Courtesy Reuters

Latin America: The President's Agenda

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We are approaching a decisive moment in our relations with Latin America. It is a time of major transition in the Americas, North and South. Not only is national leadership changing in the United States, but new presidents have recently come to power in Mexico and Ecuador, and presidential elections are scheduled in many other key Latin American countries. By the end of next year new leaders should be chosen in Brazil, Argentina, Venezuela, Bolivia, Jamaica and El Salvador. In 1990 elections are due in Colombia, Costa Rica, the Dominican Republic, Guatemala, Peru and Uruguay. A changing of the guard also now seems likely in Chile, and is not out of the question in Panama.

These shifts in leadership will inevitably transform the political map of the hemisphere. They are coming at a time when U.S.-Latin American relations are deeply troubled and uncertain—as much as they have been at any time in recent history.

The new U.S. Administration of President George Bush will need to come up with fresh and practical proposals to deal with some very difficult problems: the debt crisis, which has brought economic distress and deep frustration to much of Latin America; the burgeoning traffic in illegal drugs, now a shared tragedy for the entire western hemisphere; deep friction over migration and trade; and the persistence of Central America’s turmoil. The hard fact is that U.S. policy is not effectively addressing any of these crucial issues. Conflict—not cooperation—has come to dominate U.S.-Latin American relations in the 1980s.

Not surprisingly, Latin Americans blame the United States for these strains. They criticize our impatience, our persistent impulse toward unilateral action and our repeated attempts to insist on Washington-designed solutions to regional problems. For our part, we charge Latin American governments with being too passive in the face of hemispheric security threats, too suspicious of our motives and too wedded to outworn principles that hinder effective action. In recent years, each of these stereotypes has dangerously reinforced the other.

It is urgently important that we break out of this unproductive circle of rhetoric and get on with the business of trying to solve common problems.

II

Our first priority must be to confront Latin America’s debt crisis head on. Six years of economic distress have left Latin Americans bitter and frustrated. The region as a whole has already lost one full decade of development. Some countries have suffered even more. Per capita incomes in Argentina, Venezuela and Peru are today less than they were in 1970. Recovery in virtually every country of Latin America remains blocked by a massive burden of unpayable debt. The partial measures taken so far have kept Latin American countries on a treadmill of painful austerity, economic stagnation and rising debt.

Latin America’s current economic problems have their roots in the 1970s, a period of unprecedented growth for the region. That growth was fueled by massive commercial borrowing spurred by very low international interest rates. In a climate of rapid growth and easy credit, the region’s indebtedness grew more than tenfold between 1970 and 1982, from $27 billion to about $300 billion.

The cost of servicing that debt soared in the early 1980s as interest rates rose to record levels. At the same time, Latin America’s capacity to meet its obligations dropped precipitously when global recession cut deeply into export earnings and the region’s access to commercial credit was sharply curtailed. The debt crisis was the result of this deadly combination of high interest payments, falling export earnings and limited access to new loans.

The problems were compounded by a legacy of economic mismanagement. Public sectors throughout Latin America were bloated. Inefficient state enterprises were operating at large losses, while private firms had become dependent on cheap credit and other government subsidies. In some countries, military spending added to the drain on government budgets, as did poorly functioning tax systems. Overvalued exchange rates promoted capital flight and discouraged investment in export industries.

Latin America’s economic problems have exacted a high price. In the past six years, the people of Latin America have seen their jobs disappear and their wages fall. Workers in Mexico, for example, are earning 40 percent less today than they were in 1980. Some countries, including Brazil and Argentina, are confronting triple-digit inflation and record levels of unemployment. Throughout the region housing, schools, hospitals and other public services have deteriorated. Many cities are enduring food shortages and mounting street crime.

