UNIVERSITY OF ILLINOIS LIBRARY AT URBANA-CHAMPAIGN BOOKSTACKS be charged a mir i ". f ed beI °w. You may -rc;i~ *--■«: as JAN 42000 ADYj 759Q L162 1531 COPY 2 BEBR FACULTY WORKING PAPER NO. 89-1531 United States Policies and Latin America's Trade and Debt r HE LIBRAtty OF TH£ FEB 2 3 1989 UNH/EKSITY UF ILLI l R q AN/ Werner Baer Donald V. Coes College of Commerce and Business Administration Bureau of Economic and Business Research University of Illinois Urbana-Champaign BEBR FACULTY WORKING PAPER NO. 89-1531 College of Commerce and Business Administration University of Illinois at Urbana- Champaign January 1989 United States Policies and Latin America's Trade and Debt Werner Baer, Professor Department of Economics Donald V. Coes , Associate Professor Department of Economics We wish to thank Roxana Barrantes and Curtis McDonald for their help in the preparation of this paper. Digitized by the Internet Archive in 2011 with funding from University of Illinois Urbana-Champaign http://www.archive.org/details/unitedstatespoli1531baer Abstract This paper examines the evolution o-f Latin America's debt to U.S. private and of-ficial banking institutions since the early 1970's and the growing burden of servicing this debt. It then analyzes the evolution of trade relations between Latin America and the U.S.ii especially the growing trade surplus of Latin America with the U.S. in the i9S0 : 's. It concludes with a discussion of the tension between U.S. insistence on Latin America's maintenance of debt servicing and simulteneous U.S. pressure on Latin America to reduce its trade surplus with the U.S. Preliminary version December 1988 UNITED STATES POLICIES AND LATIN AMERICA'S TRADE AND DEBT by Werner Baer and Donald V. Coes (University of Illinois) Throughout the 1980's the United States, joined by other creditor countries, has insisted that it was Latin America's obligation to service its enormous debt, and to keep the servicing up to date. At the same time, the U.S. government has been under pressure from U.S. import competing sectors to press a number of Latin American countries to eliminate various types of export incentive programs which allegedly violate GATT rules. It has also been under pressure by other groups to press Latin American governments to liberalize their import policies. As a result, the U.S. government has increasingly adopted a pluralistic, and often contradictory, policy posture. This article examines the circumstances which have produced this situation, and considers ways in which a more consistent set of policies can be developed. Evolution of United States-Latin American Economic Relations Over much of this century the U.S. has been a major trade partner and source of both direct investment and financial capital of Latin America. The counterpart of the U.S. capital outflow was a current account surplus with the region. This implied a transfer of real resources from the capital-rich region to a less developed one. Most 1 Current U.S. banking regulation force banks to insist on maintenance of interest payments. Interest payments which are in arrears beyond a grace period require the banks to recognize a loss by increasing their loan reserves. 1 - economists would recognize this as a healthy pattern, since it increases world economic efficiency and raises incomes in both areas. Domestic economic policy changes in the U.S., however, have recently reversed this long-run trend. Since the mid-1970's, and increasingly in the 1980's, the U.S. fiscal policy has become more expansionary without being accommodated by monetary policy. The net result has been an enormous increase in real interest rates in the U.S. and the world capital markets and the disappearance of a U.S. capital surplus available to Latin America. a) Trade Relations. In the period 1970-81 the United States trade balance with Latin America was positive in 7 out of 12 years (see Table 4). But since 1982, when the debt crisis became acute, the U.S. has had very large and continuing deficits with the region. These deficits were due to a combination of decreases in exports to Latin America and substantial increases in imports from the region. It will be noted in Table 4 that U.S. exports to Latin America reached a maximum value of US$ 42.8 billion in 1981, declining thereafter to US$ 25.6 billion in 1983, rising in the following four years, but not again reaching the 1980-2 levels. On the other hand, U.S. imports from Latin America rose considerably in the period; they were at a level of US$ 30.5 billion in 1979, rising to US$ 37.5 billion in 1980; and in 1987 they stood at US$ 47 billion. It will be noted that whereas prior to 1981 the U.S. trade balance with Latin America alternated