middle. (Paunovic, 2000)
At the same time, Chile, Argentina, Peru, Bolivia, the Dominican Republic and El
Salvador all experienced major reform and boosted significant macroeconomic statistics
in the 1990s at least compared to their immediate perform years. (Ibid)
The reforms helped move the region from a nationalistic to a global economy, from an
import substituting culture to an exporting pattern; from governments that produced few
and consumed too much to ones that retreated from direct intervention in various areas of
economic and social life. Without a doubt, privatization was the jewel of reform. It
became the symbol of the era above monetary, fiscal, tax, trade, financial investment
and/or labor reforms.
The countries left behind; starting with the politically stable Costa Rica and the
dictatorial Paraguay followed by Ecuador (with fierce political opposition), Uruguay

43

(where a referendum defeated the privatizing proposals), and Haiti (submerged in violent
political upheaval), would soon be joined in the first decade of the twentieth century by
Hugo Chavezs Venezuela, Ortegas Nicaragua, El Salvador under the FMLN (for the
first time after 20 years of democratic uni partidism), Guatemala under Alvaro Colom and
Honduras under Manuel Zelaya36.
For the rest, multinational corporations had a 38.7 percent stake in the sales of the
regions top five hundred companies. U.S. corporations were the most numerous, but
many corporations from Germany (10.6 percent), Spain (10 percent), France (9.2 percent)
and Italy (5 percent) were also involved. The combined European investments were
greater than the investments by U.S. corporations, whereas in the early 1990s American
firms had had an eight to one led over Europe. (de Val, 2001) Not even Central Europe
came down with the fever of privatization to the same degree as Latin America.
Finally the pension reform first implemented in Chile was soon followed by El Salvador
and currently considered in other countries. The Chilean model gained global recognition
and was imitated in many Latin American and Central European counties. Other five
Latin American countries (with more or less degree) transformed their pension systems.
Staggering numbers of people were attracted by a model that excluded the corrupted
government from its the active economic populations health decisions: 16 million in
Mexico, 8 million in Argentina, 4 million in Colombia, 5 million in Peru, 1 million in El
Salvador, half a million in Uruguay and half a million in Bolivia. (Piera, 2001, p.2) No
capitalist exploiter has ever sucked as much blood out of his workers as these workers
have sucked out of themselves. Ironically, the substantial hostility surrounding efforts to
dismantle the welfare state, in the case of Western Europe, and the Social Security system
in the case of the United States, had prevented its adoption in the developed world.
Undoubtedly the reforms proposed by the World Bank and the IMF in the region brought
changes that would push Latin America to enter better prepared to the twenty first
century. But were these reforms enough?
Again, there are questions that werent (but should have been) asked by the international
community such as:
Did monetary, fiscal, trade, financial, investment, and labor reforms together with the
privatization of state enterprises and subsidies attack the tradition that haunted Latin
America through ancient, colonial and republican times; the subsoil running below
every early attempt to build something worthy on these lands?
Did those reforms alter the relationship between the institutions holding power and the
individual, or did they constitute a reshuffling of elites, ideologies and economic
models within the incarcerating matrix that has modeled every previous experiment in
Latin American liberation?

36

Who by the time this essay was written it was still undecided if he would still be the president of this
nation.

44

The aftermath has given a negative response to these and other questions. By
acknowledging why the proposals of the International Development System (especially
those from the World Bank and IMF); regardless if they came from one extreme
(economic nationalism during the 1950s through the 1970s) or the other (Free Trade for
the 1990s); the present study will further address:
Which sustainable alternatives are there left for Latin America in the twenty-first
century? And more significantly;
Which should be the approach that the development institutions from the past must
consider to achieve this objective?
3.3 What the Washington Consensus did not accomplish
3.3.1

Economic Mistakes: Well-Intentioned Efforts; Inaccurate Realities

Development cannot be decreed or legislated. Yet all underdeveloped countries are

governed whether by socialists, conservatives or utilitarian liberals, as if it could be.
A. Vargas
Defenders of privatization and of free market have overlooked the difference between the
creation of an open society and the transition to an open society. This constitutes one of
the many reasons why their critics in Latin America can easily convince the rest that
freedom to trade is an enemy. In advocating reform, they unconsciously assume that
liberal capitalism would be created from nothing.
Despite the states apparent withdrawal, political power allied with special interests (like
drug dealers in the region) can still impose numerous constraints in the society.
The direct benefit of the old privileges is easily targetable among the Latin American
powerful elites. The benefits of real reforms instead, would widely spread among the
entire regions population making it difficult to identify direct benefits and changes.
Another mistake was that every country in the region made only the reforms that to their
convenience were the necessary ones, and from those, they then decided to pursue them
just until a tolerable level. Politicians in the region conveniently ignored what the New
Zealands reformist, Roger Douglas has pointed out:
The economy consists of a network of connections; there is no point in eliminating
export subsidies if transport tariffs and regulations are maintained and shipping port
and services are not privatized. What good are fiscal gains if, instead of reducing
taxes or the debt, the government dedicates these gains to exorbitant expenditures
that create a sustained fiscal commitment? What good is to reduce the number of
government employees if anti-capitalist labor legislation prevents the market from
reabsorbing those very workers? What long term benefit can be obtained from
opening the doors to foreign investors while preventing the rule of law from taking

45

root and therefore limiting the capacity of millions of individuals, especially the poor,
to form and accumulate capital over a long sustained period of time including those
occasions when foreign investors leave? What use is guaranteeing property rights to
a cluster of colossal private corporations if small and medium size business, which in
all capitalist countries are the main creators of jobs, do not enjoy similar guarantees
on behalf of the legal system?(Douglas, 1995)
Latin America lacked the institutional foundations of development; a more profound
matter than specific public policies. But governments were desperate to attack their
insolvency problems, so the transition to the poors empowerment was much less
important than obtaining resources and riding themselves of certain costs.
Privatizations in some cases failed because governments didnt transfer the assets to the
workers of these companies. And even in the case where that was not applicable, they
could let all the citizens decide whom to sell them in a market transaction free of
government intervention.
Instead, through privatization the government sought its own benefits. The fact that some
of those benefits 37 were then redistributed to poor people only made matters worse.
A new variety of dependency was created and once the flow of money from privatization
stopped, those who had become entitled to it took to the streets. Taxes eventually had to
be raised. Governments in Latin America tend to ally with private interests able to
provide necessary income.
Because alliance between government and private interests in the reform years hinged on
the transfer of assets to private parties (privatization), the process has been mistakenly
understood as capitalist reform.
Actually, what really happened was the installment of a new class of elites, conformed
this time by local and foreign interests, who replaced the old ruling class under economic
nationalism through the granting of monopolies, the passing of discriminatory
regulations, or the use of subsidies in behalf of the government.
In some cases, the statist groups reengineered themselves; in others, new groups
displaced the elites of economic nationalism; but in all cases some form of crony
capitalism existed. This is what Abdreski called a parasitic involution of capitalism
defined as a tendency to seek profits and alter market conditions by political means in
the widest sense of the word (Andreski, 1967 p.77)
Therefore, ownership changed hands, while property rights remained in the hands of
government and thus empowerment never happened. Privatization exalted the notion that
property is a political concession, rather than a higher or universal law that empowers
individuals beyond the governments supremacy, so it can be the object of contract and
exchange.
Further along, tax policy was theoretically designed to reduce the burden of taxation and
simplify, as well as harmonize, the system. But vast inequality in the treatment of large
corporations and small businesses; of employees and self employed people; of various
industries and agriculture and more generally, of savings; production and consumption
37

Which by nature were temporary since one cannot privatize state assets twice.