Financially strapped governments are unable to confront crippling social problems such as the vast gap between rich and poor, the grinding poverty of rural areas and city slums, widespread malnutrition and high rates of infant mortality. These problems are getting worse—and they are beginning to tear at the political and social fabric of much of Latin America. Democratic governments throughout the region are losing support because they cannot meet the basic demands of their citizens. Two of the most important new leaders to emerge in Latin America in the 1980s, Presidents Raúl Alfonsín of Argentina and Alan García of Peru, have watched their popular mandates erode in the face of deepening economic disarray. Many other democratic leaders in the region have suffered similar fates.

Latin America’s economic plight has also been costly for the world’s industrialized countries—for none more than the United States. As Latin American markets have contracted, the United States has lost $20 billion to $30 billion in exports per year, making it harder to resolve our trade deficit and eliminating hundreds of thousands of jobs in U.S. factories. U.S. exports to Mexico alone were nearly $5 billion less in 1987 than they were in 1980. Furthermore, major U.S. banks hold large portfolios of shaky Latin American debt. The loans of U.S. money center banks to Latin America continue to exceed the equity capital of these banks.

Moreover, as Latin Americans lose faith in their own economies, the pressures build for migration, legal and illegal, to the United States—nullifying the effect of the new and more stringent controls imposed by the comprehensive U.S. immigration reform act of 1986. The drug trade becomes more difficult to control because Latin America cannot provide alternatives to the jobs and income now derived from narcotics. The region’s major drug-producing countries—Bolivia, Colombia and Peru—earn a significant share of their foreign exchange from drug trafficking, which is also a critical source of livelihood in impoverished rural areas.

Finally, to the extent economic distress endangers democracy, it endangers security. Time and again, democratic governments have shown that they are the most reliable defense against guerrillas and the intrusion of Soviet power in the Americas. For our sake as well as theirs, Latin Americans cannot be allowed to lose another decade of development.

Latin America is hardly a stranger to economic and social problems, but the debt crisis is at the heart of its current distress. Because they are repaying vastly more to their foreign creditors than they receive in fresh credits, Latin American governments are starving for the resources needed to pay for vital imports, new investments and sustained growth. In the past five years the region has paid out upwards of $120 billion more in principal and interest than it has received in new loans. To make these payments Latin American countries have had to curtail imports sharply—for the region as a whole, imports are now nearly 30 percent lower than they were in 1980. Argentina’s imports have dropped by nearly one-half; those of Brazil and Mexico by more than one-third. Domestic investment in the region has declined by some 30 percent, and foreign investment has plummeted by about 75 percent. In many countries machinery, plants and infrastructure are depreciating faster than they are being replaced. Growth has been imperiled for years to come.

Compounding Latin America’s financial bind has been the leveling off of resource flows from the major international financial institutions—the International Monetary Fund (IMF), the World Bank and the Inter-American Development Bank (IDB). Most of Latin America’s major debtors, including Brazil, Mexico and Argentina, are now paying more in interest to these public institutions than they are receiving in new loans.

The United States remains committed to the debt strategy proposed by U.S. Treasury Secretary James A. Baker III in September 1985—the so-called Baker Plan. That strategy counted mainly on new public and private lending to provide Latin America with the resources needed to rekindle growth and defuse the debt crisis. So far it has not produced either the resources or the results promised, and few in Latin America now believe it ever will.

Instead of lending more to the region, as called for in the Baker Plan, the commercial banks have reduced their commitments. In 1986 the banks collected almost as much in principal repayments as they disbursed in new credits. Substantial loans to Mexico and Argentina accounted for most of the aggregate increase in bank lending to Latin America in 1987. Few other countries obtained commercial financing, aside from short-term trade credits. When major U.S. banks decided in mid-1987 to set aside large reserves against Third World loans, they made clear the high risk they assigned to this debt—and signaled their intention to keep future lending to a minimum.

The time has come for the United States—in cooperation with Latin America, Western Europe and Japan—to devise a policy that can work. The full burden of solving the debt crisis clearly cannot fall on any one party. The debtor and creditor governments, together with the commercial banks, will have to find the right formula for sharing the costs.

