Crisis and Change in Latin America

Chaired by Maria de Lourdes Pintasilgo

28-29 February 1992

Washington D. C.

United States of America

I. LATIN AMERICA IN THE GLOBAL SETTING
1. Basic Facts about Latin America

The image of Latin America has often been dominated by a perception of accumulated debts, upheavals of democratic regimes and the violation of human rights. Instead, its experience during this century has been rather varied and encouraging. From 1900 to 1990, the region registered the largest average annual GDP growth of all regions, including a period of strong growth throughout the 1970s.

But during the 1970s, the region traversed a dramatic period with the collapse of democracy in many countries, the ascension of military dictatorships, economic collapse and a wave of debt. As a consequence, Latin America lost weight and leverage in the world's productive, commercial, financial and technological systems.

At the beginning of the 1990s, Latin America finds itself in a social, economic and political quagmire. Politically, democracy and respect for human rights have been restored in virtually the entire Continent. Moreover, in order to recapture the economic balance, a consensus has emerged among Latin American countries and international finance and development institutions, that the principal objectives should be macro-economic stability, the rescheduling of debt and the opening up of economies. Yet, Latin America remains largely marginalized in terms of trade, the financial and monetary system, technological development, R & D - a situation aggravated at a time when more public attention is devoted to Eastern and Central Europe.

Some statistics highlight the essential problems of Latin America today:

- From 1980 to 1990, Latin America's population grew from 361 to 448 million, representing 8.1 respectively 8.5 per cent of world population. It is expected that by the year 2000, the population will grow to some 540 million or 8.6 per cent of world population.

- During the period 1985 to 1990, the population growth rate was 2.09 per cent - of which urban population growth accounted for 2.99 per cent and the rural population decreased by .53 per cent. For the period 1995-2000, the population growth rate is expected to drop to 1.78 per cent, of which 2.36 per cent will be due to urban population growth and .42 to rural population decrease.

- In 1985, the poor in Latin America were estimated at 120 million, i.e. about one third of the population. In 1990, some 300 million lived in urban and some 140 million in rural areas, while the comparable figures in 1980 were 200 and 160 million.

- In 1990, the poor account for 50 per cent of the city population (as compared to 28 per cent in 1960) and for 40 to 45 per cent of the rural population (as compared to 54 per cent in 1980 and 80 per cent in 1950).

- The region's share in international trade has declined from 10 per cent in the sixties and early seventies to 6 per cent in the 1980s and a mere 3.6 per cent in 1990.

- Real GDP for Latin America declined by 2 per cent in 1990, yet there are considerable disparities in country performance. Positive growth rates in Mexico and Central America (3.08%) and the Andean States (2.4%) contrast with real decline in the Caribbean (-1.7%) and in the Southern Cone (-4.1%).

- GNP per capita in 1989 amounted to US$ 1,950.

- Between 1984 and 1986, Latin America's share of world GDP stood at 3.8 per cent, while it was 14 per cent in the 1950s.

- During the 1980s, the standards of living have fallen to the levels of 1977.

- Between 1980 and 1984 inflation reached 90 percent; in 1988 it climbed to 286 per cent, in 1989 to 533 per cent and in 1990 to 1200 per cent.

- Between 1975 and 1985, government expenditures for education as percentage of GDP remained more or less stable at 4.5 per cent. 13 countries decreased their expenditures in this period.

- Between 1975 and 1985, government expenditures for health as percentage of GDP hovered around 2 per cent.

- In 1988, Latin America as a whole spent some US$ 12.6 billion for military purposes, amounting to 3.3 per cent of GNP.

- Gross external debt of Latin America and the Caribbean has remained since the mid-1980s at some US$ 400 billion annually.

2. Latin America in the global order

The end of the cold war offers a unique opportunity to build a new global system. The emerging new international system must come to grips with newly emerging problems of a global nature - such as demographic pressures and migrations, ethnic conflicts, economic inequalities, environmental problems. No country can isolate itself from these problems, especially in the common quest for socially and environmentally sustainable development. As all other regions, Latin America must be integrated as a responsible and full partner in this endeavour.

