For Progress after the Alliance
GAINES, THOMAS A.
THINKING ALOUD For Progress after the Alliance By Thomas A. Gaines The debate over the usefulness or futility of the Alliance for Progress can perhaps be resolved by repeating the adage that the...
...It would then avoid the danger of single crop economy where each penny drop in the green coffee price costs Latin America $40 million...
...when they can make all they want at 12 per cent in Latin America, where defaults are lower...
...This could be accomplished through an agreement by the Export-Import Bank or, better still, the International Monetary Fund to maintain the Latin currencies at their present rate of exchange...
...Innovation for its own sake is indeed dangerous business, but in the wake of the Alliance for Progress' meager results, the need is clear and present...
...This has been, in part, required by law...
...did in the middle 1930s...
...The Alliance is educating children, but more are born each year than can be taught...
...money problems inhibit their expansion...
...The same applies in the agricultural sector...
...If 25-year mortgages were available, 10 million homes could be sold...
...institutions, savings banks, savings and loan associations, pension funds, insurance companies, consumer credit houses, and in the estimated $10 billion Latin America has stashed away for a rainy day in U.S., London and Swiss banks...
...A third would be the abandonment of many Latin governments' vain shortcuts to prosperity through overcentralization...
...Would our legislative bodies enact the necessary laws, such as to change AID, and, to allow savings and loan companies to invest their funds abroad...
...Latin Americans cannot...
...government is just not rich enough...
...This means that a 10-year loan of $100,000 made to a Chilean manufacturer would return only $50,000 if the escudo is devalued by 50 per cent...
...Later on, when Latins started making these products in volume, U.S...
...The U.S...
...While not a final solution, it shows that Congress is willing to move when the way is shown...
...The answer lies in the surplus of credit funds in U.S...
...Because of capital starvation, there is hardly a company, large or small, industrial or commercial, manufacturing or farming which has sufficient working capital or adequate plant...
...Will the cure be more damaging to the U.S...
...Like any merchant with a wealthy customer, it would sell much more...
...Used only rarely, it is one of those red-taped programs which takes months to negotiate, and places a modest limit on earnings...
...Why do savings and loan companies compete with each other to make mortgage loans at five-and-a-half per cent in the US...
...Lack of credit of all kinds, for industry, for housing, for the consumer, is the original source of all their difficulties There are virtually no retailers in La tin America who could not increase their sales many times if they could give the kind of credit U.S...
...These agencies make some money available for dwellings, but cannot begin to keep up with the need...
...A second gain would be psychological: the Latin nations would be equals instead of dependents...
...building and loan funds, mass purchases of copper pipe, structural steel, galvanized roofing and sanitary equipment would benefit American manufacturers and exporters...
...The result would be a long-term improvement in America's gold situation To avoid the early possibility of too large a dollar outflow, legislation could restrict banking institutions, limiting loans to a fixed percentage of their funds abroad...
...would reel the effects of Latin America's newly acquired prosperity mostly in its pocketbook...
...It is not true, as is generally alleged, that Latin America needs new industry now...
...Sections 221 and 224 permit extended risk guarantees...
...Thus every republic in Central and South America manufactures paint, textiles, clothing, tanned goods, furniture, soap, etc...
...Since an important benefit will be an increase in educational standards, this would work against the kind of demagoguery which thrives on ignorance...
...This would prevent the kind of blowup experienced periodically in Panama...
...The simple device of government-guaranteed home mortgages made America a land of homeowners in 15 years...
...But these factories do not manufacture enough...
...While there are ample farms, credit stringencies keep most of them lying fallow, or underemployed...
...loan funds are that Latin money-pesos, colones, bolivares, cruzeiros, lempiras, sucres, soleswill be worth less in relation to the dollar over the years...
...Finally, credit and currency support programs will engender the fear that economic experiments can have unforeseen consequences...
...than the disease was to Latin America...
...If it practices what it preaches and lets the winds of supply and demand blow more freely, it can bring about a transformation south of the border without cost...
