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J. Sanguinetti: Democracy from the Perspective of the Current Crisis
Written by Julio Sanguinetti, President of Uruguay, 1985-1990, 1995-2000
Saturday, January 31, 2009
New York, USA, January 29-31, 2009
Dear friends,
First of all I would like to express my joy to be here again in one of UPF’s seminars. An extraordinary effort is being made to create dialogue and to seed new ideas, from a spiritual and religious perspective. It is wide enough to welcome a diversity of ways of thinking and philosophies, and we all can unite in the ideas of peace, freedom, democracy, human rights, and tolerance.
I think that it would be an error — or, at least, a limitation — to speak about the present circumstances in Latin America without taking a look at the crisis we are in today.
We cannot ignore that we are living at a very singular moment. In the last five years, our region experienced an economic expansion based on favorable conditions in the global market. The rising prices of raw materials, crude oil, minerals, and food allowed our region to experience substantial growth. In the past 50 years, there had never been as much growth as in the last five years. Unfortunately, that was cut off by a very particular and deep crisis.
Some say that the crisis was as big as the one in 1929, but regardless of historical comparisons the fact is that we are in a global crisis. It is not something that affects partially or only Wall Street. We are in a general crisis, and this will bring risks and tensions to all political and legal relationships.
We all know that it is easier to have good dialogue, political relationships, and social life in times of prosperity. Now, we are going to experience a time of tension, and the economic tension is already generating unemployment. Unemployment is rising in the US, Europe, and the Americas. This is very serious because all normal social values have been questioned. Therefore, we have to look at this crisis from our perspective and an inter-American perspective:
First of all, we know how the crisis started. The crisis started in the financial system. It was a result of the financial system's excesses (or abuses). In banking, mainly from USA, England, Latin America and other countries, excessive credit was extended without guarantees. We will not enter into details now, but it was basically an excess of credit and freedom to grant credit that generated an artificial euphoria in the economic realm. In other words, there was a growth and an expansion that could not sustained in the real economy, creating a sort of illusory economic bubble.
We know the origin of the crisis. Many people thought that this would be solved within the financial system, but again, it is evident that while this financial system is enormously important, it is also risky. It is important because the economy does not function without credit. Neither the large-scale economy nor the small-scale economy can function without credit. It is dangerous because its excesses have had an extraordinary expansive potential, which is what we are suffering now.
But sometimes it is difficult to understand how to tackle such a crisis. I think that in Latin America we are not expert in normal situations, but we are quite expert in crisis situations. And on various occasions we have had to apply all these solutions we are hearing about.
Then, what is this crisis telling us? There are those who say, “Well, the capitalist system has fallen.” This is an illusion. What is the alternative? It does not exist. There is no system apart from the capitalist system. Some time ago, there was the illusion of socialist systems, but it disappeared.
There are those who say, “Well, the capitalist system has not failed, but globalization will.” This is another mistake. Globalization is not a result of some decree. It is not the result of some country. It is not some strategy. Globalization is a scientific fact, a technical fact. Globalization was the result of scientific progress in information technology, the Internet, communication satellites, instant information, biotechnology, and biophysics. This interlinked world is something that nobody can control or avoid. In conclusion, neither capitalism nor globalization are finished.
Every 20 or 30 years it is announced that capitalism is going to be buried. I have been invited several times to its funeral, but the dead entity never appeared! That is why I say that I do not see any other alternative.
Then, what has happened? Well, what is clear is that an unregulated international financial market is finished. Today, everyone is conscious that it is not possible anymore. Every country has tried to regulate its banking system to give it a solid basis, but in the banks a financial craziness developed and loans were issued based on illusions. This has finished for sure. The same financial system that we have had cannot continue. That is clear. And that will require a collective effort.
The other thing that has finished is the idea that it can be solved in one country. The crisis cannot be solved by the US. It cannot be solved by Europe or China. The crisis, it is true, originated in the US, but it became universal, and consequently, only multilateral solutions can address the situation.
Latin America cannot come out of this without the US, and the US cannot come out of this without the rest of the world. It is impossible for the US to come out alone because its major creditor is China. The US owes a large debt to China. This means that its currency depends on China´s actions. If China would sell the 400 million dollars that has in American bonds today, it would generate chaos in the international currency and in the US. And, naturally, China does not want that to happen, because USA is its main market. Thus, we are all interrelated, and we are necessarily obliged to think that there cannot be a unilateral solution.
Poor president Obama, when we look at the TV, it seems unfortunately, as if everybody is asking him to be God — or one of the Three Wise Men — who has a solution for everything. But I do not think this is logical, because it could lead to disappointment tomorrow. The biggest responsibility of the new US president is to start regulating the US market and try to balance its finances. That will already be a contribution. Secondly, he has to establish the mechanisms of dialogue so Europe, Japan, China, and Latin America can cope with the situation together. We are all necessarily obliged to see it from this viewpoint.
And fortunately, now we are speaking not only about the big G-7 nations but also the G-22 nations, which include three Latin Americans nations — Brazil, Mexico, and Argentina. I believe that this is important. This means the end of unilateral financial operations. We should remember that we will go through a very difficult and unavoidable time. Some demagogic voices promote the illusion that it is possible to elude the crisis. No. The crisis cannot be evaded, because much capital has been destroyed, market values have dropped, and prices are extraordinarily distorted. A new balance has to be generated, and this is the major issue. Naturally, the crisis will pass. If we do a good job, it will pass quickly. If we do a bad job, it will be delayed.
