Section 5. Latin America and the Caribbean


1. The Region in General


1-1. Regional Situation


Learning from bitter lessons of the "lost decade of the 1980s," Latin America is steadily proceeding with democratization and economic reforms based on a market-oriented economy. New developments are also seen in movements toward regional integration. The North American Free Trade Agreement (NAFTA) reached in August 1992 and signed in December, is further enhancing these regional movements. In addition, a positive attitude to actively promote exchanges within the Pacific Rim, including Japan, is seen throughout the region.


(1) Political Situation

The Latin American region, riding along a worldwide trend, is making serious efforts to realize stable democracy, although the democratic governments established in the latter half of the 1980 sare not free from inherent vulnerability. However, with the gradual success of such efforts toward democracy so far, there is an increasing possibility that the 1990s will prove a decade of "revitalization and development" in Latin America. At the same time, domestic reforms have undeniably imposed sacrifices on the ordinary public. In some countries, they have led to economic stagnation and hostile moves against democracy. For example, two coup attempts, one in February and the other in November 1992, occured in Venezuela. In April 1992, President Alberto Fujimori of Peru temporarily suspended the Constitution. As for Cuba, there are no notable signs for change in the regime. In Haiti, after the military coup in September 1991, the situation has not improved despite diplomatic efforts by the international community to restore democracy.

Nevertheless, in Latin America as a whole, democracy is steadily taking root. Regarding the temporary suspension of the Constitution in Peru, efforts were made by the regional cooperation forum, the Organization of American States (OAS), to restore democracy in Peru. The elections for the Democratic Constitutional Congress held in November 1992 under the supervision of the OAS and its establishment at the end of December prove that the process of restoring democracy in Peru has made major progress. In Brazil, President Fernando Collor was forced to stop his administering task in October 1992, when his impeachment trial process on suspicion of political corruption began. President Collor eventually stepped down from the Presidency at the end of December 1992. The series of these procedures were based on the Constitution, a noteworthy development from the standpoint of democratization. The future task is to alleviate the frustration felt by ordinary people who are forced to make sacrifices as a result of economic reforms toward a market-oriented economy.

In Central America, it should be noted that a strong momentum to promote democracy and economic reforms have resulted from the El Salvador Peace Agreement reached in January 1992. This agreement in effect ended the Central American disputes, which can be viewed as a product of the Cold War. In support of the efforts of the Central American countries, the "Partnership for Democracy and Development in Central America (PDD)," a forum for consultation and coordination between the Western industrialized countries including Japan, the United States, Canada, Europe and Central America, is showing more activities.

In the area of diplomacy, the United States has taken active steps to strengthen its relations with the Latin American countries which have made progress in democratization and economic reforms. For instance, the United States announced the Enterprise for the Americas Initiative (EAI) in June 1991. Relations between the United States and the Latin American countries are successfully developing as witnessed by a series of visits by Latin American leaders. Various discussions between the Latin American and European countries are also taking place. For example, the Rio Group (consisting of major Latin American countries)-EC Ministerial Conference was launched in April 1991. Another example is the Ibero-American Summit meeting between Spain and the Latin American countries, which are tied by strong historical bonds.

In recent years, Latin American countries have expressed their wish to become members of the Asia Pacific Economic Cooperation (APEC). This indicates the importance that these countries place on improving relations with the Asia-Pacific region, which has achieved a dynamic economic development.


(2) Economic Situation

The Latin American economy as a whole, which had previously experienced continued stagnation, recorded a 3.2 percent growth rate in 1991, compared with the 0.3 percent of the previous year. Inflation in many countries is subsiding. The average inflation rate of Latin American countries has dropped to around 200 percent from 1,200 percent in 1990. The following factors can be pointed out behind such developments. The majority of the countries, after the experience of the external debt crisis of the 1980s, have launched economic policies based on market-oriented economies by promoting privatization, liberal and open economic management through deregulation and active inducement of foreign capital.

On the other hand, a substantial disparity has emerged in economic conditions in these countries. Chile has recorded high growth rates and stable prices for the past few years. Mexico, too, with inflation subsiding, has succeeded in improving its economic growth rate. In Argentina and Peru, as a result of unabated economic reform efforts, growth rates turned positive in 1991. However, Brazil continues to suffer from persistently high inflation and sluggish growth despite its economic reform efforts.

