Integrating Diverse Latin Economies

As Western Europe moves toward economic unity in 1992, Latin American countries are taking new aim at the “integration” of their economies to speed development and compete in international markets.

“We are working intensely at that task, and may God will that in the year 2000 we Latin Americans find ourselves totally integrated,” President Carlos Saul Menem of Argentina said recently.

Argentina and Brazil have already begun a major push for economic integration in a common market, and smaller neighbors are hoping to become part of the endeavor. Meanwhile, five other South American countries are revitalizing efforts to create a common market in the Andean subregion.

Economists recognize obstacles to creating a functional common market in Latin America; similar efforts in the 1960s and 1970s failed. Nevertheless, many economists and politicians say integration is still the best hope for moving Latin America toward full economic development.

With a total population of more than 430 million, Latin America has a resource-rich land area that is larger than the United States and Europe combined. In terms of international economic and political power, however, the region remains a patchwork of largely unfulfilled potential, with the great majority of its peoples dismally poor.

During the 1980s, Latin America has fallen deeper into poverty. Its real per-capita income has shrunk as governments have struggled with more than $400 million in foreign debt, triple-digit inflation and increasingly unfavorable terms of trade.

In many ways, the crisis has helped make integration harder.

But a study by the United Nations Economic Commission for Latin America and the Caribbean calls regional integration an “inescapable necessity.” The ECLAC study said common markets and other forms of cooperation can help Latin American countries rise above their long-time status as exporters of raw materials, rechannel funds now used to service foreign debt and buy arms, finance economic and social development projects and expand technological research needed for industrial progress.

Technology Gap

“Economic integration would make industrialization viable and at the same time would strengthen capacity for negotiations with other countries,” the study says.

No Latin American country by itself can readily raise the capital resources needed for a broad-scale program of technological research and development, which many economists see as the key to competing on today’s world markets. Gert Rosenthal, the executive secretary of ECLAC, said if countries combine their efforts on technology in joint centers, they can spread investment risks, avoid duplicated efforts and economize by organizing work on a larger scale.

“Why not have just a few excellent centers in Latin America instead of having centers in each country that do not have a minimal scale?” Rosenthal asked in an interview at ECLAC headquarters in Chile.

Like other economists interviewed, he observed that a trend toward common markets such as the European Economic Community and a proposed North American free-trade area requires Latin America to “rethink its own process of integration so that it will not face in disunity a world of macro-blocs.”

Since taking office in July, President Menem of Argentina has put new energy behind the Argentine-Brazilian common market project and the Latin American integration movement in general. In August, he and Brazilian President Jose Sarney signed a series of new accords pushing forward the two countries’ commitment to integration, which was adopted in 1985. A 1988 treaty set a 10-year timetable for removal of all trade barriers and the creation of a common market between the two countries.

Large Nations Key

Among concrete results of the integration effort so far is a joint enterprise to build a 19-passenger turboprop plane, the CBA123, which is scheduled to enter service in 1991. More than 150 of them already have been ordered.

Brazil’s Sarney leaves office in March, but Fernando Collor de Melo, the front-runner in the race to succeed him, has voiced support for integration.

Eduardo Gana, an economist with the ECLAC in Chile, said the efforts by Brazil and Argentina could be a catalyst for wider regional integration.

“An integration process that does not have some big countries in it that are capable of leadership is a process that is not going to work,” Gana said in an interview.

Brazil and Argentina both belong to the 11-member Latin American Assn. for Integration, which sponsors painstaking negotiations among its member countries for mutual reduction of trade tariffs on a product-by-product basis. They also belong to the River Plate Basin Group, along with Uruguay, Paraguay and Bolivia.

In September, the River Plate countries and Chile agreed to simplify customs, insurance and other procedures for land transportation across their borders by the end of the year. Red tape at borders has been a major impediment to trade.

Roberto Grabois, of the Argentine Transport Ministry, said the agreement took 17 years to negotiate. Looking toward a meeting next year in Paraguay, he said the countries seek “the maximum simplification of the administrative and customs bureaucracy.”

On the other side of South America, five governments agreed this year to make a major new effort to create an Andean common market. The presidents of Venezuela, Colombia, Ecuador and Peru, and the foreign minister of Bolivia met in May and proclaimed that “Andean integration is imperative for guaranteeing peace, security, improved living conditions and the full development of our peoples.”

Support Has Increased

They acknowledged past failures of the 20-year-old Andean Pact and called for whatever measures are needed to comply with a 1988 plan aimed at progressively removing all but a few tariffs among the member countries by the year 2000.

Mario Barturen, director-secretary of the pact, said the May summit underlined a new will in Andean countries to make a common market work.

“There is more decisiveness, more support, more interest,” Barturen said in the pact’s Peruvian headquarters.

The Central American Common Market, once the most successful integration project in the region, now waits on a back burner as the area’s leaders concentrate on more urgent matters of war and peace. Still, economists say by promoting political negotiations, the Central American peace agreement of 1987 indirectly stimulates efforts to revive free trade in the area.

“There are some proposals on the table and negotiations are moving along quietly,” said Nicaraguan economist Mario Arana. For example, he said, schemes have been developed through the United Nations and the Inter-American Development Bank to ease the process by which one Central American country pays for imports from another.

In the Caribbean, 13 English-speaking countries adopted an ambitious plan in July to remove barriers to trade among them by July 1991. Progress in the European Common Market underscores the need for faster integration by the Caribbean Community and Common Market, founded in 1973 and known as CARICOM, its leaders agreed at a summit in Grenada.

“We are foolish to think that we as small countries can go along on our own when even large countries are realizing that they have to get together much closer,” said Prime Minister Eugenia Charles of Dominica.

Diverse Nations

Getting together will not be easy. Rosenthal, the ECLAC general secretary, listed a series of obstacles facing Latin American integration.

Unity is difficult to achieve among national economies that vary dramatically in their size, sophistication and interests--from impoverished producers of a few agricultural and mineral exports like Bolivia, to emerging industrial forces like Brazil.

Sharply varying and frequently changing economic policies are also difficult to harmonize. For example, some countries allow ample imports with only small tariffs while others block almost all imports.

Some have stable currencies while others suffer with rampant inflation. Many lack hard currency to pay for any increased trade with their neighbors.

Private businesses and state-run enterprises often resist integration, fearing competition by foreign products. In Brazil and Argentina, such producers form powerful pressure groups.

Some nationalists fear that integration will intrude on national sovereignty. Some policy-makers believe that regional integration will hamper trade with countries outside the region. And some bureaucracies interfere with integration because of a natural resistance to change.

Despite the obstacles, Rosenthal is a dedicated advocate of Latin American integration.

“Many people would say it is a Utopian vision, unrealistic, and perhaps not very necessary,” he said. “But I don’t think so. My vision of Latin America is an integrated region.”

Times staff writers James F. Smith in Buenos Aires, Richard Boudreaux in Managua and Don Schanche in Miami contributed to this report.