Latin America Sounding the Alarm: Debt-Threatened Democracies

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As the New Year dawned, Mexico was bracing itself for a painful reality. Jan. 1 marked the start of the Pact for Economic Stabilization and Growth, the latest package of wage and price controls intended to help keep Mexico's inflation rate below 20%. But it will probably pinch workers, whose real earnings have fallen steadily since 1982, and add further stress to an economy already staggering under more than $100 billion in foreign debt.

The implications could be explosive. Three days after President Carlos Salinas de Gortari announced the belt-tightening measures last month, hundreds of government workers demanding pay increases stormed the legislature shouting antigovernment slogans. Thousands more demonstrated in the streets of the city. At his inauguration Salinas, who won a clouded election by the narrowest margin in the 59-year history of the ruling Institutional Revolutionary Party, again called for a reduction in Mexico's debt payments. "The interests of Mexicans," said he, "come before those of the creditors." Yet Salinas' ability to curb his country's debt burden is severely handicapped by the threatening political consequences of domestic austerity.

Salinas' is but one voice in what has become a rising chorus of debtor discontent. Crippled by stagnant growth and a combined foreign debt of more than $400 billion, Latin American governments are finding it increasingly unacceptable to shoulder interest payments for loans that only push them deeper into the red. Yet the banks that made the loans, many of them privately held U.S. institutions, have come up with few acceptable solutions.

For the U.S. Government, the ticking of the debt bomb is no less disturbing. In the 1980s new democracies laboriously replaced dictatorships in more than half a dozen Latin American countries. In Argentina the third military uprising in 20 months was dispelled; shortly afterward, soldiers won a 20% pay hike. By sweeping municipal elections in Brazil's major cities last November, the left posed a credible political threat to the government of President Jose Sarney. With nearly a dozen Latin American debtor nations scheduled to hold presidential elections in the next two years, some populist candidates lure voters with promises of radical solutions to break the debt squeeze. Unless the region's scarce capital can be shifted away from foreign- debt payment back into economic growth, the frail bloom of democracy could wither.

In humanitarian terms, the picture is equally grim. In its annual report, the United Nations Children's Fund blames the debt crisis for lowering the quality of life for almost 900 million people over the past decade. If the current trend continues, UNICEF warns, the debt problem will cause the deaths of 18 million children a year by the end of the century.