Courtesy Reuters

Latin America: Ready for Partnership?

From the "Lost Decade" to a New Boom

PRESIDENT BILL CLINTON will have to decide soon what stance to take toward the countries of Latin America and the Caribbean. Should he embrace former President George Bush's soaring vision of a "free trade system that links all of the Americas-North, Central and South-as regional partners in a free trade zone stretching from the port of Anchorage to Tierra del Fuego"? Are America's neighbors in the western hemisphere ready for such a partnership? What priority should relations with Latin America have when the U.S. public is so concerned with domestic issues?

At the end of the 1980s, with the Cold War winding down and Russia and the other countries of eastern and central Europe turning toward free market competition, it was widely asserted that Latin America would become less important. After the "lost decade" of economic depression throughout Latin America, invidious comparisons were made with East Asia and Europe. Latin America seemed unable to compete in a world economy that requires fiscal discipline, investment and technological prowess. It was said that as investment and trade flowed increasingly to the former Council for Mutual Economic Assistance (COMECON) nations and those of East Asia, Latin America would lose any hope of foreign investment or sustainable recovery. An impoverished Latin America, with little remaining strategic significance to Washington in the post-Cold War world, might well drop off the map of U.S. concerns.

Far from ignored, however, Latin America has attracted enhanced attention in the early 1990s. By the beginning of 1992, the region was often portrayed as poised for a new boom. International financial officials were singing Latin America's praises, and investors had rediscovered its virtues. Nearly $40 billion in private capital entered Latin America in 1991, more than twice the flow in 1990, the first year of net positive capital flow in almost a decade. New foreign direct investment in Latin America increased in 1991 by more than 150 percent. Five of the six fastest rising stock markets in the world that year were Latin American.

Latin America's political advances were also hailed. Senior officials of the Bush administration liked to claim that "96 percent of Latin Americans now live in democracy" and that the Americas are becoming "the first completely democratic hemisphere in human history." There appeared to be a new sense of community in the western hemisphere, reflected in the Organization of American States (OAS) and particularly in its 1991 Santiago Declaration, which established agreed procedures for collective action to protect democracy.

Has Latin America Turned the Corner?

THE FIRST STEP in assessing U.S. policy toward Latin America is to analyze the causes, scope and significance of the region's changes. Has Latin America finally turned the corner toward economic growth, democratic governance and hemispheric community?

Three shifts have unquestionably been taking place in Latin America during the past few years: an emerging consensus among economic policymakers on the main tenets of sound policy; the even more universal embrace of constitutional democracy as an ideal; and a growing disposition toward pragmatic cooperation with the United States.

By the late 1980s most Latin American economic policy-makers came to share a diagnosis of the region's fundamental maladies and a set of prescriptions for restoring its health. Throughout Latin America and the Caribbean it became abundantly clear that the fiscal crisis of the state had to be confronted, and that it would be essential to bring inflation under control, even if that meant drastically reducing public expenditures. It became accepted as well that the import substitution approach to economic growth-however successful it had been in some countries during the 1950s and 1960s-was exhausted everywhere, and that the region's recovery depended primarily on boosting exports, which in turn necessitated competitive exchange rates and an end to various subsidies and other forms of protection. It was also agreed that Latin America must sharply prune the state's industrial and regulatory activities, privatize public enterprises, facilitate competitive markets, stimulate the private sector and attract foreign investment. The emergence of this region-wide consensus is a paradigm shift of historic dimensions.

Equally striking has been the gathering accord on the desirability of constitutional democratic politics. Just 25 years ago self-proclaimed "vanguards" on the left and "guardians" on the right openly expressed disdain for democratic procedures, and both claimed significant followings. Since the mid-1970s, however, a wide spectrum of Latin American opinion has come to recognize the value of democratic governance: military officers and former guerrillas, intellectuals and religious leaders, corporate executives and labor organizers. Year by year it has become clear that most Latin American elites, as well as the public at large, agree that government authority must derive from the uncoerced consent of the majority, tested regularly through fair, competitive and broadly participatory elections. Latin America's commitment to electoral democracy has thus far survived even hyperinflation in Argentina, Bolivia, and Brazil; democratic institutions in many European nations crumbled under similar conditions during the 1920s and 1930s.

