From the Brady Bond to the Biden Formula – Something is about to Happen in the Americas!!!

Former Venezuela Presidential Chief of Staff Beatrice Rangel – just back from meeting with U.S. Vice President Joe Biden at the CAF conference in Washington – reports on what the latest U.S. plans are for Latin America.

In the aftermath of the 1980s Latin American debt crisis, President George Herbert Walker Bush — whose geopolitical talents are uncontested — launched the Brady Plan to trigger economic revival in the Americas.

To Bush the Elder’s mind, globalization had tied the economies South and North of the Rio Grande together in an indissoluble wealth creation network.

As a supreme network operator, he knew that black holes can destroy networks as they block the free flow of ideas, goods and services. Blockades tend to grow and eventually the whole network comes to a halt.

This was the situation of the Western Hemisphere Economy in the 1980s. Latin American economies confronted by high interest rates and low commodities prices, admitted their inability to service hundreds of billions of dollars of their commercial bank loans. Given that most economies were dependent on commercial bank financing, the perception of absence of creditworthiness led to economic stagnation and a severe interruption of credit and capital flows to these nations and their private sectors.

The mirror image of this cataclysmic event in the U.S. was a recession that began in 1982, fought by Reagan. Business bankruptcies rose 50% over 1979. Exports took a dip. Farmers were particularly badly hit as exports declined, crop prices fell, and interest rates rose.

In the wake of that experience, for President Bush the need to act was clear. And he devised a debt solution that not only pushed the hemisphere out of recession but set the basis for a a long standing period of growth for the U.S., Latin American and the world economy.

At the center stage of the Bush Administration’s Initiative for the Americas were the Brady Bonds.

The basic tenets of the Brady Plan were relatively simple and were taken from common practices in domestic U.S. corporate work-out transactions. They entailed the granting of debt relief by bank creditors.

This relief would be tied to a greater assurance of collectability in the form of principal and interest collateral. In addition to Treasury bonds and — in the case of Venezuela — oil warrants, state owned enterprises also became supporting collateral in the sense that debt relief needed to be linked to some assurance of economic reform.

Improved collateral and economic reforms enhanced the attraction of the bonds issued by debt ridden nations. This resulted in greater tradability which allowed creditors to diversify risk more widely throughout the financial and investment community. The Hemispheric economy was successfully jumpstarted!!!!
It was not all smooth sailing after and along the way there was the Tequila crisis, the Asian flu, the Internet bubble, the Commodities Boom, and most recently, the mortgage crisis that triggered a worldwide recession.

Meanwhile the political situation in the Americas deteriorated, as U.S. attention was absorbed by game changing events staged by foreign powers or resulting from myopic foreign policies.

First was the demise of the Soviet Union and the German reunification.

Then came the ascent of China as an economic power.

Then the Arab World implosion triggered by the invasion to Iraq and the rise of Al Qaeda.

And just as the U.S. seems to be ready to turn its attention to the home field, it is beginning to worry about the neighborhood.

Just as in the eighties, U.S. economic recovery depended on pulling Latin America out of the lost decade, now pulling America out of despair through meaningful jobs and greater export activity depends on jump starting not just growth but development in Latin America.

And that seems to be what is being concocted in Washington by the Obama Administration in synchronization with the Clinton camp. There is a plan for the region and, just like the Brady Plan, it has three components.

These were clearly enunciated by Vice President Biden on September the 8th at the inaugural session of the XX CAF-Interamerican Dialogue Conference. According to the VP of the US relations with Latin America will be guided by three tenets.

First, comes an alliance to fight corruption. Or as Biden himself defined this first tenet:

“First, no democracy can be sustained without economic growth. And economic growth cannot flourish in the absence of the rule of law. It’s sort of the new physics of economic relationships. Businesses do not invest in nations where the rules are not transparent and predictable, where the court system is not fair, where intellectual property is not protected. So it’s absolutely critical to root out the significant remaining vestiges of corruption that remain wherever governments have been too long run by bribery and influence peddling.”
“Corruption is a cancer that eats at the body politic, rips the fabric of any society where it is proliferated, promoting inequity and siphoning away billions of government dollars that could otherwise help feed children, build schools, improve infrastructure, significantly increase their security capability. “

Second, comes Energy cooperation which is the essential ingredient to a hemispheric economic redeployment.

In Biden’s words:

“The second key ingredient for economic growth depends on securing access to energy that is affordable and reliable. If you can’t turn on the lights, you can’t make a living. If you can’t turn on the lights, businesses are not going to promote themselves in your region. Students don’t achieve their full potential when they can’t study after dark or connect to the Internet. Economies don’t grow when you can’t turn on the lights. That’s why the energy security in the region has been a priority for our administration from the beginning. And now is the moment to lock in sustainable energy security that will enable — and endure — the whole region when volatile oil prices inevitably rise again.”

And the third pillar is to reconquer central America from the pawns of poverty crime and destitution.

“For too long, Central America has been left out of the story of Latin America’s rise. Central America is the hub uniting our region — north and south. But it is also the nexus of many of our biggest and most consequential regional challenges — energy insecurity, corruption, crushing poverty, endemic violence, education systems that are lacking, and transnational crime.”

These ideas are as revolutionary as those that made the Initiative of the Americas. They hit the nails in the head in so far as setting the foundations for further integration and the elimination of the so called development cost that is the way scholars treat bribery.

The plan would thus effectively blast the institutional framework created by Spain’s Phillip II which has thrived on corporativism and mercantilism for over 500 years and that is responsible for Latin America’s underdevelopment.

Unfortunately for the Americas they come at the end of a U.S. administration, not at the beginning when all resources are fresh and ready for deployment and Congress respects the civic honeymoon of the people and a newly elected Chief executive.

It also comes at a point when should the electoral campaign end with Mr Trump’s triumph, this new Initiative for the Americas will end up as just another beautiful dream.

Published by Latin American Herald Tribune on September 12th, 2016

From the Brady Bond to the Biden Formula – Something is about to Happen in the Americas!!!