When the Latin American debt crisis first struck in August 1982, it seemed like a virulent fever that might quickly overwhelm the world financial system. Instead, it turned out to be more like a chronic ailment that flares up or recedes by turn but is always maddeningly present. When representatives of both creditor and debtor nations came together in Washington last week for meetings of the policymaking committees of the International Monetary Fund and the World Bank, the persistent debt dilemma was at the top of the agenda. Fears are rising once again about the financial condition of Brazil and Argentina, as well as that of a host of smaller debtors located mainly in Latin America and Africa. After three days of closed-door talks, the world's moneymen were no closer to a cure for the debt woes. Said Onno Ruding, Finance Minister of the Netherlands: "Do not expect miracles."
In Brazil, economic policymaking has been almost paralyzed by the grave illness of Tancredo Neves, the first civilian to be elected as the country's President after 21 years of military rule. Meanwhile, the IMF has suspended $1.5 billion in loans that the country had expected to receive from the fund. Following the IMF's stern lead, banks in the U.S. and Western Europe halted talks with Brazil about rescheduling payments on its $102 billion debt. One of the main reasons for the IMF's action was that Brazil's annual inflation rate has been running higher than 230%, far above the 120% target level set by the government in its loan agreement with the fund.
The IMF has also shut off credit to Argentina, which owes $48 billion in loans. Although the country promised the IMF last September that it would slash inflation from a 687% annual rate to 300%, prices are now rising at an 851% pace. The government is trying to slow the whirlwind by limiting wage hikes to 90% of the previous month's cost of living increases, but that policy has led to a series of strikes, which threaten to stall economic growth. Admits President Raúl Alfonsín: "The government is multiplying its efforts to get the country back on its feet, but we are going to go through some tough times."
While Brazil and Argentina struggle, the two other largest debtors, Mexico and Venezuela, are continuing to make strides toward easing their credit crunches. Venezuela, which has a 16.9% inflation rate that is modest by Latin American standards, has reached a tentative accord with its banks to stretch out payments on $20.8 billion of its $35 billion debt over 12½ years. Bankers have agreed to give Mexico until 1999 to finish making payments on $28.6 billion of its $96 billion debt. Mexico gained the confidence of the bankers by reducing its inflation rate from 100% in 1982 to 59% last year.