The broad regional turn toward harmonious relations with the United States has also been unmistakable. For years many Latin Americans defined their foreign policies primarily in opposition to Washington. They denounced U.S. interventionism and exploitation, bemoaned Latin American "dependence," and blamed the United States for many of their frustrations. Restrictive policies on foreign investment, reserved markets, high tariff barriers, movements toward regional economic integration and diplomatic concertación were all forged in part as responses to U.S. power. Only in the "banana republics" could a Latin American leader advocate close collaboration with Washington without political risk.

All this has changed. Most Latin American governments and many opposition movements in Latin America today want stronger links with the United States. Mexico made the most dramatic move toward U.S.-Latin American cooperation when President Carlos Salinas de Gortari and his team began to pursue a North American Free Trade Agreement (NAFTA) with the United States and Canada. In Argentina Carlos Saul Menem has gone to great lengths to build close ties with the United States. Chile under Patricio Aylwin is pushing hard for a free trade agreement with Washington. Most other Latin American countries actively seek to improve their ties with the United States. Only Fidel Castro's Cuba holds on to its anti-Americanism, and even that country might be open to rapprochement if Washington were willing.

The turns toward free market economics, democratic politics and inter-American cooperation result from the widely perceived failure of Latin America's course in the 1970s and 1980s. Statist economics proved to be a dead end. So did authoritarian governments, which lost legitimacy everywhere-in some cases because prosperity made their high political costs seem unnecessary and in most others because they were ineffective even in economic terms. Confrontation with the United States proved to be a losing proposition as well, particularly as brave Third World talk of a "New International Economic Order" dissolved into mere palaver.

All these shifts were accelerated as well by dramatic international changes: the collapse of the Soviet threat and then of the Soviet Union itself; the end of the Cold War; the widespread validation of open markets and politics; and the fundamental restructuring of the world economy, driven by technological change. These global transformations, together with Latin America's internal experience, account for developments in the western hemisphere that were unexpected just a few years ago: the Sandinistas' acceptance of electoral defeat in Nicaragua in February 1990; the historic compromises for peace made by both the government and the insurgent left in El Salvador in January 1992; Mexico's embrace of NAFTA; the switch in many countries, even by old-time leaders, to economic policies diametrically opposed to those of the 1970s; the coming to power of rank outsiders in some countries; and the adoption of neo-liberal economic recipes throughout the region.

Latin America's recent changes, in short, are not accidental or unconnected, nor are they merely cyclical. They are responses to profound regional experiences and to a transformed global context.

Economic Reforms at Risk

YET JUST AS these important shifts began to be recognized internationally, it became increasingly evident during 1992 that some are at grave risk. The region-wide promulgation of neo-liberal economic reforms was deceptively easy. It was stunning that similar measures were announced in short order in extremely different countries, often by presidents who had campaigned against such reforms. But in most cases this convergence owed much more to the lack of credible alternatives than to broad-based national consensus or to unshakable conviction among political leaders. Except in Chile, where accord on the core national economic programs was built over many years as part of the tacitly negotiated gradual transition away from the Pinochet regime, the political base for the economic reforms is still tentative, firmly supported only by leading technocrats and some segments of the private sector.

In Brazil and Peru the reforms were decreed by popular new presidents unrestrained by effective opposition, strong parties of their own, or even by well-organized constituencies; in Argentina and Venezuela they were announced by new presidents solidly in control of governing parties and able to impose their will. In each case, too, the new president had a broad mandate for change in the wake of disastrous failures by the preceding government.