Any solution to Latin America’s debt problems requires two reinforcing initiatives. First, Latin American countries must undertake needed reforms to improve the management of their economies. Second, the countries must have access to significantly larger amounts of external resources. Neither is sufficient by itself. The infusion of new resources—for investments and vital imports—is essential for the successful implementation of economic reform and growth programs. Given the currently inadequate flows of external financing from both private and official creditors (and the small prospect of any significant increase), needed resources would have to come in large measure from reduced debt payments.

At the same time, Latin American countries must adopt sensible policies to assure that the external capital provided is put to productive use, not squandered. Governments must trim fiscal deficits, which lead to high inflation and also divert scarce resources from private investment. They must allow markets to determine most prices, move to eliminate subsidies to inefficient public and private enterprises, and maintain realistic exchange rates that provide the right incentives for exports.

Economic and financial authorities in Latin America have to a significant extent recognized the need to undertake such measures; and, in varying degrees, the countries of the region have improved their economic management—particularly in the area of trade policy. But, aside from a few countries such as Mexico and Chile, fundamental economic reform has progressed slowly. Shortages of foreign capital and cramped domestic budgets pose serious obstacles to reform efforts, as do domestic politics. Many countries initiated tough measures to control fiscal deficits and inflation, but could not sustain them over time. Brazil and Argentina, for example, launched innovative anti-inflation campaigns in 1986 and 1987. After showing encouraging early results, both subsequently collapsed, underscoring the difficulty of fiscal reform in weak economies where the public demands quick improvements.

Every nation that pursues sound economic policies should have its debt payments fixed at a level that allows for recovery and sustained growth. That growth must be sufficiently vigorous—at least five percent per year for the region as a whole—to reduce unemployment, allow for meaningful social advances and avoid political instability.

The most feeble economies of the region may require, in one form or another, outright forgiveness of a significant portion of their debt. An imaginative debt buy-back scheme has already been adopted for Bolivia. With new loans from the United States and other official creditors, Bolivia is repurchasing its commercial bank debt at deflated market prices. This approach might be extended to several other countries, such as Peru, Costa Rica and the Dominican Republic, whose debts are selling for less than 15 cents on the dollar in secondary markets.

Not many countries will need such extensive relief. For most of the larger debtors, reduced interest payments over several years, combined with some stepped-up lending and some rescheduling from the international financial institutions, should be enough to restore a healthy rate of growth—if the debtors have sensible economic policies in place.

The precise combination of relief and new lending will have to be calculated separately for each country. Argentina, for example, with an annual interest bill equal to more than 50 percent of its export earnings, will require far more significant reductions than either Brazil or Mexico, whose interest payments are a considerably smaller percentage of export revenues. The Bush Administration should, soon after taking office, call on the World Bank and the IMF to evaluate the debt-payment capacity of each Latin American country. The two institutions have already done most of the calculations necessary for such evaluations.

The costs of confronting Latin America’s debt crisis in this way will not be insignificant. Commercial banks will have to write down some loans and/or accept reduced interest payments. Most banks have already substantially reduced their Latin American exposure and created large reserves against anticipated losses. But the United States and other creditor governments—either directly or through international financial institutions—will have to provide at least partial guarantees to the banks to assure them that remaining debt obligations will be paid. According to several estimates, the up-front cost of such guarantees might be on the order of $15 billion to $20 billion—most of which, practically speaking, would have to come from the trade-surplus countries of Japan and Western Europe, although the United States must also be prepared to contribute.

All this will no doubt be difficult to work out and accomplish, but we surely have the technical competence to do so. What we most need is political leadership and resolve. The longer we delay taking decisive action, the greater the ultimate cost will be—to the United States as well as to Latin America.

III

Our second aim should be to join with the countries of Latin America, Europe and Canada in finding a resolution for Central America’s wars and in working to build a lasting peace in the region. The August 1987 accord among the five Central American presidents—based on the plan put forth by Costa Rican President Oscar Arias—provides a viable framework to end the region’s conflicts. It is based on three principles: nonaggression among the governments of Central America, an end to external support for insurgencies, and respect for political freedoms.

