Latin debt and democracy

BRAZIL's decision to halt repayment of part of its $108 billion foreign debt underscores the seriousness of the Latin debt challenge as well as the need to develop creative new investment tools for the region in general. Brazil is only the latest in an unfortunately long line of Latin nations unable to meet existing loans or seeking refinancing, including Peru, Ecuador, and Argentina. There is rising concern that Mexico may soon face new difficulties in meeting refinanced loan obligations. All told, the region owes $380 billion in external debt.

The issue is not just responsibility. Latin debtor nations have indicated an eagerness to honor long-term obligations. The deeper issue is protecting the new democratic governments in place throughout most of Latin America. In many cases, debt obligations go back years - to the days when nondemocratic governments were in power in such nations as Brazil and Argentina.

The economic situation for Latin America is not entirely unpromising. What is working: Recent oil price declines make energy and industry costs somewhat cheaper. US-European currency adjustments make Latin exports to the United States less expensive than many European products. Many US companies are shifting production to the region.

Still, the US needs a comprehensive Latin America policy that recognizes debt repayment as but one component in a framework aimed at strengthening democratic government. US Treasury Secretary James Baker's plan to provide some $30 billion in new commercial and international credits to debtor nations, while those nations undertake structural reforms, is a step in the right direction.

Commercial banks and Latin nations, including Brazil, will presumably work out refinancing packages. But that doesn't get at the larger challenge: Latin American democratic governments need faster, more productive growth. That means new industrial, technological, and - yes - financing assistance from the US and other Western nations.