Such a political honeymoon could not last. Fernando Collor de Mello in Brazil and Menem in Argentina both tried at first to govern largely on the basis of their personal standing. Both soon learned (Menem somewhat more rapidly and much more effectively than Collor) that it is vital to build coalitions to provide ongoing support and a capacity for implementation, even if it comes at the expense of policy autonomy or of popularity in particular sectors. Peru's Alberto Fujimori-elected precisely because he was an untainted outsider-built popular backing by criticizing virtually every significant group or institution in the country, save the armed forces; his attacks resonated with a deeply alienated public. Yet Fujimori's political cannibalism left him by early 1992 with virtually no organized allies except the military, and led to his April 1992 army-backed decision to suspend the constitution, dissolve the congress, purge the judiciary, restrict the media and establish a "direct democracy" based on authoritarian rule.

Unless Latin America's economic reforms generate demonstrable results soon, they may not become solidly entrenched. Centrally planned economies linked to a world socialist system are obviously no longer relevant, but the commitments to all-out privatization, extremely liberal foreign investment regimes, truly open economies and full regional integration are likely to be modified in the coming years unless the current approaches promptly yield evident benefits. Changes in policy are all the more probable as it becomes generally perceived that income concentration is worsening, and that social, economic and in some cases ethnic divisions are widening. It is difficult, if not impossible, for governments to sustain popular backing for reforms that enrich a privileged few without providing a credible promise of broad prosperity. Strong social safety nets and improved public services might help, but they are hard to achieve while neo-liberal economic reforms are being put in place, for these reforms tend to cut the state back. It is probably not accidental, in fact, that the two countries that have advanced most toward combining economic reforms with effective social programs-Chile and Mexico-both have the major earners of foreign exchange in government hands, as well as the strongest states.

Weakening support for the neo-liberal programs was evident throughout much of Latin America in 1992, especially in the electoral gains registered by the Workers' Party and the Social Democratic Party in Brazil, the Movement To Socialism and the Radical Cause in Venezuela, the Broad Front in Uruguay, the M-19 in Colombia and the Radical Party in Argentina. Particularly striking was the resounding rejection of President Luis Alberto Lacalle's privatization program, by 70 percent of Uruguay's voters in a December 1992 plebiscite. Bolivia's privatization program, too, was sidetracked because of strong labor union opposition. And following Collor's ouster, Brazil's privatization and other reform programs also are likely to be substantially modified, for Collor's successor, Itamar Franco, is a traditional politician with nationalist instincts.

It is much too early to be confident that Latin America as a whole can recapture the economic dynamism of the 1960s and 1970s or achieve gains comparable to today's east Asian "tigers." Chile has managed seven consecutive years of impressive growth after, to be sure, long years of painful structural reform. But growth is not yet occurring in Brazil or Peru- and it has not yet proved sustainable at high levels in Mexico, Venezuela, Colombia, Ecuador, Bolivia, Uruguay, Paraguay, or in most Central American and Caribbean countries. The best growth records during the past three years have been achieved by Argentina, Mexico, Chile, Panama and Venezuela-but the latter two countries were rebounding from very deep recessions in 1988-89 and have still not fully recovered their prior levels, and the first two faced mounting difficulties in 1992.

Argentina's long-term secular decline appears to have been arrested and perhaps reversed, although after enormous cost to millions of the poor and the lower-middle class. But a severely overvalued currency, a rapidly worsening trade balance and signs of inflationary pressure raise questions about the sureness of Argentina's advances.

Mexico's massive trade and current account deficits-the latter was some $18 billion in 1992, almost three times the 1990 level and about one-half of total exports-could lead to renewed inflation. The predominance of short-term portfolio investment in the country's large recent capital inflow presents a second element of potential instability. A third comes from extraordinary sensitivity to trends in the United States, so pronounced that Mexico's stock market index declined 15 percent in one day when independent presidential candidate Ross Perot announced his opposition to the proposed NAFTA. Although Chile's impressive economic progress is soundly based on that country's economic restructuring and its success with such nontraditional exports as fruit and lumber, the scope for further growth of these sectors is shrinking as other countries start to compete, and Chile's internal market is small.

Economic performance elsewhere in Latin America and the Caribbean is still far from satisfactory. Brazil, with about 40 percent of the region's economy, continues to fight high inflation (more than 20 percent per month) and prolonged recession, with unemployment in Sao Paulo reaching a record of over 1.3 million, scores of millions living in dire poverty and a third consecutive year of negative growth overall. Peru's disastrous 15-year slide-accelerated during the past five years in which per capita income plummeted 25 percent-has brought infant mortality rates and height-weight ratios in many areas to levels found in poor African nations.

