Section 3. Latin America


1. Overall Internal and External Situation


(1) Changes were seen in Latin America as a whole recently in the fields of politics and economy. Namely, the trend of democratization involving changes of political power from military to civilian rule have been conspicuous in eight Latin American countries since the beginning of the 1980s. This is causing democracy to take root as a political system gradually in Latin America. In the economic aspect, they are facing such problems as accumulated external debts, slowed export and expansion of financial deficits because of a changing international economic environment and other factors, forcing those nations to carry out a structural reform of their domestic economic systems.

In the aspect of international relations, Latin American countries seem to be showing signs of taking a many-sided approach in their diplomacy, departing from their conventional stance to attach importance to relations with the United States. Among possible reasons for this phenomenon are, in the economic field, reduction of U.S. foreign economic aid and a slump in their trade with the United States, and in diplomatic aspects, differences of opinion between the United States and Latin American countries on the Falkland Islands (Malvinas) dispute and conflicts in Central America. But, as a more fundamental reason, it can be pointed out that they are increasing their concern over Japan and other areas in Asia in addition to Europe and other regions with which they had long been related closely. Besides this tendency, there is an active move among Latin American countries to seek integration of their areas in order to expand their economies and have a bigger say.


(2) Trend of Democratization

There has been a marked trend for democratization in Latin American countries since the beginning of the 1980s. In 1987 we saw a revolt by some sectors of the Argentine military and a series of violent strikes in each country. The countries which had realized transfer to civilian rule faced difficulties against the backdrop of challenges by those supporting old regimes and various economic problems centering on the problem of external debts. In Brazil, which realized transfer to civilian rule in 1985 for the first time in 21 years, people had heated arguments over legislation of a new constitution. These developments show that democratic governments in Latin America are now in a transitional period for taking root.

Furthermore, presidential elections are scheduled for 1988 and 1989 in many countries. So, the year 1988 is expected to see major political movements, with election campaign activities getting much more active than they were in the previous years. Whether democratization in Latin America is truly taking root shall be judged in the years to come.

Some of the Latin American countries are faced with social problems such as deterioration of public order due to terrorist actions and the problem of drugs, and how to deal with these problems is an important task for each government in order to stabilize the democratic system.


(3) International Relations and Regional Integration

International relations of Latin American countries showed a tendency to get diversified recently.

The transfer to cilivian rule led to moves to improve relations with communist countries, as was indicated by restoration of normal ties between Brazil and Cuba (1986) and start of diplomatic relations between Uruguay and China (1988). Brisk diplomacy toward the Soviet Union was seen, with presidents of Argentina and Uruguay, and foreign ministers of Argentina, Uruguay and Brazil visiting Moscow respectively for the first time since 1986. On the other hand, the Soviet Union has activated its diplomacy toward Latin America since the inauguration of General Secretary Gorbachev. Drawing attention was a tour of Latin America made by Soviet Foreign Minister Shevardnadze in September to October, 1987. Latin American countries are showing their interest toward the economic growth of Japan, Asian NIEs, and other countries, beginning to approach these Asian and Oceanian countries with which they had rather distance relations so far.

With regard to relations between Latin American countries and the United States, differences of views were seen on some issues including Central American problems. But, relations between democratized Latin American countries and the United States were generally good. But, the United States criticizes some Latin American countries for lack of democracy or for not taking adequate measures against drugs.

Moves for regional integration are becoming active gradually in Latin American countries facing economic and social difficulties. This movement is believed to be intended for enhancing the identity of "Latin America" and having a bigger say in the international society, while aiming for vitalization of economic activity and more transactions within the region through the integration. The economic integration of Argentina and Brazil is gradually getting on the right track although its scale is still insufficient. In November 1987, the presidents of eight Latin American countries (Rio Group) met in Acapulco, Mexico, and discussed such issues as integration of Latin America, the debt problem and Central American disputes. This meeting drew attention because it was organized independently by Latin American countries without an initiative of the United States.


(4) Accumulated Debt Problem and Economic Situation

Accumulated debts problem remained Latin American countries' biggest economic concern greatly influencing them both politically and economically. Prices of primary products are going up slightly, but no major improvement in the debt problem is in sight because of expected rises in interest rates in 1988.

The year 1987 also saw various moves over the problem of accumulative debts. Brazil's moratorium on commercial bank interests in February shocked the international monetary market. But, Brazil is now heading for a policy of cooperation with the international monetary market after reshuffling its finance ministers on two occasions. On the other hand, a plan to make Mexican debt bonds guaranteed by U.S. Government bonds did not produce an amount as expected initially, but is worthy of attention as a new approach toward settling the debt problem. Bolivia also took measures to reduce its debts through repurchases of debts at considerably discounted prices and swapping of debts for protection of nature (The Bolivian Government is put under obligation for protecting nature of the country in exchange for taking over of debts by organizations working for the protection of nature).