between small surpluses and deficits, since 1982 the continuing deficits were larger than at any time in the previous decade. The United States has borne a relatively large share of the current account con- sequences of Latin America's adjustment after 1982. This is clear from Table 3. Although the United States has been the recipient of only a third or fourth of the service payments on Latin America's external debt, more than half the current trade surpluses which Latin America has had to generate to finance these payments have been earned in trade with - 2 the United States. Although this might be explained in the mid-1980's by overvaluation of the dollar in relation to the other Latin American creditors and trade partners, the U.S. -generated share of Latin America's trade surplus has actually risen since 1985. In this sense the earnings of non-U.S. creditors of Latin America are being maintained through a U.S. trade deficit with Latin America. The decline of U.S. exports to Latin America is due to a number of factors: 1) The recession in many countries of the region resulting from the adjustment programs forced upon them by the debt crisis. The real yearly GDP growth rate of Latin America in the period 1971-80 was 5.9 percent; it fell to - 1.0 percent in 1981-3; and 2 recovered to 3.4 percent in 1984 to 1987. This explains, in part, the U.S. export decline from 1981 to 1983 and the weak recovery in the period 1984-3. 2) The large real devaluation of a number of the region's key currencies, which has made foreign goods more expensive. For the region as a whole, the real effective exchange rate rose by 51 percent from 1980 to 1987. 3) The results of import-substitution investments in the 1970's. This was especially the case of Brazil, where a large proportion of international borrowing was used to build up the capital goods industry. 4) Tariff and non-tariff barriers which were used to squeeze the imports of countries in the midst of the debt crisis. The growth of U.S. imports from Latin America can be attributed to two factors: 2 The decline of growth in some of the major countries in the same period was much more pronounced: in the same periods, Argentina's growth declined from 2.6 to -2.9 percent and recovered to only 1.2 percent; Brazil's growth declined from 8.7 to -1.7 percent and recovered to 6.1 percent; and Mexico's growth declined from 6.6 to 1.2 percent and recovered to only 0.9 percent). 1) An active export diversification program carried out by a number of countries. This was extremely successful in a number of countries. The growth of non-traditional exports was, in part, due to the use of tax and credit incentives. 2) Substantial real devaluations of the currency of a number of Latin American countries, which made exports increasingly competitive. 3) The high growth rate of the U.S. economy in the 1980's after the brief downturn in the early part of the decade. It is noteworthy that the relative decline of the United States as a trading partner for Latin America was reversed in the 1980's. Table 1 shows that the U.S. market's share in Latin American exports rose from 35 percent in the latter 1970s to 49.4 percent in the mid-1980s, while imports from the U.S. rose from 32.9 percent to 48.7 percent. One explanation for the increasing share of the U.S. in Latin American trade is that the U.S. has had a higher rate of growth than other industrial countries during most of the 1980's, which resulted in a greater degree of U.S. import absorption from the region (this was apparently more important than the competitive advantage which Latin American countries gained in other industrial countries as a result of the devaluation of the dollar.) It is also probable that the decline of the dollar made U.S. goods more attractive to Latin Americans than those from other industrial countries, which would explain the growth of the U.S. share in Latin American imports. The share of Latin America in U.S. exports fluctuated only slightly, declining 1.3 percentage points in the 1980s, while its share in U.S. imports decreased slightly more. b) Service Balance. An examination of Table 6 reveals that Latin America's ser- vice balance with the United States was always negative in the decades of the 1970's and 4 - 1980's, but it worsened substantially in the late 1970's, peaking in 1981. After that year the service deficit declined, but continued at a level substantially higher than before the late 1970's. The major explanation for the growth of the service deficit can be found in col- umn 2 of Table 6, which consists of "Net Other Private Investment receipts" and repre- sents mostly interest payments. This item ballooned from less than a billion to over 12 billion