The flow of voluntary capital into several Latin American countries since 1990 has been encouraging by contrast with the lean years from 1982-89. It was further facilitated by the Brady Plan external debt renegotiation completed in mid-1992 between Argentina and the commercial banks, and the similar agreement in principle with Brazil. But much of the capital entering Latin America has been portfolio rather than direct investment, and most of it is selectively concentrated in a few large, low-risk firms. A good deal of it appears, moreover, to be flight capital-originally taken out of Latin America by elites and likely to leave again at the first sign of trouble. Recent foreign investment in Latin America has been drawn to the region in part by high interest rates and by quick stock market spurts as well as by the relatively low interest rates prevalent in industrial countries. It could leave as rapidly as it has entered if any of these conditions change for the worse, as stock prices did in most countries in 1992-dramatically so in Argentina, Brazil and Mexico.

Latin America's economies have made strides, but they are not yet out of the woods. Fiscal deficits have been reduced and inflation largely tamed in most countries, but pressure continues on both counts. The ratio of interest payments to exports has been sharply reduced, but the stock of debt is still dangerously high. Export surpluses have been impressive but even the modest recoveries now occurring are pushing imports back up fast.

Some of the obstacles to growth have been eliminated or reduced, many of the bases of sustainable development are now in place, and the gains by Chile and Mexico suggest that success can be achieved. This surely is notable progress against the disastrous background of the 1980s. If Latin America's external environment is supportive-that is, if growth rates in the industrial countries rebound, if international protectionism is avoided, if interest rates stay low and/or further debt relief is achieved-there is good reason to hope that most Latin American economies can continue to advance. But these propitious international circumstances are far from assured with such persistent sluggishness in the U.S. economy and a global economic slowdown.

Low-intensity Democracy

THE REGIONAL turn toward democracy is also highly vulnerable. Indeed, effective democratic governance in Latin America is unchallenged only in those very few countries-Chile, Costa Rica, Uruguay and the Commonwealth Caribbean-where democratic traditions were already firmly implanted 35 years ago.

Peru's turn toward renewed authoritarian rule may be unique because of the national consensus against the extremist Shining Path movement. But the deep challenge to democratic rule is by no means confined to Peru. What was most striking about the nearly successful military coup in Venezuela in February 1992 and the even bloodier attempt in November was that they appeared to have considerable support within the military and were accepted with equanimity, if not outright enthusiasm, by quite a few Venezuelans.

Brazil's democracy is also facing grave difficulties, with a failed president, extraordinarily weak parties, corruption, street crime, rural violence, police repression and general unrest. The fact that an elected president could be peacefully removed from office for larceny shows Brazil's resilience and public respect for constitutional procedures and norms, as well as the growing strength of civil society: the press, trade unions, professional associations and grass-roots movements. But the spectacularly false start for Brazilian democracy is bound to take its toll.

In Argentina, where apparent victory over inflation helped Menem consolidate political support, the president's evident desire to change the constitution to permit his own reelection and the government's efforts to pack the Supreme Court raised questions about the durability and effectiveness of constitutional restraints. Widespread perception of massive corruption-as in Venezuela and Brazil-has further undermined public trust.

Guerrilla violence still erodes or hampers democratic governance not only in Peru but in Colombia and Guatemala, and there are incipient ethnically based insurgent movements in Bolivia and Ecuador. The pervasive corruption and violence associated with narcotics has been undermining democracy in Bolivia, Colombia, Panama, Peru, Suriname and Mexico. Throughout most of Latin America, civil-military relations remain an unresolved problem, exacerbated by the drastic effects of budget austerity on military salaries and perquisites, and by uncertainty about the role of the armed forces in a changed world environment. In Central America, except for Costa Rica, military establishments often call the shots, and large segments of each country's population remain excluded from effective participation. More than eighty years after its revolution, Mexico is still far from assuring "effective suffrage"; recent local elections have become a sort of primary, the announced results of which are then ratified or reversed by the absence or presence of demonstrations in the street.

