Revitalizing Latin America's economic progress
Fundamental questions on Latin America's economy were faced at the recently concluded Organization of American States (OAS) Conference on hemispheric financing held in Caracas. In the wake of this conference, three points might be made about the hemisphere's general economic situation, its debt crisis, and the meeting itself.
* Latin America's economies, despite existing crises in debt and trade, remain essentially strong.
* If the economic base were to be undermined, however, adverse consequences not only for the region itself but for the world economy would be enormous.
* The meeting at Caracas constitutes not the beginning of the end of the current debt and financial crisis; rather, it is the end of the beginning of the discussion required if hemispheric countries are to confront the most severe problems facing them.
The dimensions of the region's economic difficulties are apparent from the fact that for the first time in 40 years, Latin America in 1982 suffered a decline in its total product. Since 1980, moreover, inflation and unemployment have grown worse and severe losses to international reserves have been common.
The current crisis derives principally from recession in the industrialized countries and their adverse protectionist policies. Without denying Latin America's need to reshape its own economic policies (and this is being done), the crisis is, in effect, mostly a regional manifestation of the worldwide economic depression.
Concern is expressed in some quarters about Latin America's external debt, now over $300 billion. Its size is not the main problem. Its ratio to the region's gross domestic product or to the value of its exports is not unreasonable. The critical factors about this debt, rather, are its structure; the international context for servicing it; and its rapid increase in total volume.
A primary difficulty facing many OAS countries now is that debt service currently absorbs extremely high percentages of the region's foreign-exchange earnings derived from its exports of goods and services.
At present a traumatic liquidity crisis confronts Latin America. Its countries must cope with the massive and ever-increasing service of their external debt. But this is precisely at a moment when foreign-exchange earnings from exports have plummeted, capital earnings have decreased sharply, and the rate of growth of domestic product has been negative.
Both the short- and long-run outlooks seem dim. For the short term, the main problem remains to ensure liquidity. Means must be found to adapt service on existing external debts to financial resources currently available. But for the longer term, viable development strategies must be put into effect. A central target is to reduce the areas's vulnerability to fluctuations in the world economy, without, of course, losing the advantages flowing from participation in them.
Traditional mechanisms for reprogramming debt service are being used to confront the immediate liquidity crisis, including stopgap financing and use of the resources of the International Monetary Fund.
But some experts argue that debt service problems are not being resolved even in the case of countries which opt for rescheduling; instead, they are merely being deferred.
There must be bolder measures that favor renegotiation of debt service. Perhaps we require formulas that adapt service payments to each country's ability to pay. Opportunities for economic and social expansion must be safeguarded. Debt amortization might be reprogrammed on a schedule to allow reasonable, fixed percentages of export revenues to be used for debt service. This would allow earmarking of remaining export revenues for financing investments and promoting development.
Formation of a long-range strategy is even more important than the short-term liquidity problem. Liquidity, in effect, is not so much a matter of excessive indebtedness as one of insufficient growth, and while Latin America must forge its own development strategy, reactivation of the economies of the industrialized countries is critical to hemispheric economic revival.
Despite unprecedented difficulties, Latin America must avoid any tendency toward autarchic development. This would seriously curtail its participation in international trade and its potential for using external financing. Expansion of Latin American exports is essential for the region's economic growth. The industrialized countries will continue to be the major market for those exports for the foreseeable future. Prudent use of external financing, where available, remains an important supplement for development efforts.
Latin America possesses one of the most powerful economic bases in the world's economy. It has severe problems. But if interdependence becomes the hallmark and foundation of hemispheric thinking and the area strengthens its capacity for global negotiation, Latin American economies can come to play an impressive and strategic role in revitalizing the world economy.