dollars in 1982 and is responsible for most of the growth in the overall service deficit. The steep rise of this item after 1979 is in great part due to the rapid increase of U.S. interest rates. The use of very tight monetary policy in the U.S. in the late 1970's and early 1980's to cope with inflation, in conjunction with the continuation of expan- sionary fiscal policy, had a repercussion on interest rates throughout the world (for example, the annual average prime rate rose from 6.83 percent in 1977 to 18.87 percent in 1981, while LIBOR rates rose from an annual average of 6.2 percent in 1977 to 16.5 percent in 1981). Since most of the Latin American debt was on a flexible interest rate basis, these developments substantially increased the burden of the debt to the region. Column 3 of Table 6 shows that net U.S. government interest receipts were positive, but became negative from 1985 on. This trend was partially due to negotiated reductions of official debt and debt servicing under the Paris Club arrangements. Unfortunately, this easing of official debt service was small in relation to the large private debt service payments the region had to make to U.S.- based creditors. Tax payers of the U.S. and other major creditor countries, in effect, accepted a reduction in income on official debt in order to maintain and even increase Latin American payments to private creditors. Column 1 of Table 6 contains information on earnings from direct investments. This item was always positive for the U.S., since it was primarily profit remittances by - 5 U.S. companies in Latin America. The decline after 1980 reflects the economic crisis the region was undergoing in the 1980's. As the economies stagnated, profits of U.S. firms declined as did their profit remittances. This trend was reinforced in some countries by controls on the remittance of profits as the balance of payments situation worsened. c) Capital. During most of the post-World War II period, Latin America has been a major recipient of capital flows through both direct investment and loans. Following its replacement of Great Britain as the dominant foreign economic power in the region after World War I, the United States became the major source of net capital inflows to Latin America. The highpoint of U.S. predominance was reached shortly after World War II, when more than 50 percent of direct investment and capital flows were of U.S. origin. With the recovery and more rapid growth of Western Europe and Japan, U.S. shares have declined, despite the absolute increase of investments through the 1970's. Although the U.S. declined in relative terms, it remained the major source of external capital. One should also consider that in addition to its importance as the origin of a substantial share of Latin America's foreign capital, the role of the U.S. as the world's leading financial intermediary was particularly important in Latin America, especially after 1973, when U.S.-based multinational banks were responsible for recycling a sub- stantial part of the OPEC surplus to Latin America borrowers. U.S. influence was also important in multilateral organizations, such as the World Bank and the Inter-American Development Bank. This historical pattern was abruptly changed in the early 1980's. With the explo- sion of the debt crisis, Latin America became a net exporter of capital to its creditor countries, particularly the United States. The major trends in the U.S. capital account with Latin America are summarized in Table 7. The U.S. was a net lender of capital to Latin America in every year between 1970 and 1983, with the exception of 1979, as may be seen in column A. Most of this capital was financial, particularly after 1973, as is clear from column B of Table 7. There were several reasons for the preponderance of financial capital flows rather than equity investment. First, the international financial community at the time regarded such loans as less risky than equity investments, particularly when the loans were made to sovereign governments, since they presumably rested on the taxing capacity of the bor- rower governments. However incorrect this assumption may appear with the advantage of hindsight and in the light of current emphasis of debt for equity swaps, financial capital flows were clearly preferred in the 1970'. A second reason was the development and perfection of variable interest rate loans, which appeared to remove interest rate uncertainty for both borrowers and lenders. Finally, in some countries, such as Brazil, there were technical reasons for the preference for financial capital flows over equity investment, since direct investment regulations did not allow for the effects of inflation