Latin Nations Should Seize on Bush’s Generous Mood : Hemisphere: President’s initiative may be little more than talk, so the region should work to put flesh on the bare bones.

President Bush’s surprise announcement of a U.S. initiative on Latin America is being cautiously but positively received in the region. The concrete measures proposed by Bush are modest, but the President’s statement implies a fundamental U.S. policy decision of potential significance: to build Western Hemisphere partnerships in a world in flux.

The Bush proposal responds comprehensively, if still very sketchily, to the main issues in Western Hemisphere economic relations: trade, investment and debt.

Pride of place is devoted to commerce, on which the proposal is grandiloquent but vague. It holds out a long-term vision of regionwide free trade, promises that Washington stands ready to negotiate agreements to this effect with individual nations or regional subgroups, pledges close cooperation with Latin American nations in current GATT negotiations (the General Agreement on Trade and Tariffs) and holds out the possibility for deep tariff cuts on specific products of special interest to Latin American exporters.

In fact, the statement on trade does not offer any specific concession or incentive. But it does appear to convey a strong signal that Washington is interested, at least in concept, in extending to all of Latin America the kinds of special commercial arrangements that have been gaining ground in the cases of Canada, Mexico and the Caribbean Basin nations.

On investment, Bush proposes to request of Congress a new U.S. contribution of $100 million annually toward a multilateral fund, to be administered by the Inter-American Development Bank, to promote structural reforms, privatization and other efforts to expand production. As a sign of the times, the President announced that the United States would seek contributions at an equivalent level, $100 million each, from Japan and the European Economic Community. Even if supplemented in this way, the level of funding suggested is obviously trivial by comparison with Latin America’s investment needs. But many Latin Americans understand that any proposal to destine additional U.S. government resources for Latin America is a positive sign in the current Washington context of budget-tightening and a looming battle on tax increases.

On the matter of Latin American debt, the main news is that the Administration will seek legislation to permit substantial reductions of concessional loans to the most heavily indebted. Interest payments on the restructured concessional claims, moreover, will be accepted in local currency and used for mutually agreed environmental projects. Here, again, there may be less to the offer than meets the eye, for the proffered relief is limited, in effect, to about $7 billion of Latin America’s total external debt of about $400 billion.

The proposal mainly puts a positive face on recognizing the inevitable: that Latin America’s poorest nations cannot repay these official loans. But again the potential impact of the proposal is significant, for it indicates a willingness to go beyond the Brady Plan. The U.S. move may offer Latin America important leverage in negotiations with other official creditors in Europe and Japan, as well as with the commercial banks. And Washington may be prepared to go still further toward relieving Latin America’s debt overhang if persuasive proposals linked to far-reaching reforms are advanced.

In time, if more specific steps are outlined and agreed, the Bush statement could become a major step toward a new Western Hemisphere economic community. But it is at least equally plausible that not much follow-up will occur--that the President’s initiative is just so much grand talk accompanied by a very small purse.

The ball is now very much in Latin America’s court. The Inter-American Development Bank, perhaps together with the United Nations Economic Commission for Latin America and the Caribbean, could play a positive role at this stage by trying to forge a Latin American response to the Administration’s announcement. If Latin America’s major nations were now to tell the United States what kind of commercial, financial and investment relations they seek, a process of potentially historic dimensions could proceed.