Economic Crisis Deepening for Latins, Report Finds

Despite a growing call for North-South cooperation to restore economic growth, debt-burdened Latin America is slipping deeper into crisis, according to a somber analysis by the Inter-American Development Bank.

The Washington-based bank, which in 1985 made development loans of $3 billion, says in its annual report that regional living standards declined for the fourth straight year and that the net transfer of Latin American resources to creditor countries amounted to $30 billion. Prospects for improvement this year are not encouraging, the bank says.

Brazil, with growth of about 7%, was an uncommon bright spot in a region where population increases generally outstripped economic growth. In other major debtor countries, real income continued to fall in 1985 and is now below levels first achieved in the 1960s, bank statistics show.

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“The Latin American countries and their principal economic partners in the developed world need to cooperate in seeking to restore sustained development growth to the region based on medium- and long-term measures,” the bank says in its report, which will be presented to a board of governors meeting opening today in San Jose, Costa Rica.

The meeting will be held against a backdrop of growing demand among Latin American nations for help from their creditors in meeting a regional debt that exceeds $360 billion. So much of what Latin America earns is paid out in interest on debts that not enough is left to generate the growth that would make debt repayment easier in the long term.

For the third consecutive year, the bank report says, Latin America’s trade surplus was the principal source of foreign exchange to meet interest payments. But because of low international prices for Latin America’s raw materials, “trade conditions evolved negatively in 1985 and are not very promising for the immediate future.”

sh Falling Oil Prices

As chilling as the report’s statistics are, they do not reflect the damage that a recent fall in international oil prices has caused to exporters such as Mexico and Venezuela.

Counting the $30 billion shipped north last year in interest payments, the accumulated negative net transfer of financial resources has exceeded $100 billion over the past four years. “That amount,” the bank says, “exceeds the combined positive net transfers of financing to the region in the previous eight years.”

Regional gross domestic investment, a key example, was lower in 1984 than it had been a decade earlier, according to bank estimates.

Reaction to U.S. Plan

To ease the debt crisis, the United States has proposed a plan that would pump $29 billion into the region over a three-year period to stimulate growth. Proposed last year before the decline in oil prices, the plan has been welcomed by some debtor countries but is viewed by others as too little too late.

Except for Peru, where a new nationalist government has decreed a limit on interest payments, major debtors have sought relaxed payment terms in negotiations with creditor banks and the International Monetary Fund. In virtually every case, though, this has meant economic austerity, which has proved to be a depressant on living standards.