Real progress has been made toward regional peace and reconciliation in the past year and a half. Most important, the cease-fire negotiated in March between the Sandinista government of Nicaragua and the Nicaraguan resistance (better known as the contras) has held, with only sporadic violations reported. But the progress remains limited and all-too-easily reversible. The crackdown on opposition activity in Nicaragua last summer underlines just how fragile that progress is.

We must not forget that antagonisms run deep in Central America, that violence has become an everyday fact of political life, and that the region is still an armed camp. During the past five years, the military forces of El Salvador and Nicaragua have quadrupled in size and budget. Both countries have endured many thousands of deaths, the displacement of hundreds of thousands of refugees, and hundreds of millions of dollars in damage. They have sacrificed a whole decade in self-destruction. Not since the Mexican Revolution of 1910-20 has internal warfare in Latin America been so brutal or so prolonged.

Central Americans on all sides are making clear that they want to turn from waging war to making peace. But even if negotiations were to succeed in bringing the region’s conflicts to an end, the countries of Central America would still face the enormous tasks of rebuilding shattered economies, reconciling hostile political forces and alleviating widespread poverty and social injustice. In short, the root causes of violence in the region must be addressed if peaceful, democratic development is to be sustained.

Specifically, the United States should undertake an unambiguous commitment—as it has not done so far—to abide by the spirit and letter of the Arias Plan. As the plan proposes, the United States should confine any further support to the contras to humanitarian aid. We should encourage the contras to negotiate with the Sandinistas and to work seriously and persistently toward reaching an acceptable agreement.

The contras are clearly in a far weaker position today than they were a year ago. Most of the contra troops are in Honduras, not Nicaragua. They have received no military shipments from the United States since February—and they cannot count on renewal of such aid any time soon. No longer are they in a position to wage an effective military campaign against the Sandinista army. But the Sandinistas have also been weakened. They may have effectively contained the contra insurgency, but the Nicaraguan economy is in shambles and popular discontent is rising. As long as the conflict remains unsettled, Nicaragua cannot hope to obtain desperately needed economic assistance from the international community. The Sandinistas must also remain concerned about the prospects of renewed U.S. military aid to the contras, and even about the possibility of direct U.S. intervention. The interests of both sides would be served by a negotiated settlement.

The United States must help assure the other countries of Central America that their national security and territorial integrity will be protected. The incoming U.S. administration should undertake direct negotiations with the Nicaraguan government. Such negotiations should seek a security agreement that reduces the size of Nicaragua’s army, prompts the withdrawal of Soviet and Cuban military personnel from Nicaragua, sharply curtails new weapons acquisitions and prohibits any and all Sandinista assistance to insurgents elsewhere.

The provisions of a security agreement must be made as precise and comprehensive as possible so there is no question as to commitments undertaken. Effective procedures must be specified and put into place for monitoring and verifying the final arrangements. Canada and several European countries have expressed their readiness to participate in the design and implementation of the necessary procedures.

It will not be easy to devise adequate security arrangements in Central America. But there will surely not be a satisfactory settlement unless we start negotiating. What is most needed is for Washington to become fully engaged in the diplomatic process.

We must also work to advance human rights and democratic politics in Nicaragua. Indeed, a centerpiece of the Arias Plan is democratic change in Nicaragua. Nicaragua, however, has never been ruled democratically, and it will surely not become a democracy from one day to the next. Sustained diplomatic and political pressure from the United States and other Western democracies is more likely to accomplish this goal than is military force. Particularly helpful would be multilateral support for democratic forces within Nicaragua, including, for example, business associations, trade unions and the media. In addition, international assistance for rebuilding Nicaragua’s devastated economy should be conditioned on democratic reforms that open real political space for opposition groups.

