William D. Montalbano has completed three years as The Times bureau chief in Buenos Aires and is now bureau chief in Rome

Carlina Sosa's dream house in the raw workers' suburb of Moreno, overflowing one recent Sunday afternoon with relatives celebrating a family birthday, has two rooms and a new fence to keep the thieves out and the chickens in. Water comes from a hand pump, but there is electricity for a color television that dominates the postage-stamp bedroom.

For more than 20 years Carlina Sosa worked as a cook in a rich man's house here in the Argentine capital. Alone, she raised a daughter, the product of teen-age indiscretion, in her tiny room behind the kitchen. Savings, accumulated a few pesos at a time, allowed the purchase of a narrow strip of land along a dirt track in what had been a pasture. Then, on a historic weekend years later, came the prefabricated wooden house.

"Next we will build another room at the front. One step at a time," she said over an oven warm with crisp meat pies.

Carlina Sosa is making it. There are uncounted millions like her in the South American vastness today.

Their triumph, and their tragedy, is that they must swim against the tide in nations that seem as mired as ever in backwardness and instability. In one country after another, minor-chord achievements are drowned out by national economic and social cacophony that threaten important political gains.

For South America, this has been the Decade of Democracy. From the Andes to the Pampas, South American nations have exchanged dictatorship for elected government. That much of the continent's long-standing but elusive dream of joining the First World has been achieved--at least momentarily. Only two dictatorships survive among the continent's 10 Latin republics.

Despite the political gains, however, First World economic aspirations are undercut by crushing Third World realities. The realities are as old as societies of authoritarian tradition built on unequal, inefficient social and economic structures. They are as relatively new as the bloated populations and the pell-mell urbanization that has stalked virtually every major city since World War II.

To such daunting impediments to modernization, add a 1980s' agenda of fresh crises in the form of unpayable foreign debt and corrupting drugs. Their sum, stoked by boundless popular expectation amid savagely finite resources, bedevils forward-looking civilian governments today in one country after another.

South Americans are often bemused when strangers dwell on their countries' "rich potential."

As seen from the hot seats of power, the problems threatening to unravel hard-won progress seem even richer. It would take a rare optimist to imagine that South America's climb from poverty to suburban sufficiency would be as successful as Carlina Sosa's.

Perilous paradox swims in the democratic tide: In almost every country, the majority is relatively poorer precisely at the moment when it is also freer than at any time in a generation.

Middle-class countries like Argentina and Uruguay battle legacies of stagnation, inflation and inept government to climb back to income levels first reached two or three decades ago.

Politically progressive and economically diverse Colombia reels from simultaneous challenges: abject poverty, the continent's largest, most tenacious guerrilla movements and rampant drug barons. Venezuela glumly recognizes that oil wealth is not enough to bridge a sapping gap between rich and poor.

In Ecuador and Chile, untrammeled free market economics have helped fuel political polarization without, critics insist, easing conditions for the poor majority. In Paraguay, bust has followed boom without shaking the grip of the hemisphere's most enduring dictator.

Bolivia, poorest of the South American republics, staggers from crisis to crisis despite painful but astonishing progress in controlling inflation. Peru increasingly looks ungovernable; endemic social hardships are compounded by an ominous Maoist insurgency thus far impervious to counterattack by an impetuous young populist president, Alan Garcia.

Mighty Brazil, certainly the continent's best next-century hope of a developed nation governing itself democratically, is today, as scholars like to note, really many different countries. South-Central Brazil, around the dynamic magnet of Sao Paulo, is like Belgium. The cruel Brazilian Northeast, rife with squalor and despair, is like India.

Almost everywhere, democracy is still on trial. Entrenched Paraguayan and Chilean strongmen routinely clobber democratic foes.

An extraordinary harvest of elected civilians announce political values that North Americans enjoy themselves and wish for others. Argentina, Uruguay, Bolivia, Peru, Colombia, Brazil and Venezuela are led by civilians who espouse social reforms of the sort that John F. Kennedy's Alliance for Progress once sought to promote.

Yet young and disorderly democratic experiments are not generating economic benefit enough to give people a stake in defending them. They risk discredit and eventual capture by authoritarian competitors of right and left.

Sadly, South America's new democrats consider that both their message and the threat to it are lost on an Administration in Washington myopically convulsed by Central American turmoil.

They see the United States as an uncertain ally in their noisy, messy and manifestly imperfect attempts to consolidate hard-won democratic gains. Reagan Administration applause sounds empty to South Americans, although there has been some effective behind-the-scenes jawboning; quiet U.S. diplomacy may have been decisive in short-circuiting coups in Bolivia and Ecuador.

Still, at a time when its needs are immediate and the urgency of its quest for modernization-cum-democracy is underlined by widespread economic unrest and growing disillusion, South America seems to its leaders to be remote, both from Washington's priorities and sensibilities.

"To cure a patient suffering from anemia they have prescribed a hemorrhage," said Argentine President Raul Alfonsin recently, a judgment on the industrialized world widely subscribed to by fellow democrats around the continent.

All of Central America would fit in one corner of any of the big South American republics but South America lacks the glamorous urgency of its northern cousin because, at least at first glance, it does not threaten to become a threat to hemispheric stability.

Indeed, South America today is not principally an arena of East-West struggle but rather a testing of patience, comprehension and presumed common democratic interest between a poor, indebted Third World down south and a rich, creditor First World up north.

Thus the crisis in South America is more subtle than in Central America. If, as the South Americans insist, it is therefore less compelling to an ideologically preoccupied Administration in Washington, it is nevertheless of surpassing historic moment. The outcome of the current lonely struggles to solidify representative government in a framework of economic stability and institutional reform will probably not only color the political landscape of South America well into the next century, but also the tenor of its future relations with the United States.

