CEPAL Review - Volume 1986, Issue 30, 1986

From the viewpoint of economic development, the first half of the 1980s has been lost for most of the countries of Latin America and the Caribbean. Unfortunately, if the present economic and social conditions persist, many of them will also have to lose the second half, for the declines registered in the last five years in per capita income are so marked that it will be difficult for the region to recover by 1990 the level which it had already reached in 1980. Consequently, as matters stand it is imperative to promote first of all the recovery and then the sustained growth of the economies. This calls for the application of suitable domestic policies, the existence of a favourable external environment, and active international and regional co-operation.

The rapid growth of the Latin American external debt from the mid-1970s onwards has been due to factors both of demand and supply, which bear witness to the co-responsibility of creditors and debtors. This co-responsibility, however, is not reflected in the distribution between the two parties of the burden of the debt: a situation which has caused a change not only in the magnitude but also in the direction of the net flows of real resources between the region and the rest of the world. Thus, between 1960 and 1980 the countries of the region were recipients of an annual net transfer of real resources from abroad equal to around 1 % of their gross domestic product, but since the first half of the 1980s. these countries have contributed to the rest of the world close on 4% of their gross domestic product per year. Although the figures vary from country to country, the general trend is the same for all.

The decade of rhe 1980s already has considerable experience of economic policies to cope with the crisis and its consequences, experience which should serve as a mandatory reference point for the formulation of new action strategies. This is what the authors do as they make a critical assessment of the policies pursued, as an introduction to their own proposal.

On the basis of an analysis of the historical evolution of real international interest rates, the author asserts that the main factor which increased the external debt burden in the 1980s was the excessively and unexpectedly high levels reached by such rates. This increase, which took both bankers and debtor countries by surprise, so that they do not appear to bear major responsibility for this process, mainly originated in the economic policy followed by the United States Government. Through mechanisms which are analysed by the author, this policy increased the debt service burden and reduced the volumes and prices of commodity exports, giving rise to a transfer of resources from the debtor countries which exceeds 3% of their gross domestic product per year.

Notwithstanding the enormous efforts made by the Latin American countries in the last five years to adjust their economies and despite the fact that the citizens of the developed nations are enjoying the benefits of the longest expansionary phase in the postwar period, the great majority of the peoples of the region find themselves immersed in one of the most profound economic crises in their history. They are enduring simultaneously a severe external constraint; levels of production and employment substantially and increasingly below their trend values; and, in many cases, inflations of exceptional virulence, although since mid-1985, several countries have achieved spectacular advances towards price stabilization.

The decisive factor which set Europe on the road to unity was a political one and not the result of a calculation about economic convenience. The absence of this factor explains the failure of the efforts made in Latin America to achieve effective co-operation in intra-regional trade or to unite national efforts around something more effective than joint statements.

The crisis has helped to increase the Latin American discussion of foreign trade, both as regards the underlying causes of the region’s problems in this field and the most suitable policy measures for tackling them. In this context, this article is useful because it gives an overall summary picture of the main theories regarding the division of labour and trade at the world level.

In recent years the international dimension of services has come to have a steadily increasing weight in the complicated agenda of international economic negotiations. Owing to the persistence of a number of industrialized countries, the recent ministerial meeting of GATT, held in Punta del Este last September, decided to launch a series of negotiations on international trade in services.

The mining sector could play a decisive role in increasing the region’s exports, the need for which is even more pressing because of the burden of the external debt. In this respect, a very promising development is the establishment of OLAMI, whose main tasks will consist of building up a regional mining information system and promoting the transfer of technology through vertical and horizontal integration and horizontal co-operation in the fields of finance, management, prospection, production and marketing.

The world economic crisis, especially the sharp decline in the demand for minerals and metals and the collapse of their real prices (31% in the last five years), together with unprecedented economic stagnation and indebtedness, have eroded the capacity of the governments and public enterprises of the mining countries of Latin America to negotiate with the transnational corporations. These corporations are not only reducing their investments in the region but also trying to evade the effects of the crisis by cutting back the benefits acquired by the mining countries in earlier negotiations. Given the present adverse situation and the danger of an incentives war among governments to attract foreign capital, some thought should be given to the achievements and miscalculations of the public sector and the change which it has undergone in its relations with the transnational corporations in past decades.

The present development of Latin American mining depends on several factors, including the existence of natural resources, the geological knowledge of these resources in the countries, political stability to obtain long-term investments and, of course, the capital needed to stimulate this development. The author deals with all these aspects, but he concentrates on the need for capital —the importance of which is increasing in view of the current economic crisis— and above all, on the conditions that would increase the likelihood of obtaining foreign investments, since public and private national enterprises might not be able to cover this need by themselves. He thus suggests the design and application of formulas that take account of both foreign investment and the national interest, although it is recognized beforehand that such formulas are not easily transferable from one country to another.