PERSPECTIVE ON LATIN AMERICA : A Continent Adrift on Red Ink : Despite all the prescribed reforms, even the major countries aren’t attracting new money sufficient for progress.

Brazilian President Fernando Collor de Mello’s visit to Washington this month was all but unnoticed by the news media and produced virtually nothing by way of help for Brazil, a reflection of the critical state most of Latin America finds itself in today. Its place in the “new world order” is far from clear, but its newly marginal role in world affairs is becoming all too evident. It is rapidly coming to resemble what Brazil’s premier social scientist, Helio Jaguaribe, calls the “Africanization” of Latin America--almost an entire continent poverty-ridden and irrelevant on the international scene.

The problem is best symbolized by the current cholera epidemic. The World Health Organization has just published terrifying statistics and forecasts on the spread of the epidemic: Between January and April, 180,000 new cases were detected, and between 90 million and 120 million Latin Americans are at risk of contracting the disease. While most of the epidemic so far has been concentrated in Peru, at least 10,000 cases have been reported elsewhere, including the first 18 cases in Mexico, just outside the capital this week.

One does not need mountains of economic data to grasp that there is a link between the drastic reduction in government spending on health, education, housing, sewage and social welfare in general in Latin America over the past 10 years, and the dramatic deterioration in the quality of life of the hemisphere’s inhabitants. The notorious “lost decade” in the continent’s economic development has been so often analyzed that it hardly requires further emphasis. What is less well-known is that, with a few exceptions, trends are not necessarily improving.

Telling evidence for this can be seen in the data for net transfer of resources--essentially, the difference between the amount of money entering a country as a result of foreign investment, new lending and capital repatriation, and the money leaving through capital flight, debt service and foreign corporate dividends. According to the U.N. Economic Commission for Latin America and the Caribbean, the region’s net transfer of resources turned negative in 1981 and has remained so. The worst year was 1985, when Latin America exported a net total of $32 billion; in 1990, the sum was $19 billion, a decline partly attributable to the fact that many nations, from Brazil to Nicaragua, have unilaterally suspended payments on their foreign debt. While none of this is new, it places the current situation in a sobering perspective.

The issue is clear-cut: If Latin America cannot obtain large quantities of foreign resources from credit or investment, it will continue to slide toward destitution and chaos. Unfortunately, new lending has all but dried up. Mexico is virtually the only Latin country that has obtained substantial amounts of credit--close to $12 billion in new lending in 1990. Direct foreign investment, which was meant to take up where foreign lending left off in 1982, is simply not flowing to Latin America, despite the gigantic and often undignified efforts made by many Latin governments to attract it at any cost.

Trade openings, privatization, public-sector rollbacks--all of the so-called economic reforms, many of them urged by overseas lenders--require substantial new capital. Someone has to buy off state-owned enterprises, and the private sector needs money to take up the slack. The unavailability or high cost of credit makes foreign investment the best alternative--if it is available. For Latin America, it is not.

Between 1980 and 1984, on average the region absorbed 12% of direct foreign investment worldwide. But by 1989, according to the Caracas-based Latin American Economic System, the region’s share was down to 5.8%. Chile and Mexico did not do poorly in 1990 in this respect, but even their performance was questionable: Direct foreign investment (as opposed to speculative portfolio investment that comes mixed in with returning capital) in Mexico in 1990 was down 15%, and in Chile, it totaled a disappointing $1.6 billion. While many Latin America-watchers wax eloquent about the region’s “new policies,” even in the best of cases, it will be years before countries like Brazil, Peru and Argentina become truly attractive for foreign investors.

Among the reasons for this scarcity of resources: Two of the main sources of foreign investment in the world, Japan and Germany, are investing more at home; and the United States remains a favored destination for foreign investment. As the amount of total available foreign investment stagnates or shrinks, and as more countries compete for it, Latin America will have few alternatives to its present options: coming up with greater and newer incentives (free-trade agreements, cheaper wages, in-bond zones, etc.) to entice a dwindling volume of foreign capital, or dramatically reducing debt payments and making do without huge amounts of foreign money. None of these options is particularly attractive, but then there is no free lunch, not even in the new world order.