More than half o f the money bo rn flowed right back out the door, ofte j private foreign assets owned by th< countries’ foreign debts. The most a; awed by Mexico, Venezuela, and Argentina during the decade has effectively n the same year o r even month it flowed in. Indeed, there are already enough : citizens o f major debtor nations to go a long way toward servicing their assets from poor countries as they f elites have stolen from their govern: Egressive banks, such as Citibank, have probably accumulated almost as much in ave loaned to them. Their real role has been to take funds that Third World [nents and to loan them back, earning a nice spread each way. NEY WENT American government policies make it far too easy to transfer and hide financial assets. As a result, the U.S. itself is one of the world’s largest tax havens, and the largest for Latin America. Indeed, because of such policies the U.S. is actually a net debtor of Latin American countries. It all comes down to one of the largest wealth transfers in history, with a few thousand affluent families and their re- ■tainers cackling all the way to the bank, the poor people of these countries indentured for years to work off the debts, the bankers playing a clever double game, and American taxpayers expected to subsidize bailouts that make the 1975 New York City debt crisis look like a rounding error. This is the real story of the “ debt crisis” : the story of what happened to all the money. Consider Mexico. On March 6, a Mexico City newspaper published a list of 575 names of Mexican nationals, each of whom has at least one million dollars in deposits with foreign banks. The exposure of these “sacadolares”—people who take out dollars—caused an uproar because it comes just as Mexico is once again pleading bankruptcy to its international bankers and the U.S. Treasury. Mexico maintains that it needs another six billion to ten billion dollars of new foreign loans and interest subsidies this year to avert insolvency. This would be the second major bailout for Mexico in the last three years. One example of the ‘‘sacadolares” may be the president of Mexico himself, Miguel de la Madrid. A Harvard-bred technocrat, De la Madrid was anointed by the previous president, Lopez Portillo, whom he had served as minister of budget. He had never before held elective office. (But then some say that no one really holds elective office in Mexico.) Portillo was a stout law professor whose regime was distinguished by profligate spending, wildly optimistic growth plans, and corruption that was unprecedented even by Mexican standards. All of n March 6, a Mexico City newspaper published a list o f 575 names o f Mexican nationals, each o f whom has at least one million dollars in deposits with foreign banks. The exposure caused an uproar because it comes just as Mexico is once again pleading bankruptcy to its international bankers and the U.S. Treasury. this was paid for on time. Between 1978 and 1982 the country’s foreign debt more than doubled, to $85 billion. Today it approaches $100 billion, one of the highest debt levels per dollar of national income in the world. Very little of this money went into productive investments. Billions were squandered on non-competitive steel plants, a six-billion-dollar nuclear power plant that still doesn’t function, a gas pipeline to nowhere, wasteful development loans, arms, and payoffs to contractors and public officials. (Portillo, who moved to Rome after leaving office, is widely rumored to have absconded with over one billion dollars.) Western bankers looked the other way as their money was wasted. The loan fees were lucrative, and many of the banks’ corporate customers were making bundles on these “white elephants.” The banks also complacently assumed that the U.S. government would never allow either Mexico or Citibank to go bankrupt. Furthermore, until 1981 or so, no one at any particular bank knew just how much money the other banks were lending to Mexico. De la Madrid’s first promise when he took office was to seek a “moral renovation” and rebuild the confidence of Mexico’s investors. He lectured the nation on the need for “ belt-tightening.” Unemployment grew to over 30 percent and real wages sank to 1963 levels. It was thus a little embarrassing that just as De la Madrid arrived on his first official visit to Washington in May 1984, Jack Anderson revealed a secret U.S. intelligence report that De la Madrid himself had been accumulating substantial deposits in a Swiss bank account—at least $162 million during 1983 alone. (The deposits were transferred by wire—the National Security Agency had been listening. The New York Times subsequently confirmed the story.) The State Department issued a curious statement that the “ U.S. government applauds President De la Madrid’s commitment to addressing the issue of honesty in government. here is no way to know exactly how much capital