The political situations in Haiti and Panama illustrate how misleading it is to check a country into the "democratic" column on the basis of one national election. Panama's U.S.-installed president, Guillermo Endara, now registers less than ten percent popular approval in the polls, and his proposed constitutional reforms were decisively rejected in November's plebiscite. Haiti's military-imposed de facto prime minister, technocrat Marc Bazin, lacks even a flimsy cloak of legitimacy.

In country after country, polls show that most people still favor democracy as a form of government but are increasingly skeptical of all democratic political institutions. The hard truth is that representative democracy is not being successfully consolidated in most of Latin America. What is often being entrenched instead is what has been called "democracy by default," "delegative democracy" or "low-intensity democracy." Governments that derive their initial mandate from popular election are tempted to govern "above" parties, legislatures, courts, interest groups or the organizations of civil society. To the extent that they do, weak institutions are further undermined, accountability is thwarted, public cynicism and apathy grow, and legitimacy is eroded. This syndrome poses the danger, in several countries, of a slide toward renewed authoritarian rule, albeit of a stripe different from the anticommunist military regimes of the 1970s.

The current Latin American enthusiasm for cooperation with the United States may also signify somewhat less than meets the eye. In a post-Cold War world, where Europe and east Asia seem to be building economic communities, it is obvious why some Latin Americans want regional integration with North America. But not even Mexico's avidly pursued goal of a free trade agreement with the United States and Canada is as yet assured. Many South American nations may still conclude that what they can secure in the 1990s from possible accession to NAFTA is not worth the uncertainty and the cost. For several South American nations it is not at all clear how best to relate to the United States: whether through closer integration or through greater autonomy and diversified relationships. The choice is especially difficult and important for Brazil-a country twice as large as Mexico, with six times the population of Argentina and 12 times that of Chile, yet with no nationally accepted sense of direction. Although Latin Americans are talking more about regional integration than they have in many years, their very different ways of fitting into the global economy make it hard to imagine rapid progress toward a meaningful hemisphere-wide accord.

There is greater convergence in the Americas, North and South, on political values and economic fundamentals than ever before, but a hemispheric political community is far from achievement. Agreement in principle within the OAS on collective measures to protect democracy, although a notable achievement, has been difficult to put into practice in Haiti and Peru amid disagreement about whether, how and for how long to impose sanctions. Although talk of dependency is no longer fashionable, resentment in Latin America about the stance and style of the United States lurks not far below the surface. The recalcitrant U.S. role at the Rio environmental summit, the Supreme Court's decision to let stand the U.S. government's seizure of a Mexican citizen in his own country in the Alvarez Machain case, and the extraterritorial application of the Cuban trade embargo approved by Congress in the midst of the U.S. presidential campaign all brought this resentment to the fore during 1992.

In much of Latin America there is continuing wariness about possible U.S. interventionism-now no longer justified by anticommunism but motivated instead by human rights, democracy, drugs, environmental degradation or the proliferation of deadly weapons. The election of President Clinton and a Democratic majority in Congress, moreover, has accentuated concerns in some quarters about the prospect of rising U.S. protectionism and of deeper conflict on economic issues.

The Time of Cholera

LATIN AMERICA'S chances for sustaining economic and political advances depend in part on overcoming widespread poverty and vast inequalities, but these problems have actually been getting worse. According to U.N. statistics, 44 percent of Latin Americans live at poverty levels, three percent more than ten years ago. Some 180 million people survive without basic necessities, according to U.N. definitions; many of these subsist in extreme poverty, unable to maintain the minimum caloric intake required for human health.

After a decade of depression, austerity programs and structural adjustments, millions of Latin Americans who earlier thought they had made it to the middle class have been impoverished. Neo-liberal economic programs have provided benefits to a few, but in the short run they reduce wages and increase uncertainty for many. Although it has become unfashionable worldwide to talk about class struggle, the divisions in Latin America have become sharper. The region's top income groups have been further improving their living standards, while minimum wages in Latin America have declined by one-third in real value over the past decade. In Brazil, Peru and Ecuador, the wealthiest 20 percent of families today earn more than 30 times what the poorest 20 percent earn, compared with a differential of less than ten times in the United States.