46

made sure that the allocation of resources remained profoundly influenced by political
power and that certain groups kept obtaining rents at the expense of others.
It was a welcome abjuration of government involvement in production and commerce
(with many exceptions), but it was not a rejection of the idea of government as the source
of property rights to serve its own purposes. With monopoly, duopoly, and oligopoly
transfers, new pockets of economic power, through alliances of domestic and foreign
interests were formed and governments passed laws that served the interests of those in
power. Furthermore, once this stage was done, governments would input price caps and
ceilings controlling the new independent companies.
These regulatory bodies themselves (the consequence of monopoly privatization), unable
to control prices effectively, are also the object of vituperation. Responding to pressure,
they tend to penalize private companies rather than benefit consumers through the
opening of competition.38
By today, the regions participation in world trade is still a modest 6.1 percent (CEPAL,
2002, p.17,18) The selective use of tariffs hurt consumers and benefit a few producers;
the use of subsidies for certain exports missed the real point of commerce which is to sell
in order to obtain foreign currency with which to buy imports, not to sell for the sake of
selling.
Labor legislation, the sphere which experienced the least reform, raises the cost of
employing people, but its beneficiaries(the labor oligarchy, which receives direct income
from taxpayers and which as in many other countries, is dangerously empowered by
industry rather than by company-based collective bargaining (which itself limits the
freedom of workers and managers to contract).
This makes for instance, all metallurgical workers whether involved in submarines or
manufacturing nails, subject to common collectivist bargain rules. Members of the
governments labor department supervise salaries and employment conditions established
by negotiations between business and labor corporations rather than individuals. (Piera,
2001)
In Brazil, high, inflexible labor costs ingrained in its 1988 constitution have remained
largely untouched because of the vested interests both at the federal and state levels. In
Mexico, it is estimated that labor laws have nearly doubled the hourly cost of labor. This
might explain why unemployment has risen in half in the Latin American nations since
the early 1990s despite private enterprise (Ibid). Ironically, illegal immigrants from
poorer neighboring nations find it easier than local people to obtain jobs in richer Latin
American countries. The underground economy makes it tough for the rich and powerful
to control the entire labor market with restrictive regulations.
One main lesson to be learned is that symptoms should stop be mistaken as the causes.

38

For dozens of examples on monopolistic and inefficient privatizations in Latin America see: Vargas
Llosa, A. Liberty For Latin America: How To Undo Five Hundred Years of State Oppression; p. 168-192.

47

In the absence of long-term commitment of the rule of law, private interests need to
maximize immediate profits the same way that government needs to maximize capital
flows and ultimately the revenues that come from its cronies high rates of return.
Under such circumstances, private interests have a stake in making the rules, and
politicians have a stake in the profits.
3.3.2 The negative outcomes of a mediocre judicial system
The exploitative, unfair nature of reform in all areas was perpetuated by the legal system.
Nowhere in Latin America was the legal system the object of meaningful change. Under
such arrangements of course, there is no independent judiciary. At every level, decisions
are corruptively bought, and citizens are treated unfairly unless they wield political
influence. It is the prime source of discrimination and exploitation against the powerless.
It is often said that the Judicial system is the Cinderella of Latin Americas public sector
because of the minute funds it is assigned. Most countries devote between 1 and 2 percent
of their national budgets to the judicial system, and almost all of that money in spent on
salaries.
The problem does not lie in the way judges are appointed, because no matter what
mechanism is used, the power of government is such that judges are subservient to those
who run it. It is of no real consequence, either, by how much the budget is increased, how
many new courts are and how they divide the load, how many computers are made
available, how sophisticated the level of training is or how many judges work for the
provinces as opposed to the capital city. The real problem lies in the dearth of
independence from both the government and political law, high costs of access for
ordinary citizens, and inefficiency. By not attacking these factors or doing so partially, all
attempts at judicial reform have failed.
The parliaments have a scarce role and there is a worrisome lack of independence among
the government powers; especially the judicial one.
In Latin America the political duty does not respect ideological reasons, but instead it
keeps responding to the sociological factors external from authentic convictions or
principles.
It is a repetitive cycle: the political channels do not function, generating distrust and the
ones who get in the decision making process, (in charge of the management of the
public sector), do so for the erroneous interest of obtaining some benefit.
In the juridical sphere the insecurity and the rupturing of the Rule of Law are the
consequence of: disrespect to the also crony constitutions (thus the constant re writing of
new ones), distrust in the judicial system, the complicated fiscal, mercantile along with
labor regulations and processes, (which in reality are not even applied due to the same
complications or get arbitrarily applied), the uncertainty in the resolution of conflicts due
to the excessively long-term trials, the lack of independence of many judges and the
contradictory sentences.

48

In this system what is not controlled by the institutions, is controlled by the interest of
pressure groups which also contribute to elevate the high indexes of crime and
corruption.
Ultimately, the judicial system, like the rest of the public sector, but to a much worse
effect, depends on the incentives judges have to be fair or unfair, and it is usually the case
that those incentives work against what is right because the courts are an extension of the
general condition of power as an instrument to discrimination. Since the benefits of
judicial reform are not immediate, the incentive for decision makers to reverse the
situation is nil.
As an emergency solution, informal or private arrangements (as justices of the peace,
who operate like arbitrators in countries like Peru and Guatemala), have helped limit the
devastating effect of corrupt, inefficient and untrustworthy courts. But the price has been
the widening divide between the country in which the majority of people lives and does
business, and the country in which a minority monopolizes the law.
4. The Aftermath: Ignored causes, avoided symptoms and unchanged realities.
Latin America versus the World Bank and the IMF
To err is human,
To really screw up takes a committee.
(Anonimous)
In rough numbers the socio economic situation of Latin America is perceived in the
United Nations index of human development (combining data from housing, health and
education) as follows:
Seven of its countries are considered in the high level and the rest are on a medium level;
being Chile, Argentina and Uruguay on the top three of the list (40,46 and 47 positions);
and Nicaragua, Guatemala and Haiti at the bottom (120,121,148 positions) of a total of
179 countries ranked.39 (UNPD, 2008)
Even tough Latin Americas situation is evidently more promising compared to that of the
African continent40; as the rest of the Third World the very modest growth has contributed
to social disintegration, violence, resentment, along with economic stagnation and debt
crises; Hence, more poverty.

39

In comparison to the evolution of the HDI since 1975, it is relevant to point out that some Asiatic
countries like South Korea have surpassed the most developed Latin American countries; and that countries
in the Middle and Far East such as Thailand, Turkey or Tunisia and Iran have reached from levels inferior
to those of LA, to the middle level position that the region now has. (Aznar, 2007,p.40)
40
and less hopeful than the South East Asia experience

49

For years the assumption of traditional development economics was, (and still is) that the
Third World was poor because it lacked capital 41. Thus the suggested solution was to
transfer wealth from the developed to the developing world.
Since the private sector was believed to be unwilling or unable to bring prosperity to the
poorest regions of the globe, governments had to plan and manage their nations
economies as we have seen. And foreign Aid would enable recipients to plan and manage
better.
From the 1950 until the 1980s, experience has made evident that a shortage of capital has
not been the problem. The 1990s in the other hand demonstrated that crony capitalism
would not incentive the private sector to be the development factor either. This dilemma
demands innovative solutions which will only arise if different questions are asked.
In the current crossroad that Latin America is experiencing there is a risk that its leaders
will go back in time recycling old formulas that can only lead to failure: the majority of
which were mainly recommended and supported by the WB and the IMF.
The basic challenge is to combat the lack of will resulting from the disappointment
described in the previous section, after perceiving that neither democracy, nor crony
capitalism42, populism, foreign aid or even the so called Socialism of the XXI Century
have been capable of taking Latin America out of its underdeveloped condition.
Unfortunately, just as Raul Prebish was praised and Jeffrey Sachs is now admired around
the world for their dependency theories; other development economists interested in the
region were ignored and excluded not only from the main course debates of the World
Bank and the IMF but also in practice. Such is the case of Lord P.T. Bauer. Articles in the
World Banks in-house journals, the World Bank Economic Review (from 1986 through
January 2007) and the World Bank Research Observer (from 1986 through 2006) cite
Bauer only six times. (Vasquez, 2007 p.5) Even tough he was recognized by this same
organization as one of the most prominent development economists, others in his field
recognize that:
Such level of peer recognition, however, was atypical during most of Bauers career. Bauer
remained one of a few voices in the wilderness 1 largely because he stood virtually alone
in challenging the development orthodoxy that held central planning, forced savings,
protectionism, and official international aid as main tenets. (Sen, 2000)

Since the 1950s, Bauer stated:

I regard the extension of the range of choice, that is, an increase in the range of
effective alternatives open to people, as the principle objective and criterion of
41

Economists such as Jeffrey Sachs and his followers keep on focusing on how much should be spend
rather than understanding that it is more important to focus on the how the available funds efficiently reach
the poor.
42
Crony Capitalism: A pejorative term which describes an allegedly capitalist economy in which success in
business depends on close relationships between business people and governments officials. It may be
exhibited by favoritism in the distribution of the legal permits, government grants, special tax breaks, and
so forth.

