THE Reagan administration has been prodigious in its efforts to promote democracy and combat communism in Central America. But in South America, its insistence on the discipline of the marketplace and austerity programs allows the communists to gain strength, especially in the renascent but fragile democracies there. Democracy is endeavoring to make a comeback in South America as civilian governments replace military dictatorships. Recently, sizable majorities have voted moderate progressive presidents into office: Ra'ul Alfons'in in Argentina, Julio Mar'ia Sanguinetti in Uruguay, Tancredo Neves (who recently passed on and has been replaced by Vice-President Jos'e Sarney) in Brazil, and Alan Garc'ia P'erez in Peru.
Each confronts a herculean challenge to reestablish democracy with inherited problems of high unemployment, declining living standards, out-of-hand inflation, and enervating foreign debt payments. They face rival politicians, many ill-disposed to cooperate -- leftists for ideological reasons, centrists and rightists for demagogic ones.
Behind these contending forces the communists prepare to try eventually to subvert the democratic experiments. They will take maximum advantage of the anticipated failures and frustrations of these civilian presidents as the latter strive to make free-enterprise systems prosper sufficiently to solve the nations' problems.
The communists are not great in number: They mustered 19 percent of the vote in Peru and considerably less in Uruguay, Argentina, and Brazil. But their influence exceeds their numbers, as they hold commanding positions in many trade unions, student organizations, and intellectual circles.
The communists brand presidents who accept the International Monetary Fund (IMF) austerity programs as sellouts to capitalistic ``imperialism.'' The communists point out that such ``collaboration'' translates (and it does) into a slowdown of economic recovery, increased unemployment, and higher prices for basic necessities (which disproportionately affect the poorer classes).
The Reagan administration does not wish to provide favorable conditions for communist subversion of duly elected governments.
Nevertheless, it is committed to an orthodox free market and believes that such strict IMF measures in the long run will put these nations' economies on a sound footing. It is speculative, though, whether such policies will work in the distinct Latin American sociological and political milieu. Meanwhile, to ward off leftist-instigated general strikes and mass demonstrations, the democratic forces must produce some degree of economic and social progress in the short run.
With that in mind, it is clear what the United States agenda should be. The US must begin to exert its considerable influence in the Western economic community to modify the IMF austerity programs, to compel international bankers to stretch out external debt payments, and to reduce protectionism so that Latin America can augment exports and earn adequate foreign currency to pay off debts and recapitalize industries.
More important than the external are the internal market factors. South American countries must be able to extract maximum benefits from a free-enterprise system. Under the banner of free enterprise, they too have long suffered from stultifying oligarchic-monopolistic economies, or the other extreme: freewheeling monetarist systems in which unlimited imports caused domestic factories to close.
The time has arrived for the establishment of authentic free-enterprise systems based on competitive, domestically owned and operated companies with the correct balance between exports and import-substitutions. In that way a prosperous and visionary middle class can be developed that will reinvest profits in expanding industries and actively take part in the democratic process, its historical role.
The US can do its part by making sure its multinational companies will complement rather than preempt local emerging ones, and by abandoning the current Reagan administration practice of conditioning US economic aid on host countries' acceptance of free-trade principles. After all, not even the US can afford an unlimited import policy.
At the same time, the US must go along with the economic and social moves to the left of South America's moderate presidents. For instance: increased participation of unions and workers in profits and management decisions, government intervention in the economy to channel savings into national enterprises rather than investment abroad (capital flight), and price controls for basic necessities for low-income families. The US should not consider these measures to be ``creeping socialism'' which ought to be discouraged by reducing US economic assistance, as was often done in the past.
The South American presidents are merely carrying out economic and social reforms like those of President Franklin Roosevelt, which they hope will produce a degree of prosperity and an equitable distribution of its fruits, a sine qua non for the success of democracy.
If the Reagan administration wants to be hard on communism throughout the hemisphere, it should be prodigious in its efforts to assist these South American presidents achieve their goals.
Arie Schoorl is an administrative law judge and a free-lance writer specializing in Latin American affairs.