18 May 1989 - 20 May 1989

Latin America: Problems and Prospects

Chair: The Hon Thomas O Enders

We attempted in this conference to cover a very wide canvas. This had the advantage that we were able to resist the temptation to pursue short-term tactical issues. Against that, it meant that we inevitably skimped on some of the fundamental problems.

The conference started by looking at the catalogue of miseries to be found in the continent, none of them perhaps unique, but in aggregate and in their degree constituting a serious situation. It was noted at the outset that each country in Central and South America was different and that it was impossible to generalise, even if it was possible to identify some common strands: the decline over the last 10-20 years in GDP and the standard of living; the burden of external debt, with the consequent negative cash flow to OECD countries; the wide social inequalities; population growth; the widespread involvement of government in industry and business; the extensive and poor quality bureaucracies, hamstrung by “clientism”; the strength of the untaxed and unregulated “informal sector” and the inadequacy of the “formal sector” as a tax base; inflation; fiscal mismanagement, coupled with the attempt to maintain unrealistic exchange rates. Nationalism, e.g. restrictions on foreign investment, also played a damaging part.

The area, however, had great strengths: natural resources, agricultural potential, an educated and hard-working population, especially in the private sector, though education was identified as a need. It was of interest that throughout the continent there was a healthy trend towards democracy. This, some suggested, could be seen as another swing of the pendulum, though there were grounds for hoping that, though fragile, the plant of democracy might survive and become permanent. Democracy had to be considered in the context of a country’s history and culture, and above all it must be given time to grow. But, for example, in Bolivia the electorate had shown great maturity in voting for a government pledged to an austerity programme, and while democracy in Mexico must be seen as relative, the same phenomenon could be seen there. There was no reason to think that an authoritarian regime would be more capable than a democratic one, of taking unpopular but necessary economic and fiscal measures: there were misguided and judicious regimes of both kinds, but a democratic regime had the advantage that responsibility for austerity measures could be shared. While the threat of the military stepping in was still present, there seemed to be a general feeling that it was less than it had been in earlier years. The real threat seemed to be that populist movements might beguile the electorates. The “left”, however defined, had lost its appeal and the rest of the continent was now able to take relations with Cuba and Nicaragua in its stride. Indeed some argued that pressures in favour of democracy and the pressure exerted by the G8 group might have played a part in Chile’s nascent return to the fold.

Debt, while it might not be the sole cause of the poor performance of Latin American economies, was undoubtedly a major obstacle to improvement. The incentive to invest and increase exports was reduced if the profits went to foreign creditors. In fact what was needed was foreign investment on an equity basis. In absolute terms the debt burden was large but, for example, reduction of Brazil’s debt by 50% would affect only 1% of GDP. (The point was also made that while the world tends to concentrate on external debt, many governments in Latin America were heavily burdened with internal debt) Indeed, parts of Brazil were enjoying boom conditions. De-fusing the debt problem, by reducing significantly the transfer of resources from poor to rich, was a condition precedent, though not a sufficient condition for economic recovery. The point was illustrated by the example of Peru, where despite the suspension of all debt servicing, the economy was if anything in as bad a state as any in the Continent. The existence of the debt gave the debtors and creditor nations and agencies a shared interest in finding a solution; and that shared interest could be put to use as a lever, so as to attach conditions about management and policy to any scheme for debt reduction. The instruments were well known: debt for equity swaps, raising money through privatisation, improvement of quality of debt, exit bonds etc. But the scope was modest, given the limited resources of the IMF and World Bank. Suggestions that new institutions might be required received little support. The commercial banks had been reducing their exposure, but largely by transferring their debts to the public sector. Behind all this, and above all, there was a need for recognition of the political and security aspects. While differentiation between those whose economies were performing better and others might be difficult (and the implications of anything done had to be considered in the context of others such as India or Indonesia), Mexico and others who had made tremendous efforts to help themselves should be helped. If they were not, there was a significant risk of a serious security problem arising. It was no longer a threat to the OECD’s banking system, but rather a risk of major instability. Further, there had been talk of some countries taking action effectively to repudiate the debt, under Article 8 of the Articles of the IMF. Trade was another area where the OECD could help, by resisting protectionist measures and reducing those that already existed.

There was brief discussion of the military, of the drug trade, of terrorism and the environment. While Brazil, it was noted, had become a major exporter of arms to the Third World, in general military expenditure as a proportion of GDP was low, though much higher in Central America. A strong plea was made for the abolition of all military forces in the continent, but most felt this was impracticable, particularly where armed insurrection had to be faced. The development of a missile capability by Argentina was seen as de-stabilising, even if the missile was unlikely to be very effective (unless it carried a nuclear or CW warhead).

The drug trade affected principally the Andean countries. The production, manufacturing, transport and marketing skills applied in that trade showed how dynamic the effects might be, if they could be applied to legitimate trade. There was some evidence that the second generation were doing that; and there was encouraging evidence that the producer countries were beginning to recognise the damage that was being done to their own societies. Meanwhile attention should be focussed on the demand side: the US market was saturated and the price was dropping, so that there was a financial incentive to pass supplies on to the European market where the price was much higher.