At the same time, many countries are redoubling their efforts in pursuit of structural reform of their domestic economies aimed at vitalizing the economy, through promotion of export, privatization of state-run enterprises and improvement of systems for accepting foreign investment seen in some nations.

According to statistics on the Latin American economy prepared by the United Nations Economic Commission for Latin America and the Caribbean, the rate of increase of total domestic production stood at 2.6% in 1987 compared with the 1986 figure (3.7%), whereas inflation rekindled again, with its rate soaring to 187.1% from 64.6% in 1986. In external trade, the amount of export increased by 13% thanks to increased prices of some primary products, and brisk export of manufactured goods seen in several countries, boosting the amount of the trade surplus to $22.7 billion in 1987 from $18.2 billion in 1986. The total amount of the accumulated debts of Latin American countries increased gradually for four consecutive years and was estimated at $409.8 billion as of the end of 1987.


2. Situation of Major Countries


(1) Brazil

(a) The domestic politics of Brazil in 1987 was rocked greatly over debate on the draft of a new constitution by the constituent assembly. In particular, major differences of views were seen between the government and the assembly on a future political setup (presidential system or parliamentary cabinet system) and the problem of the presidential term of office (4 years or 5 years). After all, a decision was made to maintain the presidential system as demanded by the existing Sarney Administration and set the term of office of the next president at five years.

During the process, confrontation between the ruling Brazilian Democratic Movement Party and the Liberal Front Party deepened over a new constitution draft, economic and financial policies and other matters, and the political situation remained extremely fluid because of a weak foundation of the existing administration.


Debts of Major Latin American Debtor Nations

(11 Cartagena Group nations)


(b) In the economic aspect, the "New Cruzard Program" envisaging, among other things, freeze of commodity prices and wages was enforced in June 1987, since serious inflation rekindled in the beginning of 1987 amid a slowdown of mining and industrial production. However, runaway inflation (366% in 1987) was rekindled following the three-month freeze, and business declined due to sluggish domestic demand (rate of GDP increase was 2.9% in 1987). The trade balance was favorable markings a surplus of $11.6 billion.

Finance Minister Funaro, who took a policy line opposing IMF over the issue of external debt, resigned, replaced by Mr. Blessel (from June to December) and then by Finance Minister Nobrega (incumbent from January 1988). After the government changed, its policy for promoting international cooperation, its debt negotiations with an international consortium of commercial banks are making progress gradually.


(2) Mexico

(a) The biggest domestic policy issue in Mexico in 1987 was the selection of the candidate for the next president by the ruling Revolutionary Institution Party (PRI). Amid the growing public voice calling for democratization of PRI boasting of overwhelming power, former Planning and Budget Minister Salinas was nominated following a new process in which the plural names of six persons as preliminary candidates were announced in advance of selection for the first time in its history. His nomination is believed to have been based on the government position to attach importance to continuity of its economic policies. A presidential election was held in June 1988, and Mr. Salinas was elected.

In its foreign policy, attention should be given to the fact that Mexico began to attach more importance to cooperation with the United States.

(b) In foreign trade in 1987, a trade surplus of $8.43 billion was marked and foreign currency reserve posted a record high of over $13 billion thanks to recovery of oil prices and brisk export of non-petroleum industrial products. In the domestic economy, the rate of inflation in 1987 hit a record high of 159.2% due to such factors as increased prices of imported goods stemming from the 33% cut of peso's value in the free exchange rate between peso and dollar in November 1987. In a bid to arrest inflation, the government announced in December 1987, an economic policy called "An economic solidarity accord" calling, among other things, for pegged public utility charges and a cut in financial expenditures.

As for the debt problem, a new approach was introduced to reduce the debt burden, and capitalizing on the largest-ever foreign currency reserve, the government issued in March 1988, capital-guaranteed national bonds secured on U.S. Treasury Department zero-coupon bonds and exchanged them for commercial bank liabilities at a discount rate of over 25%.


(3) Argentina

In April 1987, some servicemen occupied military facilities over treatment of servicemen in a human rights infringement trial. But the incident was settled peacefully, and the democratic system in Argentina seems to be taking root.

On the other hand, in elections held in September 1987, the ruling Radical Union Party was defeated against the background of the deteriorating economic situation.

In the economic aspect, the government is trying to make various structural reforms to cope with the difficult situation involving rekindling of an inflationary trend. And, the foreign currency situation is getting more severe due to a decreasing trade surplus, causing fear about the nation's continuance of interest payment for its external debts.


(4) Panama

On February 26, 1988, Panama saw a change of political power touched off by dismissal of President Delvalle by the Commander of the Defense Forces, Gen. Noriega, after the Panamanian Parliament removed President Delvalle from office, the Solis Administration was inaugurated.