The United States also faces difficult policy choices elsewhere in Central America. The civil war in El Salvador is no closer to resolution now than it was eight years ago. And in Guatemala a guerrilla insurgency continues to smolder. In both countries, elected civilian governments remain weak and constrained by powerful military establishments—and human rights abuses are widespread. Neither country is likely to achieve peace through military victory, and the United States must begin to use its considerable leverage actively to promote negotiated settlements—as called for in the Arias Plan—as the basis for the eventual reconciliation of the warring parties.

But if the countries of Central America are ever finally to break their deadly cycle of deprivation, repression and violence, the region’s economies must be rebuilt, expanded and made more equitable. The need for emergency relief from the United States and other countries is obvious—especially to help refugees rejoin their societies or relocate permanently. The United States and the rest of the international community should also help the region rebuild its infrastructure and productive base, improve social services and restore regional economic links.

Major attention must be given to Central America’s critical problems of debt and trade. Industrial countries should offer improved access to their markets for the region’s exports and provide compensatory financing when export prices drop. Interest payments, at least for Central America’s official debt, could be used to establish a special fund for the region’s reconstruction. Regional approaches should be promoted because they make the most sense economically and could reinforce the peace process.

IV

A third priority is for the United States, along with other established democracies, steadfastly to support democracy and democratic institutions throughout Latin America. Democracy is today taking hold in Latin America. Few countries enjoy full, unfettered democracy, but more than 90 percent of the region’s population is now governed by democratic leaders. Latin America’s six largest nations—Brazil, Mexico, Argentina, Venezuela, Colombia and Peru—are ruled by civilian governments. In all of South America only two countries still suffer military dictatorships—Paraguay and Chile—and Chile took a critical step toward a democratic transition on October 5 when the voters in that country denied General Augusto Pinochet his bid to remain in power for another eight years. By contrast, just ten years ago, only two South American countries were governed democratically. Democratic change is also advancing in Central America, if by fits and starts. And in the Caribbean authoritarian regimes hold power only in Cuba and Haiti.

These democratic advances are gratifying, but they are still tentative and tenuous. Throughout Latin America democratic institutions are fragile and beleaguered. The regionwide economic crisis is compounded in half a dozen countries by guerrilla insurgencies and by drug-related corruption and crime in many others. Peru and Colombia face both challenges. In too many places, military establishments escape civilian control and retain enormous power and influence. Not only in Central America, but also in such countries as Peru, Ecuador and Argentina, the armed forces may once again openly challenge democratic rule.

Already these multiple pressures are taking their toll on democratic governments. In country after country, moderate and pragmatic leaders have been unable to govern effectively. Few have managed to retain popular support. Since 1982, when the debt crisis emerged, ten presidential elections have been held in Latin American countries with civilian governments. In eight of them, the opposition candidate came out on top. In Peru and Bolivia, governing parties suffered humiliating defeats at the polls, obtaining less than ten percent of the votes cast. In Mexico, where the ruling Institutional Revolutionary Party (PRI) held onto power, the next president assumes office with the weakest mandate of any Mexican president in the past half-century. In one sense, this regional pattern is positive in that it shows that genuine competitive politics are emerging, but it is also dangerous. If confidence in popularly elected governments continues to erode in Latin America, not only specific leaders but democratic rule itself may lose credibility.

Solving the debt crisis and ending Central America’s wars would do the most to bolster democracy in Latin America. But other measures can also help to nurture democratic rule. These include: strong official statements in support of democratically elected governments; denial of economic and military assistance to regimes that violate human rights and repress civil liberties; and financial and technical assistance to strengthen electoral processes, freedom of the press, legislative and judicial systems, trade unions and other civic institutions.

It is important to recognize, however, that democracy, by its very nature, must be achieved by each nation largely on its own. Democracy is not an export commodity. It can and should be nurtured from abroad, but it cannot be transplanted from one country to another. The most effective outside support is indirect—cooperation in multilateral programs and assistance for social and economic development. Policies that are unilaterally interventionist should be rejected.