...Most of the immediate aims set for the program have been achieved, and Latin America should be leapfrogging into the realm of literacy, health and prosperity...
...Although there are many gaps, most countries have companies and knowhow to meet the demand for light industry products...
...The accepted reason is that American investors fear the Latin propensity for expropriation and revolution, and feel that money shonld be kept at home where it is safe...
...And even if sustained for the next 10 years, a five per cent growth rate will not scratch the hard Andean surface...
...But what of the drawbacks to such a plan...
...The plan, nevertheless, raises some questions, The most important is that of the deleterious effect upon U.S...
...But the exTHOMAS A. GAINES is president of Proyecto SA., a Panamanian investment company...
...The enthusiastic response to Sears Roebuck's consumer credit program attests to this...
...If sufficient bank credit were available for an adequate length of time, say seven years, at a reasonable rate, say eight per cent, existing factories could reach a satisfactory rate of production...
...The real and justified grounds for the inaccessibility of U.S...
...car or washing machine dealers offer their customers...
...Latin America's industry would be augmented to a level that would employ its approximately 15 million idle workers...
...The economic chain reaction which America has achieved would be triggered in Latin America...
...Further, it has been demonstrated that 86 per cent of all dollars poured into Latin America under the Alliance program are returned to the U.S...
...Quite simply, America would be bankrupt if one could not, at will, go to the corner bank for an inexpensive loan...
...This allows the AID to guarantee private companies against a large portion of all eventualities, including currency devaluation and the everyday hazards of doing business...
...has the wherewithal, however, to solve these problems in another way...
...High interest rates will not, as a rule, compensate for this historic inflationary trend...
...in the form of orders...
...For the U.S...
...The program is helping to cultivate more land, but each acre yields less due to soil depletion...
...If, for example, five per cent of the loanable funds of all our private home-lending agencies were permitted to divert to Latin America, three million three-bedroom homes costing $3,000 each could be built this year A second question is whether the support of Latin currencies will aid and abet unfriendly governments, such as those in Nicaragua, Paraguay and Haiti...
...The U.S...
...has helped build 140,000 Latin houses this past year, but home supply is falling further and further behind demand...
...Waiting lines at the various social security institutes all over Latin America evidence the mass desire for housing...
...Their entrance into the consumer market would create both a demand for more goods and the desire to save which, in turn, would increase credit facilities...
...The benefits of this policy would be extraordinary...
...In addition, most of the $8 billion which was sought and raised from local sources has unfortunately come from Latin governments...
...This would increase the U.S...
...would receive seven times the $3 billion in orders it gets from Latin America today, once that area attains an equivalent state of development...
...Agency for International Development (AlD) will guarantee investment in many countries against loss through revolution and confiscation...
...In short, the southern continent does not need more industry, more farmland, more technical aid, half so much as it needs the money to develop existing assets...
...History shows that when an idea is ready to happen, a small nudge can set free beneficial forces without equal and opposite reactions...
...The question is how to make interest-seeking dollars available to loan seeking Latin economies...
...Those countries with the highest literacy rate and the most equitable wealth distribution support the cause of representative government-for example, Mexico, Chile, Uruguay and Costa Rica...
...Thus in the initial stages of a Latin building boom nourished by the influx of U.S...
...Such a guarantee, like a self-fulfilling prophecy, would be sufficient to achieve the aim and probably would cost our government nothing...
...Although a fund would have to be set aside to bolster any faltering currency, its mere presence would promote the kind of action necessary to make currencies stable (increased investment, production, diversification) and prevent that which tends to weaken them (flights of capital, dependence on one export product), It comes down to the simple concept of confidence...
...Latin America, in fact, produced as much in 1960 as the U.S...
...Its existence is enough to prevent panic...
...The rather informal credit system which prevails in Latin America is a treadmill of manufacturers being delinquent in their payments to material suppliers, distributors not getting around to paying manufacturers, and customers unable to settle their accounts at stores...