As for the environment, the problem could be divided into areas where the effects were local and where the effects were global. Of the latter, the Amazon basin was the classic example and even there, some properly managed development could be “environmentally- friendly”. There was an awareness in Brazil of the problem, but the way forward must lie in co-operation rather than admonition.

This Note reflects the Director’s personal impressions of the conference.  No participant is in any way committed to its content or expression.

Conference Chairman: The Hon Thomas O Enders
Managing Director, International Corporate Finance Department, Salomon Brothers Inc, New York


Mr Shigeaki Ueki

Chairman, Advisory Board of Petroleum Finance Co, Washington

Mr Hugh Carless CMG

Vice President, Hinduja Foundation (Europe); Vice President, Hinduja Foundation (Europe)
Mr C R L de Chassiron
Head, South American Department, Foreign & Commonwealth Office
Mr Alan Crawford
Adviser, Latin America & Caribbean, Bank of England
Mr Tim Eggar MP
Member of Parliament (Conservative) for Enfield North; Parliamentary Under-Secretary of State, Foreign & Commonwealth Office
Mr H P Evans
Under Secretary, HM Treasury
Mr P R Fearn CMG
Assistant Under Secretary of State (America), Foreign & Commonwealth Office
Mr Robert Harvey
Columnist and Leader Writer, The Daily Telegraph
Mrs Jo Beresford Hawkes
Associate Editor, Venezuela Focus; Editor of publications in English for Brazilian Foreign Ministry
Sir Kenneth James KCMG
Director General, Canning House; Chairman, British-Mexican Society; author
The Rt Hon the Viscount Montgomery of Alamein CBE
Managing Director, Terimar Services (Overseas Consultancy); President, Hispanic and Luso-Brazilian Council
Mr M J Newington CMG
British Ambassador to Brazil
Dr George Philip
Reader in Latin American Politics, Department of Government, London School of Economics and Institute of Latin American Studies, University of London
Mr David Stephen
Director of Corporate Relations, Commonwealth Development Corporation
Mrs Rosemary Thorp
Fellow, St Antony’s College, Oxford; Lecturer in the Economics of Latin America, University of Oxford
Mr Desmond Watkins
Director, Shell International Petroleum Co Ltd and Regional Co-ordinator for Africa and the Western Hemisphere; President, Canning House
Dr Laurence Whitehead
Lecturer in the Politics of Latin America and Fellow of Nuffield College, Oxford

Madame Louise Frechette

Assistant Deputy Minister for Latin America and the Caribbean, Department of External Affairs, Ottawa
Mr Gary German
Senior Vice President, Noranda Sales Corporation Ltd, Toronto; Chairman, Advisory Board, Canadian Council for the Americas; Chairman, Audit Committee and Director, Rudolf Wolff & Co; a founding member, the London Metal Exchange

Professor Claude Collin-Delavaud

Director, Institut de Hautes Etudes de l’Amérique Latine; Regional Director for Latin America, ORSTOM, Ministry of Foreign Affairs; a specialist in the regional planning and geopolitics of the Andean countries, Brazil and Argentina
Melle Marie-Hélène Duprat
Director of Research, Institut français des relations internationales (IFRI); member, Tokyo Club; currently working on work connected with economic adjustments necessary for those Latin American countries with a debt problem.
Professor Denis-Clair Lambert
Professor of Economics, Faculty of Law, University of Lyon III; author
Baron Jacques de Mandat-Grancey
Chief Executive, Developing Countries Division, Midland Bank pic, London

Dr Gerhard Henze

Director for Latin American Affairs, Foreign Office, Bonn
Herr Hans Heinrich Noebel
Retired as German Ambassador to Austria (1982-86); Correspondent for the Ditchley Foundation in Bonn
Herr Albrecht C Rädecke
Chairman, Deutsch-Südamerikanische Bank; Chairman, Board of Managing Directors, Deutsch-Südamerikanische Bank, Hamburg (Dresdner Bank Group).

Dr Hector Luisi

UK Representative, Inter-American Development Bank, London

Herr Wolf Grabendorff

Sr D Lopez de la Torre

Columnist, ABC, Madrid; Deputy Editor, Politica Exterior, Madrid

Mr David Asman

Editorial writer, The Wall Street Journal
Mr Robert Helander
Partner, Jones, Day, Reavis & Pogue, international lawyers, New York
Professor Abraham F Lowenthal
Professor of International Relations, University of Southern California, Los Angeles
Mr Arjun K Mathrani
Senior Vice President and Western Hemisphere Corporate Finance Area Executive, The Chase Manhattan Bank NA, New York
Professor Robert Pastor
Professor of Political Science and Director, Latin American & Caribbean Program, the Carter Center of Emory University, Atlanta
Dr Riordan Roett
Director, Latin American Studies Program, School of Advanced International Studies, The Johns Hopkins University; Political Risk Consultant, Chase Manhattan Bank; Founding Member, International Economic Analysis Inc; Member, Council on Foreign Relations
The Hon William D Rogers
Partner, Arnold & Porter (Attorneys), Washington, DC
Professor Clint E Smith
Program Officer, The William & Flora Hewlett Foundation; Consulting Professor of Latin American Studies, Stanford University  
Mr Derish M Wolff
President, Louis Berger International Inc

Dr Rainer B Steckhan

Director, Latin America & the Caribbean Department, The World Bank, Washington