Often, Latin America is perceived as a mere object in the solution of problems having a direct and indirect impact on industrialized countries, such as the environment, drug trafficking and migration. However, the region has potential beyond essentially utilitarian viewpoints. Such value deserves particular emphasis at a time when the region finds itself in the middle of a transition period, both with respect to its economic revitalization and its political rejuvenation.

To provide the necessary legitimacy and stability of the evolving new global order, the world community must adjust its morality and seek to achieve a symmetry of commitments and obligations.

In the past, Latin America, as many other developing regions, has become - wittingly or unwittingly - the victim of a double standard in international relations:

- it was pushed to adopt the open market economy model, fully liberalising the economies, while the economies of industrialised countries remain strongly protectionist;

- it is urged to accept conditionalities, e.g. as regards the formulation of environmental policies, while the industrialised countries lack - or even refuse to adopt - comparable measures;

- it is forced to pursue macroeconomic policies aimed at the elimination of budget and trade imbalances, while the major industrialised countries are, year by year, incurring such imbalances without adopting the necessary corrective measures.

In order to gain access to external finance, many Latin American countries had to accept severe internal adjustment measures with immense economic, political and social costs which greatly affected their development programmes. The totality of all conditionalities have considerably impaired the formulation and implementation of development policies by Latin American Governments.

Beyond the ethical dimension, the problems faced by Latin America are of such a nature and magnitude that they have repercussions for the future wellbeing, security and - indeed - survival of all humanity.

3. The Crisis of Latin America

Despite a democratic rejuvenation in Latin America, the democratic systems are undergoing extreme strains as a result of problems arising from the political and economic transition process which can no longer be managed with traditional policy instruments or approaches alone. Signs of a political crisis are increasingly evident, such as in Peru and Venezuela, as are social tensions in other countries, poverty being the single major contributing factor. The legitimacy and effectiveness of parliaments and traditional parties is being questioned as is their ability to lay the institutional and other foundations for broader popular participation in the political process.

One paramount challenge is that Latin America needs to conceptualize anew and redesign its institutional set-up tailored to the needs of its political process.

Another primordial challenge is to resussitate the region's dynamism and potential in such a way that it can be supportive of and sustain a world wide economic recovery.

In order to establish itself as a viable and potent player on the international scene, Latin America itself must define and put into action its own agenda. While the dominating paradigms of democracy and the market are bound to influence the organization of the political, economic and social processes, they must draw on the national or regional background and cultural, social, religious and political traditions.

A specific Latin American model of development must therefore be devised complemented by commitments and goals covering the various factors of economic transformation, social integration and empowerment of human resources. To produce tangible results, such commitments and goals must be accompanied by a redirection of priorities governing resource allocation. As the market by itself is unable to ensure equity and solve long-term development problems, state intervention will continue to be needed. Parameters for such intervention must however be defined.

II. TACKLING THE ECONOMIC AND SOCIAL CRISIS

1. The Battle against Poverty

Poverty in Latin America is not a scattered problem. Rather it is a widespread, structural phenomenon and it is an entrenched - and worsening - reality in rural and urban areas alike, which threatens to rend the fabric of society. There are several prime sources of poverty in Latin America:

- an uneven distribution of income which has dominated Latin America for centuries and which is connected to the distribution of ownership of land and means of production;

- the absence of agrarian reforms in most countries creating a large, impoverished rural population;

- the burden of the economic, social and political crisis of the 1980s led - in the course of implementing macroeconomic adjustment programmes - to a dramatic reduction in social expenditures, essentially shouldered by the poorest segments of society.

The battle against poverty in Latin America is the paramount political, economic and social challenge facing all Governments in the region. Poverty demands priority attention. There are no ready-made short-term solutions. Specific strategies must be formulated. The ingenuity and abilities of all leaders must be focussed on this issue with the same intensity and commitment given to the management of debt and environmental problems.

Poverty is also the major contributing factor to both environmental degradation and depletion and to drug trafficking. Hence, the eradication of poverty becomes a matter of utmost international urgency, too.

Now that policies seeking "social justice" are no longer being equated with communist ideology or leanings, effective multisectoral strategies must be formulated to ensure a long-term improvement in the levels of income of the poorest segments of the population and the provision of basic needs and services as well as the stabilisation of the macroeconomic framework. Otherwise the slide into deeper misery will continue unabated.