V

As a fourth goal, it is of utmost importance that the United States work closely with Latin American nations in attacking the hemispheric drug trade. For all of the anger in the United States about the flow of illegal drugs from Latin America, the new administration will have to understand that the drug crisis is a shared tragedy for both halves of the hemisphere. Drug use is increasing rapidly throughout Latin America. According to some reports, for example, Colombia now has more cocaine addicts per capita than does the United States.

Moreover, the governments of Colombia, Bolivia and Peru are being overwhelmed by the massive corruption and growing power of drug traffickers. Judges, police, military officers and elected officials are being bought by narco-dollars and intimidated by violence. Drug criminals have taken control of large areas of national territory and often cooperate—sometimes tacitly and sometimes directly—with antigovernment guerrillas. Worse, more and more Latin American countries are being drawn into the narcotics network. Some 15 nations are now involved in producing, processing and distributing cocaine.

U.S. pressures on Latin American governments to intensify the eradication and seizure of narcotics have not curtailed the drug flow. Instead, they have become a new and damaging source of friction in inter-American relations. But drugs do not have to be a source of conflict. They can and should be a challenge for joint hemispheric action. The new administration should seek sustained cooperation from Latin American countries to fight both their and our narcotics problems.

As Americans, we must accept the fact that the drug problem will not be solved quickly or easily. In fact, there are no good solutions right now. We must be honest in recognizing that the war against drugs will be won only if the United States can curb its own demand for illicit drugs. The recently approved Omnibus Drug Bill for 1988 increases funding for drug education and treatment in the United States, and generally gives greater emphasis to reduction of demand. It may signal a welcome recognition that the only way to deal with the problem is to face it squarely and honestly. We must make the necessary resources available and put them to work where they can be most effective.

The United States, for example, now spends more than $1 billion a year trying to interdict drugs at the border, with little effect on either the price or availability of drugs in this country. Some of those resources could be put to better use for anti-drug efforts in the producing countries themselves. Eradication campaigns have had some success when they have been backed by real commitment and sufficient financing. Mexico and Jamaica have been able to reduce their marijuana production substantially. Ecuador has nearly stopped the cultivation of cocaine.

Eradication programs could be made more effective, not primarily by spending more to uproot crops, but by investing more in rural areas to create new jobs and income for peasant farmers and others who currently derive their livelihood from narcotics. Ultimately, sustained economic development is what is required to wean drug-producing regions from their dependence on drug crops.

Washington should be helping countries to design and implement their own drug-control strategies rather than pressuring them to adopt U.S. prescriptions. Fragile democracies are further weakened when they are forced by external pressure to undertake actions that do not reflect national choices.

VI

As a fifth objective, the United States should take leadership in actively supporting the rebuilding of inter-American institutions. During this difficult period of strain in U.S. relations with Latin America, the countries of the region have made significant and welcome moves toward cooperation among themselves. The Central American peace initiative is the outstanding example. But it could not have occurred if the Contadora countries—Colombia, Mexico, Panama and Venezuela—had not paved the way by creating a framework for a regional peace settlement.

In addition, the presidents of the Contadora countries and their South American "Support Group"—Argentina, Brazil, Peru and Uruguay—have initiated annual summit meetings. This group of eight countries (actually seven, since Panama’s participation has been suspended) is now seeking to establish a permanent forum for regular interchange and consultation among Latin America’s democratic governments. It is still uncertain whether this can be done effectively on a sustained basis or whether it will lead to greater confrontation rather than increased cooperation with the United States.

While intra-Latin American cooperation has been growing, established inter-American institutions have atrophied. The Organization of American States in recent years has become all but irrelevant in hemispheric affairs—overlooked, ignored, forgotten. Over the past two decades, the OAS has been immobilized on key hemispheric issues by persistently divergent views of the United States and Latin America as well as among the countries of the region. In recent years, important matters have been increasingly dealt with outside of the OAS, thereby causing the organization to lose its role and significance.

