DEPUTY SECRETARY DAM S SPEECH BEFORE THE DALLAS WORLD AFFAIRS COUNCIL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86M00886R001900110003-0
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 18
• Document Creation Date: December 21, 2016
• Document Release Date: August 27, 2008
• Sequence Number: 3
• Publication Date: November 29, 1984
• Content Type: MEMO

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THE DIRECTOR ~7F
CENTRAL INTELLIGENCE
National Intelligence Council
NIC 06713-84
29 November 1984
NOTE FOR:
FROM:
SUBJECT: Deputy Secretary Dam's Speech
before the Dallas World Affairs
Council
REFERENCE: Memorandum from Charles Hill,
same subject, dated 28 November 1984
We have checked with DDI/ALA and
DDI/OGI. No errors and no problems.
STAT
STAT
STAT
STAT
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IIKECUTIVE SECRETARIAT
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ACTION) INFO ~ DATE INITIAL
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Executive i'^~:'yiStry
8432468 thru 8432476 ~~ 9997
United States Department of State
mash i ngton, D. C. 20520
November 28, 1984
OVP - D4r. Donald P. Gregg
NSC - Mr. Robert Kimmitt
CEA - Mr. William Niskanen
CIA
Commerce - Mrs. Helen Robbins
DOD - COL R. J. Aff ourtit
OMB - Mr. Alton Keel
Treasury - Mr. Christopher Hicks
USTR - Mr. Dennis Whitfield
Subject: Deputy Secretary Dam's Speech before the
Dallas World Affairs Council
The Deputy Secretary is scheduled to deliver an
on-the-record speech before the Dallas World Affairs
Council on December 5. Please telephone your comments/
clearance on the attached draft to Mike Skol, 632-9193,
by noon Thursday, November 29.
Charles Hi
Executive Sec tary
Draft speech
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STAT
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Revised 11/27/84 7450P
"LATIN AMERICA: THE STRUGGLE TO RESTORE ECONOMIC GROWTH"
REMARKS BY
THE HONORABLE KENNETH W. DAM
DEPUTY SECRETARY OF STATE
BEFORE THE
DALLAS WORLD AFFAIRS COUNCIL
DALLAS, TEXAS
December 5, 1984
I recently returned from ten days in Latin America. I
was not in Central America, where the headlines are.
to South America, and I should like to share with you what I
saw there because it applies in most ways throughout the
hemisphere, including Central America and the Caribbean.
I visited three countries -- Peru, Bolivia, and
Argentina. Each has searing social and political problems.
Argentina still feels the wounds of a "dirty war" between
extremes of left and right. Bolivia is bedeviled by poverty,
political instability, and organized narcotics trafficking.
Peru, like Bolivia, is beset by drug trafficking; in addition,
it is combatting a nihilist guerrilla movement.
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What struck me most, however, was that in all three
countries I found civilian governments working hard to
consolidate democracy in the face of their most severe economic
crisis since the Great Depression. In all three, I found
individual leaders struggling, often with great courage,
against enormous odds. It is their struggle -- which is
basically a struggle to restore economic growth while
maintaining social and political stability -- that I should
like to discuss with you today.
[NEAR-TERM SUCCESSES ...]
In the last few years, the international economic agenda
has been dominated by the $700 billion Third World external
debt. When the debt crisis erupted in 1982, it threatened the
viability of the international economic system. In a first
response, the United States and other industrial democracies
undertook emergency financing measures designed to overcome the
immediate lack of liquidity in particular countries. This was
followed rapidly by a second phase, in which the IMF and the
World Bank also played key roles. In that second phase, we
sought to support short-term stabilization and economic reform.
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It is now apparent that some important near-term
successes have been scored. The total current account deficit
of the seven largest Latin American debtors [Argentina, Brazil,
Mexico, Colombia, Chile, Peru and Venezuela] -- who together
hold about half of the Third World debt -- was reduced from
$34 billion in 1981 to just $3 billion in 1983. In the same
period, the combined trade accounts of these countries jumped
from a surplus of less than $1 billion to a surplus of
X31 billion.