Present policies of economic growth, economic reform and adjustment packages are not compatible with efforts to alleviate poverty and to foster social development and popular participation. This cannot continue. Economic reforms cannot be sustained without social equity.

In the long run, poverty and social problems cannot be addressed without a stable macroeconomic environment. Economic growth, built on the predictability of policies, remains a precondition for enduring success in the fight against poverty. A fiscally sound policy has to combat inflation and to reduce budget deficits. This will be impossible without a solution to the debt crisis which - while it has disappeared from the headlines of the world's media - remains the single most serious problem for many Latin American countries. As almost all of the debt is owed by the state, debt servicing remains an important element in budget policies. During the 1980s, fiscal imbalances were largely caused by the huge external debt resulting in budget deficits, hyperinflation, balance of payments deficits, and, in general, economic disorder. Governments and their internal political strength were weakened as a result. As a first step, therefore, the governance of the economy must now be regained.

To reduce spending and generate income, governments should divest their ownership of endemically unprofitable enterprises thereby liberating resources that could be rededicated to social spending. Small and medium enterprises in the agroindustry and other industries should be supported and their access to credit should be facilitated.

Government policies should encourage and induce the creation of employment opportunities, particularly in the urban construction industry in order to absorb unqualified workers having migrated to the cities and to provide shelter.

The adoption of more effective tax systems and collection mechanisms will also help improve the income side.

While Latin America as a whole has incurred less military expenditures than other continents, room for reductions in military spending nevertheless exists. Funds thus saved may help to redirect the necessary funds towards education and social services.

While striving for a balanced budget, fiscal policies must also seek to reallocate funds towards massive social investment of a long-term nature in those sectors in dire need - i.e. education, health and nutrition -and to foster a redistribution of income. Particularly in the cities, reeling under the migrants from rural areas, infrastructure investments and a reinforcement of public services are pressing.

During crisis and recovery, a concentration of wealth, investment and income tends to occur. To redress the unjust distribution of income, excessively protectionist policies must be abandoned as they tend to cause a concentration of income in the hands of inefficient and monopolist entrepreneurs. Even if it may appear to be at odds with the prevailing political sentiments and paradigms, poverty alleviation in the rural areas is unlikely to be successful without a redistribution of land accompanied by a reform of agrarian practises and cultivation patterns. If those measures are delayed or ineffectively deployed, migratory pressures will increase on the urban areas. There, fiscal redistribution policies and social security measures may be the only tools to apply.

Apart from governmental action, the private sector - banks and enterprises - has proved that it can play a critical role in innovative initiatives to fight poverty. This must be encouraged and facilitated.

The internal constellation of a country is an equally important dimension for the success of the necessary macroeconomic policies, which fall easily victim to the electoral cycle as they require much longer periods of fruition. Formidable obstacles must be overcome in any effort seeking redistribution as it is bound to be at the expense of the middle and upper classes whose representatives and interests dominate parliaments. Enlightened domestic political leadership must therefore be complemented by assistance from the international community to facilitate stability of policies over several electoral cycles. Moroever, the centralization of political power prevents a proper reflection of concerns by small communities and peripheral regions.

Poverty and economic devlopment must also be accorded top priority on the international agenda - at summit meetings and the sessions of governing bodies of international organisations. Industrialised countries and international finance organisations must reorient their assistance programmes towards fighting poverty. The adoption of a medium-term plan for social recovery, investment and reform should become a precondition for the launching of joint international efforts to combat poverty.

2. Controlling the Nexus of Drug Supply, Demand and Trafficking

Worldwide, narcotraffic represents today a profit-making business transnational in character, impinging on the sovereignty of national states. Proceeds are invested in industrialised countries involving prime banking and industrial addresses. The eradication of coca and other plantations, such as marihuana, in Latin American countries will not end the drug problem as the plant can be cultivated in any kind of climate and under any condition. Instead, destruction of plants through aerial chemical spraying has caused havoc with the soil of the area and other agricultural products. Every measure aimed at curbing coca leaf production, must also provide for alternative income possibilities for the farmers who are usually the poorest of the poor.