...THINKING ALOUD For Progress after the Alliance By Thomas A. Gaines The debate over the usefulness or futility of the Alliance for Progress can perhaps be resolved by repeating the adage that the operation is a success but the patient is dying...
...Free enterprise would again have its day...
...It cost the government nothing...
...Precedents for this type of law already exist...
...Congress and the state legislatures have a precedent in the Foreign Assistance Act of 1961...
...Their refrigerators, bought on easy terms, are often kept in Latin living rooms where they can be seen...
...The fact that it isn't raises doubts as to whether even a successful Alliance will have a substantial effect upon Latin America's economic and social environment...
...pensive effort to solve basic fiscal and developmental problems through government credits and long term, low-interest loans has not achieved its goal...
...The primary aim of this program is to help Latin people, not governments...
...What makes the distilling of Latin America's woes down to a single question so tantalizing is that a solution is there for the taking...
...Part of the new wealth would find its way through public agencies to schools, hospitals and low-cost housing, and the weighted burden of poverty would start to lift for 170 million Latins...
...Based on a comparison with per capita exports to a developed nation like Canada, the U.S...
...has an economic tool not yet available to Latin America, Without it American farmers would stop cultivating, builders would still their jackhammers, and the wheels of industry would come to a halt...
...However, the stabilization fund to cover this eventuality would use the money, about $750 million a year, now put aside for the Alliance for Progress, which would no longer be necessary...
...He is the author of Profits with Progress-Latin America's Bright Investment Future, and has written about Latin America for such publications as the New York Times and the Progressive...
...the U.S...
...Why do American banks beg us to come in for instant money at six per cent when there is an enormous Latin demand for such loans at 13 per cent...
...An international FHA to guarantee Latin mortgages could dovetail with a plan to maintain currencies at their present exchange rate...
...Department of Agriculture and the Export-Import Bank before World War II, and pursued by the Institute of Inter-American Affairs and under the Point IV Program in the '40s and '50s...
...But sophisticated businessmen know that the incidence of confiscation and property damage due to revolution is too small to constitute a business risk...
...The U.S...
...Thus a piece of legislation providing special tax ad- va ntages for Puerto Rico attracted so many mainland industries that the island was converted from the most poverty-stricken to Latin America's most prosperous in 20 years...
...Far from being a "monumental experiment," the Alliance is an extension of activities started by the U.S...
...These programs have been helpful to Latin America-particularly technical aid, which imposes little burden on the U.S...
...Yet the Alliance's initial goals of restoring a five per cent growth rate, encouraging progressive tax laws and raising local funds have been attained...
...The opposite point of view, however, proclaims that routine solutions yield unexceptional results...
...If sufficient loans were available to finance the purchase of machinery, fertilizer, seed and cattle, Latin agriculture would be able to produce more diversified cash crops and reduce food imports...
...The Federal Deposit Insurance Corporation, which guarantees against the loss of savings, has not experienced a bank run since its establishment...
...If free exchange rates south of the border were frozen at their present levels, if the world knew that money loaned in Latin America could be repatriated any time at the same number of pesos per dollar, then private funds would flow there...
...Although it may rock our comfortable boat a bit, our response to the age-old confrontation of the "haves" and "have nots" must be more daring than it has been in the past...
...companies would get orders for capital goods...
...balance of payments caused by the outflow of dollars to protect soft Latin currencies...
...Outside of Cuba, there are no known instances in the manufacturing industries and only a few in the emotionally charged areas of mineral extraction and public utilities, Today, the U.S...
...The 11 republics which have passed progressive tax legislation have left the larger problem of tax collection unsolved...
...The president of one of Colombia's largest industries, typically, spends half of his time at banks negotiating and renegotiating for funds which are too little, too high priced and too short term...
...Gross National Product enough to take up idle plant capacity and would help solve America's own unemployment problem...
Vol. 48 • September 1965 • No. 18