For Latin America's poor, the 1990s are literally the time of cholera-and of tuberculosis, malaria and other infectious diseases. Millions of children wander Latin America's streets living from hand to mouth. Many turn to petty crime or the drug trade to survive. Those who are fortunate enough to finish secondary school or even go on to university are often finding thereafter that there is no decent employment available.

In many Latin American countries the "social question" is reaching critical dimensions. Urban and rural violence is growing, and it is often brutally suppressed in ways that ultimately fuel its further spread. Pervasive social breakdown is reflected in such horrible practices as kidnapping for ransom and the sale or killing of children. These grim realities reflect-and in turn feed-a high degree of frustration and alienation, most painfully evident in Peru but palpable in many Latin American nations. Emigration is burgeoning, even from countries like Brazil where it has not previously occurred. Insurgent and millenarian movements are gaining strength, as are evangelical religious sects. All these conditions make for volatility, not for sure and steady progress.

Latin America's chances of successfully confronting its social agenda may depend significantly on the left. A political space now exists in many Latin American nations for a modern social democratic movement, one that accepts the democratic rules and the main tenets of modern economic doctrine but confronts the issues of equity that have been largely neglected thus far by most reigning technocrats. New programs are needed to make tax structures fairer and more enforceable; to improve education and health care; to provide adequate nutrition, prenatal programs and infant care; and to build better links between training and jobs. It is not yet clear, however, whether the Latin American left can forge effective new approaches, or whether it will instead remain defensive and quiescent, tied to old habits of thought and disoriented by the sway of neo-liberalism.

Shared Challenges and Diverging Paths

WITH THE SETBACKS to democracy in Haiti, Venezuela and Peru, with Brazil's massive problems, and with incipient signs of trouble in Argentina and Mexico, there was growing speculation during 1992 that the bloom was already off Latin America's rose.

It is surely misleading to extrapolate from events in Haiti or Peru onto all of Latin America and the Caribbean; each is a unique case in important aspects. But it is equally wrong to project Chile as a model for how the whole region will evolve. The countries of Latin America and the Caribbean are not simply strung along on a spectrum, ineluctably going through the same stages of development. They are responding in different ways to a combination of shared challenges-such as those imposed by a changing world economy and by the Cold War's end-and distinct national circumstances. Their paths are diverging, and will probably diverge farther in the future.

Even without a free trade agreement, for instance, more than 70 percent of Mexico's trade is with the United States and more than six percent of Mexico's workforce is employed north of the Rio Grande, remitting at least $3 billion a year back to Mexico. A similar trend toward functional North American integration is evident in the Caribbean islands. U.S. airlines and telephone companies treat the Caribbean islands as if they were domestic markets, not foreign; it is hard to define the border between the mainland and the Caribbean in economic, social, demographic or political terms. But while Mexico, many Caribbean islands and parts of Central America have been integrating with the United States, Peru and to some extent Colombia have been disintegrating internally; Argentina and Brazil have been trying to nurture a sub-regional common market, Mercosur, with Uruguay and Paraguay; and Chile has been steadily diversifying its ties throughout the Americas, Asia and Europe. For many purposes, therefore, it is less sensible than ever to generalize about Latin America and the Caribbean.

Most Latin American and Caribbean countries today do share two difficult internal tensions, however. One is between the imperatives of political and economic liberalization, between the opening of democratic politics and of market economies. For reasons of national experience and ideology, people in the United States like to think of these processes as not only compatible but as necessarily related-as two sides of the same coin, united by the element of free choice. But in Latin America's circumstances, as in those of eastern and central Europe and east Asia, the claims from impatient electorates and the demands of economic elites are not easily reconciled. Careful management of this tension is needed, rather than mere ideological faith that the market's hidden hand will produce positive results. Mexico's National Solidarity Program provides a positive model; Venezuela's excessively technocratic reforms illustrate, conversely, how not to proceed.

