ISSUES AND TRENDS AFFECTING U.S. BUSINESS IN LATIN AMERICA AND THE CARIBBEAN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP99-01448R000301390001-2
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 10
• Document Creation Date: December 27, 2016
• Document Release Date: August 13, 2012
• Sequence Number: 1
• Publication Date: December 11, 1986
• Content Type: MISC

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Issues and Trends Affecting U.S. Business
in Latin America and the Caribbean
An Address to the Executive Committee and Trustees
of the International Center of Florida
by Robert M. Gates
Deputy Director of Central Intelligence
December 11, 1986
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It is a pleasure to be here today. I am grateful to the
International Center for this chance to share some thoughts
with you on some of the salient political, economic and
security issues and trends affecting the business climate in
Latin America and the Caribbean.
The picture I am about to sketch for you will have both
positive and negative elements, for I see both enduring
challenges as well as emerging opportunities for U.S. firms
operating or investing in the region. I'll begin by ticking
off some of the factors that will continue to make doing
business in Latin America difficult.
First, there will be a continuing threat to U.S. commercial
interests in Latin America from terrorist groups, many of them
supported and abetted by the Soviets, Cubans, Nicaraguans or
Libyans. It will probably come as no surprise to many of you
to learn that our statistics show more acts of violence --
bombings, kidnapping and the like -- against US business
personnel and facilities in Latin America last year than in any
other part of the world, the Middle East included. Colombia
headed the list of dangerous places followed by Chile, Peru,
and Bolivia. On the other hand, there were no such terrorist
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attacks in Argentina -- the highest risk country for U.S.
business in the early 1970s -- or in El Salvador, and a sharp
fall off in incidents in Honduras. While the threat in
individual countries will vary over time, I believe that,
beyond the human costs, the dollar value of protecting U.S.
personnel and commercial facilities will remain high.
Second, the security problems caused by the activities of
insurgent groups or by political unrest will continue to hamper
U.S. business operations and discourage new initiatives. Peru,
Colombia and El Salvador are examples of countries where
attacks by well-armed revolutionaries on the rural
infrastructure and their actual control of some territory cause
major problems for U.S. companies involved in agricultural
sector enterprises or engaged in the extraction of oil and
mining of other mineral resources. The trend toward closer and
symbiotic cooperation between insurgent groups and narcotics
traffickers in South America has particularly worrisome
implications for the maintenance of security in outlying
areas. Periodic episodes of turmoil in countries with chronic
instability problems -- Haiti is a case in point here -- will
also create labor problems for U.S. businesses, and otherwise
complicate their operations. Again, despite the progress that
has been made in containing guerrilla activities in places like
El Salvador and Guatemala and the general decrease in the sort
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of popular unrest that marked the region in the past, the root
causes of insurgency and the sporadic leftist-backed political
violence that continues to occur in the Caribbean and in South
America will be difficult to eliminate.
A large part of the problem comes from outside forces: the
support the Soviets and their Cuban and Nicaraguan allies
provide to the insurgent and radical political groups -- as
well as the terrorists -- in the region. Soviet and Cuban
backing for the Sandinista regime and its efforts to promote
revolution in Central America are just the most publicized part
of the picture. The Nicaraguan-provided arms used in the
bloody terrorist attack last year on Colombia's Palace of
Justice, the Soviet bloc weapons found in the massive arms
caches in Chile this summer, and the steady stream of leftists
traveling to Havana all fit together into a mosaic of
Soviet-inspired subversive activities. The fact that Moscow
and its friends continue to make trouble of this sort while
pushing simultaneously for expanded state-to-state contacts --
witness Foreign Minister Shevardnadze's recent visit to Mexico
and Gorbachev's planned trip to the region next year -- makes
plain the Soviet capacity for duplicity. Add to this the
recent efforts of Libyan leader Qadhafi to aid and abet radical
groups in the Caribbean and you get a flavor for why working to
overcome these security and instability problems will remain a
long term proposition for the affected governments.
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Another set of difficulties for Americans doing business in
Latin America flows from the sway that political nationalism
continues to have over economic decision-making. At the most
fundamental level, the statist approach to economic development
in some countries has given bloated and inefficient
government-owned enterprises a virtual monopoly of key sectors,
foreclosing opportunities for U.S. business. In Mexico, for
example, the control state-owned companies have over sectors
such as energy, food distribution and steel production limits
opportunities for U.S. or Mexican private firms to get involved
in these activities. In other countries, domestic private
investment will continue to be permitted, but foreign
investment excluded, in sectors selected for special
protection. In many countries, foreign investment will remain
limited to 49 percent of company equity.
Beyond direct controls on investment, some Latin American
countries are likely to continue to respond to domestic
political pressure with tactics that discourage foreign
business, for example:
-- Political pressure to inflate employment and raise
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-- Endemic overvalued exchange rates, causing foreign
exchange shortages and bottlenecks and hampering the
ability of companies to conduct international financial
transactions on a timely basis.