50

economic development; and I judge a measure principally by its probable effects on the
range of alternatives open to individuals. This implies that the process by which
development is promoted affects the assessment, and indeed the meaning, of the result.
The acceptance of this objective means that I attach significance, meaning, and value
to individual acts of choice and valuation, including the individual time preference
between the present and the future; and my position is much influenced by my dislike of
policies or measures which are likely to increase mans power over man, that is to
increase the control of groups or individuals over their fellow men.
(Bauer, 1957, p.113-14)
He further observed that: Lack of money is not the cause of poverty, it is poverty, and to
have money is the result of economic achievement, not its precondition. (Bauer, 1987, p.
6)
But targeting the real causes and trying to find solutions, has been long time ignored by
the International Development System.
Obviously, selling the efficient ideas turns out to be harder than giving superficial
solutions. Any European citizen feels a clear conscience when donating 20 Euros to any
World Bank project or by knowing that part of his taxes contribute to that 0.7 percent of
GDP that his or her nation is paying to bring the Third World out of poverty.
Convincing people that a little effort makes a huge difference results more convenient
than educating the average citizen on the socio political and economic situation of the
country they are helping. Easy solutions are fashionable.
And even when Bauers, Easterlys and Hernando de Sotos critics appeal to say that the
other path also failed; the evidence shown in this study proves that that so called other
path has never been inputted because unfortunately, the people who benefit from the
current crony International Development System (both in the developed and Third
worlds), have the sufficient power to keep the system as it is, even tough in rough
numbers they are less than the poor people on this planet. Therefore the poor people have
been kept unpowered through the coercive methods of their leaders, as to be unable of
telling their story and expressing what development means for them yet.43
From the empowerment of the International Aid officials (and their interest in
maintaining their current privileges), comes the logic at the rear of the unquestionable
status possessed by the fixation of lending to Third World governments, rather than to the
people under them.
Furthermore, in the Latin American region, only when World Bank projects lead to major
public protests, massive human rights violations or widespread environmental damage; or
when IMF programs, usually characterized by tax increases and currency devaluations,
causing riots, do the western media and public see how those lending institutions really
operate.
43

Currently, the World Bank employs some 10,000 development professionals, added the 3,000
working for the IMF; (WB FAQs, 2009 & Kobbeltvedt, 2009 ); While there are 47 million people living
with the less than one dollar a day only in Latin America. (World Bank, 2007)

51

In 1992, the WB reviewed 1800 current projects for which it had loaned US$140billion.
The banks internal study known as the Wapenhans report, judged that 37.5% of projects
completed in 1991 were unsatisfactory- more than double the rate of a decade earlier.
(Dichter, 2003, p.3)
And today in Latin America, the available project evaluations show first of all that in the
majority of countries there are no projects being held and the past and current evaluations
preponderantly conclude that basically with or without the implementation of the given
project, the situation would have turned out the same. Unfortunately, for Latin American
citizens, when such projects fail, the result has been debt, not development. As Easterly
recognizes:
Since donors understandably dont want to admit they are dealing with bad
governments, diplomatic language in aid agencies becomes an art form. A war is a
conflict-related reallocation of resources. Aid efforts to deal with homicidal warlords are
difficult partnerships. Countries whose presidents loot the treasury experience:
governance issues. Miserable performance is progress that has not been as fast and
comprehensive as envisioned in the PRSP (Easterly, 2006, p.137-138)
The lack of transparency in the current International Development System is also
alarming. The World Bank does not make public many of its project evaluations and
country reports, while the agreements between the IMF and borrower states (known as
letters of intent or side letters) are all kept confidential:
While member countries may consent to the publishing of Country

documents in relation to a loan from the IMF, they can keep

controversial decisions with regards to government economic policy
out of the published version by putting them in a side letter. A side
letter is a strictly confidential, binding agreement between the
country and the IMF containing conditions and economic policy plans.
In fact, this information in some cases may not even be released to
the IMF Executive Board. (Chowla, 2007, p.4)
When multilateral aid is destined for government, its effects are likely to be
counterproductive. Bad governments can sabotage even the most well-intentioned aid
programs. At best, multilateral aid targeted for the private local empowerment is
redundant.
Again, the fundamental problem is the international financial institutions
misunderstanding of the development processes and the inevitable counterproductive
effects of assisting governments. In the words of the long ignored development economist
P.T. Bauer:
If all conditions for development other than capital are present, capital will soon be
generated locally or will be available from abroad... If, however, the conditions for
development are not present, then aidwill be necessarily unproductive and
therefore ineffective. Thus, if the mainsprings of development are present, material

52

progress will occur even without foreign aid. If they are absent, it will not occur even
with aid. (Bauer, 1972)
In Latin America, the IMF typically encourages states to raise taxes and establish more
effective tax collection agencies. Yet how does the IMF expect a poor society to become
prosperous if its government seizes even more wealth from its citizens?44
A paradox that remains misunderstood by the International Development bodies
surrounds the whole enigma behind the potential development of the Latin American
region. The stronger the five principles of oppression, the weaker the legitimacy on which
they stood and the weaker the state apparatus engineering them.
The aid agencies always claim that they are a new and improved version of themselves.
That is their eternal answer to every criticism Unfortunately none of the indicators
either anecdotal or statistical that I have studied show any signs of improvement. The
hard facts show no idea of progress I dont see that the aid money is dealing with the
structures of poverty.
W. Easterly. Riz Khan Show. May 2007.

Beyond Economics, an anthropological perspective on the outcomes of Development

within Latin America is highly needed.
Aside from the obvious economic debacle that the Washington Consensus brought to the
region, these transformations have given birth to a new sociological and anthropological
phenomenon product of the inability to adapt the majority of the populations in the
projects that were supposed to aim at them. We will now, examine the aftermath that
beyond the already discussed economical chaos, were brought by the 1990s decade. Its
higher exponents being: Indigenism, Populism, corruption, extreme violence, and of
course the reluctance of the International Development System in accounting for such.
4.1 Indigenism Populism and Violence: the equal discriminatory responses to 500
years of elitist privileges
Indigenism

44

For example, in 2003 in Guatemala, the IMF recommended to the government of President Oscar Berger
to increment the added value tax (IVA for its initials in Spanish) from the current 12% to a 15%. In a
country where 70% of the economy is completely informal, raising the IVA to 15% caused scandal and
riots. People protested and businesses were closed for one entire day, until the measure had to be
completely forgotten. This is just one of many examples on how these institutions keep going without
considering the culture sensitiveness of the populations.
Also in Brazil, The World Bank and the IMF have given misguided advice to different administrations of
this country that helped to trigger chronic hiper-stagflation- a unique mix of hyperinflation and economic
stagnation-. The IMF has repeatedly supported attempts to get the government budget under control by
reducing expenditures and raising taxes. Unfortunately, the recipe never worked in Brazil where the Central
Bank simply financed budget deficits by printing money. An institutional factor consistently ignored by the
IMF. Rabello de Castro, P. (1994) Brazilian Hyperstagfaltion: The case against Intervention. In
Perpetuating Poverty: The World Bank, The IMF and the Developing World. Washington, D.C. Cato
Institute.

53

As yesterday there were Nazi, Fascist, and Communist regimes, today in Latin America
there is the revolutionary populism and the excluding nationalism just as in the current
West there are also people trusting more a big government rather than the capacities of
individuals to solve their own problems. The battle between freedom and peoples dignity
and equality against tyranny matters to this day. And the field of international
development and Foreign Aid should not signify an exception.
Retaking from the past, political factions mainly in Mexico, Guatemala, Nicaragua, El
Salvador, Peru, Bolivia, Ecuador, and Venezuela are now promoting the Socialism of the
XXI century project which emphasizes in the Indigenism (as they call it), neo-estatism,
nationalism, militarism and populism.
It ignores the individual once again in sake of the group. The sense of ethnic belonging
and the looking back to a mythical archaic pre colonial collectivist and egalitarian
tradition is taking power even strongly in those nations with high Ameri-Indian
populations.
Indigenism starts to be in Latin America what nationalism is to Europe. It results
enlightening and yet worrisome to contemplate its analogies. Both question the national
modern states which overcame the Old Regime with the liberal constitutionalism of the
XIX century. Indigenism substitutes the concept of citizen of a republic for the notion
of member of an ethnic community, in the same way as the European nationalism seeks
for identity formulas to prove uniqueness and separation; Both subordinate principles and
intuitions (division of powers, the individuals merits and capacities, equality under the
law and the respect for individual rights), to the achievement of its objectives closer to
totalitarianism. (Mendoza, Montaner & Vargas, 2007, p. 109-132)
Indigenism and nationalism propel the confusion of powers. The occupation of such is a
common characteristic, just as the intromission in the concealed sphere of persons and
families in matters such as education or the use of religion to the service of their cause.
The Latin-American indigenists as well as the European nationalist excluders promote a
misleading narration of history; in the economic sphere they use the vindication of
supposed historical rights as an instrument of directionism and economic protectionism.
(Ibid)
Furthermore, in its seek for the restoration of supposed and mythical pre Hispanic
institutions Indigenism promotes dangerous exceptions to the democratic normality in the
exact same way as the privileged elites have done in the past. Across the region, both of
these misconceptions have hindered the greatly required principles of universal voting,
equality under the law, separation of powers, accountability, and transparency across the
region
The idealization is the current political key of the pre-colonial civilizations which
supposes vindication of authoritarianism and collectivism but that has resulted in the
same negative outcome. Ironically, due to the current segregation among ethnic and
cultural groups, which worsens the problematic instead of diminishing it, the result is that
Indigenism provokes precisely the completely opposed outcome to what this wave

