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Responses from the South to the World Economic Crisis

Sunday 19 October 2008

The International Conference on Political Economy: Responses from the South to the World Economic Crisis took place in Caracas, Venezuela from October 8-11, 2008, and was attended by academics and researchers from Argentina, Australia, Belgium, Canada, Chile, China, South Korea, Cuba, Ecuador, Spain, the United States, the Philippines, France, England, Mexico, Peru, Uruguay, and Venezuela.

The conference promoted a broad debate about the current economic and financial situation of the world, and about the new perspectives and challenges of the governments of southern peoples in the face of the international crisis.

The situation has worsened in the last few weeks. After repeated crises in the financial markets of a few central countries, it has quickly converted into an international crisis of enormous proportions. This places the countries of the South in a compromised position.

The crisis threatens the real economy. If energetic, effective, and immediate actions are not taken, it could bring overwhelming punishments upon the people of the world, particularly the sectors that are already the most vulnerable and left behind.

Today, the vulnerability of currencies, financial imbalances, and grave recessions reveal the neo-liberal myth about the benefits of market deregulation and the solidity and trustworthiness of the existing financial institutions, and they seriously put into question the foundation of the capitalist system.

The contributions presented during this conference have put into perspective the process of the crisis as it unraveled since August 2007, and the failure of the concessions, bailout packages, and bribes by way of state intervention in developed capitalist countries, measures which aim to save the remnants of an already dislocated world financial system.

We denounce the pretension to take on our shoulders the cost of financial bailout packages on the collective world system, which would worsen the situation of poverty, unemployment, and exploitation of workers and the people of the world.

Neither the gigantic state intervention that we have observed in the last few weeks to save disarticulated entities emptied by speculation, nor the massive increase in the public debt are plausible alternatives to solve the crisis. The current dynamic encourages a new round of concentration of capital, and if firm opposition from the people does not exist, the perverse restructuring which saves only the privileged sectors will be emphasized even more.

That could also bring the return of the dangerous authoritarian tendencies in the functioning of capitalism, a regressive sign of which is already apparent in the increase in discrimination and racism toward the immigrant population from southern countries in countries of the North.

If we maintain the current policies for restructuring the capitalist system, there will be enormous productive and social costs that could threaten environmental sustainability even more.

The need to re-construct the international economic and financial architecture is unavoidable today. With this perspective, the need for a post-capitalist outlet is evident, and Venezuela has named it Socialism of the Twenty-First Century.

In a critical moment such as this, national and regional policies should give priority to social spending and protect natural and productive resources. Governments should introduce urgent financial regulation measures to protect savings, stimulate production, and place immediate controls on currency exchange and the movement of capital.

Considering this, it will be crucial to develop regional complementation and balanced commercial integration, improving our industrial, agricultural, energy, and infrastructure capacity. Initiatives such as [the Bolivarian Alternative for the Americas] ALBA and the Bank of the South should expand their radius of action and consolidate their perspective.

We should move toward an alternative integration that includes a common currency, a new world financial architecture that makes viable the insertion of the South in the international division of labor.

In this context, we must give importance to proposals for a social economy that promote dignified work and local initiatives to deal with the impact of the crisis.

On a global scale, we must continue our demands for a profound reform of the international monetary system, which implies the defense of savings and the channeling of investments toward the prioritized needs of the people. It should break from the system that mainly benefits from speculation, deepens economic disparities, and punishes the most vulnerable people.

In this way, we must create new foundations for new economic institutions that have the authority to act against the anarchy of speculation. State interventions that challenge the fundamentals of the market and protect the finances of the affected people are indispensable.

The crisis has awakened the common interests of people from all nations. Building upon this analysis, the International Conference on Political Economy: Responses from the South to the World Economic Crisis has arrived at the following conclusions:

Conclusions and Recommendations

We start with the following characterization of the international economic situation:

We find ourselves in an unprecedented situation on a worldwide level. The economic and financial crisis has worsened and accelerated enormously in recent days. Its future development, in addition to being difficult to predict, can take dramatic turns day by day.

The crisis had its initial epicenter in the United States and the stock markets, but now it is a worldwide crisis that affects the entire financial system and increasingly contaminates the productive apparatus. The crisis is having a special impact on Eastern and Western Europe.

Despite the initial expectation that Latin America was armor-plated and would be able to remain outside the crisis, there are now decisive indications of the certainty of coming impacts. Not only can we expect the prolonged deterioration of international commerce, but also a very violent financial shock in the short term. The more internationalized the banking system, the greater the fragility.

When we make these suggestions, we are conscious of the fact that there are always winners and losers in crises. Our intention is to institute measures that guarantee the well-being and the rights of our peoples and of the collective of citizens, and not to come to the aid of the bankers who are responsible for the crisis, as is occurring in Europe and in the United States.

Within this new scenario, we consider the following recommendations to be necessary, and they should be implemented urgently by the highest levels of political power.

