Regional Outlook : After the ‘Lost Decade,’ a Strong Latin Spirit : Forecasts for prosperity and stability were surprisingly rosy at a Mexican summit.

Latin American history has been shaped by stubborn and often frustrated idealists.

Simon Bolivar helped liberate the colonies from Spain in the early 1800s but failed to keep them united in independence. Late in the 1980s, Costa Rica’s Oscar Arias Sanchez won a Nobel Prize for pushing Nicaragua from war to peace but couldn’t persuade any of his neighbors to abolish their armies.

Today the region’s utopian spirit is as vital as ever. It was in full bloom here last month as presidents of 19 countries gathered to sketch their vision of the 1990s and, five centuries after the Spanish colonization, to project Bolivar’s old dream of a unified Latin America into the next millennium.

For a region struggling to emerge from the “lost decade” of debt crisis--the most punishing economic decline and wildest inflation in its modern history--the presidential assessments sounded surprisingly upbeat. Unity in the coming decade, they declared, will help overcome the continent’s chronic poverty and political instability.

“A new Latin American era is dawning,” exulted Venezuelan President Carlos Andres Perez, one of the region’s elder statesmen. “It will be a continent where the utopia of an authentic democracy of free and equal citizens reigns, the model for a prosperous new society that seeks to join the First World.”

Such euphoria might be dismissed as a fleeting emotion of the two-day summit, the region’s biggest-ever gathering of so many like-minded democratic leaders. After a generation of nationalist paranoia, dictatorship and protectionist economics, the elected civilians and free-market believers now in power were congratulating themselves simply for being in the same room.

But their optimism stems as well from the results of two common policies and is supported by a hopeful forecast from the Inter-American Development Bank.

First, negotiations over the last two years to tie their economies together through a web of free-trade agreements, among themselves and with the United States, have proceeded faster than expected. By the mid-1990s, they say, these alliances could lay the foundation for a common market of 400 million Latin consumers, twice as many as the European Community.

Also, many Latin leaders are convinced that painful surgery on their national economies in recent years--cutting public spending, withdrawing subsidies for pampered industries--is starting to pay off; at least it is taming hyper-inflation.

“If policies continue down this road and the reforms are intensified, the economic recovery of the region could be a reality in the course of this decade,” the Development Bank predicted last month in its forecast for the ‘90s. “There are solid reasons to face the future with confidence. . . . Latin America again can achieve significant growth rates with moderate amounts of external borrowing.”

The road uphill is long. According to the U.N. Economic Commission for Latin America, the region’s per capita production stands today at 1977 levels, having slid by 10% during the 1980s under the weight of unpayable foreign debts.

By 1982, when foreign banks virtually stopped lending for new projects, the Latin model of the 1960s--state-driven development--had gone bankrupt, sapped by self-defeating trade barriers and inflationary public deficits. Billions of dollars in flight capital drained from the region.

Human damage is still being assessed. According to the U.N. commission, 47 million Latin Americans plunged below the poverty line during the 1980s, joining 136 million already mired there.

Health, education, water and housing services deteriorated. Despite falling birthrates, unemployment reached record highs. Crime rates soared in overcrowded cities. A quarter of a million poor people in Andean nations, Brazil and Mexico have been stricken this year by Latin America’s worst cholera epidemic of the century; more than 2,500 have died.

The collapse of the 1980s was stunning, frustrating to Latin American visionaries long puzzled by why such a huge region with common language and heritage and no serious ethnic or religious conflicts cannot rise to the greatness of well-being.

“We have not been capable of transferring our cultural richness and continuity to a similar economic richness and political continuity,” wrote Mexico’s Nobel Prize-winning poet and novelist Carlos Fuentes in a recent essay on the lessons of the 1980s.

Latin America’s solution for the 1990s, a free-market model with tight-fisted controls on public spending, has produced the initial effect in many countries of making poverty more acute. But the Inter-American Development Bank predicts that prevailing policies will soon inspire enough new domestic savings and foreign investment to reverse the downward slide.

