Fifty years ago this month, I was in Lisbon working for the Banco de Portugal. With me were four other MIT graduate students, including the future Nobel laureate Paul Krugman. Inspired by Krugman’s reminiscences about that experience, and in light of our current geopolitical circumstances, I find myself reflecting on what we saw that summer.
Barely two years before our arrival, Portugal had shed a 48-year military dictatorship. Following its 1974 Carnation Revolution, the country’s politics swung from the extreme right all the way to the left: As the government took over parts of the economy, demonstrators chanted in the streets “Morte a CIA!” — expressing anti-US sentiment by wishing "Death to the CIA!" But in November 1975, an attempted pro-communist coup failed, opening the way for a new beginning.
In June 1976, Portugal held its first democratic elections in living memory.
Few were surprised when Antonio Ramalho Eanes — the general who had ordered the military countercoup the previous year and emerged as a reassuring symbol of stability and democracy — won the presidency. But it was the new prime minister and Cabinet who would have to run the country, and that government was not formed until July 23.
The central bank’s governor, Jose da Silva Lopes, had been preparing for that moment. With the economy in crisis, the budget deficit ballooning and the central bank on track to run out of foreign-exchange reserves, Silva Lopes had asked professors at MIT to send over advisers who could help him prepare a plan of action. Our team of fledgling technocrats reached Lisbon shortly before the election.
Krugman was the “brains” of the team. Our Portuguese classmate Miguel Beleza, who would go on to become Portugal’s finance minister, knew the country. Andy Abel managed to process our work through a refrigerator-size computer that the central bank had been given but had not figured out how to use. Ray Hill was the “adult” of the group, speaking for us in situations where a bunch of 24-year-olds might be dismissed. I was the one who would suggest, after an intense six-day workweek, that it was time to knock off and go to the beach.
It seemed like there were only a few dozen Americans in Lisbon that summer. The bicentennial Fourth of July celebration, convened by US Ambassador Frank Carlucci, was quiet. Meanwhile, Carlucci was apparently struggling to persuade US Secretary of State Henry Kissinger that Portugal was not necessarily lost to the Communists, and that the United States should engage with the Socialist candidate for prime minister, Mario Soares.
In any case, I did not expect the US government to play a particularly constructive role in advancing Portugal’s democratic cause. After all, it had supported the previous authoritarian government and the CIA had a long history of ill-considered meddling in other countries’ politics.
Just three years before our mission, the US had supported the coup that overthrew Chile’s democratically elected government. This record explains why we felt we had to hide the fact that our team’s pay came from a grant from the US Agency for International Development: We had no connection to the CIA, but did not want locals to suspect otherwise.
The need for secrecy arose in other dimensions of our work. When our team eventually wrote a report recommending something like a 15 percent devaluation, we distributed copies to all the Banco de Portugal’s senior economists. Upon hearing what we had done, however, Silva Lopes was alarmed, citing the risk of a leak.
We reminded Silva Lopes that he had told us not to worry that the Soviets, who occupied the floor above our offices, might eavesdrop on us. “I’m not worried about the Soviets,” he replied; “I’m worried about the markets.”
That night, we surreptitiously returned to the central bank offices, recovered the copies of our memo from the economists’ desks, and replaced them with a version that referred only to “measures to improve the trade balance” — a euphemism for devaluation.
The currency was devalued in February 1977. Meanwhile, Portugal laid the groundwork for a robust and lasting democracy. In 1986, it joined the European Communities (which became the European Union in 1993) and in 1999, it became a founding member of the eurozone. Today, Portugal ranks as the world’s seventh-safest country, with a “freedom score” of 96 out of 100, making it a popular destination for visitors and investors alike.
To be sure, Portuguese incomes have not converged with those of other Western European economies — a failure that has become a key issue in domestic politics. But the criticism tends to come from the right, which attacks the center-left Socialists who have been in power for much of the last 30 years. This is not a case of the far left attacking the basic market system.
In retrospect, our team of young economists can be viewed as one small outpost in the West’s prosecution of the Cold War. At the time, one could only dream that the US and Western Europe would emerge victorious from that clash — without bloodshed, no less — within 15 years. But even more shocking than that outcome is the fact that, a few decades later, the US has unilaterally abandoned its role as leader of the rules-based, democratically oriented, market-based global order, and even turned on its European allies.
The list of outrages is long.
US President Donald Trump has hit the EU with illegal tariffs and thrown NATO into confusion. He has also dismantled USAID, undermined and attacked international institutions and launched shortsighted wars and illegal military operations. Meanwhile, he ignores and even condemns his own intelligence agencies, which deliver news he does not like, such as that Russia interfered in the 2016 presidential election. (They also correctly warned of Russia’s imminent invasion of Ukraine in 2022, when Joe Biden was president.)
Almost single-handedly, Trump has destroyed the world order that generations of Western leaders worked so long and hard to build. The US, Portugal and everyone else will be worse off for it.
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Jeffrey Frankel
Jeffrey Frankel is a professor of capital formation and growth at Harvard University. The views expressed here are the writer's own. — Ed.
(Project Syndicate)
khnews@heraldcorp.com