in the lending country, while such inflation was automatically incorporated in the nominal interest rate paid on the loan. Most of this financial capital flow was net lending (see column C of Table 7) by U.S. banks. The net figures, however, do not tell the whole story. Gross U.S. bank lending to Latin America, as measured by the change in U.S. claims on Latin American borrowers by U.S. banks, were always positive (minus indicates a U.S. outflow), except for 1985. Also to be noticed is that gross U.S. lending reached a peak in 1982, sharply dropping off after that period. Much of the gross lending after 1982 was, in fact, forced lending, induced by the necessity to renegotiate and roll over earlier loans. Latin American capital outflows to U.S. banks are shown in column E. A sub- stantial part of this flow was private capital flight, which increased dramatically after 1977. In 1979, despite the maintenance of gross U.S. lending to Latin America (column D), the doubling of capital outflows resulted in a net capital inflow to the U.S. banking system of more than 7 billion dollars. An examination of columns C, D, and E together reveals that much of the growth of the gross Latin American debt owed to U.S. banks financed a large capital outflow to these banks. This reflects the capital flight induced, in part, by overvalued exchange rates, combined with domestic crises (especially in such countries as Argentina, Chile, Mexico and Venezuela). The dramatic reversal of net bank lending to Latin America between 1982 and 1983, when the record 1982 inflow of more than 20 billion dollars was succeeded in 1983 by a net outflow of more than 12 billion, was due both to the sharp drop in gross bank lending to Latin America and the maintenance of private capital outflows to U.S. banks. Other financial capital flows from the U.S. to Latin America were relatively unimportant by comparison with bank lending, as may be seen from column f) in Table 7. Most of these flows consisted of trade in U.S. and Latin American securities and non-bank financing. Much of the latter was related to multinational operations, i.e. much of it due to financial flows between U.S. parent and Latin American subsidiaries. As was the case with bank lending, there was a reversal in the other net financial flows after 1982. Table 8 shows the trends in these two types of non-bank lending on a gross and net basis since 1970. One of the most interesting aspects of these capital flows between these two regions is that Latin America became a net lender in securities trade as early as 1977, i.e. 5 years before the debt crisis. In the post-1982 period, net securities outflow from - 8 Latin America amounted to more than US$ 5 billion annually. This may be another manifestation of capital flight. Direct foreign investment, which is shown in Table 9, was a less important com- ponent of the U.S. capital account with Latin America than were financial flows, in part for reasons stated earlier. Like trade in securities, the reversal in net direct investment preceded the 1982 debt crisis. Gross direct U.S. investment in Latin America peaked in 1978 and rapidly declined to a net outflow, which reached nearly US$ 6 billion in 1982. Conflicting Policy Goals in U.S. Economic Relations with Latin America: An Interpretation. The economic relations between any country and the rest of the world potentially flow through two major channels: the goods market and the capital (or assets) market. These correspond, respectively, in the balance of payments to the current and the capital accounts, which together in the long-run must offset each other. In most of the postwar period until the 1970's both market participants and policy makers paid much more attention to trade, i.e. the current account. a) The Capital Account Reversal. With the rise of multinational banking, beginning in the 1960's and signifi- cantly expanded in the 1970's by the availability of petrodollars after the first oil shock, asset market (or capital account) transactions came to eventually upstage trade questions, presenting policy makers with a new series of constraints. In earlier, and apparently simpler days, the makers of U.S. economic policy toward Latin America were primarily concerned with trade questions, notably the maintenance of markets for U.S. exports to Latin America and the secure access to essential imports from the region. Any resulting current account deficit was assumed to be easily financed via the capital account, implying a capital inflow from the U.S. and other creditor countries to Latin America. This arrangement worked especially well in the mid-1970's, when the international financial community was flush with petrodollars, available