The United States did not recognize the change of power as it wishes to see progress of democratization of Panama with return of the Panama Canal expected to take place at the end of the century. And, it took economic sanctions against Panama in a bid to see the retirement and departure from the country of Gen. Noriega, a person considered as an element for obstructing American policies.

The economy of Panama which uses the dollar virtually as its own currency was put in a state of confusion because of the U.S. economic sanction, leading to an abortive coup d'etat in the military once billed as monolithic. This incident is believed to have driven Gen. Noriega into a corner, but the economic sanction proved to be not so effective, and the confused situation seems to get protracted with the attitude of Latin American nations beginning to change, and the anti-Noriega forces seemed to be gathering less momentum. On the other hand, the United States does not necessarily rule out the possibility of its military intervention in case the commander is resolved to remain in power persistently. And, attention is focused on the future development of the situation as it is related to stability of neighboring areas and safe navigation in the Panama Canal and other matters.


3. Relations with Japan


(1) Overall Relation

(a) Japan and Latin American countries have traditionally had friendly and cooperative relations. Traditionally, Latin American countries had a tendency to focus their attention only on Europe and the United States because of their geographical and historical background. But, recently, Latin American countries were showing a tendency of growing expectation toward and interest in Japan as Japan's position in the international society is growing more important due to the development of its economic strength and scientific technology.

To meet the expectation and concern of Latin American countries, Japan is staging active diplomacy toward Latin America, involving promotion of political dialogue, vitalization of personnel interchanges and expansion of economic cooperation.

In particular, Foreign Minister Kuranari visited the Dominican Republic, Venezuela and Guatemala from September to October 1987. It was significant that he showed Japan's stance to attach importance to Central America and clarified Japan's position on peace in Latin America and other matters.

In April 1988, President Lusinchi of Venezuela paid the first state visit to Japan, and on that occasion, Japan and Venezuela confirmed their stand to build a new relation commensurate with their international positions toward the 21st Century. This can be described as an indication of the expectation of Latin America toward Japan.

(b) As for the problem of accumulative debts facing Latin American nations, of Japan's measures for recycling of capital, Japan decided on recycling up to $4 billion to Latin American countries out of $12 billion for bilateral recycling. And, Japan decided to extend capital grants of about $900 million to Argentina, Bolivia, Venezuela, Trinidad and Tobago, and Colombia by 1987. Latin American countries are greatly concerned about the capital recycling measure, and smooth implementation of this program is becoming extremely important.

(c) In Japan-Latin America relations which has so far been focused relatively on economic aspects, interchanges in new fields such as culture and scientific technology have been getting active of late. For instance, Japan and Argentina prepared, in September 1987, a report titled "Council on Middle and Long-range Perspective for Japan-Argentina Cooperation (so-called Wisemen's Council)." It was submitted to the leaders of the two countries. The report serving as a guiding principle for closer Japan-Argentina relations in a wide range of areas can be called presentation of one model for future relations between Latin American countries and Japan.

(d) Nearly one million Japanese immigrants and people of Japanese ancestry are residing in Latin America, and their diligence is highly evaluated. The 90th anniversary of Japanese immigration was celebrated in Mexico, in 1987, and the 80th immigration anniversary in Brazil in 1988. These immigrants and people of Japanese ancestry are expected to remain active, serving as a bridge for promoting mutual understanding between Japan and Latin American countries in the future.

The year 1988 is a commemorative year for relations between Japan and Latin American nations as it marks the 50th anniversary of friendly ties with Venezuela and the centennial of friendly relations with Mexico. And, it is expected that these relations will get closer toward the 21st Century.


(2) Economic Relations

(a) As Latin American nations expect much from cooperation with Japan for revitalizing their economies, Japan has taken various steps to vitalize its economic interchanges with Latin American countries.

Efforts are being made to vitalize economic interchanges at various levels. In April 1987, a Japanese economic mission including both businessmen and government officials visited Argentina, Uruguay and Chile, followed by the 10th meeting of the Japan-Mexico Joint Economic Committee held in Mexico (November 1987). Mexico was also visited by a Japanese economic exchange promotion mission and a group of representatives working for promotion of overseas tours. On the other hand, many Latin American countries sent cabinet ministers in charge of the economy and economic missions to Japan in an effort to have closer economic relations with Japan. This is believed to indicate Latin American countries' growing hopes on Japan.

(b) In the 1987 trade between Japan and Latin American countries, Japan's export totaled $8,764.22 million, down 7.7% from the previous year, and Japan's import increased by 2.6% to total $6,002.68 million. Japan's direct investments in Latin America totaled $20,373 million as of the end of 1987, accounting for 19.2% of Japan's total direct overseas investments. The amount of investment was $4.73 billion in 1986, and most (about 80%) of it was credit investment in such tax haven areas as Panama and Cayman.



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