Latin America's Needs
Bush's trip south will give financially strapped governments an opportunity to assess the US commitment to expanded trade, debt reduction, and greater investment in the region
AT every stop on President Bush's South American itinerary this week, economic issues will dominate the agenda. Political leaders in Brazil, Uruguay, Argentina, Chile, and Venezuela will want to hear the president reconfirm the commitments he undertook this past June when he launched the Enterprise for the Americas Initiative - a wide-ranging proposal to strengthen US economic ties with Latin America and to work toward a free-trade zone in the hemisphere. But the Latin Americans will also want to know what steps the United States is prepared to take to achieve these goals and what is expected of them. The president and his advisers ought to provide a clear response.
All of the countries the president will visit, except Chile, are locked in a protracted economic depression. Living standards are declining; poverty is spreading; triple-digit and higher inflation persists; and investment remains abysmally low. Latin America's leaders, however, are not looking for foreign aid, nor do they expect any significant revival of bank lending. They know that the only realistic path to economic recovery is through expanded exports, foreign investment, and the return of flight capital.
They also know that unimpeded access to the vast United States market is crucial for attracting foreign investors and building a dynamic export sector. The United States is already South America's principal market. Some 30 percent of South America's trade today is with the US. Increased sales to US buyers accounted for 75 percent of South America's export growth in the 1980s.
Latin Americans do not want to limit their trade to the United States, but they are worried - rightly or wrongly - about the possibility of Europe and Asia forming restrictive trading blocs that might shut out their products. They are also concerned that the US will become more protectionist or form its own trading bloc with Mexico and Canada - in either case blunting their export drives. That is why South America's nations want trade agreements with Washington that will assure their access to US markets.
The benefits would not all go in one direction. Although US exporters send only 13 percent of their products to Latin America, annual sales total $50 billion - somewhat more than our exports to Japan. And economic recovery in Latin America would lead to some $10 billion to $20 billion a year in additional purchases from US exporters.
Moreover, trade currently accounts for only 15 percent of economic activity in Latin America. If the region sustains its economic reform efforts, that figure could increase sharply, with a corresponding expansion of imports from the United States. A vibrant export sector in Latin America, moreover, would provide opportunities for US investors - and expanding trade and investment would facilitate loan repayment to US banks.
South American governments do not expect to achieve special trade arrangements with the US overnight. They recognize Washington's first priority is a trade agreement with Mexico, which is already tied closely to the US economy. What they will expect from President Bush are clear signals that the US will be ready to move forward once the Mexican negotiations are concluded. The president's visit itself is one such signal. There are four other steps Washington should take:
First, the US should move quickly to implement the non-trade provisions of the Enterprise for Americas Initiative, including proposals for reducing US bilateral debts and establishing an investment promotion fund. Although neither will do much to help South American countries, action on them would provide reassurance of Washington's active commitment to the initiative.
Second, although formal trade negotiations with South American countries are not likely to begin before 1992 (the earliest a US-Mexican agreement could be concluded), systematic consultations among the US and the countries of Latin America should be initiated soon, preferably on a multilateral basis. Such consultations should focus on how the subsequent negotiations would be organized, on what each country should do to prepare for them, and what issues are likely to emerge as stumbling blocks to agreement.
Third, the US should continue to encourage Latin American countries to reach their own trade arrangements. Such arrangements are crucial in building toward a genuine hemispheric free-trade zone that would go beyond bilateral trade deals between the US and individual Latin American countries. The US has signed bilateral ``framework agreements'' specifying key issues for trade negotiations with a number of countries. There is expectation that a framework agreement involving the United States, Argentina, Brazil, Uruguay, and Paraguay will be announced during President Bush's trip.
Finally, the US should face up to the fact that the Brady plan for reducing Latin America's commercial debts is faltering and needs revision. Argentina and Brazil, South America's largest debtors, are, for example, still unable to qualify for debt relief. The sooner a strategy is devised for extending debt reduction to these and other countries, the faster they will recover and become stronger trading partners for the United States.
No one in Latin America expects the US to solve the region's economic problems. What Latin Americans want are expanded opportunities to compete for sales and investment capital in US markets and a workable strategy for dealing with their debt burdens. President Bush and his advisers should be responsive on both counts - for the benefit of the US as well as Latin America.