External debts totaling around $430 billion at the end of 1991, continue to pose enormous burden on the economy of the indebted countries. Yet, in 1992, the New Debt Strategy (the so-called Brady Plan) was applied to Argentina and Brazil. Also, the New Toronto Scheme for the least developing countries was applied to Bolivia and Honduras. These measures have brought about tangible effects on these economies. In particular, it is noteworthy that Brazil, the largest debtor in the region, reached an agreement with the International Monetary Fund (IMF), and between Brazil and the syndicate of private banks.

In addition, moves for economic integration in the region aiming at the abolition of trade barriers, such as tariffs, have been increasing. Negotiations for the North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico were concluded in August and signed in December 1992. When NAFTA enters into force, a free trade zone surpassing the EC scale, with a population of 360 million and a GNP of $6 trillion will emerge. NAFTA is expected to have major implications not only for Mexico but also for all the Latin American region. On the other hand, there are other moves toward economic integration among Latin American countries, among which the South American Common Market (the MERCOSUR) is attracting particular attention for its economic scale. In this initiative, four countries, Brazil, Argentina, Uruguay and Paraguay, are aiming to establish a common market by the end of 1994. In addition, agreement was reached in August 1992 between Mexico and the Central American countries to establish a framework for a free trade zone. Moves are also underway for a free trade agreement among the Central American countries, as well as among Mexico, Venezuela and Colombia.

Latin American countries are also keen to strengthen their economic links with the Asia-Pacific region, including Japan. This growing interest of Latin American countries in the Asia-Pacific region is manifested, among others, by the fact that Japan has replaced the United States as the largest importer of Chilean goods in 1991.


(3) Social Problems

Many social problems persist in Latin America, especially the gap between the rich and the poor and the consequent social injustices. These social problems are one of the causes behind drug and terrorism.

In the area of anti-drug measures, cooperation among the drug-producing countries such as Peru, Bolivia and Colombia is being promoted. In February 1992, President George Bush of the United States participated in the second Drug Summit with the leaders of the Latin American countries. In this Summit, great expectations were expressed toward the industrialized countries to further support anti-drug measures. Above all, the cooperation by Japan and the EC was called for.

As for terrorism, leftist guerrilla activities continue to persist in some Latin American countries, such as Peru and Colombia, but both countries are achieving certain success due to serious efforts to combat terrorism.

Environmental issues in Latin America are attracting global attention; especially the conservation of the Amazonian tropical rainforest and urban problems such as air pollution in Mexico and Chile are seen as urgent tasks. Under such circumstances, the United Nations Conference on Environment and Development (UNCED) was held in Rio de Janeiro in June 1992.


1-2. Japan's Foreign Policy toward Latin America


In Latin America, there are more than 1 million people of Japanese descent. Relations between Japan and the region have traditionally been friendly. Japan's foreign policy is expanding its scope in accordance with the new trends in the region.

Japan's foreign policy toward Latin America consists of three major pillars; namely, support for democratization and market-oriented economic reforms, promotion of mutual understanding, and cooperation in solving the environmental and drug problems.


(1) Active Support toward Democratization and Market-Oriented Economic Reforms

Recognizing that stability in Latin America contributes to the world's overall stability, Japan is actively supporting the regional efforts for democratization and market-oriented economic reforms. The total amount of Japan's Official Development Assistance (ODA) extended to Latin American countries in 1991 rose by 50 percent from the previous year to reach $846 million. Assistance was extended particularly to those countries where democratization and market-oriented economic reforms were successfully taking place as models for other countries. Assistance was also extended to countries which were in grave difficulties in spite of their serious efforts toward democratization and market economies.

As for Central America, where major attention is paid to postwar reconstruction, Japan joined the "Partnership for Democracy and Development in Central America (PPD)" proposed by the United States, and chairs its Working Group on Economic Development. In July 1992, Japan also sent an economic cooperation mission to El Salvador, which achieved peace in January of the same year and considered how the economic aid for that country should be approached afterwards. Japan also announced that it would contribute $500 million over the five years to the Multilateral Investment Fund (MIF) of the Enterprise for the Americas Initiative (EAI) proposed by the United States in June 1991. In February 1992, an agreement to set up this fund was signed. This fund is expected to contribute greatly to Latin America's economic reforms, which was the reason for Japan's decision to make its contribution. Japan's contribution not only meets the need of Latin American countries, but is also inline with the philosophy of Japan's foreign policy which attaches importance to democracy and a market-oriented economy.