The Inter-American Development Bank is currently mired in a damaging dispute between the United States and its Latin American members. The dispute, which has stalled a scheduled and urgently needed $20-$25-billion replenishment of the bank’s capital, centers on voting procedures for approving loans. As a condition for renewed support, the United States has demanded a controlling voice in lending decisions to assure that a series of agreed-upon policy changes are fully implemented. The IDB’s Latin American members have been unwilling to accept this demand. A high-level review committee is now studying the operations of the Inter-American Development Bank and will make its recommendations before the end of the year. Both the United States and the nations of Latin America should be prepared to accept these recommendations, resolve their dispute and restore the bank’s important role in funding regional development efforts.

Strong inter-American institutions could contribute in important ways to the hemisphere’s capacity to deal with collective security concerns, to mediate conflicts between nations, to foster economic development and to help protect human rights. They can only be effective in these tasks, however, if the governments of the region truly want them to work.

A strong commitment to these institutions from the United States, the hemisphere’s most powerful country, would surely help encourage others. Such a commitment would require credible assurances from Washington that it will not intervene unilaterally in the internal affairs of Latin American countries. It would also require that we fulfill our financial obligations to the OAS—as we have not done in recent years.

VII

Finally, the United States now faces many critical problems in its bilateral relations with specific countries. Two countries—Mexico and Panama—are likely to present Washington with especially difficult challenges.

No country in the western hemisphere, and very few elsewhere, affects the lives of Americans more than Mexico. Mexico is our fourth-largest trading partner and our most important foreign supplier of oil. Millions of Mexicans cross into the United States each year in search of jobs and a better life. Mexico is a vital player in hemispheric debt and trade issues, and has been a leader in the Contadora group promoting a peace settlement in Central America. Mexico is also the largest source of heroin and marijuana for the U.S. market. Every problem that divides the United States and Latin America is magnified many times over in the case of Mexico. We cannot escape Mexico’s influence any more than Mexico can escape ours.

Mexico today is a troubled society, facing wrenching political and economic transformations. Since the debt crisis emerged in 1982, the Mexican economy has been virtually stagnant: real wages have dropped by nearly 40 percent, the unemployment rate is higher than ever and inflation remains a constant threat. Mexico has made painful sacrifices to meet its international debt obligations and to reform its economic policies.

The recent U.S. decision to provide Mexico with a short-term $3.5-billion bridge loan while new World Bank and IMF financing is being arranged will help to shore up the Mexican economy during a particularly difficult period of low international oil prices. This was a welcome initiative, but it can only be considered a stopgap measure. Like the other highly indebted countries of Latin America, Mexico will require further significant help if it is to sustain its promising economic reform program and restore a healthy pace of growth.

Popular demands for an end to austerity are mounting—and putting unprecedented strain on the country’s political system. Recent presidential and congressional elections in Mexico underscored the depth of popular discontent in that country. The election results effectively ended Mexico’s long history of one-party rule. The new president, Carlos Salinas de Gortari, will confront a more open, competitive and demanding political environment.

Mexico’s economic and political changes may well establish the foundation for a healthier society in the longer run, but the immediate future is likely to be characterized by greater instability and unpredictability. The consequences for U.S.-Mexican relations are still uncertain.

U.S. policy toward Mexico in this next period must deal with a long list of difficult problems—debt, trade, drugs, migration, border management and others. In confronting these problems we should be guided by a few simple principles:

—The United States must refrain from intervening—or even giving the appearance of trying to intervene—in Mexico’s domestic affairs. Mexicans are proud, sensitive and highly nationalistic. They must be left to determine their own social, political and economic arrangements free of outside interference.

—Washington should, as a matter of course, consult with Mexico City on those domestic and foreign policy initiatives that significantly affect Mexico—including, for example, migration policy, drug control efforts, trade and debt measures, and actions in Central America. Such consultations will not only help to reduce conflict over specific issues; they should also contribute to more effective approaches to our common problems.

