Latin America; Outlook for '80s: short-term squeeze, long-term ease

By , Latin America correspondent of The Christian Science Monitor

Emerging from a decade of steady, often impressive economic growth, Latin America is suddenly facing huge budget deficits, whopping foreign debts, and serious inflationary trends.

For most countries, this means significantly less growth is likely in the early 1980s.

It also means a growing dependence on international lending institutions like the Inter-American Development Bank (IADB), and individual wealthy countries' foreign-aid programs.

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But this comes at a time when many giver nations, including the United States , are themselves facing more difficult economic conditions and are taking a closer look at their aid programs. And the US, under the Reagan administration, shows little enthusiasm for growth in the role of international lending institutions like the IADB and the World Bank.

Additionally, the cost of borrowing, both public and private, is up, fueling the spiraling foreign debt that saddles all Latin American countries, particularly Brazil and Mexico. Both of these countries have foreign debts of more than $60 billion. How to pay off this debt without borrowing more money, at higher interest rates, is one of the big challenges these countries face.

''The short-term outlook for Latin America,'' says a senior hemisphere economist in Washington, ''is bleak.''

He is not alone in his view. Throughout the economic and finance ministries of Latin America there is growing uneasiness about the immediate future. This uneasiness is felt most directly in the homes of individual Latin Americans, particularly those of the emergent middle classes who during the 1960s and 1970s started to climb the ladder of economic progress.

Their expectations are large. But those expectations are being dashed by the economic slowdown. Inflation is biting deeply, eroding salaries and expectations.

Yet the long-term outlook for Latin America is much more upbeat.

An early return to the growth rates of the 1970s is unlikely, but the region has set in motion a significant development program during the past generation that has lifted it out of backwardness and into the modern world. The rate of growth and the types of growth over these years have not been uniform, but the spectacular success stories have increased in number and frequency. They have set a pattern for the future, and many Latin Americans now are accustomed to pulling themselves up by their own bootstraps. This should stand the area in good stead in the challenging years immediately ahead.

There is no doubt that the next decade is one of ''unprecedented challenge,'' as the IADB recently stated.

''Difficult times demand innovative responses,'' the bank added.

Toward this end, the IADB is looking carefully at its response to the challenge, noting the accelerating social change in Latin America which is being spurred by burgeoning urban populations and their increasing needs and expectations.

Mexico City alone will by the end of this decade have the largest population of any city in the world, with well over 20 million, perhaps even 25 million people. Sao Paulo, Brazil's foremost industrial center, will grow almost as fast.

The requirements for investments will be enormous, particularly in agriculture and energy, to cope with the challenges of this growing population surge. The IADB, along with other international agencies and Latin American governments, is now devising strategies to meet these challenges.

Even more, private businesses, both domestic and foreign, show signs of changing their own strategies - with agricultural investments and energy commitments being the focus of much of the new effort.

Growth rates will certainly not equal those of the 1970s. Indeed, the overall growth of Latin America - Mexico, Central America, the Caribbean, and South America - for 1981 was a mere 2 percent. That is the lowest rate in 35 years and less than the growth in population for the region.

Economists expect these lower growth rates to continue.

But many economists feel that this time of slower growth will allow Latin America to smooth out the rough spots in its development. One of those rough spots is agriculture, which has not kept up with industrial plant expansion and is often regarded as the weak spot in Latin American economies.

Moreover, the region is rich in resources: raw materials, manpower, and a growing industrial base.

Still, hyperinflation bedevils every project Latin Americans undertake. The United Nations Economic Commission for Latin America (ECLA) calculated 1981 inflation for the region as a whole at 60 percent for 1981, the highest rate since 1976.

For some countries, for example, Argentina, inflation went above 120 percent. Even Mexico, which has long kept inflation in check, saw price increases erode buying power by at least 30 percent in 1981. Inflation was behind the recent devaluation of the Mexican peso.

If inflation is a problem, so is the continuing population spiral. The region's population grows at the rate of about 2.5 percent a year - faster, as noted, than the economy grew in 1981. In some countries, population grows more than 3 percent annually.

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