to lend at nominal interest rates close to or even below inflation in the creditor countries. Past debts and their servicing requirements were financed by new net borrowing, as was shown above. It is now clear to all that the asset market disequilibrium or capital account deficit of Latin America could not continue indefinitely. Some capital market participants appeared to have perceived this point sooner than others. As we noted in the preceding section, increases of Latin America holdings of U.S. securities began to accelerate as early as 1976 (see Table 8), while increases of U.S. holdings of Latin American securities peaked in 1975 and actually decreased from 1978 onwards. A similar trend is evident in trade in non-bank financial assets, in which net U.S. outflows peaked in 1980. Latin American bank deposits in the U.S. began to accelerate sharply in 1978 (Table 7). Direct investment flows to Latin America began to fall off after 1978 (Table 9). Although our data mask considerable variations in capital flows between the U.S. and individual Latin American countries, it is clear from the aggregate data that the bank debt crisis of 1982 was anticipated by a number of years in other international capital markets. In retrospect, one wonders why the U.S. banking community steadily increased its lending through 1982, when gross U.S. bank lending to Latin America reached more than US$ 51 billion. Although the turnabout in U.S. bank lending to Latin America came later than any other reversal in capital flows, when it did occur, it was brutal. Gross lending fell by - 10 - nearly US$ 40 billion between 1982 and 1983, and in 1985 there was an outflow (see Tabic 7). At international bankers' insistence prospects for any new lending became contingent on a sharp improvement in the current account, which given the insistence on the maintenance of interest payments, required an even larger improvement in the trade surplus. b) Conflicting Interests of Participants in U.S.-Latin American Trade and Capital Movements . Until it belatedly recognized the long-run inviability of continued growth of Latin American indebtedness, the international banking community was a willing partner in expansionary Latin American fiscal policies. In any economy, when domestic savings are not sufficient to finance domestic investment as well as the common excess of public expenditures over tax receipts, the balance must come from abroad in the form of a current account deficit. In this sense Latin America's worsening current account imbalances in the 1970's were intimately linked to insufficient domestic savings and, particularly to growing public sector deficits. In many of the countries of the region the growth of public sector expenditures outstripped both overall economic growth and the growth of tax receipts. Such public sector deficits could be financed either through money creation, or through local or foreign borrowing. The last of these three means of financing the deficit, foreign borrowing, was little used by most Latin American countries before the end of the 1960's. With the vast increase in international capital availability in the 1970's, few Latin American governments resisted the temptation to go to the international capital markets rather than to their domestic savers and taxpayers. This demand for financing by Latin American governments proved profitable for the inter- national banking community, which was often as willing to lend to a sovereign govern- ment in Latin America as to private investors at home. 11 With their heightened perception of the long-run risks inherent in the process, as well as its ultimate inviability, the international banking community began to sound like the bankers they once had been. From 1982 on the bankers insisted on evidence of credit- worthiness as a pre-condition to roll over expiring debt, which had become increasingly short-term. The bankers' central aim was the achievement of trade surpluses large enough to finance interest payments on the outstanding debt, given their new reluctance to advance new loans. The means by which this was to be accomplished were less important to them than the end. As a trade surplus can be achieved through either export expansion or import contraction, both types of policies received the bankers' support, as well as that of the IMF. In the short-run, it is probably much easier to generate a trade surplus by reducing imports than by increasing exports. As Table 4 suggests, most of the sharp reversal of Latin America's trade balance in the early 1980's came through a reduction of imports rather than an export expansion. This decrease of imports was the result of several factors: direct import restrictions, real