—Finally, we must accept the fact that disagreements with Mexico are inevitable. The United States should not, as it has too often done in the past, ignore these conflicts or pressure Mexico to accept the U.S. position. Nor can we allow tensions over specific issues to contaminate the broader relationship. Instead, we must face our differences honestly and work hard to find mutually satisfactory solutions.

U.S.-Mexican relations can be improved and made more constructive. Greater cooperation and less acrimony between our two countries is surely possible—not overnight, but certainly over time. What is most needed is for the United States consistently to demonstrate its respect for Mexico as a nation and as a neighbor.

Turning now to Panama—a country that today is in deep crisis. Our actions toward Panama over the past year, which directly contributed to that crisis, have come to epitomize for many Latin Americans much of what is wrong with U.S. policy toward the entire region. Their dismay is understandable. For too long, we accepted the corrupt and dictatorial rule of General Manuel Noriega. The Administration then sought unilaterally to force him out with a strategy that was risky and ill considered. The end result is that the Panamanian economy has been devastated, and Noriega has tightened his hold on power. Moreover, our intervention undercut promising efforts by several Latin American leaders to negotiate Noriega’s departure—and it also set back the country’s internal opposition.

If there is one bright spot in this policy debacle, it is that the Panama Canal treaties have not emerged as a major issue either in Washington or in Panama. Both sides fortunately recognize their mutual interest in maintaining the integrity of the treaties—and have so far carefully avoided entangling them in the current crisis.

Our interests and those of the Panamanian people would surely be served by Noriega’s departure from power and the establishment of democratic rule in Panama. But the new administration should respect the initiative of the Latin Americans and firmly support their efforts to promote a negotiated solution between General Noriega’s forces and Panama’s internal opposition. We should also announce our willingness to assist Panama in rebuilding its economy once there is demonstrated progress toward democracy.

VIII

It should be clear that the western hemisphere will present the new administration with some of its toughest foreign policy challenges. To confront these challenges successfully, the United States must reorder its hemispheric priorities.

For too long, we have been obsessed with events in a single small country—Nicaragua—while other, more portentous hemispheric problems have gone unattended. Obviously, we must guard against significant threats to hemispheric security from the Soviet Union, Cuba, Nicaragua or any other source. And most citizens and governments throughout the hemisphere join us in opposing the projection of Soviet power in the Americas. We should not, however, exaggerate security threats to the neglect of other significant issues, or seek to address them in ways that isolate us from our allies in the region.

It is worth emphasizing once again that Latin America’s debt trap, more than any other hemispheric issue, demands far greater attention and action from the United States than it has been getting. The protracted regional economic crisis compounds in damaging ways all of Latin America’s other problems and has grave implications for the United States.

We must also understand that there are no "quick fixes" for major hemispheric problems, nor should we expect any sudden changes in Latin American attitudes toward the United States. We must, instead, accept the fact that conflict and tension will pervade our relationship with Latin America for years to come. The United States and Latin America have legitimate differences in interests on many specific issues. We are also divided by long-standing, deep-seated and sometimes well-founded suspicions of each other. It will take time and persistent effort to reshape U.S.-Latin American relations and make them more constructive. The United States will have to display much more patience and understanding than it has to date.

Above all else, we must understand that solutions to hemispheric problems cannot be manufactured in Washington and imposed on Latin America. They must be forged as cooperative undertakings between the United States and Latin America. Unilateral initiatives are rarely effective, and understandably antagonize our Latin American neighbors. We need the cooperation of Latin American countries just as much as they need ours—and we must work hard to obtain it. Common problems must be addressed jointly. Our fundamental goal must be to restore a sense of trust and partnership in U.S.-Latin American relations.

The new administration could quickly make clear its commitment to that goal by announcing, upon assuming office, its willingness to participate in a summit conference with the presidents of Latin American democratic countries to discuss issues of common concern and to formulate a common course of action. The timing is right and the need is urgent. The resurgence of democratic rule in Latin America provides a foundation of shared values that should be making U.S.-Latin American cooperation easier and more productive. The magnitude of the problems we face together makes such cooperation essential.

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