Hemispheric Economic Revival
THE GLOBAL ECONOMY
LATIN America is once again a major market for United States exporters and investors. The US sells more to Latin America than it does to Japan and, over the past 18 months, the region has become our fastest growing customer. Also, we can now look forward to a dramatically freer flow of goods, capital, and peoples within the Americas. Technical change combined with the globalization of production and markets are making Western Hemisphere integration increasingly inevitable.
Although some Latin American economies remain trapped in recession and per capita income in most places still falls short of earlier peaks, the vital signs - lower inflation, sounder fiscal positions, declining real interest rates, renewal of investor confidence, rising exports and imports, healthier levels of foreign exchange - are all positive in most countries. Optimism about the economic future of the Americas is justified, but a number of key roadblocks still must be overcome to assure steady growth :
* A lackluster recovery in the US, Europe's high interest rates and slow growth, and Japan's capital implosion will make 1992 the third year in a row of disappointing performance in the industrial world. And Latin America, along with other developing areas, is paying for this failure of global macroeconomic management with lost markets and slower flows of investment capital. The Group of Seven Industrial Countries (G-7) has to do a better job of coordination, and it is up to the US, still the world's gre atest economic power, to take the lead. Within the G-7, the US should start actively representing the interests of the entire Western Hemisphere.
* Trade negotiations have stagnated in the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), which remains the best instrument for promoting global trade and expanding Latin American exports. The US is right to deplore the European Community's Common Agricultural Policy as a deadweight on world trade in farm products. But it is wrong to hold the entire Uruguay Round hostage to European concessions on agriculture.
* The fate of the North American Free Trade Area (NAFTA) is still uncertain, and little energy is being directed toward achieving a broader Western Hemisphere Free Trade Area (WHFTA). The administration ought quickly to conclude a NAFTA accord, while making sure it is one that satisfies the US Congress and adequately addresses environmental and social issues on both sides of the border. NAFTA, moreover, should be designed so that other Latin American and Caribbean nations can join in relatively short ord er.
* Even though less of a burden than in the past, debt payments continue to hobble Latin America's recovery and growth. The commercial-debt reduction formula of Treasury Secretary Nicholas Brady needs to be extended quickly to all deeply indebted countries pursuing adequate economic reform pro- grams. Latin America would gain even more from the official debt reduction proposed by President Bush nearly two years ago in his Enterprise for the Americas Initiative - provided that Japan and Europe join the US in this relief.
Comprehensive application of both the Brady and Bush debt initiatives would save the region about $17 billion by the year 2000. Congress should stop balking at approving the necessary funding to make this happen.
* The greatest dangers to Latin America's economic progress are the region's pervasive poverty and savage inequalities, which actually worsened during the 1980s (at a pace even more disturbing than in the US). Simple justice is reason enough for concern. In addition, the fact that widening poverty is commonly linked to economic reform threatens the political durability of such reform. Latin America must address its social agenda. Tax structures must be made fairer; governments should stop wasting subsidi es on production and direct them instead to the poor.
But, because the poor are mostly powerless, international agents - like the International Monetary Fund, World Bank, Interamerican Development Bank, and US Agency for International Development - must be zealous in favoring the underprivileged and underrepresented in their programs.
Equity may be the most important determination of Latin America's economic future. Growth with equity will make it easier for Latin America to consolidate its democratic institutions and market economic reforms. Without equity, both democracy and reform may be in jeopardy.