Something similar happened with the management of this crisis. The Lehman Brothers investment bank was allowed to fail. From my viewpoint, that was a mistake. It is very difficult for a government to explain to the people that a bank has to be saved. It is the most unpopular thing that exists. The point is that we should distinguish between the bank and the banker. Then, the government should try to save the bank and try to ensure that the banker assumes his responsibilities. But it is very difficult. When the bankruptcy occurred, the US government said, “Those gentlemen are the responsible ones; let them manage by themselves!” After a few days it had to change strategy because it realized that everybody would fall in a chain reaction.
And today we have to confront this reality that nobody likes. All religions, throughout the ages, have condemned asking for loans, and therefore, nobody likes banks. But banks exist and it has been demonstrated that it is not possible to have a functioning economy without banking or credit. That is important for the big ones and even more so for the small ones. Mistakes have been made. Therefore, the finances have to be fixed, but the international and national financial systems have to be kept functioning.
Fortunately, most nations are not reacting today as in the crisis of 1929, when they kept their distance and let each one solve its own problem. All governments are launching economic stimulus packages. Thus, the economist Keynes is in fashion again. Lord Keynes, a very famous British economist, had been put aside in recent times, when liberal trends were very fashionable, because it was thought that he favored state to much. But today all countries are acting according to the ‘Keynes style’ or ‘Franklin Roosevelt style,’ after 1933.
It is clear that the worst result would be a deep global recession, because large masses of unemployed people would unbalance the whole situation. In that sense, I think we are going in the right direction. But it will require effort, and we must not lose sight that the crisis will end. The world will continue being globalized, and scientific and technological development will continue, because, while we are processing the crisis, new machines, new inventions, new transmission methods, new medicines, new medical equipments, etc., will continue appearing. And we have to be prepared for that.
This requires a lot of effort. From the international viewpoint, I want to point out two important issues, which have national implications as well.
At the international level, there are two unavoidable topics to address, terrorism and drug trafficking, because no country alone can solve them. Colombia could not do it alone, in spite of having a big success. And Mexico is less likely to do so. Weapons and money are being sent from the US. That is why a strong collective action has to be done, which is a big responsibility for the new president. The same thing is happening with the international terrorism.
These two big factors are major problems that impact our future. Our countries have to dedicate themselves to take care of their own democracies and ensure their liberties, because they will be threatened.
When there is prosperity and good humor, everything seems simple. When the economy is restricted and there is bad humor, the situation becomes very complex. So-called populist governments can become more dangerous. It is easier to satisfy expectations when there is money, but when money is lacking, a big concern is that authoritative measures may be taken. This is connected with two kinds of efforts our countries need to undertake:
1. Energy. Once this crisis is over, energy demands will increase, and we have to solve this. We are quite behind on these matters. There is oil, gas, and water throughout the Americas, but we have not been able to resolve distribution issues. For example, Chile imports gas from Asia, not because it wants to but because it could not establish more local relationships for importing gas.
2. Education. I think that the major efforts in Latin America today must be in education. Basic education is almost universally available, but it lacks the required quality. It must be understood that only higher education will allow us to reach what we are striving for.
Today everybody is talking about president Obama. This is a result of the African-American people's great fight for human rights and education. Because African-Americans have had access to schools and universities, they have produced great people. No long ago Gen. Powell could have been another great candidate for the US presidency. Obama became president. The transforming element is education: education that produces and promotes qualified people. The education that is cultivated by UPF respects the essential values of spirituality, humanity, and our world vision. Thank you very much.
Responses to questions:
Latin America has always been behind on the issue of inequalities, and it is our responsibility. We are talking about our approaching bicentennials. In other words, we obtained our independence 200 years ago. We must make a big effort in our own countries. Not all countries have the same inequalities. I can say that a much better income distribution has occurred in the Río de la Plata region and in my country due to the state policies and social programs that allowed to break down the barriers of inequality. The basis for that to happen was social security and education.
There is a trend within formal democratic structures toward authoritarian situations. I do not know if there is anyone from Venezuela here, but Venezuela is in that kind of situation. In other words, the formal democratic structure exists and there is an elected government, but it is obvious that the power of the state is being used to impose the government's will and to try to retain power eternally; something which would undoubtedly damage democracy. We view this with concern, and we should fight to avoid developments which will move further away from the democratic ideal.
I think that the financial crisis has a basis in the lack of morality. Without a doubt, those who exercised the finances in such an uncontrolled way have committed moral mistakes. That is why I said, “The system has to be saved, but not the responsible ones.” That is the responsibility of the governments. Undoubtedly, this has been a moral crisis. Thus, finances should be guided by the highest possible ethical rigor.
We are witnessing a process of huge atmospheric and forest destruction as well as water pollution. We have to continue working on alternative energies: solar, wind, sea, and nuclear. Such a discussion has been taboo, but we understand that resources can be managed in appropriate ways. I agree that the forest resources, in particular in the Amazon, is a serious problem.
Dialogues such as those between people from Israel and from Palestine are essential to peace. Such gestures are even more necessary than political dialogues. These gestures have to be translated into policy, because the bases for friendship and coexistence will not come from politicians but from the schools, mosques, and synagogues. Places of worship and schools must build peace among the children in order to eradicate the seed of hate. Political solutions may lead to truces in time of war, but if the schools and places of worship on both sides are not part of the peace process, hatred will continue being preached. Hatred harvests hatred. If peace is preached, peace will be harvested. It is in the places of worship and in the schools where the answer will be found. Thank you very much.