Drugs and narcotraffic have become an insidious threat to societies everywhere. Accordingly, all Governments should immediately initiate jointly and individually short-, medium- and long-term remedial measures. Any control of production touches on the economic and social interests in producing countries. In some producing countries, an alliance of drug traffickers with terrorist groups threatens to rend the societal fabric and endanger social peace. Their financial resources far exceed those of the police and the armed forces.

Conversely, reducing drug consumption in the industrialised world is a profound social problem entailing change of social values. Paradoxically, drug trafficking and related violence in the United States involves predominantly minority youth who see it as the only avenue for social and economic improvement.

Clearly, a control of the supply and demand of drugs necessitates an integrated approach and the burden must be shared by all involved. In practise, international assistance in the fight against drug production and trafficking creates its own vexing problems. Policies of donor countries or institutions might be at variance with those of a Latin American country and nationals employed by such programmes may earn several times the salary of members of a national judicial branch. Thus, the danger of corruption exists.

Moreover, political leaders and justices proposing strict policies and administering programmes against drug trafficking run tremendous personal and physical risks. Their efforts are frustrated when convicted drugtraffickers are offered plea-bargaining in certain countries yielding a light or suspended sentence.

The major burden for solving the drug problem cannot be placed on the shoulders of the Latin American countries alone. The production of drugs will not be stopped unless the demand is drastically curbed, especially in developed countries, principally the United States and Europe.

Clear and monitorable objectives must jointly be formulated by producing and consumer nations to establish an effective international programme to combat drugtrafficking in all its stages - production, refinement, trade and consumption. Furthermore, pledges for commonly agreed levels of funding must be an integral part of such a programme which should also comprise an international awareness campaign about the pernicious and criminal dimensions of drugs. In such an effort, Europe - which is fast becoming one of the prime consumers of drugs - can no longer shirk its responsibility and must urgently join in such a collaborative effort. Any such undertaking must also provide complementary trade measures.

3. Boosting the Educational System

Poverty flows from ignorance and an inadequate educational system is a main contributing factor. The combination of the fiscal and debt crisis, demographic trends and global technological change have made education the weak link in the economic growth and development process in Latin America. Currently, less than five percent of national budgets are devoted to education.

Education is the craddle of social gaps. Educational investment policies should therefore aim at narrowing such gaps. However, they will require long gestation period and thus they may tax the patience and tolerance of both the public and politicians.

One central issue is the management of the educational systems, especially given the constraints on public budgets. The internal efficiency of education must be ensured, i.e. reduction in number of failures, dropouts and repeaters. Further, the overall cost-effectiveness of the system must be enhanced. Countries will have to do more with less.

In that context, the configuration of an educational system needs to be kept under regular review, focusing on the length of study, the number of hours spent in school, the pupil-teacher ratio etc., and necessary adjustments and fresh appraches should be introduced whenever required. Latin America may need to contemplate applying various distant learning techniques utilising radio, television or computer-assisted education. In other regions of the world, such techniques have brought about a decrease in the cost of operating educational systems.

The composition of the population in most countries of Latin America calls for the introduction of bilingual and multicultural education at all levels of the educational system. On the other hand, the reality and importance of migratory movements within Latin America and between Latin America and other parts of the world should be reflected in the content of the educational systems.

In general, Latin American governments should concentrate their educational efforts on two areas:

a) a significant improvement in the quality of primary education, preferably through raising the quality of primary school teachers; b) investment into higher education given the direct relationship between the quality of higher education and the level of development of a country. Such investment should correspond to the traditions and the needs of the continent.

In the pursuit of such policies, Latin America should refrain from uncritically adopting foreign models. Entry to universities should be conditional upon educational criteria only. Financial and social criteria to gain acceptance should play only a secondary role.

On the continental level, Governments should agree to set up regional centers of excellence (top level research centers) as they cannot be economically operated on a national basis and a critical mass can only be provided on a regional level. Such centers will be able to play a key role in the improvement of the quality of higher education in specialized fields, would keep Latin America in touch with gloabl scientific developments and might contribute to a reduction of the "brain drain".