With respect to Peru, when President Fujimori suspended the Constitution in April 1992, Japan made diplomatic efforts through the OAS to support the restoration of democracy. President Fujimori paid heed to such international opinion and held elections in November 1992 for the establishment of a constitutional congress under the observation of the OAS. This election marked an important step forward toward the restoration of democracy in Peru. Japan gave various support for the OAS's efforts in Peru, including the dispatch of its own observers to monitor the election.


(2) Promotion of Mutual Understanding

With the growing expectation and interest toward Japan, visits of VIPs from Latin America are increasing. In exchange, former prime ministers Noboru Takeshita and Toshiki Kaifu visited several Latin American countries in June 1992. Such frequent exchanges of visits of important persons contribute significantly to the promotion of mutual understanding.


(3) Cooperation on Environmental and Drug Problems

Japan is expected to make contributions, commensurate with its international stature, in helping tackle global issues such as the global environment and drugs. In fact, Japan expressed its intention to positively contribute to the issue of the environment through the Prime Minister's message conveyed at the UNCED Meeting. Furthermore, Japan is enhancing its bilateral economic assistance, including technical assistance, to Latin America and is also continuing to make finacial contributions through international organizations. At the UNCED, Japan pledged to provide yen loans exceeding \100 billion to solve the environmental problems in Brazil and Mexico.


2. Countries in the Region


2-1. Brazil


In order to reconstruct its economy, the Brazilian Government has been promoting economic liberalization while pursuing fiscal and monetary policies with the objective of curbing inflation. However, as high inflation persists (the rate reaching 466 percent in 1991), and as economic growth rate in 1991 was only 1.2 percent as a result of the stringent policy, Brazil continues to face economic difficulties. Privatization of national corporations plays a key role in promoting fiscal reconstruction and economic rationalization. As of October 1992, 18 companies had been privatized, starting with the Usiminas Steel Plant which took place in October 1991. As for the external debt issue, Brazil made certain progress by improving its relations with the international financial community. For instance, Brazil reached a basic agreement with the International Monetary Fund (IMF), the Paris Club and the syndicate of private commercial banks concerning debt rescheduling.

In foreign affairs, Brazil is active in tackling the environmental issues. For instance, it hosted the United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro in June 1992. Brazil is also trying to bring about full entry into force of the Treaty of Tlatelolco with the view to realizing nuclear non-proliferation in Latin America.

On the domestic front, a corruption scandal surfaced over President Fernando Collor de Mello. At the end of September 1992, the lower house passed a resolution calling for impeachment trial by the upper house. The upper house duly suspended President Collor from executing his official functions as President (for a maximum of 180 days), and Vice President Itamar Franco temporarily took over as President. Finally, at the end of December, Mr. Franco was officially installed as President with the official resignation of President Collor.

As for bilateral relations with Japan, the Japanese Economic Mission to Latin America, which was dispatched by the Government of Japan, visited Brazil in November 1991. At the UNCED meeting, Japan announced a loan from the Export-Import Bank of Japan totaling $300 million to support Brazil's environmental improvement and economic reconstruction. Japan also announced its intention to provide yen loans totaling approximately $780 million to three projects; namely, the "Guanabara Bay Basin Sewerage System Construction Project," "Tiete River Basin Depollution Project," and "Sao Paulo Metropolitan Area Solid Waste Treatment Plant Construction Project."


2-2. Mexico


President Carlos Salinas de Gortari, who took office in December 1988, has been actively promoting wide-ranging political and economic reforms. With the popular backing for such reforms, the ruling Institutional Revolutionary Party won the mid-term election held in August 1991, and has been proceeding with further reforms.

In domestic affairs, President Salinas set forth reforms of agriculture and education, improvement of relations between church and state, and changes to the electoral system as the priorities for the second half of his term. In order to achieve these policies, various measures including a constitutional amendment have already been introduced.