devaluation, and, perhaps most importantly, a decline in the GDP growth rate (which in some countries became negative for the first time since the Great Depression of the 1930's). Poor Latin American performance on the export side was due, in part, to the world-wide recession in the early 1980's, as well as to sharp declines in the price of a number of important Latin American primary exports. The aggregate export figures, however, hide the tremendous strides which were made by some Latin American countries in pushing manufactured exports, most notably Brazil and Mexico. Thus, by the mid-1980's one might judge the banking communities to have 3 Brazil's overall manufactured exports increased from US$ 6.6 billion in 1979 to US$ 15.1 billion in 1984 and are expected to reach US$ 18 billion in 1988. Mexico's non- traditional exports rose from US$ 1.2 billion in 1981 to US$ 4.1 billion in 1985. - 12 attained their objective, in that the region was producing the trade surpluses necessary to service the debt. Although this may have solved the immediate problem from the viewpoint of the international banking community, the achievement of the trade surplus was not in the interest of other U.S. policy constituencies. Latin America had long been one of the major U.S. export markets, particularly for capital goods. The sharp decline of Latin America's imports fell particularly hard on U.S. manufacturers, already hard hit by the overvalued U.S. dollar, high interest rates and the domestic recession of the early 1980's. Although the initial burden of Latin American trade adjustment fell primarily on U.S. exporters, the subsequent success of Latin American exporters of manufactured goods affected a different group, U.S. producers of import-competing goods. For the first time, Latin American manufactured goods posed a serious threat in sectors such as steel, textiles, machinery, clothing, footwear, transport equipment, and others. These new pressures led to predictable reactions by the threatened domestic producers. They were not long in filing charges against Latin American countries for using tax and credit subsidies, allegedly in violation of GATT rules. Even when these charges were rejected, they often forced potential Latin American exporters to incur substantial additional costs. U.S.-bascd multinationals located in Latin America in some respects enjoyed a more favorable position in the Latin American trade balance turnaround, since they enjoyed a better access to U.S. markets. They benefitted from the sharp fall in relative real wages and other domestic costs within Latin America, as well as from a variety of export incentives instituted by Latin American countries. This was partially offset, however, by increased administrative barriers to imports, which were particularly severe in industries using a large amount of imported components. 13 c) The Decapitalization of Latin America and U.S. Political Interests The sharp reversal in net capital flows to Latin America occurred, perhaps not coincidentally, with a reversal in the political tide. Between the mid-1970's and mid- 1980's authoritarian governments were replaced by democratic regimes in most Latin American countries. This trend was particularly evident in several of the major coun- tries of the region, notably Argentina and Brazil. Few would question America's long- term interest in encouraging the trend towards increasing political openness. Short-term U.S. economic policy, however, may work at cross-purposes and even undercut our long- term political goals. Governing Latin American countries has never been easy, either for dictators or democrats, as the region's century of political instability has shown. When the burden of effecting a net resource transfer to the rest of the world is added to existing problems, the survival of fragile new democracies is even more precarious. U.S. policy makers have not been blind to this, as U.S. promptness in arranging bridge loans to major borrowers when credit markets closed in 1982 and 1983 has shown. In the longer-run, U.S. support for World Bank, IDB, and other multilateral assistance is based, in part, on the belief that it may be less expensive to provide modest help to the region now than face the costs of major upheavals in the future. The time may have come when such incremental assistance is no longer sufficient to deal with Latin American economic conditions in the last decade of the 20th century. Past U.S. pressure on Latin American debtor countries to follow IMF-endorsed austerity programs has been a short-term success in the narrow sense of avoiding default and major 4 In the mid-1970's the 19 Latin American nations (Spanish and Portuguese-speaking) could be classified into 14 authoritarian regimes and 5 democracies. By the mid- 1980's, the number of democratic governments had risen to 13. 