III. MEETING THE CHALLENGE FOR POLITICAL CHANGE
1. Towards a Participatory Democracy

Capping the dramatic reversal from military dictatorships to democratically elected governments during the decade of the 1980s, virtually all countries of the continents formally committed themselves in 1991 to democracy. Yet, beyond such a formal pledge, a series of challenges must be tackled: Which instruments and mechanisms are to be used to translate democracy into practical reality? Which instruments are available to defend democracy? To what extent are the countries of the continent ready to yield sovereignty and even accept the notion of the right of intervention in the case of massive human rights violations? How can the poor be incorporated in the practise of democracy and is democracy feasible given the extent of poverty?

The triumph of democracy in the 1980s has restored the respect for human rights but has also coincided with economic decline. Is this paradox a harbinger of future trouble? Clearly, threats to democratic rule remain, especially at prevailing levels of illiteracy and poverty. Populist solutions may become attractive, endangering any hard won economic stability and presaging social chaos and ungovernability. In that context, the specter of military takeovers has not been eradicated. Democracy is the only regime capable to prevent a relapse to a systematic pattern of human rights violations.

One cannot come to the conclusion that democracies exist in all countries only because elections have taken place. Democracy is a much more complex process demanding certain social conditions without which people cannot consciously participate.

One of the threats to the legitimacy of Latin America's democracy is the abyss between formal - electoral - democracy and the lack of strong participatory features associated with a functioning civil society. Latin America lacks a system of multilayered societal partners, countervailing powers and mechanisms to entrench democracy on a broad base. This low degree of public participation must be increased against all developmental odds.

In many countries, the political leadership has been discredited by corruption and mismanagement. A new generation of leaders must be grromed, which will seek to tap the intellectual resources and the increasingly alert public opinion to allow the pursuit of stable policies.

This process must be underpinned by the full institutionalisation within the political system of new social movements, such as the indigenous movements, the human rights movements, the women's movement or the ecological movement. In the civil society, room must be given to the airing of ideas from all segments of society. This may lead to a greater legitimacy of institutions and a greater capacity to negotiate with industrialised countries.

Two fundamental principles are the cornerstone of Latin America's political system: non-intervention and self-determination. Efforts to introduce a right to interfere into the international system are perceived as an attempt by the Western countries to impose their concept. Yet, Governments should be encouraged to recognize that integration - through international agreements - is inconceivable without trading a certain degree of sovereignty for common benefits, e.g. in trade, education, communications, science, environmental protection. This leads to the concept of enlarged sovereignty in the interest of the common weal. However, the focus is then to devise the most suitable and acceptable mechanism for the management and control of such delegated sovereignty, including the creation of specific parliamentary bodies.

2. The Role of the State

Given the new international climate and the challenges outlined above, the role of the state in Latin America has to be redefined as part of an effort to design a new institutional framework for Latin America. This should aim at enhancing the governability, strengthening the redistributive role of the State, increasing the effectiveness of government and reinforcing legitimacy by drawing on the private sector and society as a whole. The state must assume a role as one of the agents of social change. It must further perform a regulatory role.

While the recurrence of excessive state intervention in the direct management of the economy should be avoided, the privatisation of public enterprises cannot be a goal per se. Public monopolies should not be replaced by private monopolies or by dominance of foreign interests. Rather, the goal must be to provide better public services, to improve the competitive environment and to tackle problems of poverty. All state intervention, however, must be guided by the rule of law, especially in societies with considerable ethnic diversity.

In other areas, a reinforced state role may be called for, especially as regards the maintenance of internal security, administration of justice and social investment. The Government must establish mechanisms by which the various parts of the civil society can participate in the various tasks of the state, such as providing guidance to social development and change, determining social investment and infrastructure, pursuing effective policies aimed at stabilising population grwoth, and negotiating with the international community.

The degree of centralisation of political processes and administration should correspond to the tasks at hand. In the transition process, centralisation may serve to promote national integration and nation-building as well as to resist dominance by other countries. It may also help to break up feudal structures and to exercise impartial and uncorrupt judicial powers. Yet, a certain measure of decentralization is required to fight effectively poverty. Decentralisation will facilitate the process of redistributing political, economic and administrative power, especially in the provision of public services. Exaggerated centralism in the allocation of investments tends to restrict economic growth. Decentralization will help to heighten efficiency of delivery, improve the relationship between the state and the citizens and inject greater participatory elements.

