Argentina's debt -- a shared problem

WITH the actions announced over the weekend, Argentina has removed several high hurdles from its long path toward fiscal stability. The government of President Ra'ul Alfons'in has taken a series of stringent austerity measures, including establishing a new currency tied to the United States dollar, in an effort to reduce sharply the 900 percent inflation. Only days before, Argentina had promised the International Monetary Fund that it would take such measures. In return the IMF approved new loans to help Buenos Aires meet interest payments on its $48 billion foreign debt; it is some $1 billion in arrears. President Alfons'in now must delicately balance three competing requirements: economic austerity, rising popular demands for higher wages, and the necessity to increase capital formation so that Argentine companies will become stronger and able to export more goods, thus bringing in additional revenue the nation requires to pay even the interest on its large foreign debt.

Other Latin American debtors face similar challenges, social and political as well as economic. The principles in the agreement between the IMF and Argentina, and the tasks now confronting President Alfons'in, may be played out in neighboring nations as well.

Two main schools of thought exist among economists as to the state of Latin America's foreign debt. One is quite optimistic. It holds that the four largest debtor nations -- Brazil, Argentina, Mexico, and Venezuela -- have made major strides in the last two years. The threat has abated that they would be unable to meet interest payments on foreign debts, and would default. Their exports and gross national products are higher, and imports are lower. The remaining step, this view holds, is to make internal adjustments to their economies.

Other economists, primarily in Latin America, are less optimistic. Inflation is high in several countries. So is unemployment. And popular insistence on economic improvements is rising: The public increasingly demands higher wages to keep up with inflation.

In addition, Latin Americans have invested much of their money in other lands, notably the US, instead of reinvesting in the economies of their own nations, which need the capital to keep up with world advances. The US is particularly attractive to investors now, because of high rates of interest and a more stable social and investment climate than in most of Latin America.

Many Latin American nations face social restiveness and economic problems akin to Argentina's. South American economic growth is believed contingent on continued economic expansion of at least 2 percent a year in industrial nations; they may, however, be on the verge of economic slowdown.

Latin American nations also need to strengthen their economic and social fiber so as to attract once again the investment funds of their own citizens.

Some $24 billion has fled Argentina over the past three years. If only half were lured back home, the nation would be able to pay the annual interest on its foreign debt by coupling this additional funding with its annual trade surplus, now some $3.6 billion.

The return of democracy in nation after nation has been one of the splendid trends in Latin America in recent years. But in planning unpopular economic actions, national rulers must ultimately gain their citizens' support or be replaced by the voters or a resurgent military.

President Alfons'in, in office for a year and a half, faces a particularly difficult task. His support is waning. This November half the members of one house of the national legislature face midterm elections. The Peronist Party, which reflects the views of Argentina's large unionized labor force, is expected to be a strong contestant for many of those seats. The Peronists and the unions want higher wages.

Austerity is required. But for the Alfons'in government to retain support, it will have to be accomplished with care, and with consideration for the problems of individuals in meeting daily expenses. Latin America, along with the banking community, awaits the outcome. ----30--{et

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