From the outside, the common view of Latin America's debt is that it is a $370-billion albatross around the necks of governments and banks. From the inside, that debt is a maternity ward in Mexico City where the hospital cannot afford to repair an incubator and a public school teacher in Brazil quitting because inflation cuts her paycheck below the survival level.
Troubling as the outside view may be, the inside view, as described in a recent series by Times writer John Broder, is worse. It shows the onset of an economic depression and a failure of hope that could leave at least one generation of Latin Americans ill fed, uneducated, unemployed and in poor health. That is a recipe for dynamite in a region with a long history of political instability.
The debt means that nations as big as Brazil and as small as Costa Rica, as democratic as Venezuela and as dictatorial as Chile, must cut government spending in order to pay off loans from international banks and lending agencies. It means not enough capital for growth, and that in turn means not just hard times but hard times for a long time.
From the outside, "capital flight" brings to mind the wealthy and the corrupt smuggling money into Swiss bank accounts. From the inside, it also means maids and taxi drivers hoarding precious dollars to deposit in little banks from San Diego to Miami--a sign of a basic lack of confidence that pervades Latin America.
Latin America needs economic reforms that will ease governments out of the market, increase competition and lead to more free trade. But if the reforms also mean not just a few bad years but hard times for as long as anyone can see, then any short-run gains will mean long-run social losses.
Henry A. Kissinger, former U. S. secretary of state, and others argue persuasively that it is more important to lend a hand to Latin America while it works its way out of debt than it is to stick to a rigid schedule of interest payments. International bankers argue, also persuasively, that they cannot be too lenient without eroding their own finances.
One choice is more of the same, but indefinite austerity gambles on causing political instability from the Rio Grande to the Rio de la Plata. Many demagogues already want Latin America to repudiate its debt.
Kissinger points to another way. He has called on the United States and other industrial nations to revive the Marshall Plan that helped Western Europe rebuild after World War II and apply it in Latin America. Kissinger thinks the psychological effect--a reason to hope for better times--would be just as important as its economic effect.
A Marshall Plan for Latin America would also give banks and creditor nations reason to hope. Even if they cut interest rates and gave Latin America more time to repay short-term loans, their investments would be repaid as Latin America's economy grew.
Kissinger is on the right track. Easing Latin America's economic agony is not something that banks can take on by themselves. Western governments must join bankers in implementing decisions that are both political and financial. It would cost the West, but Latin Americans, from presidents to peasants, already live with those costs. And the cost to the West would be lower than the cost of chaos.