The impact on Latin American economies stemming from recent developments of the primary product markets is analyzed in this article. Brief comments are also offered on the political stands these countries have adopted or are considering adopting as a result of the ongoing dialogue taking place at both the academic and political levels on the new international economic order.

Rather than pursue the traditional route of first reviewing major problems that primary product trade has imposed on economic development efforts and then recounting alternative control schemes adopted in primary trade, this article focuses primarily on the degree to which Latin America is dependent on primary products as a source of foreign exchange earnings, and second on the influence, relative to other developing countries (LDCs), that primary products have had on foreign earnings, export instability, and terms of trade.

Since 1973 most of the Latin American countries have experienced deterioration in their balance of payments due to the economic recession in the industrial countries and the oil price increases. The consequent adjustment process has called for stricter regulation of domestic demand and new advances in import substitution. Adjustment was less painful due to access to private financing in the international capital markets which, however, produced a sharp increase in the external debt.

This article does not propose to review the recent patterns of external payments, already extensively analyzed in the periodic reports of the UN Economic Commission for Latin America, the International Monetary Fund, and in other studies. Rather, it will attempt to emphasize some long-term changes in the world economy and in Latin America that influence the international participation of the region. It is in this context that the adjustment process of the balance of payments and the external debt should be evaluated.

In recent years the problem of the external indebtedness of non-oil-exporting countries has gained significant weight in public discussion. With the quadrupling of oil prices since the end of 1973, a rapid increase in the borrowing of LDCs has occurred. The standard of living in these countries is extremely low to begin with; any further room for downward adjustment to offset higher cost of oil imports through a slowing down of economy is simply an unacceptable possibility. Moreover, any further economic restraint on the already slower pace of development would be politically unpopular for the leaders in developing countries. Consequently, many LDCs have resorted to increasing external borrowings to pay for the oil bill, as well as to maintain a minimum rate of economic growth. The total external public debt of these countries is now estimated at around $200 billion (U.S. Senate, 1977: 51). This paper examines the debt servicing experience of Brazil. Lately, Brazil has been the center of attention because it owes some $25-$30 billion to foreign creditors. Its debt servicing burden for 1977 would be approximately $5.3 billion, or 40% of an estimated $12 billion in export earnings.