PERSPECTIVE ON LATIN AMERICA : Swamped by U.S. Policy Backwash : U.S. political and economic debilitation, along with oil shocks from the gulf crisis, piles new troubles on old.

Even in the era of declining U.S. power and influence, any crisis that affects the United States has profound effects throughout the globe. When the United States experiences two crises simultaneously, the potential for ill effects elsewhere is doubled. Today, we see the process of governance and economic policy generating untractable political problems for the Bush Administration, the American political system and the increasingly unhealthy U.S. economy; at the same time, the Persian Gulf adventure defies happy endings and refuses to allow the United States a comfortable way out. The world watches and waits for some sort of denouement . It may be long in coming.

Latin America, as always, suffers disproportionately from U.S. crises. The effects of the Iraqi invasion and the confrontation in the Persian Gulf vary, but the consequences of U.S. paralysis and economic woes are evenly and dramatically spread out in this Hemisphere. In some cases, the positive effects of a rise in the price of oil exports will be soon canceled out by the U.S. recession; in others the frightful implications of a rise in the price of oil imports will be compounded by the contraction of U.S. economic activity.

The gulf crisis has divided Latin America into three groups: oil exporters, oil importers, and the few countries that are either virtually self-sufficient or export only marginally--Colombia, Argentina, Peru and Bolivia.

In the first category--Mexico, Venezuela, Ecuador and Trinidad--the crisis has meant a windfall: almost a doubling of oil revenues thanks to the nearly 100% increase in the price. In the case of Mexico and Venezuela, there is also a rise--albeit modest--in the volume of exports. For Mexico, this implies additional revenues of more than $350 million per month, reducing by more than half the country’s monthly trade deficit. The serious difficulties that Mexico and, to a lesser degree, Venezuela were experiencing on their foreign accounts are thus alleviated at least temporarily.

The situation is of course radically different for the oil importing nations. For Brazil, which imports nearly half a million barrels a day, the gulf crisis has meant that previous efforts to bring down inflation, while not terribly successful, are now in deep trouble. Although Brazil’s trade balance continues to be in the black, its soaring bill for imported oil is beginning to draw down reserves. In Chile, monthly inflation has begun to rise again, seriously threatening President Patricio Alwyn’s ambition of maintaining economic stability and growth while at the same time promoting social justice and democratic reforms.

The area most affected by the increase in oil prices is the one least prepared to deal with it: Central America and the Caribbean. Almost all of the Caribbean Basin’s countries import practically their entire oil supply, and have no way of obtaining resources from abroad to pay the soaring costs. During the last two oil shocks--1973 and 1979--these economies were devastated, even though there was more money available to be recycled, and they were emerging from decades of growth. Now, after 10 years of stagnation, and in some cases civil war, they are hit again, and the burden may be unbearable.

But a weakened American presidency and economy could have more negative effects in the long run; even the positive effects for the oil exporting countries could be rapidly wiped out. For Mexico, a U.S. recession spells catastrophe; it would bring a decline in Mexican exports, particularly in the manufacturing sector; the contraction or partial shutdown of the maquiladora industry along the border; which is totally oriented to the U.S. market; diminishing American funds available for investment; a drop in tourism, 85% of which comes from the United States, and a fall in remittances sent home by Mexican workers in the States, who will be among the first laid off or deported when the recession begins truly to bite.

For countries like Nicaragua and Panama, which are still waiting for the payoff for their pro-U.S. attitudes, the U.S. recession coupled with the weakening of the Bush presidency could be a disaster, confirming their worst fears: the promised money will never come. In the case of other nations that need U.S. financing and support, be it because of political problems, as in El Salvador or Haiti, or due to drug considerations, as in Bolivia and Peru, the adjustment of the American economy could also have a highly negative impact.

At a time of a major redefinition of nations’ roles in the world, Latin America requires a clear idea of what the limits and possibilities of the United States’ cooperation really are. Many of these governments have, either through conviction or expediency, implemented economic policies that were deemed necessary to attract investment, credits, trade and confidence, and without this external funding, these policies are condemned to fail. But the likelihood of obtaining that funding is shrinking day by day, as the United States has both less money, and, more important, less willingness and political strength to part with it.

A positive, cooperative U.S. policy toward Latin America requires a strong America presidency, unburdened by excessive electoral concerns and governing a prosperous economy. Under Ronald Reagan, the ingredients were present, but not the policy. With George Bush, the United States seems to have the policy, or at least some reasonable ideas, but lacks the wherewithal to make it work. It would appear that the marriage of minds and means between the United States and Latin America is still far removed.