THE NEGOTIATIONS over Brazil's foreign debts raise doubts about which Americans need to think carefully. Last winter the International Monetary Fund extended a further large loan to enable Brazil to keep its credit lines open and avoid default on the past loans. But the condition was a policy of rigorous austerity to be imposed on the Brazilian economy. By May, it was evident that Brazil was not meeting the targets, and the IMF froze further access to the loan. It is not a question of bad faith; it can be argued that the targets were unrealistic from the beginning. The present talks are an attempt to work out new terms.
The IMF knows that it cannot let go of the principle of enforced conditions. It cannot put itself in the position of financing more of the same policies that got the debtors into trouble in the first place. But neither can it press the principle so hard that it incites upheaval in Brazil--where unemployment is already high.
The central issues here are not the esoteric financial arrangements. To pay off their debts to North American and European banks, Brazil and the other Latin debtors need to be able to sell in the North American and European markets. Rigorous management of the internal fiscal affairs of Brazil, et al., is highly desirable. But the crucial factor is the economic recovery now beginning in the United States and, less certainly, Western Europe. With strong and sustained growth, the rich countries will suck in Latin exports in great volumes and make it possible for Latin debtors to pay their way out of their hole without great distress. But if that kind of a growth rate doesn't develop in the northern hemisphere, no amount of austerity to the south will make repayment of the debts possible.
It's useful to recall that those debts originated in the first oil crisis a decade ago. Because the Latin countries borrowed to keep their economies developing, they continued to buy American exports--an important contribution to American prosperity over the past decade. That process also works in reverse. If the Latin economies are now forced into super-austerity, they are not going to be very good customers for North America. The dollars that Brazil must devote to debt service are dollars that it cannot spend on American exports. That's another reason for Americans to have another look at those debt schedules. They have implications for jobs in American factories.
The disquieting thing about the present debt negotiations is that they have become a process of patching along, avoiding disaster, but following plans that depend on slightly improbable growth rates in the industrial world. Something more durable and more hopeful is required. That will take political leadership from the richest of the rich countries, and it will have to come not from the technicians who run the IMF but from the politicians who run the United States government.