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The Big Failure

August 21, 1988

The failings of the Reagan Administration's policies in Latin America have become even more obvious as its time runs out. The dirty little war against Nicaragua is ending in defeat for the Contras; El Salvador's civil war drags on with no resolution in sight; pressure on Panama's strongman, Gen. Manuel Noriega, has not forced him to resign.

But the most serious failure is far less dramatic than any of these: The U.S. government is still not doing enough to help the crippled economies of Latin America recover from their most severe crisis since the Great Depression. The hazards posed for the region by the downturn that began in the 1970s and worsened in the 1980s were described in recent reports by Times correspondents William R. Long in Rio de Janeiro and Marjorie Miller in Mexico City.

In Argentina, Brazil, Peru and Venezuela, Long spoke with bankers, sociologists and politicians who warned with few exceptions that South America's financial woes pose the greatest threat to democracy there. Whether it is runaway inflation in Brazil, rising unemployment in Venezuela or lack of investment capital in Peru, the effect is the same--living standards for most people have declined and are still falling. In Venezuela, once regarded as a model middle-class democracy, it is estimated that 25% of the population now lives in "absolute poverty."

In Mexico, Miller quoted a widely respected former finance minister, Jesus Silva Herzog, who warned that the austerity policies of President Miguel de la Madrid "cannot be maintained for another six years" by President-elect Carlos Salinas de Gortari. Although De la Madrid managed to cool inflation, the value of the average Mexican wage has declined to the level of two decades ago. The precipitous fall in the peso's value has created political pressures that could force Salinas to adopt policies with international economic repercussions, like suspending payment on the country's $103-billion foreign debt.

The economic trends are less dramatic than are Central America's wars, but they are every bit as important. Yet in nearly eight years in Washington President Reagan and his aides simply never grasped this fact. Obsessed with tiny Nicaragua and its troublesome Marxist government, they ignored more profound threats to freedom and democracy. Reagan's myopic view of Latin America is still on display in the campaign platform that was adopted last week by the Republican Party. Its section on the Americas is devoted largely to criticism of Nicaragua and Fidel Castro's Cuba. The only mention of economic issues is a pledge to "continue to promote policy reforms to free the private sector in Central America." Central America--not Latin America.

That myopic view may not be shared by GOP presidential nominee George Bush. His campaign manager is former Treasury Secretary James A. Baker III, the only Administration official to even try to get a handle on the Latin American debt crisis. At that, his so-called Baker Plan was tentative and cautious, not far beyond Reagan's stance of non-involvement. In effect, Baker offered indebted nations like Mexico and Argentina more loans at slightly lower interest rates in return for opening their economies to more outside investment. Far more innovative proposals have been put forward by Latin American economists and Henry A. Kissinger, former secretary of state. They stress the need for creditor governments, including the United States, to share the debt-ridden Latin American nations' economic burden and help stimulate new growth in economies south of the border.

Kissinger believes that the debt crisis offers the industrial democracies an important chance to help modernize the stagnant economies of countries like Mexico, and we agree. Unfortunately, the Reagan Administration has been one of the governments "trapped by doctrine," in Kissinger's diplomatic phrase, and passing up the chance. It is ironic that on his recent trip to Latin America Secretary of State George P. Shultz went out of his way to lecture his hosts in Brazil and Ecuador on the virtues of free-market economic policies. His words would have more effect if his boss was willing to put some resources behind them. Like so many important Latin American issues, the debt crisis is one more failure that Reagan will leave for his successor.

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