Over $70 billion in Latin American external debt has
been rescheduled to permit orderly servicing. Mexico's
impressive improvement enabled it to sign a multi-year
agreement in September with its commercial bank Advisory
Committee to reschedule payment on almost $50 billion of public
sector debt. Brazil will enter similar negotiations shortly.
Both Mexico and Brazil should record positive growth this year.
[... LEAD TO A NEW PHASE: GROWTH]
We are thus entering a new phase. The emphasis is
shifting from ensuring immediate liquidity to promoting
long-term growth. Without renewed real growth, debtor nations
will lurch from one short-term crisis to another.
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For a generation, from the late 1950's to the late
197O's, Latin America as a whole grew by 6 percent a year in
real terms. But since the debt crisis erupted in 1982, and
despite near-term successes in some countries, aggregate growth
has been negative. Per capita income has fallen to roughly
1976 levels. Industrial sector unemployment, seldom a problem
in the past, has become serious. Population continues to grow
at about 2 percent a year, and entrants to the job market are
increasing at about 3 percent a year.
As a creditor country, we often think in terms of the
repayment of debts, hence the label "debt crisis". Behind this
crisis, however, is the failure of most Latin American
economies to generate the resources for the growth their
societies require. How to meet popular expectations for jobs,
for services, for education, for improved standards of living
-- that is the underlying problem throughout Latin America.
And that is why in this new phase we should be thinking growth,
not debt.
[INTERNAL TRADE-OFFS]
Achieving sustained economic growth presents different
challenges from those posed by balance of payments problems.
Austerity programs and belt-tightening measures can be sold
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politically as short-term necessities. Sustainable growth, in
contrast, requires far more fundamental economic and political
changes.
The changes required to renew and sustain growth are
often referred to under the heading of "structural
adjustment." These changes involve permanent shifts in income
distribution, resource allocation and political power -- often
between city and countryside, labor and management, consumers
and exporters. Adjustment involves decisions on subsidies, on
exchange rates, on state enterprise, on private enterprise --
in short, on the way economic activity is organized in a
particular country. These decisions are almost always
painful. And they cannot be taken by outsiders.
The choice is not between adjustment today or adjustment
tomorrow. It is between orderly adjustment -- cushioned by
external support -- and disorderly adjustment forced by
economic decline and attempts to sustain ineffective policies.
The Latin American experience is currently marked by the
social and political strains associated with the adjustment
measures needed to renew growth.
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The Peruvian Government, for example, has reached
successive agreements with the IMF to take steps that would
enable it to stabilize its economy and resume orderly servicing
of its $13 billion debt. But these steps have aroused intense
opposition from political parties, labor, business and interest
groups. A nationwide general strike was widely effective in
March. And without effective adjustment, the economic
situation has continued to deteriorate, eroding further the
ability of the government to take decisive action. Meanwhile,
particularly brutal guerrilla agitation and violence are
corroding national confidence. These developments challenge
Peru's government, which was restored to civilian democratic
control only in 1980.
Peru's problems are not unique:
In the Dominican Republic last April, efforts to
reduce food subsidies that the government could no
longer afford to pay led to riots that left 60
dead. Only careful, patient leadership in the wake
of those riots has restored the government's
ability to conduct economic policy.
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In Bolivia this spring, labor groups frustrated
attempts at economic reform by striking and closing
the Central Bank. Since then, the economy has
greatly deteriorated, with inflation reaching
almost 1500 per cent. The Bolivian Catholic Church
recently warned that democracy was endangered.
Civilian President Siles responded with a
significant gesture, cutting his mandate short by
one year and promising elections in June of 1985.
In Ecuador, the democratically elected,
reform-minded administration of President Febres
Cordero faces a tough political challenge in
putting his economic program through a skeptical
Congress.
In Honduras and El Salvador, newly developing
democratic institutions must cope not only with
economic difficulties, but with immediate security
problems as well.