54

initially tries to achieve: an unquantifiable harm to the national integration and its
portrayal as a removed nation from achieving sustainable development. 45
The protection of the minor or major indigenous cultures in each Latin American country
does not encompass a break or an excuse to the access of these groups to education,
health and other rights with plenty equality of opportunities with the rest of the citizens.
The worrisome part is that these backward movements find a frightening echo in the most
respected intellectual circles of North America and Europe, specially in the international
development arena who in their own countries are comfortably enjoying of the prosperity
and the political liberties with the irresponsibility of proposing under the label of
Progresists the measures for others that in the same time they would not dare to
propose for their own societies. This reasoning is what dragged the WB and the IMF to
propose, support and finance the substitution of importations reform.
Populism and Corruption
Perpetuated by: The World Bank and the IMF
(Official Sponsors of Latin Americas Poverty since 1949)

Multilateral bodies such as the IMF and the WB have contributed to the regions
underdevelopment. The resources they have channeled have had three consequences:
strengthening statist governments, postponing adequate solutions and displacing
political responsibility. (Bauer, 1987, p.113)
After the evident failure of an inefficient reform application, Latin America entered the
XXI century with governments promising a new approach that had nothing to do with
economic nationalism or crony capitalism.
Since the result at the end of the 1980s was hyperinflation and stagnation, and the legacy
of the 1990s was default and stagnation, politicians like Lula Da Silva in Brazil or Nestor
Kirchner (now succeeded by his wife Cristina) in Argentina, proposed that the
government should promote growth through public spending without causing inflation
and incurring in new debt, while protecting the economy from globalization by using
regional-bloc negotiating power rather than high tariffs.
The Kirchners have invoked Franklin Roosevelts New Deal as a paradigm for Latin
America and launched a momentous program of public works. Both Brazil and Argentina
have decided to revitalize MERCOSUR, with a view of constructivist European-Union
style integration.
But after almost one decade of this new century, it has become evident that Latin
Americans are still missing the point about underdevelopment, by addressing symptoms
and not causes.
The closer the World Bank and the IMF institutions have worked with the failed and
populist governments of Latin America, the closer they erroneously felt from the reality
of its people; but in fact, as described in other former parts of this study, the common
45

A survey made by UNDP in 2004 realized in Guatemala, Bolivia, Ecuador and Peru (the highest
indigenous ascendency countries) demonstrated that 76 of the population identified themselves as mestizos
and 73% consider Spanish as their fundamental language. (Mendoza, Montaner & Vargas, 2007, p. 112)

55

people of Latin America have always been alien from their own governments. Due to the
failure of politics which were never liberal, today nationalism and populism rose across
the region leaded by Venezuela, proposing the return to interventionism, economic
protectionism and in some occasions with the restriction to certain freedoms.
Crises and weaknesses within the political parties; divisions among the oppositions for
such; along with immature democracies with distrust from the society to the government
(who at the same time benefits from corrupted and clientelistic networks of the latter to
escalate in fraudulent channels of participation) end up merging in a broken political
system that the Foreign Aid institutions have always ignored.
According to the Latin barometer, when given the option among economic development
or democracy, 48% of Latin Americans prefer economic development, and 51% would
accept a totalitarian regime if this one would resolve the economic crises. (Aznar, 2007,
p.34)
The writers of the original charters of the IMF and the World Bank (mainly United States
and the United Kingdom) decided that they could operate only through governments in
the recipient countries. (Easterly, 2006, p.132)
The IMF and the World Bank have consistently made loans to the very Latin American
governments that have created the worst impediments to economic growth (Bandow &
Vasquez, 1993).
The worlds 25 most undemocratic rulers got a sum of $9 billion in foreign aid in 2002.
Similarly, the worlds twenty five most corrupt countries got $9.4 billion in foreign aid in
2002. The top fifteen recipients of foreign aid in 2002, who each got more than $1 billion,
have a median ranking as the worst fourth of all governments everywhere.
Similarly, there was no association between aid giving to a country and how democratic it
was, either in 1996 or 2002, controlling for per capita income and population size. (Ibid,
p.133)
Even worse, when the Latin American people have clearly manifested a rejection to their
leaders, the international community usually takes the side of the government, rejecting
any kind of revolt or protest since they consider these, as enemies of the democratic
system. Again, this reflects that old established patronizing attitude of the white man
knowing better what is convenient for the rest.
Vargas identifies three factors stemming from the failed reforms which have strengthened
corruption: the expansion of opportunity for public officials; the further weakening of
civil society and; the absence of a judicial system worthy of that name.
Three presidential impeachments on corruption charges in Latin America during the last
decade of the twentieth century indicate not how much corruption there was; but rather
how few Latin American leaders paid the proper price for what they took in and
encouraged. Democracies were really klepto-cracies.
Lately Latin American nations have been increasingly occupying dishonorable positions
in rankings offered by organizations like Transparency International. The Argentinean

56

journalist and writer Andres Oppenheimer describes the regions corruption as investment
opportunities which drew business from multinational corporations willing to play by the
local rules of the game and as domestic interests sought to secure their positions in
partnerships with politicians, bureaucrats and military officials wanting a stake in the
feast. (Oppenheimer, 2000) Under ambiguous wording, some European countries, among
them Germany, even allowed kickbacks paid by their businessmen abroad to be deducted
from taxes. (Gudio, 2009)
Since corruption has exited before, during and after reform; it is not its volume but its
permanent nature in Latin America what needs to be addressed by addressing it as a
symptom of the illegitimacy of the law rather than as a human evil conspiring against
Latin America.
Those who occupy administrative positions are the real exploiters of the Rest. The
International Development community through its agencies, specially the WB and IMF,
(which in fact have made the failed recipes for the region), urgently need to be aware of
this fact if they truly want to cooperate with the empowerment of Latin Americans for
them to achieve sustainable development in their own lives.
Few people have any respect for the services provided by the state and ironically at the
same time, this same people look desperately at public office as the only available source
of social mobility and profit, ideally thorough the direct exercise of an administrative
position or alternatively, through alliances with those who hold it even at the low end of
the bureaucratic edifice.
A culture of cynical disbelief in anything that is not illicitly obtained has emerged as a
consequence of the illegitimacy of the law and the state. It pervades all levels of society,
rich and poor, public and private. The symptom resulting has been corruption.
A reform that expanded the scope of opportunities for public officials, hindering the
evolution of civil society and the preservation of an inefficient justice system, is Latin
Americas harmful heritage for this new century.
Latin Americas failed and fragile political system has made its way to the XXI century.
One only has to look at any newspaper in the region to find daily riots, corruption
scandals, impunity, violence, discontent, populist parties of every (and any) ideology
promising what they then do not deliver; bankruptcies of local banks, discontent and a
victimization attitude against the exploitative United States, the hypocritical attitude of
the European Union, the traitors of the World Bank and the IMF and of course the
national governments at the core of this oppressive system.
It is a daily-changing reality where one month a president can be in power, and the next
he can be overthrown and accused of drug dealing and murder; just to find that two
months from then he is probably living from the millions stolen from the national budget
in the Bahamas.
The following X-ray exam at the Latin American political crises can probably be
contrasted with an updated version six months from now or even one year from now, to