In the economic field, President Salinas successfully improved the external debt position, liberalized trade, relaxed foreign capital regulations, and proceeded with privatization of government owned enterprises. The Salinas Administration also aims to attract foreign investment, expand exports, increase employment and promote technology transfers by taking advantage of the North American Free Trade Agreement (NAFTA) reached with the United States and Canada in August 1992. NAFTA is expected to have an impact beyond the economy and extend to all social strata in Mexico. Despite the expanding trade deficit and the sluggish stock market since June 1992 which were causing certain concern, both domestic and external confidence in the Mexican economy is recovering as a result of the successful economic reforms and the NAFTA agreement.

In foreign affairs, Mexico places importance on its relations with the United States and has agreed on NAFTA. It is also taking measures toward strengthening relations with neighboring countries, such as promoting free trade with Chile, Venezuela, Colombia and Central American countries. As part of its plans to diversify its foreign relations, Mexico is actively promoting cooperative relations with Asia-Pacific countries.

Japan has maintained a friendly relationship with Mexico for a long time. During July and August 1992, Crown Prince Naruhito visited Mexico at the invitation of President Salinas. This visit was a sign of the goodwill and friendship between the two countries. Japan also actively gave assistance to Mexico. In September 1992, notes were exchanged between the two countries on yen loans to finance a reforestation project in the Metropolitan area of Mexico City. This was the first case of bilateral cooperation, after Japan had announced the expansion and strengthening of its environment-related ODA at the UNCED meeting in June 1992. Also, the Japan-Mexico Commission for the 21st Century which consists of the intellectuals of both countries submitted its final report with recommendations to the leaders of the two countries in May 1992.


2-3. Argentina


The administration of President Carlos Saul Menem, while facing several destabilizing domestic issues, such as corruption and the issue of constitutional amendment, has succeeded in achieving economic stability, which was the government's top priority, through economic reforms. Consequently, it has gained popular support.

Economic Minister Domingo Cavallo, who took office in January 1991, is pursuing the following policies to restructure the economy based on the market mechanism: privatization, rationalization of the public sector, greater fiscal discipline and deregulation. As a result, the inflation rate, which had reached 1,340 percent in 1990, subsided to 84 percent in 1991, and economic growth exceeded 6 percent. Furthermore, Argentina's efforts to restore domestic and foreign confidence in its economy resulted in a partial return of flight capital. At the same time, Argentina has endeavored to solve the external debt issue by maintaining cooperative relations with the international financial institutions. For instance, it reached an agreement in April 1992 on debt reduction under the Brady Plan with the syndicate of private banks.

In foreign affairs, Argentina has been actively involved in international cooperation, such as sending troops to the peace-keeping efforts in the former Yugoslavia and in the field of nuclear arms control and disarmament. This active diplomacy is clearly different from its past foreign policy. Argentina is also trying to strengthen its traditionally friendly relations with Europe, which suffered a setback during the Falklands conflict. At the same time, Argentina is rapidly improving its relations with the United States. In addition to its relations with Europe and the United States, Argentina attaches importance to its closer ties with East Asia, including Japan, as one of the three major pillars of its foreign policy.

As for the bilateral relation with Japan, Foreign Minister Guido Di Tella visited Japan in December 1991. From Japan, in May 1992, former Prime Minister Noboru Takeshita visited Argentina. It was the first prime ministerial level visit since the then Prime Minister Nobusuke Kishi's visit to Argentina in 1959.


2-4. Peru


The Administration of President Alberto Fujimori, which was inaugurated in July 1990 inheriting a bankrupted economy, has been vigorously engaged in reforming the economic structure, through such measures as the reduction of fiscal deficits and is working toward restoring Peru's relations with the international financial community. As a result, economic growth, which had been negative, turned positive in 1991, recording a 2.4 percent growth. Peru also succeeded in reducing the hyperinflation, which had once reached an annual 7,650 percent, to 139 percent in 1991. The International Monetary Fund praised Peru's economic reforms and consequently reached an agreement in September 1991 on an economic reconstruction plan. Japan, for its part, along with and the United States, took the initiative in forming an international support group for Peru. Furthermore, an agreement was also reached at the Paris Club in September 1991 on the rescheduling of Peru's official debts.