With this purpose, we should consider an extraordinary summit of all the presidents of Latin America and the Caribbean, or at least of [the Union of South American Nations] UNASUR, which is presided over by a broad popular movement of our peoples.

The Banking System

Facing the collapse of the international financial system, governments in the region should immediately take custody of the banking systems by way of control, intervention, or nationalization without indemnity, following the principle of the new constitution of Ecuador that prohibits the nationalization of private debt (Article 290 says: "the nationalization of private debt is prohibited").

The function of these measures is to prevent capital flight to the exterior, a run on the currency, the transfer of bank assets to foreign banks, and the freezing of credit by banks that do not lend the funds they receive.

Offshore branches of the banking system in each country must be shut down. They constitute a dangerous shield against fiscal regulation in these circumstances, in which limited liquidity will provoke a siphoning effect from the preiphery.

Bank accounting should be opened to the pubic in order to strengthen the supervision of banks and the mechanisms of strict regulation that make the real situation of the national banking systems more transparent. These systems should have the character of a public service, as depositories of the savings of the population.

These measures should guarantee a minimum national investment of the liquid assets of the system.

We should encourage the promotion of non-profit investments in local development in the territory where the banking entity is located, administered by the local populations.

In the case of intervention, the state should recuperate the cost of the bailout with the assets of the banks, and the state should have the right to regulate the assets of the stockholders and the administrators.

New Financial Architecture

The absence of coordinated monetary policies produces a war of "competitive devaluation" that worsens the crisis and unleashes rivalries among our economies, impeding a coordinated response of the region. It structurally threatens integration initiatives such as UNASUR.

Because of this, we should give a clear signal of a Latin American monetary accord that immediately opens additional possibilities for reinforcing our macro-economies.

By defining a system of compensation payments based on a basket of Latin American currencies, we would provide each country with additional means of liquidity that would permit us to divest from the logic of the dollar in crisis.

In the context of constructing institutions for the reinforcement of our economies, it is required that we increase the communication among central banks, overcoming neo-liberal dogmatism with a much more efficient and opportune management of our international reserves.

With regard to this, it is important to move forward on the proposal for a Common Fund of the South as an alternative to the [International Monetary Fund] IMF, with contingent funds available for fiscal emergencies.

Taking advantage of the surplus reserves of each country, brought about by the creation of new sources of loans, liquidity, and regional money circulation, and by the existence of the Common Fund of the South, we will be able to mobilize resources to immediately put into operation the Bank of the South, ensuring its democratic management and not reproducing the logic of the multilateral credit and finance organizations.

This bank should be the heart of the transformation of the existing network of Latin American investment banks, oriented toward the reconstruction of the productive apparatus based on fundamental human rights.

We understand all of this to be in line with the Quito Declaration of Ministers from May 3rd, 2008, which states: "The people gave their governments the mandate to equip the region with new instruments of integration and development that should be based on democracy, transparency, participation, and responsibility to their electors."

In order to be democratic, the Bank of the South must guarantee the principle of one country, one vote.

It is indispensable that currency exchange controls be ratified in the countries that have them and established in the countries that do not, with the purpose of protecting the reserves and impeding capital flight.

In the context of the suspension of credit lines that the international financial crisis has imposed, countries in the region are forced to consider the suspension of payments of the public debt. This measure is aimed at temporarily protecting sovereign resources threatened by the crisis and avoiding the emptying of countries’ treasuries.

Latin America and the Caribbean should learn from what is occurring in Europe, where each country is trying to solve the crisis on its own. This requires that we empower the mechanisms of alternative integration and development in the region.

Social Emergency

We propose the creation of a Regional Fund for Social Emergencies to immediately assure food and energy sovereignty, and also to attend to the severe problem of migrations and cutbacks in remittances. This fund could function as part of the Bank of the South or the Bank of ALBA.

Following the principle of not aiding the bankers who are responsible for the crisis, and instead aiding our peoples, social spending should be maintained and anticipated in public budgets, and incremented amidst the imminent effects of the international crisis on our peoples. The priorities should be: Job security, universal income, public health and education, and housing.

We must establish anti-inflationary mechanisms, including price controls, which preserve, increase, and redistribute incomes and wealth.

International Financial Institutions

The international financial crisis has brought proof of the complicity of the IMF, World Bank, and Inter-American Development Bank with the transnational bankers that have provoked the current collapse and its terrible social consequences.

That these organisms have been discredited is evident. This is an opportunity for the countries in the region to follow the example of Bolivia by pulling out of the [International Council of Investment Arbitration] CIADI, and follow the example of Venezuela by pulling out of the IMF and World Bank, and begin to help construct a new international financial architecture.

We summon ourselves to the Second International Conference on Political Economy: Responses from the South to the World Economic Crisis, to take place in Caracas in the first quarter of the year 2009.

Caracas, October 11, 2008.