A second important tension is between streamlining states and ridding them of excess functions and personnel, on the one hand, and strengthening their capacity to provide crucial public services and exert legitimate authority, on the other. In many Latin American countries, building effective state capacity-rather than further cutting back the state-is a central task for the 1990s. Without revived growth, however, it will be hard to mobilize the resources necessary to confront pressing problems.

It is by no means clear, in sum, whether and when all Latin American and Caribbean countries can turn the many corners that must be successfully negotiated to assure sustainable economic development and effective democratic governance. Although the region's prospects are much more promising than seemed possible only a few years ago, formidable obstacles remain. Euphoria about Latin America is as unjustified now as indiscriminate bearishness was five years ago.

Partnerships for Renewal

PRESIDENT CLINTON takes office at a decisive juncture in U.S.-Latin American relations. Latin America's promising but highly uneven and vulnerable transformations offer new opportunities to build western hemisphere cooperation, but internal troubles in the United States could obscure the potential for partnerships.

To recover and grow economically, nurture fragile democratic openings, confront domestic inequities and strengthen their capacity for inter-American cooperation, Latin American nations need alleviated debt burdens, expanded foreign investment, access to relevant technologies and open export markets in the industrial countries.

President Bush's Enterprise for the Americas Initiative in 1990-promising a reduction of Latin America's official debt owed to U.S. government agencies, offering aid to facilitate investment in the region's economic recovery, and holding out the prospect of free trade agreements-offered a positive if sketchy vision of how inter-American relations should evolve. It reflected the Bush administration's inchoate recognition that western hemisphere partnerships would be helpful to the United States when the Cold War competition is over, old alliances are breaking up, new international rivalries are intensifying, and global challenges to the environment, health, arms control and governance are taking center stage.

The Bush administration began to translate its vision into policy, but it did not get very far. It succeeded in getting a NAFTA text negotiated with Mexico and Canada and in submitting it for congressional approval on a "fast track" basis, but it did not adequately consider environmental and labor issues nor did it successfully persuade the American public of NAFTA'S benefits. Moreover congressional appropriations for the proposed multilateral investment fund and authorization of debt reduction agreements were slow to materialize. Latin America's interest in prospective regional partnerships was aroused, but the United States under Bush was not able to deliver much.

The main reason for this shortfall was the domestic difficulties facing the United States. Proposals to reduce Latin America's debt, facilitate U.S. investment in the region or open U.S. markets cannot be implemented unless they are part and parcel of an overall strategy for restoring dynamism to the U.S. economy. Domestic U.S. interests-small business, organized labor, and particularly affected firms and communities-understandably oppose proposals to aid Latin America's development if they think that the region's prosperity will come at their own expense.

Unless Clinton can persuade the American people of their strong self-interest in Latin America's growth and in hemispheric cooperation, the next few years will likely see a great deal of inter-American strife: over trade and protectionism, commodity prices, advanced technology, arms sales, population growth, immigration, narcotics and the environment. These frictions will surely intensify if the U.S. public-frustrated by its domestic difficulties-turns to approaches that are protectionist, restrictionist, punitive and interventionist. The public support generated in 1992 by presidential candidates Jerry Brown, Pat Buchanan and Ross Perot revealed a potential constituency for such approaches.

Latin America's first significance for the United States is economic. As Latin American countries emerge from recession, the region has once again become the fastest growing market for U.S. exports, as it was in the 1970s. Latin America bought more than $65 billion of U.S. exports in 1992, more than Japan or Germany, and the rate of increase in U.S. exports to Latin America for the last two years has been three times as great as that for all other regions. Latin America's importance as an export market is all the greater at a time when U.S. dependence on trade has increased and regaining export competitiveness is a central U.S. aim. Investment opportunities for U.S. firms are also expanding, as prospects for recovery and enlarged markets make Latin America attractive and as investors realize that the region's combination of resources, infrastructure, an educated workforce and long experience with market economies make it a better bet than the former communist countries. Latin America also remains the source of nearly 30 percent of U.S. petroleum imports, and several U.S. money center banks still make a significant share of their income in the region.