To support the Fujimori Administration's reform efforts, Japan provided yen loans totaling $400 million as a member of the international support group in December 1991. In addition, Japan decided to extend grant assistance of \3.5 billion, and a yen loan totaling $100 million in co-financing with the Inter-American Development Bank (IDB) during President Fujimori's official visit to Japan as a state guest in March 1992.

As for domestic affairs, the Fujimori Administration has been struggling to eliminate corruption and to improve the internal security situation. In April 1992, President Fujimori temporarily suspended the constitution and dissolved the parliament. The international community expressed regret over these measures, and called on Peru to restore democracy at the earliest possible stage. Japan also supported the efforts of the Organization of American States (OAS) to restore democracy in Peru through active diplomacy. President Fujimori took part in the May 1992 special foreign ministerial conference of the OAS in the Bahamas in which he announced his intention to hold a national election for constitutional assembly, where the constitution will be drafted. He also proposed to hold a national referendum on the draft constitution. This national election was held on November 22 under the supervision of an OAS observation team. As Japan considered it crucial for Peru's restoration of democracy that a smooth and fair election be held, the Government provided equipment such as computers to count the votes, and in addition, sent observers through the OAS, together with financial assistance.


2-5. Cuba


As Cuba's traditional special relationship with the Soviet Union disappeared with the political changes and subsequent collapse of the Soviet Union, Cuba has further become internationally isolated. The sharp cut in supplies of goods, especially oil, is seriously affecting the Cuban economy.

Despite the drastic changes in the international environment surrounding Cuba and the trend toward democratization in the rest of Latin America, the Castro Administration adheres to its revolutionary socialist policies. At the 4th Communist Party Congress held in October 1991, it confirmed one party rule and rejected the introduction of a market economy. To tackle the economic hardship, the Castro administration has been continuing its policy of "Special Period in a Time of Peace," declared at the start of 1990, and has tightened its domestic economy. Efforts are also underway to attract hard currencies by attracting foreign capital into the tourist sector. In the field of foreign policy, Cuba is trying to make up for its international isolation by expanding its ties with China, North Korea and Central and South American countries.

For the sake of stability of Central America and the Caribbean, Japan expects Cuba to undertake reforms toward democracy and improve its relations with the United States. Nevertheless, the bilateral relations are stagnated due partly to the problem of accumulated Cuban debt to Japan.


2-6. The Central American Countries (Nicaragua, El Salvador)


In Central America, the inauguration of the government of President Violeta Barrios de Chamorro took place in April 1990, and the civil war ceased in Nicaragua. In El Salvador, a peace agreement was reached between the Government and the Farabundo Marti National Liberation Front (FMLN) through the mediation of the United Nations in January 1992. These were great strides toward peace in Central America.

In El Salvador the 12-year civil war ended with the signing of the peace agreement. In accordance with the schedule stipulated by the Agreement, and under the supervision of the United Nations Observer Mission in El Salvador (ONUSAL), implementation of various measures is now underway : the demobilization of the FMLN and their return to civilian life; reforms in the Armed Forces, politics, judiciary and the economy; and the establishment of the National Civil Police. Even during the civil war, Japan made contributions, both financial and personnel, to El Salvador, to help improve living conditions and economic development as well as to achieve peace. With the end of the civil war, Japan has stepped up its aid to support the postwar reconstruction and democratization of the country. For instance, in March 1992, Japan provided an "emergency assistance package" totaling $5.3 million with the main objective of supporting El Salvador's humanitarian and economic structural adjustment efforts.

In Nicaragua, the Chamorro Administration proceeded with domestic reconciliation efforts including solving the problem of rearming by the former Contras (Note), which was the major cause of unrest since mid-1991. In economic affairs, the Chamorro Administration succeeded in controlling hyperinflation. Nicaragua's economic growth rate turned positive to an estimated 1 percent from the negative growth that had lasted for seven years. Its economy has been expanding in 1992. Believing that the improvement of standards of living through economic reconstruction is vital to the stability of Nicaragua and Central America as a whole, Japan is vigorously providing Nicaragua with ODA, including $70 million in structural adjustment loans agreed in October 1991.


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Note : Contras are anti-government guerrillas who fought the former Sandinista Government. They were officially disarmed after the inauguration of the Chamorro Administration.