A DECADE after the eruption of the "third-world debt crisis," politicians, academics, and others are discussing foreign debt once again with a sense of urgency. This time the foreign debt at issue is not that of Latin American countries. It is Russia's external debt of about $80 billion.
It appears that President Clinton and supporters such as Sen. Bill Bradley (D) of New Jersey have taken Latin America's "lost decade" into account in formulating United States policy regarding Russia's debt crisis.
Mr. Clinton has stressed the importance of protecting the welfare of the Russian people as they face economic structural adjustment. He has also focused on a theme all but ignored in Latin America during the past decade: the "people to people" approach.
Russia's debt crisis originated with "perestroika loans" that official Western creditors and foreign commercial banks made to Soviet enterprises during a period of increased decentralization. Between 1985 and 1990, the former Soviet Union's external debt more than doubled. Official creditors, to whom Russia owes approximately $40 billion, have recently agreed to restructure $15 billion in external debt due this year.
Deputy Prime Minister Alexander Shokhin, Russia's chief debt negotiator, is now in the midst of debt restructuring negotiations with 600 or so commercial bank creditors (the "London Club"), to whom Russia owes approximately $20 billion.
Latin Americans know all too well the challenges the Russian people face. During the 1970s many of them borrowed heavily from foreign commercial banks that were eager to recycle "petrodollars" profitably. During the global recession of the early 1980s these countries faced a severe liquidity crisis. Starting in 1982, one Latin American debtor country after another declared that it could no longer continue to service its external debt. Instead of repudiating their debt, most Latin American countries event ually adopted a cooperative approach with their foreign creditors. Debtor countries restructured bilateral, government-to-government debt through the Paris Club. They also engaged in case-by-case debt restructuring negotiations with their foreign commercial bank creditors.
In return for new loans, reduced interest rates, and longer repayment periods, debtor countries agreed to structural adjustment programs designed by the International Monetary Fund (IMF) and the World Bank.
These programs emphasize "free market" reforms such as free trade with other nations, privatization of state-owned enterprises, and deregulation of the domestic markets. Most Latin American countries are thus abandoning the inward-looking, statist model of development known as "import substitution."
This cooperative approach has been relatively successful. The major lending banks have not collapsed. Latin American debtor countries appear to have their external debt under control and are embracing economic liberalism.
THE Brady Initiative, introduced in the late 1980s by former Treasury Secretary Nicholas Brady, has provided further debt relief for several major debtor countries including, most recently, Brazil. In 1991, Latin America enjoyed a positive net resource transfer for the first time since the onset of the debt crisis. Under the Enterprise for the Americas Initiative the US has, among other things, forgiven official debt owed by several Latin American countries and authorized debt-for-nature or debt-for-deve lopment swaps of rescheduled official debt.
Mexico hopes to propel its economy forward through the North American Free Trade Agreement, and Chile is next in line. To top this all off, observers have applauded the withdrawal of Latin America's military from the political arena. Democratically elected governments go hand in hand with free markets.
This transformation has exacted enormous social costs, however. During the 1980s, Latin American debtor countries made net outward transfers of $25 billion annually. Poverty increased as the gap between the rich and the poor widened. Children, women, and the elderly suffered disproportionately. No one can forget the riots in Venezuela, sparked by that country's austerity program, that killed hundreds of people in 1989. Nor should we forget the street children in Brazil who are being murdered because they
have nowhere to go. Peru, whose free-market-minded president assumed dictatorial powers a year ago, is the most recent illustration of this phenomenon.
Clinton recognizes the risk that Russia's vulnerable groups, like those in Latin America, will ultimately subsidize the costly transition to economic and political liberalism. The $1.6 billion pledged at the Vancouver Summit and the proposal made during the G-7 meeting in Tokyo for an additional $1.8 billion in aid illustrate his recognition that without substantial foreign aid Russia is likely to go the route of Peru or Chile. In a recent speech he noted, "Our goal must be to ensure that the Russian peo ple soon come to feel that they are the beneficiaries of reform and not its victims."
He has correctly emphasized the importance of reform that is "tangible" to the Russian people. Moreover, he and Senator Bradley have called for humanitarian relief for needy groups in Russia.
Even the IMF recognizes the costs and risks associated with structral adjustment; its executive board approved the creation of a "systemic transformation facility" that would enable Russia and other former Soviet republics to qualify for IMF assistance despite their inability to meet the Fund's otherwise stringent criteria.
Nongovernmental organizations must play a greater role in Russia's resolution of its debt crisis and the future of its structural adjustment than they did in Latin America in the 1980s. These and other citizens' groups can press Russia's official and private foreign creditors for debt-for-development swaps. The "menu of options" approach to commercial debt restructuring can be used to establish a "human capital investment facility." These are just a few of the many ways that the grass-roots movement can promote a participatory development process in Russia and thereby avoid the mistakes that led to Latin America's lost decade.