The Latin American debt crisis is raging again with a ferocity unseen since late 1982 and early 1983, when first Mexico and then other major debtor nations ran out of the dollars they needed to pay their foreign bills.
Only a year ago, the crisis seemed to be receding to the status of just another problem. But the steady erosion in commodity prices last year, the sudden steep fall in oil prices this year, and the weariness of most Latin American countries with years of recession and slow economic growth again have brought into question the ability of the debtors to pay their lenders.
As a result, big commercial banks once more face the threat of large loan losses, which have been avoided so far because of changes in economic policies in the debtor countries and quick injections of funds by the banks themselves and by the International Monetary Fund, the multilateral lender of last resort.
But Latin America has little taste left for the domestic austerity that has been required of it, and the banks have little room to give further concessions on either interest rates or repayment of principal. Bankers also are reluctant to lend Latin America much more money and, more important, the borrowers themselves are wary of adding any new debts to the $370 billion they have accumulated.
In an emergency session nine days ago in the nearby resort of Punta del Este, the major debtors said that, for many of them, there will have to be "significant changes in existing loan agreements, especially with regard to interest rates."
The group -- Brazil, Mexico, Argentina, Venezuela and Colombia -- said that, if lower rates cannot be obtained by a debtor countries through negotiations with the banks, then unilateral action on the part of the debtors is justified, and all members of the group would support such action.
Any sizable reduction in interest rates spells losses to the banks. For many debtors -- especially hard-pressed Mexico, whose decline in oil revenues sparked the Uruguay meeting -- the spreads that banks add to the cost of their funds already are razor-thin. Any meaningful reduction in bank charges would mean below-cost lending.
That would result not only in lower revenues to the banks -- a manageable, if undesirable, consequence for lenders -- but also would require banks to put many of their Latin American loans on problem lists. That would force banks to take sizable reductions in their incomes, in some cases resulting in actual losses, to build up reserves against potential bad loans.
"There is no doubt that the level of rhetoric of the major debtors has hardened," said the chief executive of a major U.S. bank. "It is not clear, however, how much of the rhetoric will be translated into action."
Those bankers looking for bright spots in the communique from the so-called Consensus of Cartagena can find them. The Punta del Este communique did not demand specific reductions in interest rates, as some debtors apparently wanted. Nor did it propose unilateral action as a desirable course, but only as a last resort if negotiations fail to reduce debt burdens sufficiently. At no point was there talk of repudiation of all or part of the debt.
But one diplomat said the rhetorical output of the meeting was milder than some of the discussions that occurred during the meeting, in large part because Mexico wanted it that way. Uruguayan Foreign Minister Enrique V. Iglesias, the secretary of the Cartagena group, said that Mexico, which called the meeting, got "what it asked for: a show of support."
The steep decline in oil prices has hit hard at Mexico, which not long ago was viewed by bankers and other debtors alike as a model for recovery from economic problems. Now, depending upon where oil prices finally settle, Mexico's foreign revenues could be $3 billion to $5 billion less this year than anticipated only two months ago. Mexico's ability to pay the roughly $10 billion a year it owes foreign creditors and to import the minimal level of goods needed to keep its economy functioning has been seriously threatened by the oil price plunge.
One diplomat at Punta del Este said that Mexico wanted the meeting and a common show of support as a bargaining chip in its negotiations with the U.S. government and the banks. But he said that Mexico did not want the rhetoric to go too far, because it considers itself a special case due to its promixity to the United States.
"Mexico can get concessions the rest of us can't get," said a Latin American economic official. "Mexico's problems are the United States' problems." He said the ability of Mexico to keep the rhetoric tamer than some wanted was enhanced by the handicap of the Brazilian delegation.
Brazil's foreign minister, Roberto Abreu Sodre, is new to his job, and its finance minister, Dilson Funaro, did not attend. Funaro was in Brasilia to announce the nation's new anti-inflation measures, what Brazilian President Jose Sarney called the beginning of a "life-or-death" struggle against accelerating prices.
Athough Brazil -- which owes foreigners more than $100 billion, more than any other Third World debtor -- has been meticulous in paying its foreign debts and has generated the export revenue it needs to do so, the new anti-inflation program is likely to touch off a severe slump there. Like other Latin American leaders, Sarney believes the banks will have to take some losses on their loans to the region for the economic sacrifices in Brazil to be justified politically.
Brazil is a major oil importer and, unlike Mexico, will benefit from the decline in oil prices. According to Robert Heller, chief international economist for Bank of America, the country should see its petroleum bill decline by $2 billion in 1986. Even so, Brazilian economists expect that the 7.5 percent economic growth the country enjoyed in 1985 will slip to 3 percent or less this year.
Brazil's new program to fight inflation -- which had accelerated from about 220 percent last summer to more than 500 percent in January -- is modeled heavily on one adopted by Argentine President Raul Alfonsin last June. The Argentine program included a wage and price freeze, creation of a new currency, maintenance of a fixed exchange rate to moderate the effect of rising import prices, reductions in state spending and a gradual dismantling of inefficient state enterprises.
Shell-shocked Argentines embraced the program almost totally at first. It brought the rate of inflation down to about 45 percent a year from nearly 1,500 percent. Alfonsin last summer also neatly deflected the politically explosive international debt issue by focusing on the need for Argentina to reform its own economic policies.
After the program was put into effect, Argentina received more than $1 billion in loans from the IMF and $4.2 billion from commercial banks. As a result, the country was able to bring all its loan payments up to date without using up hard-earned foreign currencies. The country, at least for now, has replaced Mexico as the model debtor nation. But the anti-inflation program triggered a severe recession in Argentina. Per-capita economic output fell 4 percent last year and nearly is 17 percent below its 1980 peak, according to New York's Morgan Guaranty Trust Co.
Political and social unrest again is growing in Argentina. Despite the administration's efforts to contain it, the debt issue again is becoming a major domestic political controversy.
The money from the banks and the IMF will run out this summer, but the country still needs to pay about $5 billion a year in interest on its $50 billion foreign debt. At the same time, its key exports will bring in fewer dollars this year than last because prices have slipped, and the problem is compounded by floods that have hurt the country's grain harvest. Grains account for nearly 50 percent of Argentina's foreign earnings. "Alfonsin learned the folly of whipping up the country over the foreign-debt issue last year," a U.S political analyst said. "But that doesn't mean he'll be able to ignore it if it flares up again this year."
Even the politically more conservative Mexicans, whose foreign debt totals $97 billion, will find it difficult to devise a solution to their current crisis that is both domestically acceptable and palatable to the banks and industrial-country governments.
President Miguel de la Madrid told the Mexicans in a television address two weeks ago that it is time for the banks to join the country in making some sacrifices. "It will be hard for him to back away from that statement," a Latin American diplomat said.
Furthermore, Mexico's ruling party will select its next president in 1987 -- making it unlikely that politicians can ignore domestic opposition to paying the foreign debt, he said. The question promises to become even more complicated if Jesus Silva Herzog, the Mexican finance minister who has been the architect of the country's economic progam, pursues the presidency himself.
"Silva Herzog can decide to be president and play to domestic politics or decide to be an international financier and play to the rest of the world, but he cannot do both," said a U.S. banker.