57

prove that as Lampedusas novel The Leopard stated: If we want everything to stay just
as it is, everything must change
The subsequent is an attempt to provide further evidence of the awareness that must
emerge from the current Foreign Aid System to consider new alternatives for
development:
Mexico: In 2006 when the presidential elections declared Felipe Calderon as the new
president of the Republic, his opponent Manuel Lopez Obrador wouldnt accept his
defeat and he mobilized the country for months with street manifestations in the capital
city interfering with the common citizens daily life. Business could not operate;
transportation delays and protests against his remonstration submerged Latin Americas
most populated city in complete chaos. In the end of course, nothing changed and he had
to accept his defeat. (Conolly, 2006)
Guatemala: On May 10, 2009 Rodrigo Rosenberg, the lawyer of the murdered
businessman Khalid Mussa, recorded a video that was released after he was also
assassinated declaring that president Alvaro Colom was responsible for his and his
clients death (Cordoba, 2009). After the media released such video, Guatemalan citizens
took the streets demanding Colom to renounce to let the due process start with the
investigation. While all Guatemalan citizens were demonstrating their discontent,
delegates from the OAS, Washington D.C. and the European Union showed their
unconditional support to Colom until proving the contrary.
By the time the present study was finished, Alvaro Colom was still in power and the
investigation in the case of Rodrigo Rosenberg in stand-by.
El Salvador: The recently elected left wing party FMLN, has threatened to retreat the
country from the U.S-Central America Free Trade Agreement, (DR-CAFTA) signed just
tree years ago, as well as removing the U.S. dollar as national currency (adopted in the
year 2000). (Hidalgo, 2009)
Honduras: On June 28, 2009, when president Manuel Zelaya tried to pass a referendum
to change the Constitution so that he would be allowed to be reelected indefinite times,
the national Congress with the support of the military and dozens of street manifestations
from the Honduran citizens, were resolved in overthrowing Zelaya out of power. He then
left to Costa Rica but due to the pressure of the International Community who refused to
recognize the head of the Congress Roberto Michelletti as the new president of Honduras,
Zelaya was restituted. Hugo Chavez in support of Zelaya claimed that the Western
Hemisphere should not ignore the OAS Democratic Charter of the Americas. An Irony in
his behalf, when Hugo Chavez is known for his military coup participation as well as
referring to that same charter as a meaningless document when he was advocating for
the entrance of Cuba in this organization. (Hidalgo, 2009 CNN Espaol, Voice of
America)
Costa Rica: The political party ML recently denounced a concentration of power in
behalf of president Oscar Arias and his brother Rodrigo Arias with capital enterprises of

58

Spain, China and the United States to start new businesses with stolen money from the
Inter American Bank for Development IBD; on behalf of the state. F
Bolivia: Since 2006, the government of president Evo Morales has increasingly been
accused by the Senate authorities of this nation of recurrent perpetrations to democracy
such as: Permanent persecution and aggression of members of the judicial power, attempt
to control the departmental municipalities along with the misrecognition of the legitimate
elected authorities; violent mine takeovers; physical aggression to journalists and
telecommunication buildings; successive seizures to the Congress to interrupt the
participation of the parliamentary representatives from the opposite parties. (Ortiz, 2008)
Venezuela: After passing the same referendum seven different times, President Hugo
Chavez in Venezuela finally got the 51 percent approval he needed to among other things,
have indefinite reelection for his charge. On July 9, 2009 he ordered the closure of 240
radio stations; prohibited the program schedule of three television networks and
published a decree which forces cable companies to include national produced programs
as 70 percent of their daily broadcast. (Ugarte, 2009)
Argentina: The Kirchner presidential dynasty (as is often called by the Latin America
media) has been accused of massive corruption when it was demonstrated that their
fortune has increased in 158 percent compared to last year, amounting their personal
assets to 48 million dollars including among others: real estate, bank deposits,
automobiles and hotels. (Perfil, 2009)
These, constitute only some of the thousand cases of corruption and democratic
illegitimacy that Latin American has suffered in the recent years of the Twenty First
century.
Anthropology as a practical and innovative science has much to offer for the development
of Latin America in the twenty first century. The anthropological consequences and the
repercussions that the current system produces, along with the new resentments and class
clashes, to the mixture of a region where youth gangs coexists with drug trafficking
cartels and elitist high classes; provide several interesting and challenging scenarios for a
science that is desperate to find its way in these new century. The Anthropology of
Corruption is a new proposed field yet to be explored, and concretely for Latin America,
it definitely would provide new debates and alternatives to understand and change this
harmful reality.
Violence
Another Latin American reality highly unseen by the International Development
community is the violence lived in this region which restricts the liberties of its citizens,
obstructing the well functioning of its already deficient democracies and it affects above
all the weak and the poorest in the society. Obviously violence hampers any development
strategy that might be implemented either by the World Bank, or the IMF.

59

The street gangs or Maras added to the drug trafficking related crimes, kidnappings and
the interfamilial violence rotten everyday a social organism which is already endangered
and weak.
The causal factor of this criminality crisis lies in the impunity suffered in the area. The
fact that crimes go without punishment has become an incentive to commit them in the
first place, and to live outside the legal framework in sake of survival and even to acquire
wealth.
Worldwide the Latin American States have alarming murder and kidnap indexes being
the most violent region after the Middle East and the established failed states. Also, with
some of the worlds highest murder rates, the countries of El Salvador, Guatemala, and
Honduras are in the eye of the hurricane in the maras emergency.
The murder rate in 2004, per 100,000 people, was in Guatemala 34.7% and in El Salvador
41.2%. In Honduras the murder rate was 45.9% juxtaposed with the United States at 5.7%.
At the region has lowest amount of prisons and prisoners under the same standard.
(Barnett pg. 229)
Any investment in Latin America, private or public comes with an added cost to protect
the project from the criminality. Trade and tourism are also affected. The lawless areas
controlled more by youth gangs in Central America and by drug dealing guerrillas in
south America, are regions where the government has no presence whatsoever, and its
populations out of fear, extortion or bribery (as well as disappointment towards the
government) protect and support this violent groups who in some cases end up providing
new ways of security in the form of civilian bodyguards and in the case of the drugdealing guerrillas, by building the state promised schools, hospitals and highways that the
populist governments fail to provide.
Unfortunately, the Latin American elites have also failed to see the importance of what
was happening not only as a potential for prosperity but also as a foundation of the type
of civic virtue, or moral character, that breeds civilization. Instead of considering a
nascent civil society, they saw hordes of dark-skinned violators of the law who did not
pay taxes, who resented the rich and held predatory instincts against the property of the
better-off- inadequate migrants invading the cities with their hybrid, unrefined mestizo
culture (but they also saw lots of votes and opportunities for political patronage).
It is a tragic irony that, by excluding it from the closely knit world of legal protection, full
property rights, and official recognitions with all the benefits that such status entails, the
Latin American elites have worked hard at turning this promising civil society into the
projection of their very fears and prejudices. Subsequently, the entrepreneurial instinct
and the community ethos in large parts of the population coexisted more and more in the
last few years with an attitude of frustration and of racial and social resentment.
This degradation is particularly dangerous in societies that are not fully integrated and
that lack a solid middle class. Such is the case of Guatemala, Bolivia, Peru and Ecuador.
Elitist exclusive reform (the type that reshuffles privilege rather than removes
impediments to participation and social mobility), has accelerated the descent into a
moral abyss.
60

6. A New Approach: Sustainable Development in Latin America for the Twenty

First Century
It has become so fashionable to talk about the Information Age and globalization that we
often forget how far we are from a world in which goods, capital and people can travel
unimpeded.
A. Vargas
Just as one can speak of a non-empowerment tradition which has ruled through the twists
and turns of pre-colonial, colonial republican and present times (nourished from the
inside but also supported form the exterior), it is possible to speak of a Western (in its true
sense) empowering practice in Latin America that has left a trial of impairing episodes
through the centuries.
There is indeed a tradition, however loose and not always assumed as such by the spirits
informing it, which indicates there was nothing predetermined about the truth of
oppression. Indeed, it exposes the factors like culture, brandished by those who think that
freedom is a luxury that underdeveloped countries cannot afford.
From the days when Indians in Central America and Mexico used cacao seeds as money
in order to facilitate exchange; to the current Latin Americas informal economy, the
nature and instinct of the Latin American species are no different from those of the rest
of the human species. There is nothing to suggest that the native cultures, either in the
pre-colonial or mestizo forms, that could not have responded creatively and successfully
to the incentives of liberty had they ever been given the chance46.
Culture is as much influenced by institutions as institutions are influenced by culture, and
it varies from community to community for myriad different reasons. But all cultures
share a certain common nature that has proven to be responsive to empowerment in very
different sorts of environments.
In any case, the predominant culture in Latin America is overwhelmingly Western
(although not in the Anglo-Protestant but in the Ibero-Catholic sense). It is not its native
cultures what stands in the way of common sense.
It would be hazardous to deny that in Latin America as in other parts of the world,
collectivism has been a widely accepted ethos rather than a simplistic and artificial
creation of a handful of tyrants who imposed it on freedom-loving victims.
After so many millennia of collectivism and its proven endurance even in the most
advanced societies, it is safe to say that there is a part of human nature that fears freedom.
Latin Americans have evidently been no exception. But the lessons of universal history
also indicate that all types of societies respond well and immediately to freedom once
46