has left Mexico. Banks naturally try to keep the figures secret. But there are two accounting techniques that enah'e us to make indirect estimates. One is to measure the discrepancy between net exports of goods and services and net imports of capital. The difference ought to reflect net short-term capital flows, and subtracting the known capital imports should give us a rough figure for the unknown capital exports. All of these figures are inexact. (Cynics note that Mexico’s official balance-of-payments statistics overlook both its biggest import, arms, and its second-biggest export, drugs.) But in the case of Mexico, a second method of calculation produces surprisingly similar results. This is simply to take all the money that’s known to have flowed in from abroad, subtract the known ways it’s been put to use, and assume that the rest flowed back out again. Both methods indicate that capital flight soared during the Portillo years, especially from 1979 to 1981, just as Mexico’s foreign debt was exploding. For example, in 1981, while Mexico was taking on about $20 billion in new foreign debt from commercial banks, capital flight was nine billion dollars to $11 billion. After 1981, capital flight started to decline: there was just not that much more to take out. Growth in new debt also stopped. Over the years from 1974 to 1985, Mexico borrowed $97 billion and sent about half—$50 billion—right back out again. Things were even worse elsewhere. Argentina’s capital outflow during this decade was over 60 percent of its foreign borrowing, and in Venezuela there was virtually a dollar-for-dollar offset. In contrast, Brazilians (11 percent) and even Marcos’s cronies in the Philippines (25 percent) were much less aggressive in moving capital out of their countries. Hidden capital exports are only part of the story, since these private investments have grown in value since leaving Mexico. Many Mexicans prefer investing abroad in very short-term assets, especially bank time deposits and Treasury bills. These are safe, highly liquid, untaxed, and simple. The volume of U.S. bank time deposits owned by foreigners has grown dramatically in the past few years, driven by Latin American flight capital. The Mexicans are the largest single source. Private bankers and investment advisers who serve this market say that probably two-thirds or more of Mexican flight capital has found its way into time deposits. Now, these experts say, some large Mexican depositors have begun to shift their holdings into U.S. government securities, because of concern about the health of U.S. banks that have loaned too much money to places like Mexico! Making some reasonable assumptions about the return on these investments, and also assuming that no taxes have been paid—either to the U.S., because there is no tax owed on “ portfolio interest” earned by nonresidents, or to Mexico, because of outright tax evasion—we can estimate how much Mexican flight capital is now abroad. These calculations are subject to all sorts of qualifications. But if they are even close to being accurate, they suggest that by 1984 the value of Mexican flight capital exceeded the face value of all commercial bank loans to Mexico, and by 1985 it was closing in on the face value of the country’s total external debt. Since these tattered loans to places like Mexico are actually worth far less than their face value, it seems quite likely that Mexico is actually a net creditor, As one Federal Reserve Board member said recently, “The problem is not that Latin Americans don’t have assets. They do. The problem is, they’re all in Miami.” The U.S. banks’ share of loans to the major Latin American debtors has been less than 30 percent. By contrast, our share of the private flight capital from these nations is rumored to be 70 to 80 percent for Mexico and Venezuela, and 50 to 60 percent for Brazil and Argentina. This means that the U.S. as a whole is almost certainly a net debtor of all of these countries, except possibly Brazil. U.S. banks now have about $26 billion in outstanding loans to Mexico. Estimating the accumulated value of Mexican capital-flight wealth at $85 billion by 1984, and assuming that 70 percent is invested here, Mexicans have at least $30 billion more socked away in U.S. banks than Mexico owes to U.S. banks. Total direct investment by all U.S. firms in Mexico, by contrast, was six billion dollars in 1984. Similar calculations for the other Latin American major countries yield a total net balance in favor of the U.S. of $40 billion to $60 billion in 1984. By now the figure may exceed $70 billion. Again, these figures are conservative because they are based on comparing the dubious face value of the debts with the market value of the assets. In the case of Mexico, estimated annual earnings on these assets are already over three-quarClinton St. Quarterly 9
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