Latin America Finances

James A. Baker III, acknowledging that the global debt strategy he developed as Treasury secretary is not working, called Tuesday for new action to help Latin American nations reduce their huge debts and to dampen the threat to their democratic governments.

Latin American history has been shaped by stubborn and often frustrated idealists. Simon Bolivar helped liberate the colonies from Spain in the early 1800s but failed to keep them united in independence. Late in the 1980s, Costa Rica's Oscar Arias Sanchez won a Nobel Prize for pushing Nicaragua from war to peace but couldn't persuade any of his neighbors to abolish their armies. Today the region's utopian spirit is as vital as ever.

The stability of Latin American democracies is being threatened by a dramatic economic decline that has driven per-capita incomes below 1978 levels, the presidents of the region's major democratic countries said Saturday.

Struggling with average annual inflation of 187% and a combined foreign debt of $410 billion, the economies of Latin America lost momentum in 1987, according to a report issued Tuesday by the United Nations Economic Commission for Latin America and the Caribbean. "In 1987, the economic crisis that Latin America has been suffering since the beginning of the present decade was aggravated," the report said.

Latin America may, at last, be showing the first signs of emerging from its debt crisis, which poured red ink onto U.S. banks in the late 1980s and created a crisis of confidence in Latin economies. After a 17-month hiatus, Brazil--Latin America's largest debtor nation--announced earlier this month that it would resume interest payments on the $60 billion it owes private banks early next year.

Latin American presidents Friday sharply criticized industrialized nations for ignoring their crushing economic problems and called for joint action to confront "the dragons of our decline" in the march for prosperity. "The era of waiting for saving help from the outside has ended," said Brazilian President Jose Sarney in the opening session of an eight-nation summit in this Pacific coastal resort.

Treasury Secretary Nicholas F. Brady's controversial new plan for reducing the Third World's debt burden won formal presidential backing Tuesday but officials said it is likely to require more "development" and will be put into effect only slowly. At a 90-minute meeting, a Cabinet-level review group headed by President Bush technically endorsed the Brady proposals.

The Bush Administration is growing deeply concerned about the deteriorating economic and political situation in Latin America and, just as it did 3 1/2 years ago under similar circumstances, the Treasury Department is preparing a new plan for dealing with the Third World debt problem. But this time, the Treasury is putting a heavy emphasis on a relatively new approach--encouraging banks to voluntarily forgive part of the debt owed to them by developing nations.

Frank V. Cahouet, the peripatetic California banker who helped turn Crocker National Bank around before it was sold to Wells Fargo last year, will become the new chief executive of Pittsburgh's Mellon Bank, the bank announced Monday. Mellon also said Monday that it was setting aside $415 million for additional losses on Latin American loans and, as a result, expects to lose $500 million in the second quarter and a substantial amount for the year. Mellon is following many major U.S.

Soviet President Mikhail S. Gorbachev began his first full day of talks with Cuban President Fidel Castro on Monday amid indications that the two may be looking for a fresh approach to fighting the growing flow of drugs from Latin America. During their first 90 minutes of formal talks in the morning, both Gorbachev and Castro addressed the drug problem, according to Soviet spokesman Gennady I. Gerasimov, who sketchily described the meeting to reporters afterward.