14 international financial crises, by keeping debt servicing up-to-date as a condition for periodic rolling over of the principal. These short-run benefits, however, have incurred enormous long-run costs . They have caused a severe decline in the standard of living of the region today, and perhaps even more ominously, tomorrow, through a decline of investment. The available data are unmistakably discouraging. Latin America's real minimum wages decreased by over 15 percent between 1980 and 1985 (in Mexico the decline was 43 percent and in Brazil 16 percent), while the output per capita, which had increased by 33 percent in between 1970 and 1981, declined by 3.3 percent in the years 1982 to 1987. Latin America's investment/GDP ratio, moreover, was 22.6 percent in the period 1970-81, falling to 16.6 percent in 1982-7, as the net yearly transfer of capital abroad in the years 1983-7 totalled US$ 25 billion. For many Latin Americans, the 1980's have been decade. Not only does the decline in the region's standard of living threaten the long-term survival of democratic governments, but the decline of investment activity will make it increasingly difficult for Latin American economies to keep up with the rest of the world. Low investment activity will result in Latin America's falling increasingly behind in productivity and technology, which will make it difficult to maintain, let alone increase, its share of the world market. The region's trade surpluses in the 1980's, especially with U.S., as noted above, resulted from efforts to compress imports and, in some countries, to promote exports through incentive programs and real depreciation. The consequent pressures from U.S. interest groups anxious to maintain their sales to Latin America and from other groups, 5 These data were taken from: Inter-American Development Bank, Economic and Social Progress in Latin America: 1988 Report; U.N., Economic Commission for Latin America and the Caribbean, Economic Panorama of Latin America 1988. 15 - who feel threatened by Latin America's penetration of U.S. markets have placed addi- tional constraints on U.S. policy. It is in the interest of both the U.S. and Latin America to find a more permanent solution to reduce the real burden of the debt. The markets' own mechanism of debt relief, in the form of discounts on the fact value of the debt in the secondary market, is not a satisfactory solution, since it is uncertain and arbitrary, providing little incentive for long-term investment. Once the debt burden is substantially decreased, Latin America will have more foreign exchange available to allow itself to liberalize imports and thus increase economic efficiency. A substantial increase in Latin American imports would also make it possible to raise the region's investment ratio and thus expand and modernize its productive capacity. Finally, a substantial increase in Latin America imports could also disarm the opposition to the penetration of non-traditional goods from Latin America into the U.S. market. 6 In November 1988, for example, Brazilian debt was selling in the secondary market at about 40 percent of its face value, while Mexican debt was selling at about 45 percent and Argentine debt at less than 20 percent. (The Economist, 26 November, 1988, p. 112. 16 - Table 1 a) Share of U.S. in Latin American Exports and Imports Yearly Average Exports Imports 1960-3 37.2% 41.8% 1977-9 35.0% 32.9% 1984-6 49.4% 48.7% b) Share of Latin America in U.S. Exports and Imports Yearly Averate Exports Imports 1970-2 14.9% 13.6% 1977-9 15.3% 13.8% 1985-7 14.0% 12.1% Source: Calculated from data in U.S. De partment of Commerce, Survey of Current Business, various issues; and Interamerican Development Bank, Economic and Social Progress in Latin America. 1982 and 1987. 17 Table 2 Latin America: Proportion of Net Investment PaymentsAbroad Going to the United States (percentage of total payments) 1980 25.9 1981 16.8 1982 37.6 1983 37.6 1984 27.3 1985 27.5 1986 28.4 1987 20.0 Source : calculated from Survey of Current Business and IDB, Economic and Social Progress in Latin America: 1988 Report - 18 Tabic 3 Latin American Trade and Investment Earning Balances with the U.S (Percent of Global Trade and Investment Balances) Investment Earning Balances Trade Balances 1980 1981 1982 1983 1984 1985 1986 1987 25.9% 16.8% 37.6% 33.7% 27.3% 27.5% 28.5% 20.0% 71.0% 54.5% 48.3% 46.3% 61.4% 60.4% Net Investment Service Payments Net Non- Investment Service Payments 1980 1981 1982 1983 1984 1985 1986 1987 74% 57% 38% 33% 27% 28% 28% 29% * * 4% 42% 79% 76% 102% *Latin American trade deficit in 1980 and 1981 Source : calculated from data in Survey of Current Business, and in Inter-American Development Bank, Economic and Social Progress in Latin America. 