After all, they were able to produce, under collectivism and even totalitarianism, awesome public works
(or wonderful private violations)

61

they experience it, and that people resist attempts to remove it from them, sometimes at
the cost of their own lives,. The hidden liberal tradition of Latin America reminds us that
things could have seen, and could still be different.
Anthropologically speaking, more attention from the International Development
community should now be paid to this tradition and some of its examples such as: The
mercantile Aztec city of Tlatelolco; The greatest Indian rebel Jos Gabriel Tupac Amaru;
from the trading Kuraka tribe; Perus Tiahuanaco civilization (who before the Incas
traded with Central America);
The mid-sixteen-century rebellion of Gonzalo Pizarro; the 1812 liberal constitution of
Cadiz; the heritage of the School of Salamanca (whose scholars are considered
forerunners of the much better known intellectual currents of a free society, from the
Scottish Enlighten, the French physio-crats, the Manchester School to the Austrian school
of economics);
The ideas that inspired the Latin American independence struggle; the brilliant
Argentinean three-quarter century that flowed from Juan Bautista Alberdis vision (and
that of others, like Domingo Faustino Sarmiento);
And the post-World War II intellectuals who went against the current are only few
examples of the many traces left by the Latin American tradition of the individual.
A double legacy then, permits one to look at the history of liberty and empowerment in
Latin America as no barren land. One is academic and intellectual encompassing
examples from the School of Salamanca in the colonial times, to the handful of Latin
American intellectuals who set out as early as 1970s to debunk contemporary myths.
Among them we find Carlos Rangel in Venezuela, and the pioneers of Francisco
Marroquin University in Guatemala who have inspired a growing list of writers and
centers. The other, is a practical legacy. It has very ancient roots, traceable even under
suffocating states of the pre-Columbian world, in the customary behavior of native
inhabitants seeking to obtain from nature and from social cooperation of various kinds
the basics for subsistence. This legacy continues to stare one in the eye wherever one
goes to Latin America; it is the daily struggle of ordinary men and women who survive
thorough clandestine mechanisms and enterprises.
The reality is still that the initiatives of the World Bank and the IMF (and in general of
the international community); have failed to strengthen civil society by working against
the grassroots bottom-to-top system of rights as the populations carved out for themselves
a peaceful subsistence on the margins of the law.
Many of the myriad private arrangements and contracts, often family based, which poor
people use to sustain life or to defend themselves from adversity, enter into conflict with
one another sometimes through violent competition for land on which to settle, but also
through gang warfare arising from rivalries among neighborhoods or through the
formation of armies of thugs and service of political machines.
Organizations that function as channels for government subsidies for the poor have not
been able allowed or encouraged to become corporations to raise money elsewhere, and

62

turn their decentralized, grassroots networks of social workers into more productive
entities capable to strengthen the community and improve the quality of life around them.
Parents associations, which raise small amounts of money to buy books and pencils for
their children, and sometimes even bricks for the buildings in which they attend school,
have been given very little say in the administration of education in most countries.
The myriad protestant religious organizations that have sprung up in poor neighborhoods
in the last few decades have not been placed on an equal footing with Catholic
institutions, (a discrimination that works against the civilizing implications of these
groups activities).
The discouragement of private patronage because of overburdening taxation and the
bureaucratic obstacles placed in their ways has hindered efforts to enhance cultural
associations, especially of artisans that play a key role among the poor. The same can be
said of sports-based activities. The practical effect of this neglect is much worst than just
unrealized potential. It is the proliferation of civil cynicism, social resentment and distrust
of the law.
It is no longer a rebellion against the government in the name of doing informal business
or a struggle for the preservation of an individual space against the intrusion of political
force. It is more fundamentally, a reacting against the very idea of a legal and moral order
in its basic life, valuating form and an affirmation of illegality for illegalitys sake.
After all, it is not governments but citizens who trade, and what are traded are not
speeches and clauses (the matters of trade negotiations) but simply goods and services.
The variety of trade deals and negotiations in the western hemisphere indicates that there
is no government that sees trade as a spontaneous activity by people who want to benefit
themselves and each other. They see it as a military exercise that aims to take as much
territory as possible and concede as little as possible.
5.1 Informal Economy: The Poors response to poverty
The West often awards itself credit for inventing the market. This is nonsense. Any visit to
an outdoor market in Africa, Asia the Middle East or Latin America will quickly convince
you that markets are vibrant in poor countries. Historical anecdotes suggest that these
markets predated western contact.
(Easterly, 2006, p.74)
By the 1980s and 1990s, it became fashionable to say that the informal economy was not
simply a spectacle of land invasions, violent disputes among shantytown neighbors, dirty
street vending, and rash driving in unsafe public transport vehicles, together with disloyal
tax evasion by millions of people, but also a potential powerhouse of development.
Latin America discovered in amazement (or was it horror?), that the poor, just like the
rest, actually like to own property, produce goods and services privately, exchange them
by contract rather than command, and enjoy the fruits of their labor.

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Every politician and commentator praised the inventiveness, entrepreneurial spirits,

productive potential, survival instincts, organizational skills, and cultural achievements of
the informals, as they began to call the poor.
They were unaware of the fact that the underground economy had been noticed in other
parts of the poor world long before and that it had been lauded as the social cushion
preventing revolution in other regions.
The American Anthropologist William Mangin had extracted reasonable conclusions
regarding this phenomenon two decades before, based on extensive and path-breaking
research of squatter settlements conducted in Peru and other places in the 1960s. Had
Latin America heeded his pioneering work (together with that of the British
anthropologist John Turner), those countries might have become prosperous by now.
As early as 1971, anthropologist Keith Hart delivered a paper in which he spoke of the
informal economy in some African nations as a means of salvation allowing people
denied success by the formal opportunity structure to increase their incomes47. Even
before that time, studies have been conducted in Latin American urban squatter
settlements by both local and U.S researchers, with results that allowed scholars in the
mid-1970s to indentify rules and norms arising out of the informal arrangements in areas
such as housing, credit, public works, and dispute adjudication and providing certain
security, justice, and organization to urban dwellers, who despite their functioning outside
of the formal law became more or less integrated with the rest of society.
Although the incorporation of Indians into the Spanish market owes much to the
dislocation of traditional social norms imposed by colonial taxes and expropriation of
land, the immediate response of Indian society after the conquest as well as the
subsequent adaptation to limited opportunities attest to their own trading traditions.
Therefore, there is nothing new in the current informal economy: the rise of the West pas
took in exactly the same way, with millions of people producing and exchanging goods
and services under spontaneous rules of the game that developed according to expanding
needs.
But unlike what happens in Latin America, in rich countries the official institutions
adapted to the masses centuries ago, allowing their empowerment to take off. Hence,
institutions work as a system of incentives and disincentives. Informal activity in the
developed world is nowadays a marginal phenomenon, however significant in times of
recession. The institutions still make it more costly to break the law than to abide by it.
In Latin America, despite ritual gestures in favor of the informal economy (such as
distributing property titles or deeds that signify ownership but not real, fungible
property in practice), the legal country continues to exclude the other by imposing barrier
after barrier against entry. 48
47

Keith Hart also has recently made interesting research that could serve the future of the International
Development System. Books such as :.. are posting the reality of Latin America and other regions.
48
It is estimated that the worldwide value of savings among the poor is forty times all the foreign aid
distributed since 1945, yet the potential of the informal economy cannot be realized until the survival
economy is allowed the right to citizenship.

