BUENOS AIRES, DEC. 5 -- In the midst of a five-country swing through South America, President Bush is offering praise for the region's democratic reforms and pushing new ideas on free trade, but he is largely avoiding the once-dominant issue of Latin America's crushing foreign debt.

Bush's hemispheric free-trade initiative, warmly received by Latin leaders, includes about $12 billion in potential debt relief. But that sum is dwarfed by the more than $400 billion that Latin American nations collectively owe to private banks and international lending agencies.

The numbers underscore a fundamental fact of economic life in Latin America: The region remains without a comprehensive solution to a problem that in the 1980s helped choke its economies, caused standards of living to decline and turned it into a net exporter of capital.

The trade initiative that Bush is promoting essentially would forgive $12 billion in debt owed directly or indirectly to the U.S. government, which would mean an annual savings to Latin nations of $400 million in debt payments. If other creditor nations took similar steps, the savings would mount to nearly $2 billion -- still a small figure compared to the more than $8 billion, for example, that Brazil alone owes in back interest payments.

Officials in Brazil, the Third World's largest debtor, had expressed the hope in recent weeks that Bush would offer some support in their negotiations with bankers. Brazil owes the banks nearly $80 billion and has taken a hard-line stance in recent talks, seeking agreement to restructure the debt on much more favorable terms.

But Bush's stop in Brasilia came and went without significant movement. But while there, Bush heard blunt talk from Brazilian legislators who told him they do not want debt payments to inhibit economic growth, as happened in the last decade.

"The negotiation on Brazil's commercial bank debt is strictly a matter ... between the government of Brazil and the private commercial banks, whether U.S. or Japanese or European," Treasury Undersecretary David C. Mulford said before the trip.

Bush apparently discussed the debt privately with Brazilian President Fernando Collor deMello, and in a speech he referred to Collor's anti-inflation program as a "first step" toward resolution of the issue. But no new concrete proposal on the debt emerged.

Administration officials have cited Brazil's arrearages in its interest payments as a major obstacle. Brazil has not been making payments for more than a year and now is more than $8 billion behind.

Argentina, where Bush met with officials today, is also behind in its debt payments. But here there was little anticipation that Bush's visit would significantly alter the debt picture.

Referring to the privatization deals and other reform-minded economic initiatives Argentine President Carlos Menem has taken, Bush said today at a news conference, "I hope these steps will lead to a happy ending, a happy solution of the debt problem." But he added that this was "a decision between the banks and the Argentine government."

Argentine officials managed to reduce the country's foreign debt by about $6 billion over the past two months with the privatization of two state enterprises, the telephone company, Entel, and the state airline, Aerolineas Argentinas. The deals were structured so that the winning bidders agreed to purchase Argentine debt paper on the secondary market and then surrender it to the government.

The Latin American debt crisis began in the 1970s when regional governments, many of them military dictatorships, sought to borrow heavily to finance ambitious development plans -- and cash-laden banks were all too happy to oblige. By the mid-1980s, the world had suffered through a series of oil shocks and interest rates on that debt had risen sharply. Latin nations owed more and more, but were less and less able to pay.

Major banks have begun writing down those Latin American loans, but are reluctant to completely forgive them for fear of missing out on whatever reduced payment the Latin nations may ultimately end up making.

Mexico, Venezuela and Costa Rica have taken advantage of the administration's Brady Plan for debt reduction, but major debtors like Argentina and Brazil have not yet won substantial relief. {In New York, a group of 300 U.S. and foreign banks today signed an agreement with Venezuela to refinance about $20 billion of its foreign debt, completing an agreement reached in March.}

Now, Latin economies face a further blow from the increase in oil prices brought about by the crisis in the Persian Gulf. Richard Feinberg, vice president of the Overseas Development Council, estimated that if oil were to stabilize at $35 a barrel for a year, Latin America would receive a net windfall of $14 billion. But the impact would be unequal: A few countries would win big, while most Latin nations would lose.

Mexico, for example, would receive an additional $10 billion from oil sales, while Venezuela, another oil producer, would get a windfall of $7 billion. But Feinberg estimated that 27 Latin nations would suffer heavy losses, including Brazil, which would spend an extra $3 billion to $4 billion for imported oil.

This map shows the eight Latin American countries with the greatest foreign debt outstanding to public and private creditors. In general, the bulk of their "debt to commercial banks" is owed to North American institutions. Figures are in billions of dollars.


total debt: $114.7

debt to commercial banks: $77.7

STATUS: Brazil is more than $8 billion behind on its interest payments. It has not been making payments since the summer of 1989.


total debt: $97.4

debt to commercial banks: $68.8

STATUS: After a Treasury-assisted refinancing, Mexico is servicing its debt regularly and has no over-due interest payments.


total debt: $59.9

debt to commercial banks: $38.1

STATUS: Argentina fell increasingly behind on its interest payments in the 1980's and in 1988 stopped servicing most of its commercial debt. Now, Argentina is about $7.8 billion behind on those payments. Since 1988, Argentina also has fallen about $4 billion behind on its payments to non-bank creditors.


total debt: $32,931

debt to commercial banks: $25.8

STATUS: Venzuela has made regular interest payments on its debt, but it currently is in negotiations to restructure its debt package with assistance from the U.S. Treasury.


total debt: $20.3

debt to commercial banks: $7,964

STATUS: Peru stopped servicing its debt around 1985. Its over-due interest payments to commercial banks total about $3.2 billion, and it also owes several billion dollars to non-bank creditors.


total debt: $18.9

debt to commercial banks: $9.8

STATUS: Chile has serviced its debt regularly.


total debt: $17

debt to commercial banks: $7.3

STATUS: Columbia has serviced its debt regularly and currently is negotiating with the banks to refinance some of its debts.


total debt: $11.4

debt to commercial banks: $6.3

STATUS: Ecuador stopped servicing its debt in 1987. Its over-due commercial interest payments currently total about $1.6 billion.

NOTE: Debt figures are as of December 31, 1989.

SOURCE: The Institute for International Finance and embassy reports.