Latin America's second importance is its effect on major problems facing American society. The most dramatic example is narcotics. Latin American countries supply almost all the cocaine, most of the marijuana and an increasing share of the heroin that enters the United States. Although the drug curse can ultimately be reduced only by cutting domestic demand, an effective anti-narcotics campaign will also require enduring cooperation from the Latin American nations where narcotics are cultivated, processed and trafficked. As the site of some of the world's largest rain forests and as leading destroyers of them during the past few years, Latin American countries are also central actors on environmental issues and crucial test cases of the prospects for sustainable development policies.

A third significance of Latin America today is as a prime arena-together with the former Soviet Union and the countries of eastern and central Europe-for the core U.S. values of democratic governance and free market economics. As both democracy and capitalism are severely challenged in the former communist countries, the worldwide appeal and credibility of these ideas may depend importantly on whether our nearest neighbors can make them work.

Perhaps most important, the burgeoning Latin American pressures for emigration create additional links between the emigrants' countries and the United States, and enlarge the U.S. stake in the region's social, economic and political conditions. Almost half of all legal immigrants to the United States came from Latin America and the Caribbean during the 1980s, together with more than half of undocumented entrants. Some ten percent of the U.S. population today are Latin American immigrants or their descendants; Latinos are the fastest growing population group in the United States. Latin Americans come to the United States no longer in isolated or intermittent waves, but in a sustained flow, blurring the borders between Latin and Anglo America, especially in Florida, Texas and southern California. Half of the babies born in Los Angeles County in the 1980s were of Latino descent, for instance, as are 63 percent of the students in the county's public schools. The line between "domestic" policy and "Latin American" policy is thus becoming harder to define as the regions of the New World become ever more interconnected. Instead of disappearing from Washington's map, Latin Americans are helping to redraw it.

If Latin America's advances of the past five years can be fortified and if cooperative inter-American programs can be built, the United States stands to gain expanded exports and other economic opportunities, some alleviation of immigration pressures, improved international cooperation to resolve key problems and a better prospect for the success of core U.S. values. Latin America's potential for partnerships with the United States is greater than ever.

The chances for positive U.S. policies to reinforce Latin American progress and thereby advance U.S. aims depend, however, on revitalizing the U.S. economy. The United States cannot successfully implement NAFTA or help build a wider hemispheric economic community if it does not at the same time rejuvenate its decaying infrastructure, upgrade its technology, enhance the skills of its workforce, retrain displaced workers, and assist uncompetitive industries and their communities to adjust to change. The American public will not support closer economic ties with Mexico or the rest of Latin America if the United States fails to confront its accumulated domestic agenda. A key question in the 1990s, in effect, is whether the United States itself is ready for inter-American partnership.

The United States will have a better chance of success in solving some of its domestic problems-and especially of creating jobs and managing the rate and impact of immigration-if Latin America becomes more prosperous and inter-American cooperation works. "Intermestic" issues-involving both domestic and international aspects and actors-will be important for the United States in the 1990s. Domestic and foreign policy approaches must be pursued in tandem, not as alternatives.

The Clinton administration should underline how much the countries of the western hemisphere have in common as they prepare for a new century. People throughout the Americas, North and South, increasingly understand how important it is to protect the environment and safeguard public health. In every country there is recognition of the urgent need to alleviate poverty, reduce income inequality and other disparities, invest in children and restore hope to young adults. In each nation a central issue today is how to strengthen education and its links both to individual fulfillment and to national competitiveness. Throughout the western hemisphere, people are deeply concerned about making democracy work-by connecting institutions to people and ensuring accountability.

The time has come in the Americas to build regional partnerships for renewal in order to confront this common agenda. Latin America's encouraging advances make such partnerships possible. The shared and difficult challenges now facing all Americans, North and South, make them advisable. The Clinton administration's initial emphasis on the economy, competitiveness, adjustment and trade makes them urgent.

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