[EXTERNAL SUPPORT]
Each country must make the tough decisions on how to
stabilize and restructure its economy. The international
community can help in this effort and can cushion the impact of
reforms. But domestic adjustment must come first, because
international help will fail without it.
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Three factors in particular can help ease the adjustment
process: IMF/World Bank efforts to promote growth, increased
investment in the debtor countries, and more open trade. I
should like to touch briefly on each of these factors in turn.
IMF/World Bank Efforts
In the short term, the United States can often provide
bilateral assistance to cushion the shock of adjustment while
ensuring that adjustment takes place. We are, for example,
giving economic aid to each of the countries I have just
named. In the short and medium term, multilateral
institutions, such as the International Monetary Fund, the
World Bank, and the Inter-American Development Bank, assist
debtor countries by providing resources and policy advice.
The purpose of IMF programs, according to the Fund's
Managing Director, is "to achieve a better balance of payments
equilibrium and thus open the way for more vigorous and lasting
growth [in debtor countries]." Consequently, IMF programs seek
both "a better balance-of-payments equilibrium in the medium
term and a more efficient use of scarce resources by
introducing incentives to generate more domestic
savings, more investment, and more exports." The United States
supports this emphasis on growth.
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IMF efforts are complemented by those of the World
Bank. The Bank's Structural Adjustment Loan program, for
example, is designed to facilitate the sort of long-term
economic changes I described earlier: changes to make exports
more competitive; to mobilize domestic and foreign capital; to
promote a more efficient use of domestic resources; and to
bring about institutional reforms. These loans, together with
the Bank's sectoral and project lending, can help developing
countries carry out reforms at a time when slow growth and
tight credit make such reforms as difficult as they are
necessary.
Investment
Restoring vigorous and sustainable growth to the
hemisphere will require continued infusions of capital for
years to come. Official assistance levels, whether from
bilateral or multilateral sources, are unlikely to rise much in
the years ahead. It is also clear that private lending at the
levels that prevailed in the 197O's is not in the interest of
the banks or the borrowers. The capital required to sustain
new growth will have to come from somewhere else.
Domestic savings must be a primary source of new
investment. Adequate incentives -- such as positive real
interest rates -- must be provided to encourage such savings.
Priority should also be given to creating the right conditions
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for repatriation of the flight capital of the past decade.
From 1979 to 1983, some $100 billion -- I repeat, roughly
$100 billion -- was transferred out of Latin American
countries. That money could have been used to generate income
to service debt. Its absence means that local savings must be
tapped to service debt rather than to stimulate economic
growth. The volume of capital flight has fallen slightly in
the past year, but remains a major problem.
Foreign direct investment is another important potential
source of capital. As an alternative to acquiring new debt,
foreign direct investment has many advantages. In hard times,
the costs of investment, serviced by profits, are lower than
the costs of debt capital, serviced by interest payments.
Moreover, foreign direct investment develops human resources
through training and education, provides access to new
technology, and often generates its own international export
markets.
The problem is that Latin America and the Caribbean have
not been successful recently in competing for foreign direct
investment. External and internal factors have combined to
cause a pronounced dropoff in investment flows. For five major
Latin American countries [Brazil, Mexico, Chile, Peru and
Colombia], net inflows during 1983 were $2.6 billion less than
the 1979-82 average. And despite Mexico's recent financial.
successes, foreign investment flows to Mexico remain at a
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fraction of pre-crisis levels. Meanwhile, the Far East has
seen foreign investment rise. And the United States, which
offers excellent security and good yields, is proving extremely
attractive to investors, including many from Latin America.
It will take political courage and determination for
Latin American countries to compete more effectively for
foreign investment. Both internal adjustments and
international cooperation will be essential. Owners of capital
need to earn a fair, risk-adjusted rate of return. They will
not be attracted by restrictive rules enforced by government
bureaucracies with little understanding of production or
marketing requirements. Remedies in these areas would also
curb capital flight and stimulate local savings.