-- In some countries, continuing bribery and corruption
can get in the way of legitimate new investors seeking
to compete within an established business community.
Aside from the problems attendant on economic nationalism,
U.S. businesses will be challenged by the economic hard times
that confront most of the region. These hard times both
reflect and contribute to the region's continuing external debt
crisis. Although the record is very uneven, Latin governments
generally have done well in coping with debt and related
problems. Initially, they had no choice but to adjust their
economies through stabilization programs involving the
reduction of chronic budget deficits, the liberalization of
prices, devaluations and wage freezes.
Through such efforts debt default has been avoided but at a
high cost. Almost without exception, the annual growth of the
Latin American economies has stagnated. Consumer price
inflation throughout the region rose from 85 percent in 1981 to
316 percent in 1985. Living standards have slipped and per
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capita income is still below the levels recorded in the late
1970s for nearly all countries in the region. Moreover,
spending on education, healthcare, and new infrastructure has
been cut back throughout the region which will impede efforts
to expand productivity and support economic diversification and
export promotion.
Nor have world economic conditions been propitious for
Latin American recovery. Despite the salutory effects of
declining world interest rates and the steady growth posted by
the U.S. economy, slumping commodity prices -- notably oil --
the collapse of intraregional trade and the unwillingness of
Europe and Japan to stimulate vigorous growth have held back
the growth in Latin American exports. Debt servicing
requirements remain high -- interest payments alone claimed 35
percent of Latin export earnings in 1985 -- causing a heavy
outflow of capital to meet their foreign obligations. On top
of this, billions in private Latin capital left the region last
year to end up in U.S. and Western banks and real estate -- the
so-called capital flight problem.
But now I want to get on with the good news. I hope, in
fact, that my listing of some of the region's problems will
impress you, as it has me, with the positive factors that have
emerged.
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I would begin the good news by asserting that the
psychology of the region is changing and that the change shows
signs of being dramatic. The old feelings of dependence and
inferiority are receding, being overtaken by a can-do, must-do
spirit.
Among the more visible indicators of a new mindset is the
turn to democracy. Cycles of military repression and open
politics have occurred before in the region, but the current
move into competitive electoral systems has many distinctive
features. The scope is unprecedented. Latin America is more
democratic today than at any point in history. Only five
authoritarian regimes remain -- Cuba, Nicaragua, Suriname,
Chile, and Paraguay -- representing a minuscule portion of the
region's population. Long-lived regimes have given way to this
democratic wave -- a generation of military rule in Brazil has
ended and after two generations of Duvaliers in Haiti, that
impoverished nation may begin a new era. For the first time,
normal, elected presidential successions have occurred in such
countries as: Honduras, Ecuador, Peru, and Bolivia. Democracy
may be "taking" this time.
Also notable are the quality and seriousness of the new
leadership. One can hardly fail to be impressed by the
boldness of President Sarney, thrust into office unexpectedly
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when the President-elect died before assuming it. We see
growth and flexibility in Bolivia's Paz, who espoused statist
policies during the Revolution but who now, in a new era, is
moving toward free-market prescriptions. We can only admire
the leadership of President Alfonsin, who remains highly
popular despite Argentina's hard times. The region boasts
leaders who retained their optimism in the worst of times, such
as Guatemala's President Cerezo, who survived numerous
assassination attempts when he opposed military rule, or
President Duarte of El Salvador, who bears the scars of
torture. These are men of courage and vision, a truly new
political generation. Most are centrists, interested in and
receptive to better relations with the United States.
Their views of the United States are sophisticated; many of
these leaders have spent enough time living in our country or
studying it to know us well. They are not viewing us through
throwback stereoscopes that show a colossus of the north. They
are men of vision who want to advance their nations and are
willing to do business to achieve their goals.
The citizenries of these countries have shown courage and
resiliency as well. The route to democracy was hard; in many
places, it was brutal. I think we have reason to hope that
once won, freedom will not be given up by these populations,
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who are also increasingly sophisticated and willing to work for
their goals. We can see this in the relative discipline that
labor has shown. Despite hard economic times, labor has been
more willing than in the past to give scope to national
leaders. And in many places, austerity plans governments have
been forced to adopt have meant real tough times for the
people. On other domestic fronts, we see creative new ideas
arising to deal with national problems -- many new twists on
economic policy, ways civilians are handling sensitive issues
such as retribution for past military crimes, Alfonsin's plan
to break Argentine fixation on Buenos Aires by moving the
capital south. We see high energy being channeled in positive
directions.
The energy of democratization is also producing a new
cooperative urge among the countries. The new leaders have
much in common and because of the struggle each has been
through, they tend to respect each other. This provides a new
basis for bilateral and multilateral effort. It shows up in
various spheres: economic collaboration, including talk of a
common market among Brazil, Argentina and Uruguay; nuclear and
other scientific interchanges between Argentina and Brazil;
some movement toward unified anti-narcotics programs; and
increasing cultural exchange. The nations in the region are
more and more willing to learn from each other and to pool
resources against stubborn problems.
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