An estimated $10 billion in flight capital will return to the region this decade, reducing the $423-billion foreign debt, the bank predicted. With that money and $220 million in outside investment, loans and aid--a reasonable target, bank officials say--Latin America can achieve healthy growth rates averaging 4.2% a year and nearly 5% by the end of the decade.

The bank’s hopeful outlook is not universally shared.

Skeptics note that even the most negative forecasts by international lending agencies for Latin America at the start of the 1980s proved to be embarrassingly optimistic. Much as they were 500 years ago, Latin American economies are based on raw materials; they are vulnerable to unpredictable dips in world prices for petroleum, copper, coffee and sugar. Also, overall growth for the region might conceal wide performance gaps between healthy economies like Chile’s and Colombia’s and shakier ones like Brazil’s and Peru’s.

Just as worrisome is the prospect that growth in each country could benefit a rich few without trickling down to the poor majority.

“Even while there are certain reasons for optimism about the future, we cannot be carried away by euphoria and think that all the difficulties are overcome,” says Colombian President Cesar Gaviria. “If we want to achieve true peace--the peace born of equality, social justice and prosperity--we still have a lot of ground to cover.”

Despite an abundance of such rhetoric at Latin American forums, the leaders are making little concerted effort to correct centuries-old inequities of land and income distribution that have fed social upheaval, military coups and guerrilla wars. These are, after all, presidents committed to “modernizing” the state by reducing it.

“Will the free-market model survive the ‘90s?” wonders Gabriel Siri, the U.N. Economic Commission’s director for Mexico, Central America and the Caribbean. “On the one hand, the homogeneity of views at the political level seems to make the current policies irreversible. There’s a feeling that they’re coming out of the crisis.

“But I don’t think the political leaders are fully aware of their vulnerabilities,” he adds. “Democracy has raised so many expectations among the poor, but the length and depth of the crisis have destroyed the infrastructure the state needs to tend to them. How are you going to solve their problems with social spending that is only 4% of GNP?”

The U.N. Economic Commission is pushing a new approach for the 1990s--one that aspires to make successful business people of millions of poor people already self-employed in the “informal economy.” It calls on governments and foreign lenders to redirect part of their paternalistic social spending to help grass-roots organizations in the barrios amass working capital for small-scale enterprise.

Without such schemes to help the poor help themselves, the commission warns, growth in the 1990s will hit a wall. It also urges Latin leaders to spend a greater share of shrinking state budgets to reverse the slide of health and education standards.

A major roadblock to this kind of spending is the lingering power of military establishments that ruled most of the continent a generation ago and, even in the poorest countries, still demand a large share of national budgets. “Armamentism,” says Peruvian President Alberto Fujimori, “is the principal enemy of the development of our peoples.”

Others fear that market-oriented growth is uncontrollable and will ravage Latin America’s environment as well as its poor.

“Is it possible to build a future without renouncing our identity, without submitting ourselves to a selfish mercantile dynamic that devastates our human and natural resources?” Argentine writer Osvaldo Soriano asked in a recent essay.

Haunted by the same question, a politically diverse group of 30 prominent Latin American writers, led by Nobel laureate Gabriel Garcia Marquez of Colombia, joined last month in pleading for a hemispheric effort to save the vanishing rain forests.

Overriding all debate about what kind of development they want, Latin American leaders share a conviction that only by allying their economies can they take part in, and benefit from, the sudden shifts that have redrawn the world’s geopolitical map over the last two years. Even Fidel Castro, cut off from his fallen East European allies and isolated in his one-party socialist convictions, turned up at the summit here, clamoring to get Cuba into the emerging Latin bloc.

With Europe and North America consolidating into powerful economic alliances, five Central American countries and the five Andean Pact nations last year dusted off 1960s blueprints for subregional common markets.

Argentina, Brazil, Paraguay and Uruguay, which contain nearly half of Latin America’s population, agreed last February to dismantle barriers to trade among themselves by 1995. Mexico, Venezuela and Colombia have since pledged to set up their own free-trade zone by 1994.

