A declining trend has hit major stock exchanges in Latin America beginning Monday, when bourses across the world felt the effect of the WorldCom bankruptcy, the largest of its kind in the United States.

On Monday, the stock exchanges in Sao Paulo, Buenos Aires and Mexico City dropped 6.53 percent, 3.96 percent and 3.52 percent respectively.

The financial uncertainties are posing a threat to the weak economies in the region, which has already been in trouble becauseof the recent financial crisis in Argentina.

Brazil, the region's largest economy, which has suffered a 30-percent currency devaluation so far this year, saw a record drop on Monday in its exchange rate against the US dollar since September when it adopted a currency-based economic overhaul program.

However, thanks to its debt structure, the country is not expected to see, for the time being, sharp fluctuations in foreignexchanges or a default on public debts. But for Argentina, the outlook is quite bleak.

The decline in stock markets dealt another blow to the country,which has just suffered a financial crisis of its own. Argentina'seconomic situation has continued to worsen this year after four years of recession. With gross national product down 9 percent, inflation up to 40 percent and a jobless rate up to 25 percent, more than half of its 36 million people are now living below the poverty line.

Due to internal armed conflicts or political turmoil, Colombia and Venezuela have achieved no economic progress so far this year,but have seen double-digit currency devaluation and inflation rates. Uruguay, a small but stable economy, is also unable to wardoff the effect of a negative environment and has seen its state risk index, the gap between the interest rates of public bonds andthose of the US Treasury bonds, soaring to 1,000 points from 216 in January.

Alarmed by the possibility of another financial crisis that would deteriorate the region's economic recession, government leaders, who are scheduled to meet at a regional summit on July 26and 27 in Ecuador, are expected to discuss ways to stave off a repeat of the financial nightmare in the 1980s.

The financial crisis two decades ago, with huge debt defaults that were worsened by falls in the price of raw materials, plungedregional economies deep into a mire and forced on them painful reforms. It was at the beginning of the 1990s that these had managed to struggle out of the economic bottom and caught their breath.

However, the fundamental elements that caused the financial turmoil years ago still remain. Despite the fact that the governments have taken measures to restructure the economy, lack of competitiveness and a huge debt burden continue to hinder the region's economic growth.

Latin American economies, mainly agriculture-based, have depended largely on the export of raw materials. In order to reduce economic vulnerability, the countries have attempted to promote industrialization by importing materials, equipment and technology. However, such a move has only led to more foreign debts and larger fiscal deficits, instead of increased export and income.

In the 1990s, the governments had managed to ease the debt burden by a massive privatization of state-owned enterprises. However, this measure can hardly work as a long-term cure as privatization is reaching its full scale. Debt crisis and severe inflation will loom ahead as long as the government spending remains high.

The free-trade policies the countries have adopted to boost regional economic integration have so far failed to much improve the region's competitiveness. It is still difficult to say whetherand how much the region can benefit from a free trade agreement itis negotiating with the European Union.

What can the countries do now to prevent possible financial turmoil and a further economic recession? From the outside, they have found little help.

The International Monetary Fund (IMF) and other international financial institutions, for reasons ranging from the yet sluggish US economy to their own interests, have been slow, if not reluctant, in responding to the region's troubles.

After the recent financial turmoil in Argentina, the US-sponsored IMF and other Western financial organizations have set many conditions on loans to the country. Moreover, their funds have been often delayed even after Argentina accepts their harsh terms.

Under such circumstances, hopes are now pinned on the upcoming Latin American summit, although it is still doubtful that effective measures will emerge from the meeting to avert any possible financial crisis.

(Xinhua News Agency July 27, 2002)