So far this year, elected governments in Ecuador, Peru, Argentina and Uruguay have survived revolts from military Establishments historically behaving as above-the-law political arbiters in most countries.

In countries like Argentina and neighboring Chile, the armed forces represent an aloof, self-righteous and self-contained caste isolated from the push and shove of civilian life and, in their minds, superior to it.

They view with undisguised distaste and profound suspicion current democratic exercises permitting well-known subversives--liberals to communists--to jostle, legally, for influence. The generals retired from power amid public rejoicing everywhere but nowhere has their sense of mission been altered, or their clout permanently diminished.

Elected governments everywhere understand that military autocrats could quickly return if social or economic disorders provide civilian constituencies large enough to support coups.

If the armed forces mostly glower in silence at long-shot attempts to affirm representative government, there is no shortage of more vocal opposition with an equally authoritarian cast.

A thinly papered Marxist coalition is Garcia's strongest electoral challenger in Peru, and Marxists are a influential third force in Uruguay. Bolivian President Victor Paz Estenssoro, who conquered inflation and restored a measure of stability despite ruinous economic collapse, faces daily challenge from unions led by the former secretary general of the Bolivian Communist Party. Alfonsin's strongest congressional foes are labor-based Peronists of authoritarian roots and instincts. Colombian President Virgilio Barco, like Alfonsin and some would-be authors of an impending new Brazilian constitution, seeks to broaden political participation and create more flexible governing systems as safety valves against the sort of discontent that has triggered past coups.

Colombia is already home to South America's oldest and largest guerrilla insurgency. Despite a nominal truce with the largest of several guerrilla factions, there seems no early chance of peace in a countryside weaned on violence. In Peru, the Maoist Sendero Luminoso --Shining Path--guerrilla movement surfaced in the Andes seven years ago and now grows stronger every day, mocking Garcia's attempts to repress it and undermine its appeal with grass roots development programs.

There is challenge enough without it, but the rise of democratic governments has been paralleled this decade by the explosive growth of a multibillion-dollar cocaine industry with tentacles now reaching into every country.

In Bolivia, Peru and Colombia, the principal producing and refining countries, the integrity of social and political institutions is imperiled by cocaine corruption and violence. The trail of murdered government officials, judges, policemen and journalists in Colombia is long and growing. The Colombian judicial system is paralyzed by cocaine terror.

When Garcia sent the Peruvian army to fight Sendero guerrillas in a remote coca valley, many officers returned with new cars and pickup trucks. More than 30 of them now face courts martial. Despite considerable domestic cost, Garcia, Barco and Paz war together with the United States against cocaine. Thus far their painful and expensive campaigns have failed to check cocaine's boom.

Cocaine laboratories multiply in the outback of Brazil, Venezuela and Ecuador. Sao Paulo, Buenos Aires and Montevideo are increasingly popular as shipping centers to the United States and Western Europe.

Almost to a man, front-line South Americans in the cocaine war believe their own enforcement would be easier if the United States fought as hard against uptown U.S. cocaine users as against the Latin Americans who merchandise it.

Yet of all the urgent issues, the inescapable bottom line in the dilemma of South American democracy today is unpayable foreign debt. It is the cruel girdle for governments everywhere, allowing certain controlled action but restricting freedom of movement.

The debt is so gargantuan it is not only unpayable but difficult even to portray. Together, the 10 republics owe foreigners in excess of $260 billion. That is more than $1,000 for every man, woman and child who draws breath south of Panama. The majority of them work a year without seeing $1,000.

Iconoclastic populists like Peru's Garcia are challenging the system. Garcia sent shock waves around the world two years ago by limiting repayment to 10% of Peru's export earnings.

So far, moderates have resisted forming any sort of debtors' cartel. But there is mounting conviction that it is not simply foolhardy but almost suicidal for a young democracy to sacrifice growth by siphoning off critically needed resources to pay the debt.

Investment means growth, jobs and, leaders hope, a vested interest in the democratic system that promoted them. Austerity of the sort prescribed by international creditors means recession and social instability. People with full bellies care more about elections than the hungry.

Argentina's Alfonsin, an articulate model of democratic moderation, calls for creditors in the industrialized North to underwrite a new Marshall Plan for Latin America, a rebuilding effort of the sort that rescued Western Europe from the devastation of World War II.

For a time, it looked as though the United States might help. The so-called Baker Plan, named after Treasury Secretary James A. Baker III, is aimed at providing new capital from international lending institutions and private banks to stimulate growth which in turn might make debt more repayable.

That means new debt, though, and the big U.S. and European banks are so far reluctant to make more high-risk loans.

The long list of ills is well-identified in every country. But the means to cure them are lacking nearly everywhere amid economic crises that aggravate the troubles and, worse, simultaneously sap confidence, thereby weakening the underpinning of democratic governments anxious but unable to solve them.

Overwhelming they may be, but such continental preoccupations find no place at the Sunday table in Carlina Sosa's house. Over the raw red wine and savory cheap cuts of beef, the celebrating workers and truck drivers gripe about tough times in the same tone they use to deride a loss by a favored soccer team.

The thrust of complaint, though, is not how far they still have to go. Rather, they boast of how far they have come. A car, a vacation, a plot of land--with hard work, all glimmer on the horizon.

At the table, Carlina Sosa's daughter Claudia listens quietly to the chatter of her rough-hewn uncles and cousins. She is of them, but somehow not completely with them any longer.

Shy Claudia Sosa never knew her father and spent her girlhood quietly in a scullery corner lest she disturb her mother's employers. She is 20 now, an honor student in psychology at a university here, studying computer programming and English at private institutes in her spare time. Soon she will be a school psychologist.

The majesty of South America in the difficult democratic 1980s lies not so much in the progress of countries but in the victories of their peoples.

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