Bolivian President Jaime Paz Zamora, whose country belongs to four different subregional alliances, envisions these accords as “streams flowing into one great river of integration.”

The potential is great: Latin American nations trade just 4% of their gross national products with each other, according to the Inter-American Development Bank, compared to the 14% traded inside the European Community and the 17% across the Pacific Rim.

Although the Latin embrace of trade liberalization was under way by the end of the 1980s, the announcement of President Bush’s Enterprise for the Americas initiative in June, 1990, gave it a sense of urgency and direction.

The initiative calls for free-trade pacts between the United States and Latin American countries that could transform the entire hemisphere, from Alaska to Argentina, into a common megamarket; the creation of a $1.5-billion fund to help move state-owned industries to private hands, and a reduction in the $12-billion debt that Latin nations owe the U.S. government.

Not since President John F. Kennedy’s Alliance for Progress 30 years ago has any U.S. initiative drawn more praise in Latin America. Fifteen nations have signed framework agreements to negotiate free-trade treaties with Washington.

“It is an ambitious business proposition,” says Argentine President Carlos Saul Menem. “Latin America is considered this time as a new entity, as a valid player able to talk in terms of mutual interests.”

At the same time, leaders of small countries like Ecuador, which is heavily dependent on mining, have criticized the United States for demanding too much privatization in return for benefits of the initiative. Articulating a solitary view among presidents but a lingering phobia among the region’s nationalists, Castro branded the initiative a “siren song” that will end in disillusion.

“The policies of the great economic powers and the international financial institutions under their control have not produced development, but have brought poverty to more than 250 million people,” Castro warns. “The world is heading in a still worse direction, toward political hegemony by a superpower that has often made excessive use of force.”

A more common worry is that Mexico, with a long U.S. border and a head start in negotiating its own agreement with the United States and Canada, will grab most of the benefits of North American trade and distance itself from its Latin neighbors.

“We’re always looking north and expecting everything from the north, and we forget that a more intense interchange among ourselves will help us definitively to solve many of our difficulties,” says Ecuadorean President Rodrigo Borja.

In that spirit, Mexican President Carlos Salinas de Gortari convoked last month’s summit and limited outside invitations to the leaders of Spain and Portugal, Latin America’s former colonial rulers, as a way of diluting Washington’s influence and reaffirming Mexico’s solidarity with the region.

The summit quickly became a soapbox for dreamers. President Perez of Venezuela got up and proposed an elected Latin American parliament by 1995. Argentina’s Menem asked why Latin America cannot have a single currency. Fujimori of Peru revived Arias’ vision of a continent without armies.

None of these proposals was acted upon, but they’ll no doubt be heard again, now that the region’s presidents have agreed to meet every year. As the Argentine writer Soriano observed: “A step away from the 21st Century, the utopia of Bolivar . . . is intact in an unfinished America.”

Latin America’s Lost Decade

Charts show the year-by-year progression of the total gross domestic product, per-capita GDP and foreign debt of 23 Latin America countries (Argentina, Brazil, Chile, Guyana, Peru, Venezuela, Paraguay, Uruguay, Bolivia, Colombia, Ecuador, Barbados, Haiti, Jamaica, Trinidad and Tobago, Dominican Republic, Mexico, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama.)

Source: U.N. Economic Commission for Latin America

Trade Blocs

Regional alliances envisioned this decade and their populations:

* NORTH AMERICAN FREE TRADE ASSN: Canada, Mexico, United States. 360 million

* CENTRAL AMERICAN COMMON MARKET: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua. 28 million.

* ANDEAN COMMON MARKET: Bolivia, Colombia, Ecuador, Peru, Venezuela. 92 million.

* SOUTHERN CONE MARKET: Argentina, Brazil, Paraguay, Uruguay. 190 million.

SOURCE: U.N. Economic Commission for Latin America