Open Trade
Trade is as vital to growth as it has been to the easing
of immediate liquidity problems. The United States has
contributed decisively to improved Latin American trade
accounts. We have kept our markets open -- even when those
countries were forced to cut their imports from the United
States and elsewhere. Accordingly, Latin American exports to
the United States grew by over ~4 billion from 1982 to 1983,
while they decreased to the rest of the world. In 1984, we
expect to take almost half of all Latin American exports ($50
billion out of $111 billion).
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These figures belie the notion that the United States is
"protectionist." Our projected $130 billion merchandise trade
deficit is evidence that we have kept our markets open, thus
helping our Latin American trading partners to grow with our
own economic expansion. However, if trade is to foster
sustained growth, it must be a two-way street. We anticipate
that renewed Latin American economic growth will lead to
increased purchases by them of our goods. And we hope that
individual Latin American countries will reduce their trade
barriers and diversify their trade with others, and among
themselves as well.
[WHAT'S AT STAKE]
The "trade-offs" between maintaining political and
social stability today and building for growth tomorrow create
awesome dilemmas for any government.
The difficulties can be eased somewhat if there is an
alliance between the decision-makers and the people whose fate
is being decided. As President Monge of Costa Rica, speaking
from experience, told a European audience five months ago:
QUOTE: Democracy works as a means of settling the problems of
production and [winning] battles in the struggle against
under-development and poverty. UNQUOTE.
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My talks in South America made me optimistic that
President Monge is right. Men like Argentina's President Raul
Alfonsin -- a profoundly decent man trying to do what is right
in a country still wracked by the misdeeds of the recent past
-- are now also working in democratic systems. And this kind
of thing is happening throughout the hemisphere.
Counting just the past four years, our southern
neighbors have cast some 150 million votes in 33 elections in
24 countries. That is more people voting in more elections in
more countries than ever before in the history of Latin America
and the Caribbean.
Over the past five years, elected civilian presidents
have replaced military rulers in Argentina, Bolivia, Ecuador,
E1 Salvador, Honduras, Panama, Peru and Uruguay. Additional
countries as different as Brazil and Guatemala are now also
moving toward greater democracy. The day before yesterday
(December 3), the people of Grenada chose their leaders in a
free and open election, restoring democracy on that island.
More than 90 percent of the people of this region to our south
now have governments that are either democratic or heading
there.
But good political statistics cannot offset bad
economics. The dictatorships were swept aside because they
could not solve their nations' severe economic and social
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problems. Democratic governments, if they are to survive, must
now prove that they can deal successfully with these
challenges. They must implement adjustment measures and they
must do so_now, not later. If governments delay -- if
adjustment measures are then forced upon them by circumstances
-- there is a risk of triggering internal violence and a return
to the military dictatorships of the past.
But that is not the only -- or even the most probable --
result. If the democratic governments fail, a whole range of
alternatives is possible, and not just Marxist-Leninist regimes
mimicking Cuba and Nicaragua. We have already seen in the
Garcia Meza regime that ruled Bolivia from 1980 to 1982 a
government dominated by narcotics traffickers. And beyond
that, consider the dangerous chaos that could ensue if
nihilistic radicals like Peru's Sendero Luminoso ["Shining
Path"] guerrillas multiplied their strength.
The stakes are enormous. Hanging in the balance is the
well-being of the 90 percent of Latin Americans now enjoying or
moving toward democracy, as well as the security of the Western
Hemisphere itself.
It is vital, then, that the Latin American governments
directly at risk take today the actions necessary to build for
sustained growth tomorrow. Foremost among such actions are
policy changes to open up their markets and create conditions
to attract and retain capital.
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The United States has supported -- and will continue to
support -- such actions. Other industrial countries --
particularly Japan and the European Community -- must also work
to cushion the adverse impact of economic adjustment. This can
be done by supporting the international financial system,
keeping markets open and exercising sensitivity along with
fiscal responsibility.
When all is said and done, I came back from South
America both concerned by the odds and convinced that a new era
of hemispheric cooperation, growth and security is within our
reach.
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