FOLLOWING THE FINANCIAL PRESS THE LAST few months one is reminded of Mark Twain's fa- mous rebuttal: "reports of my death are greatly exagger- ated." Third World debt seems to have become an on- again, off-again crisis. "Evidence is building that the in- ternational debt crisis is over," began a Fortune magazine piece in mid-February. The New York Times appeared not quite sure there was anything to make a fuss about, report- ing in December that "the 'international debt crisis' never quite crystalized." Whatever the problem, by February the Times was convinced "the worst is over." Yet as we go to press, worried tones are again creeping into business-page prose. "Major problems could ab- ruptly resurface," warned The Wall Street Journal, back- ing up an observer's assessment that the debt crisis is "in remission at best." Why the volte-face? Between September 1984 and Jan- uary 1985 the region's three largest debtors-Mexico, Brazil and Argentina-all achieved new stretched out agreements with the International Monetary Fund (IMF) and creditor banks. "Obstreperous debtors, such as Argentina, have been muscled into accepting austere fi- nancial programs," wrote Fortune. "Debtor countries and their lenders are working out realistic long-term solu- tions." By March, it was clear that these schedules were not so realistic as the press had portrayed. Impressed with Mexico's good performance in cutting inflation and increasing exports, the banks granted a much-lauded rescheduling last fall. But the Mexican economy does not incite the kind of banker confidence it once did. Discontent with austerity is growing, and after a slowdown in capital flight, as much as $20 million is re- portedly leaving the country daily. Argentine President Radl Alfonsin arrived in Washington in late March amid reports that his govern- ment has already failed in meeting the terms of its six- month-old IMF agreement, particularly on inflation. Argentina has yet to receive any of the monies the IMF promised and has not firmed up the terms of new loans the private banks agreed to provide. Alfonsin has reportedly sought $500 million from the Reagan Administration to tide the country over until it can again live up to IMF stan- dards. Brazil has also failed to comply with IMF inflation targets and the fund has stopped remaining disbursements on a $4 billion program. Private bankers have suspended talks on rescheduling loans totalling about $45 billion, an accord that was prematurely heralded in February as a "milestone." LEVEN REGIONAL DEBTORS HELD THEIR fourth meeting in Santo Domingo last February. While hardly the "cartel" the creditors feared, the Car- tagena Group is continuing efforts to arrive at a common approach. "The debt crisis has done more for Latin Amer- ican political integration than 150 years of rhetoric," a deputy foreign minister told The Washington Post. The group has taken pains not to scare off the banks, giving up plans to schedule their own debt summit against U.S. ob- jections. The 11 will make a joint statement at April's World Bank/IMF interim committee meetings, based on the notion that the debt crisis demands political as well as financial solutions. Rumblings about the future can also be heard in finan- cial circles. Federal Reserve Chairman Paul Volcker has been encouraging banks to beef up their capital bases as a cushion against big losses that a default could bring. So far not much has changed about the way creditors or lend- ers operate, and most seem interested in delaying real sol- utions. "The situation is somewhat analogous to a dinner party," said one observer. "The hardest part is always di- viding up the check, so let's have another round of cof- fee." This issue of the Report looks at a question that looms large in Latin America today. As we looked deeper into the topic, we found there are no easy explanations of how the region's debtors got where they are, or how they're likely to get out. We've asked some close observers of the debt crisis to share their analyses. Jeff Frieden, Cheryl Payer and Al Watkins each approach the topic from a dif- ferent angle, and the three do not necessarily come up with the same set of answers. Latin America's debt crisis is complex, and reports of its demise are greatly exagger- ated.