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Even when the government distributes titles, as Vargas explains: in an environment where
not even the written constitution is taken seriously, it is like placing a cello between the
knees of a handcuffed musician. (Vargas, 2005 p. 116)
This state of affairs is counterproductive for everyone. The legal enterprises cannot grow
and pay high salaries to more people so that they can buy goods and services from
midsize and small companies and these in turn, because of a depressed market are
obliged to sell their products to public employees.
In Peru for instance, only 2 percent of all private companies are legal, and they produce
60 percent of the wealth while the other 98 percent all of which are illegal (informal),
produce little.
For those who believe in the empowerment of people, no contemporary Latin American
phenomenon is more potent than this informal or underground economy. It should really
be called the survival economy because it includes millions of people around the world
who carve out an existence for themselves outside of the law simply because doing
business through the regular process (from obtaining licenses to incorporating a small
firm; to complying with local and central government regulations) is expensive, time
consuming and often downright impossible.49
Furthermore, the legal economy offers no guarantees to those who, having accepted the
onerous rules of the game, are not close to the political machinery that decides the fate of
an enterprise. But what this informal economy guarantees is at least an escape from the
five principles oppressing Latin Americans.
Anyone who visits a market fair (part of the informal economy) of the Indian
communities of the Andes, the south of Mexico or Guatemala, will detect a powerful
commercial spirit among peoples in many ways remote from the mainstream Western
culture. (Mendoza, 1999)
Not to mention the arts of Pottery and weaving, which Indians practice today with as
much creativity as centuries ago and try to place in the local or international markets.50
Regarding the importance of this growing social phenomenon, in 2008 the Inter
American Development Bank, made a study within 12 Latin American countries
(Argentina, Bolivia, Colombia, Dominican Republic, Ecuador, El Salvador, Guatemala,
Haiti, Honduras, Mxico, Panam and Peru) concluding that: 65 percent of the urban
properties are extra legal; the owners do not have any property entitlements which
consequently restricts the use of such as financial guarantees.
76 percent of the rural properties are also extralegal, majorly being invaded lands.
92 percent of the enterprises in the region are also extra legal. They do not posses the
required registries as to freely operate in several transactions such ad imports, exports or
credit trades. (ESTUDIO).
49

Again, Annex 1 of this essay describes the difficulties of the current formal economic system in the
region.
50
Annex 1 of this essay refers to an example on how the NGO AFEDES together with the International
community was capable of achieving sustainable development for 100 indigenous women in Guatemala
improving their trading needs for traditional textiles.

65

Furthermore, worldwide it is estimated that the informal economy is worth around US$5
trillion. That is more than the double of the total Foreign Aid money given since its
official beginnings in 1949.51
And in Latin America, this system is the rule rather than exception representing US$1.2
billion dollars; that is almost 50 percent of the total annual production generated in the
region. (ESTUDIO).
Nevertheless, insecurity and risk are dreadfully high. With insufficient capacity to save,
no access to formal credit, insurance and other institutions associated with the legal
economy, productivity turns to be quite low had the former impediments not exist.
Although at least one third of the entire economic output comes from informal activities,
in most underdeveloped countries the proportion of workers involved in providing
informal goods and services is much larger than a third of the total active population, It
means quite simply the survival that the poorest of the poor have managed for
themselves. It is their response to their governments illegitimacy of the state and a failed
Foreign Aid and International Development System, prompted in the region for sixty
years by the WB and the IMF.
Housing, transport, manufacturing, retail commerce (both to street vending and illegal
markets or shopping centers), and other activities to which informal producers devote
their time, represents about 60 percent of man-hours worked in Peru. Informal
employment accounts for 70 percent of Guatemalas economic activity; for more than 50
percent of the working population in Mexico and 40 percent of wage earners in Argentina
and involves more Brazilians than the combined number of people in the public sector
and in the formal industry in that country. (Vargas)
Just because most of Latin American history has responded more to the political interests
and privileged needs of the pre-Columbian, Spanish and Creole elites; rather than to the
grassroots characteristics of the Latin American peoples and their culture, does not mean
that the course should remain the same for this upcoming century.
Fortunately, as migrants transformed the cities into sprawling urban centers, in recent
years, a new type of society began to emerge.
In Peru and Mexico, with a strong Indian presence, this new society had an important
mestizo cultural dimension worthy of anthropological observation, visible in every
cultural aspect from the music to the types of Sunday fairs, folklore activities and
associations arising out of that bustling new world.
Throughout Latin America, this phenomenon spawned a multitude of voluntary
arrangements, a mutuality of cooperating families through which all types of
neighborhood, trade and civil associations started to provide the sorts of services the state
was unable to grant.
Poor people found new ways to divide property on newly occupied land, set up security
arrangements, distribute water or electricity from nearby sources, pave roads, adjudicate
disputes, negotiate transport routes, construct markets, clean up the environment, share
51

Estimated in 2.3 trillion U.S dollars since 1949.

66

sport facilities, practice religion, distribute food among the destituteIn essence, to
sustain life through peaceful community.
Thousands of organizations, committees, associations and congregations sprang from the
struggle for survival. If it had not be for grassroots organizations, government aid in the
form of food, milk, or public works budgets would have not been brought to the
shantytowns. Mothers Clubs and glass-of-milk committees are just two examples on
how poor Guatemalan, Salvadorian, Mexican and Peruvian women ser up extensive
grassroots networks,
Shantytowns in many Latin American countries are in fact nascent civil societies. The
oral dimension of these webs of voluntary associations and civic organizations is deeply
important because they are profoundly connected to the concept of rights.
Poor peoples associative and spontaneous exercise of rights provides a firm ground for
development should executive institutions cease to concentrate officially sanctioned
rights on those satellites of privilege orbiting the government.
These are just few examples from a region where the size of the informal economy is
such that it has created not only a parallel economy but also a sort of parallel culture.
The proliferation of evangelical cults, the growth of mestizo artistic movements, the
emergence of idiosyncrasy modes of expression, the invention of particular symbols
taken out of everyday life, and other symptoms, are loudly speaking as a cultural
transformation beyond the purely economic dimension.
Compassion and solidarity in Latin America are proving not to rise from government
benefits: they are private (and even primeval) efforts to sustain life. And International
Development institutions can be part of this reality.
The current informal economy which has derived in Latin America should be supported
or at least considered by the World Bank and the IMF as the response of the people to a
system that has truncated their efforts in improving their quality of life.
The informals are as strong an inspiration as ever for anyone convinced that what stands
between survival and property is not innate incapacity on the part of the ordinary citizens
or metaphysical fatality.

Conclusions
Dear rich-country funders, please give up your utopian fantasies of transforming the
Rest. Dont reward aid agencies for setting goals that are as impossible as they are
politically appealing. Please just ask aid agencies to focus on narrow, solvable problems.
For example, let them focus on the health, education, electrification, water problems and
piecemeal policy reforms to promote the private sector- where they have already had
some success- and fix some remaining problems such as the refusal of donors to finance
operations and maintenance.
(Easterly, 2006, p.204)

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Sometimes due to internal conflicts and others due to authoritarian utopias (as well as due
to ideological prejudices) Latin America has been placed at the margin of those Western
nations that it belongs to. But as we have seen, even with all its defects Latin American is
part of the West (in a crooked way) and in order to develop the region, this reality must
not be neglected. This same history has showed that Latin America can reach the levels of
wellness and freedom of the most developed countries. There is no reason to believe that
the Latin American countries cannot position amongst the most sustainable nations if they
apply the adequate politics and acquire the conscience to get them.
The conclusive chapter of this text is a call to action!
The proposal involves an assault on the crooked International Development System in
order to transfer power to the individual in all spheres of human endeavor, for the first
time in the history of Latin America. An institutional vindication of the creative ways of
the victims of the present system, the transformation of the role played by the IMF and
the WB and a careful transition for those who depend on the current state of affairs
including the development institutions that benefit from the current corrupted aid system
thus having no interest in changing it whatsoever.
Is it really in Latin Americas interest to keep on receiving massive inflows of foreign Aid
through the WB and the IMF to corrupted and populist governments which in general
have probed to be inefficient in allocating these resources?
Could Latin America survive with a highly regularized welfare system like Belgium or
the Scandinavian countries? Is that what the West wants from us? Is that even possible
considering our traditions?
Is that even Western? I think not.
The two development institutions of this study have contributed in reinforcing this reality
by ignoring it. The criteria used by the long ignored economist Peter Bauer provides a
useful summary:
By majorly funding government programs or government-supported private programs,
the strengthening of statist governments has only generated parasitism encouraging a
reliance on other peoples means rather than ones own efforts in order to sustain any
activity.
Although both the WB and the Inter-American Bank have branches devoted to private
projects, they allocate only a fraction of their funds to such purposes. The result of their
lending policies is irrefutably expressed in their internal reports, which point to
inefficiency and sometimes corruption on the part of the recipients of their money. Much
energy is pushed for big government (and their demands for new loans) rather than to the
reformation of the internal policies that are the true causes of underdevelopment.
Consequently, adequate solutions are not thoroughly analyzed, postponing any signal for
hope.