The emergence of a civil society, an understanding about the mutual roles of the state and the elements of civil society and a consensus on economic and social policies might be enhanced through the conclusion of social pacts between the government and the various social actors and groups.

3. The Quest for Integration

The weakening position of Latin America in a world dominated by economic powers such as Europe, Japan and the United States makes the pursuit of integration fundamental to increasing competitiveness and the ability of the Continent to penetrate international markets. The acceptance of the notion of shared and thus enlarged sovereignty for the common good has given new impetus to integration efforts. A first step was taken with the 1991 Treaty of Asuncion which sets out a programme of commercial integration of a sub-region of the continent leading to a free flow of goods by the end of 1994 for a large part of the continent. The political will and acceptance of a true common economic market, including a coordination of macroeconomic policies and harmonization of taxes, must yet be galvanized. Similar to the exercise conducted for the European Community, a comprehensive study should be undertaken of the "cost of no-Latin America", jointly initiated by the Inter-American Development Bank, the World Bank, UNDP, the IMF and sub-regional organizations.

As several subregional groups already exist in Latin America, the study should also examine whether the integration process could be started with a particular core group instead of the entire continent, proceeding in a pragmatic approach. Another option might be a fragmented approach building on existing subregional agreements, e.g. starting out with a strengthening and deepening of the Andean Pact, the Central American common market or MercoSur, and moving towards their convergence. The danger of such an approach, however, is that it could lead to conflicts and ultimately prevent continent-wide integration.

The experience of the European Community suggests that integration may also lead to the adoption of policies and mechanisms to monitor the observance of human rights and the democratic practice of countries. Political leaders and governments should pronounce their acceptance of such common undertakings in the interest of the development of the continent rather than being excessively concerned with upholding an abstract concept of sovereignty.

Furthermore, Latin American countries must be aware that any integration will entail transferred costs and the transfer of funds from more prosperous to poorer members. Without such transfer mechanisms, integration will remain an empty concept. For a number of years integration, in a number of sectors, may entail costs rather than immediate hoped-for benefits as uncompetitive sectors shrink and even collapse. In other sectors, integration may lead, in the short run, to an expansion of production.

In global terms, integration is the only instrument through which Latin America can acquire a negotiating capacity and capability on a variety of economic and political issues. In the past, Latin America lacked the political will to seize the opportunity of the debt crisis to forge a common negotiating position as a step towards integration. A similar opportunity may be missed if Latin America - with its ecological richness - fails to agree on a common policy to be presented to the United Nations Conference on Environment and Development. The report by the Latin American and Caribbean Commission for Development and Environment "Our Own Agenda" deserves the full support of all governments.

IV. THE FUTURE ROLE OF LATIN AMERICA IN THE WORLD

Latin America has the potential to project an image and play the role of a positive actor for global stability and peace and the recovery of the world economy. This is particularly true given the enlarged concept of global security accepted in January 1992 by the United Nations Security Council. It comprises also non-military elements of security, such as economic development, poverty and environment.

Thus, Latin America as a whole must begin to organize itself through economic and political integration in order to exercise its negotiating power. Internal coordination and adoption of common policies is a precondition for becoming a viable player on the international scene. If discord and distrust make unified positions impossible, the world community might have to grapple with new types of internal and external conflicts, such as border disputes, trade conflicts, environmental spillovers.

The groups and organisations forming the civil society in Latin America - e.g. those defending human rights and promoting ecological awareness, the academic and social science institutions - have already contributed to the creation of a strong regional exchange. They must increasingly be involved and partake in the regional and international intercourse. North and South must accept their shared responsibility for finding solutions to the newly emerging problems of a global nature based on the principle of symmetry of commitments and on the basis of enlightened self-interest. All must check the eruption of conflicts at all levels endangering peace, security and prosperity.

Latin America should not agree to negotiate on a case by case and country by country basis. Integration is clearly a sine qua non for an effective bargaining position and for Latin America becoming a partner of equal standing to that of other players on the world scene, especially since this is already a prerequisite for negotiations with areas more advanced in integration, such as the European Community.