1988 Report. 19 - Table 4 US Merchandise Trade With Latin America Year 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 Merch. Merch. Merch. Exports Imports Trade Balance (2) (17) 6494 -5913 581 6433 -6115 318 7241 -7068 173 9950 -9645 305 15823 -18658 -2835 17108 -16177 931 16843 -17204 -361 17921 -21162 -3241 22034 -23041 -1007 28555 -30535 -1980 38811 -37521 1290 42804 -39099 3705 33164 -38561 -5397 25581 -41867 -16286 29767 -48366 -18599 30788 -46110 -15322 30877 -41426 -10549 35089 -47258 -12169 Source: U.S. Department of Commerce, Survey of Current Business. several issues. 20 Tabic 5 US Goods and Service Trade Balance with Latin America Year 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 Exports Imports Balance Goods & Goods & Goods & Services Services Services (1) (16) 10395 -8407 1988 10427 -8575 1852 11200 -9859 1341 15225 -13069 2156 23365 -23596 -231 25448 -21384 4064 26516 -22887 3629 30435 -27819 2616 38182 -31338 6844 50875 -42572 8303 68553 -52922 15631 79813 -58300 21513 71124 -62177 8947 57196 -63852 -6656 64050 -75470 -11420 62992 -70318 -7326 61168 -64901 -3733 65819 -74916 -9097 Source: same as Table 4. 21 Tabic 6 Net US Service Trade with Latin America Year 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 Source: same as Table 4. Net Net Other Net U.S. Net Net Net D.Inv. Pvt.Inv. Govt. Services Services Services Earnings Receipts Receipts Invest. Non.Inv. All 1380 107 150 1637 -230 1407 1432 274 129 1835 -301 1534 1258 286 132 1676 -508 1168 1594 377 136 2107 -256 1851 1934 930 220 3084 -480 2604 1542 1438 188 3168 -35 3133 1931 2085 223 4239 -249 3990 3558 2651 211 6420 -563 5857 4463 3828 210 8501 -650 7851 5770 4766 243 10779 -496 10283 5846 7891 157 13894 447 14341 4832 10924 92 15848 1960 17808 2382 12127 258 14767 -423 14344 405 10835 371 11611 -1981 9630 516 9570 17 10103 -2924 7179 2434 7905 -288 10051 -2055 7996 4216 5697 -620 9293 -2477 6816 4179 2449 -299 6329 -3257 3072 22 - Table 7 US Financial Capital Flows to Latin America Banking and Total Net Capital Flows Year 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 US claims US Liab. Net US Financial Total Total Non- Banking Banking Banking Capital Capital Bank Fin. Claims Flows (- = out) Flows Cap. Flows (a) (b) (c) (d) (e) (O -376 -815 -1191 -1435 -1997 -244 -589 -325 -914 -938 -1569 -24 -1480 876 -604 -777 -1080 -173 -1471 2109 638 322 -298 -316 -6950 4344 -2606 -3655 -5880 -1049 -9041 3217 -5824 -6333 -7716 -509 -14841 4457 -10384 -11409 -11441 -1025 -7038 4878 -2160 -2534 -5979 -374 -10449 8404 -2045 -2621 -6333 -576 -10549 18102 7553 8045 5273 492 -26697 5186 -21511 -24741 -26170 -3230 -43995 29799 -14196 -14191 -12826 5 -51471 28092 -23379 -20861 -14316 2518 -13740 25821 12081 11308 14752 -773 -1624 15327 13703 22763 24907 9060 4483 -1513 2970 5563 2372 2593 -8037 26173 18136 22562 12661 4426 -6634 8288 1654 4857 -2118 3203 Source: same as Table 4 Note: Column f consists of changes in net holdings of securities plus net changes in U.S. non-banking claims. Column c = d + e; column d = c + f; column a = b + net direct investment from Table 9. 23 - Table 8 US Financial Capital Flows to Latin America Securities and Non-banking US Hold- L.Amer Net Se- US US Net US ings of Holdings curities Claims Liab. Non-bank- L.Amer U.S. Se- (minus: Non-Bkg Non-Bkg ing Claims Securities curities US outfl (47) (61) (48) (62) 1970 -135 66 -69 -365 190 -175 1971 -33 56 23 -249 202 -47 1972 -45 -9 -54 -234 115 -119 1973 -107 43 -64 -548 296 -252 1974 -93 24 -69 -779 -201 -980 1975 -347 43 -304 -303 98 -205 1976 -219 198 -21 -1080 76 -1004 1977 -151 280 129 -643 140 -503 1978 181 351 532 -1372 264 -1108 1979 310 88 398 -377 471 94 1980 37 330 367 -2090 -1507 -3597 1981 27 97 124 -241 122 -119 1982 3 449 452 2502 -436 2066 1983 658 674 1332 -2207 102 -2105 1984 2190 862 3052 3355 2653 6008 1985 1957 543 2500 781 -688 93 1986 3309 4360 7669 -1485 -1758 -3243 1987 913 2290 3203 Source: same as Table 4. 24 - Table 9 US Direct Investment Balance with Latin America Year 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 U.S. L.A. Net Dir. Direct Direct Invest. Invest Invest (- = in L.A. in U.S. outflow (46) (59) from U.S.) -601 39 -562 -691 60 -631 -279 -24 -303 -673 53 -620 -2270 45 -2225 -1347 -36 -1383 -146 114 -32 -3632 187 -3445 -4207 495 -3712 -4043 1271 -2772 -2655 1226 -1429 58 1307 1365 5820 725 6545 3066 378 3444 1625 519 2144 -3875 684 -3191 -7450 -2451 -9901 -7336 361 -6975 Source: same as Table 4. 25 HECKMAN BINDERY INC. JUN95 Bn«nJ [.It.. N MANCHESTER. INDIANA 46962