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The third consequence, the displacement of responsibility is linked to the second: Latin
American countries have resorted to blame international bodies for evils whose major
causes lies at home because this is the only way for our local governments to stay out of
any blame and perpetuating their time in power.
As Vargas explains,
Nothing attests so clearly to the failure of development loans than the fact that in the
1990s multilateral bodies helped funded the privatization of state projects that had been
originally funded by them. (Vargas, 2005, p. 69)
The problem was not lack of money, because there was plenty of it. The problem was
(and still is) a system that makes it impossible to accumulate capital in a sustained way
(capital flight itself being a consequence of bad policies and a cause, among others, of
insufficient accumulation).
The international Development System cannot keep ignoring the fact that the traditional
political parties of Latin America are the ones responsible for the corruption, lack of
governance, chaos and poverty of their own countries. They already made this mistake
when the Washington Consensus was implemented.
The reality is that poverty has increased in the region and in a notable ways under the
populist regimes; and corruption scandals far from disappearing, have worsen until
unsuspected limits. These countries which receive considerable financial amounts from
their natural resources still bear urgent necessities which arent attended in the
educational, health, social and infrastructural matters. A considerable part of the resources
are destined to projects in which the politically responsible and their subordinates can
deviate with great facility large funds and commissions.
What the World Bank and the IMF have always ignored and keep on ignoring is that their
idealism towards the Latin American region entails a disconnection between the law and
real life. Paternalism stresses authority over freedom. Legalism blinds all social relations
under comprehensive legislation. Formalism breeds a proliferation of requirements for
legal permissions. Finally, lack of penetration signifies that the law and the legal system
in general do not reach the poorest of the poor, who are unable to understand or
discover them and do not participate in them (Vargas, 2005).
In such a climate, advancement in society was possible only by influencing the political
process that dominated the law. It was there, in the theater of political law, and not
through the strong civil links that all real competition took place.
The energy was geared not towards producing wealth but toward bending the law to ones
advantage (or preventing others from doing so).
Anything governments and parliaments decreed, and they decreed profusely, was the law.
But the inflation of laws has translated into their debasement, just as the inflation of
money debases a currency.

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Underdevelopment is not a fatal condition; is the result of international conspiracies of

the consequence of insufficient capital. It is first and foremost a vested interest that
creates a nasty mind-set in those who live under it for too long.
A. Vargas.
An understanding of the causes of underdevelopment and the reasons behind the leading
wealthy nations for avoiding the proper suggestions correspondent to the intangible (the
way power is organized, the rules people use to relate to one another and those who call
the shots, whether the last is simply what lawmakers decide it is and whether rights are
allocated vertically or horizontally), constitutes an infinitely mere important factor for
prosperity than the tangible: investment, production and growth are simply the outward
manifestations of development. (Vargas, 2005)
An awareness of the vibrant, amorphous civil society emerging from the rural migrants
(and their childrens survival in the cities through a web of voluntary associations and
communities that provide the social services the state is incapable of providing) would
have told them that the poor need less legal and political discrimination.
In the words of William Easterly: The rich have markets, the poor have bureaucrats
(Easterly, 2007, p. 165). To which I would add that: the rich also have development
bureaucrats who not necessarily want the poor to have markets.
So, if governments in Latin America are so corrupted that any international development
attempt would inevitably fail no matter who tries to implement it (be it the WB, IMF,
UN; IDB, etc); Does this mean that International Development should better be put on
hold until some miraculous political reform takes place from the sudden benevolence of
an angel-like political generation that for the first time implements prosperity where there
is only chaos?
Should the International community, together with the oppressed citizens of Latin
America stay put and wait for this miracle to happen?
My answer is absolutely not.
But since this persists to be the present condition of the WB and the IMF towards the
Latin American region, then another bulk of questions worthy of being asked, are
expressed by the author Roger Riddell as follows:
Should Aid be judged a success if say, 5,10,15,20 or 40 per cent of it was deemed to
have been a failure? Where should the line be drawn? Or should overall judgments of
Aid be made in the way a football match is decided, where a side wins if it scores
more goals than the opposition, no mater how many goals it concedes in the process?
Who should make such a decision? Donors, recipients, supporters of aid; or its
critics? (Ridell, 2007)
Another important question needed to be asked considering the previous arguments is:

70

If the rest of the crucial conditions for development (aside from capital) are not present
in a region, and if these conditions are impossible to be created by the World Bank or the
IMF; should the international community:
a) Keep on working on empowering through foreign aid those inefficient
governments hoping that now they will create those conditions?
b) Start declaring some region or countries as unworthy ones to receive foreign
aid and abandon its populations in the hands of destiny?
c) Try to work directly with the people of those countries instead- and/or- in
spite of the inefficient governance conditions?
Considering the peculiarities and specific conditions of Latin America, the time has come
for the World Bank and the IMF to address question C.
These institutions must stop ignoring the fact that after spending decades on the wrong
(statist) road to development, the Latin American people (not necessarily their
governments) are recognizing that prosperity depends on the creation of wealth, not its
transfer. Unfortunately as the present study shows, these efforts are not acknowledged by
the international community mainly in two ways:
1. Most industrialized countries have been unhelpful, maintaining a patronizing attitude
toward underdeveloped nations and hypocritically shutting down their exports in the form
of antidumping laws and countervailing duties as well as sanitary regulations.
2. The bureaucratic incentive that virtually every participant in the process enjoys (except
of course for the Third World citizens); creates an interest in the maintenance and growth
of the multilateral aid agencies.
Particularly important is the role of the organizations own bureaucrats. As the former
development worker Thomas Ditcher explains in the preface of his book Despite Good
Intentions, Foreign Aid is a business benefiting western bureaucrats and sometimes some
third world populations.
Instead spending another 60 years trying to change a system that requires grass root
reforms to be sustainable, the International Community must start looking for
development despite the existence of this tragic reality.
If international development aims at empowering the population of Latin America, then
the answer lies in empowering precisely those populations and ceasing the empowerment
of their useless governments.
Vargas could have been talking to the international community when he stated that what
needs to be done from the Latin American governments lies in analyzing the way people
have responded to this chaos, that development can find its way to be sustainable.
The gap between government coercion and real life, and therefore between the objectives
the government originally set out to realize and the way society deviated from them, is a
source of great inspiration. This holds truth both in cases in which people ignored the
laws and norms, and in cases in which coercion was able to impose itself, because even

71

when government is able to force compliance with its commands, it cannot prevent the
ultimate outcome of a regulation from deviating from its original intention.
What would be the purpose of this highly complex procedure by which the whole
international community, specially the WB and the IMF observe the myriad ways in
which people conduct business and lead their lives?
Quite simply to learn from it; to leave behind the 60 year old patronizing attitude of
imposing recipes through governments that frankly have nothing to do with what the
Latin American people is all about.
Except for the spheres where criminal behavior is involved, these organizations could
make sure that none of their projects or recommendations contradicts what the Latin
American people do in real life; with the purpose of sanctifying the uses, customs, and
choices of ordinary citizens.
By channeling the foreign aid to prepare a new development generation who commits
with Latin America to understand its twenty-first century cultural Cosmo vision, the
World Bank and the IMF can shift from their obsession with top-bottom reforming to
start learning from what is already being successfully implemented in practice by the
common people of the region.
It has come to my attention that within the Development community (whether academic
or field work experience), little awareness has been paid to what has succeeded in
countries that 50 years ago were in even more precarious conditions than Latin America
but that today are achieving sustainability.
This essay has described the oppressive history of this region, but we must bear in mind
that by no means Latin America constitutes an exception in World History.
Only sixty years ago, Western Europe was the victim of World War II. Japan dealt with
the fatal consequences of two nuclear bombs; Ireland was in the tail of European
development back in 1970s and 80s; Estonia was suffering the soviet economic and social
oppression; Thailand was destroyed by a tsunami just four years ago and today is back on
the list as a number one tourist destiny.
Of course each region has its own Cosmo vision, its own characteristics, but the fact that
this success stories are not even considered proves the patronizing attitude of these
international organisms that refuse to look elsewhere for answers.
Importing recipes or models has never worked and it never will. Financing corrupt
governments with IMF and WB aid and loans has never achieved sustainable
development and it never will.
Reforming Latin American governments with top-bottom mandates loaded with
international interests has resulted in the local populations loath toward these foreign
institutions and in this new century would be considered a threat to national sovereignty,
hence a violation of the current International Law system.

72

Therefore, the only remaining viable option which deserves an opportunity is

empowering the one and only source that can make development happen.
That source is the Latin American people who despite of all the oppressions described in
the present study, are demonstrating (without enough eyes and ears paying attention)
what they want.
They have chosen a way to live, to interact and a way to dream of a better future that does
not include their corrupt bureaucrats, or international agencies.
I hold confidence on these organisms, to be more open minded than the governments they
support in my region, to nourish this reality and work with it, not despite it.
As an inspiration to be at least considered as a viable alternative for what international
development could mean for Latin America in the years to come, the annexes of this
research are dedicated to expose the reality that the poorest of the poor have created for
themselves in todays Latin America and how some Development institution s have
responded to it.

73