Regional Outlook : Latin Nations Cleared for Takeoff : * The region is ready to soar, but the clouds of First World recession may stall the economic flight.

SANTIAGO, Chile —  Latin America is ready for takeoff, but it’s worried about the weather.

Perhaps never in the 20th Century has this region been better prepared to soar into sustained economic development. From Mexico to Chile, national economies are being refitted with lighter public sectors, tighter fiscal policies and wider-open windows for trade and investment. These structural reforms paid off in 1991 with a moderate but encouraging surge of regional growth.

In the coming years, however, how high Latin America flies economically is likely to depend heavily on conditions in the United States and other industrialized countries. Right now, those conditions are cloudy with scattered recessions.

It has long been true that an economic boom in the First World can be a boon for Latin America, while recession there can hurt here. In recent years, this linkage has been reinforced by a trend in almost all Latin American countries toward open trade and investment policies.

By opening their economies, governments of the region are accepting the competition of imported products in their previously protected markets. At the same time, they are becoming more dependent on their own export sectors to spearhead expansion.

Chile and Mexico have led the way in demonstrating that open economies can be dynamos of trade, investment and development.

Mexico, which depends on the United States for more than two-thirds of its foreign trade, maintained a robust economy despite the U.S. recession in 1991.

“Growth in Mexico continues because of internal demand and investment, independent of what is taking place in the States,” said Mauro Leos, vice president of CIEMEX, a Philadelphia econometric team that specializes in Mexico.

But if massive American investment in Mexico slows down because of the U.S. recession, Mexico’s economic boom could eventually fade. And if recession takes hold in many other industrialized countries, analysts agree, the market for Latin American exports will be limited--and so will the region’s potential for growth.

“The interests of Latin America are now vitally linked to the world growth rate, and I emphasize the word vital ,” said Carlos Massad, deputy executive secretary of the U.N. Economic Commission for Latin America and the Caribbean. “For us, it is extremely important that the developed world have economic success.”

Massad observed that an open economy like Chile’s, in which exports account for 30% of national production, obviously is more vulnerable to recession in its export markets than are closed economies that export only 5% or 10% of their gross national product.

But that vulnerability can be balanced by diversifying both export products and markets. Again, Chile is an example.

This country, once mainly dependent on copper for export revenues, now is a major exporter of wood and cellulose, fruit, fish meal and fish and a growing line of manufactured goods. The United States accounts for about one-fifth of Chile’s foreign sales.

Chile’s economy--one of the most open in Latin America--grew by about 5% last year.

“It is recognized in Latin America now, as it wasn’t a generation ago, that the opening up of the economy is healthy and everybody gains,” said a foreign economist in Santiago. “The opening up of trade does not necessarily heighten their vulnerability to U.S. economic cycles.”

The Economic Commission for Latin America and the Caribbean, known as ECLAC, issued a report in December estimating Latin American economic growth at 3% for 1991--10 times the 1990 rate. The report noted that Latin American economies were able to expand despite the lowest rate of growth in industrialized countries since 1982 but added:

“This sluggishness in the industrial economies, and particularly the U.S. recession, tended to hurt Latin American and Caribbean exports to a greater extent than the year before,” ECLAC said.

The region’s exports increased in volume by 6%, but prices dropped by an average of 5%, so that total export revenues remained stagnant at about $122 billion.

Prices fell in 1991 for such raw materials as sugar, cacao, coffee, soybeans, wheat, wool, copper, tin, lead, zinc and petroleum. The greatest decreases were in metal prices, which are extremely sensitive to First World recessions, ECLAC said.

Nevertheless, the First World slump has not been all negative for Latin America.

Oil-importing countries, such as Brazil and Chile, have benefited from lower petroleum prices, and most of the region has profited from depressed international interest rates.

The World Bank recently calculated that when the economic growth rate of developed countries goes down by one percentage point, Latin America loses half a percentage point in its own growth. But by the same calculations, if the London inter-bank interest rate drops by one percentage point, Latin America gains .4% in economic growth.

For one thing, with a decrease of one percentage point in bank rates, Latin America saves about $4 billion on servicing its combined foreign debt of $426 billion. And foreign capital, seeking better yields, has poured into Latin American money markets and stock exchanges.

That money, much of it returning Latin American “flight capital,” contributes to development.

Latin American governments, of course, would like to see international interest rates remain low while the United States, Britain and other northern countries recover from their slumps.

In one example of Latin America’s interest in that recovery, President Alberto Fujimori of Peru warned recently that Peruvian farmers will continue to produce coca, the raw material of cocaine, if the U.S. recession hampers the marketing of substitute export crops.

“The current recession in the United States will obviously affect the placement of our products, particularly those which could be produced in the coca-growing zones,” Fujimori told a press conference.

Elected leaders in most of the region’s countries seem determined to press on with efforts to control inflation, streamline government operations and remove barriers to business and trade expansion. Enrique Iglesias, president of the Inter-American Development Bank, calls the Latin American economic reforms a “silent revolution.”

“The pragmatic new governments of Latin America have created an irrepressible reformist dynamic,” Iglesias wrote in an article published recently in Chile.

If Latin America’s new open trade policies help it take off economically, the United States may stand to gain. In the case of Mexico, the opening of that country’s economy has increased its imports from the United States to $28.4 billion from $14.6 billion in 1987.

While Mexico is a special case, because it borders on the United States, Latin America’s potential as a trade market is enormous with its growing population of 450 million. The Bush Administration has recognized that potential with its Enterprise for the Americas Initiative, a proposal for a free trade zone that would stretch from Alaska to Tierra del Fuego.

If that dream ever materializes, however, it won’t be soon, according to Mark B. Rosenberg, director of the Latin American and Caribbean Center at Florida International University.

“The EAI is going to be a 10 to 12 to 15-year negotiating process,” Rosenberg said by telephone from Miami. He predicted that getting the project through the U.S. Congress will be laborious, especially when recession looms.

“In moments of recession, protectionist interests can make very compelling arguments,” he said. “No one in Congress wants to hear about constituents losing jobs because of products coming in from overseas.”

The Administration now faces labor opposition to its negotiations for a free-trade agreement with Mexico.

A successful Mexican agreement could pave the way for free-trade pacts with other Latin American countries in the long run, Rosenberg said. But currently, he observed, the fact that Mexico is capturing a lion’s share of new U.S. investment and trade in Latin America makes it more difficult for other countries in the region to attract scarce investment capital and export to the American market.

The United States has encouraged Latin American countries to open their markets but has offered little reciprocal opening of the U.S. market, Rosenberg said. Meanwhile, increasingly open Latin American economies are exposing their industries to competition from U.S. products.

To compete with imports, Latin American industries need costly new production equipment and technology. Whether they can attract foreign investment capital to upgrade their industries is a major question at the moment, Rosenberg said.

The answer depends to a great extent on recovery by the United States and other industrialized countries from recessionary conditions. Rosenberg said he can be optimistic about Latin American economic development only if the United States and other industrialized economies resume healthy growth.

“The major issue is recovery for the world economy,” he said.

Where U.S. Investment Dollars Are Spent By the end of the 1990s, about 40% of U.S. investment abroad was in the Caribbean, almost 25% in South America, and 25% in Mexico and Central America. Here is a comparative look at U.S. investments abroad: In millions of U.S. dollars

All Countries: $421,494 Developed Countries: $312,186 Developing Countries: $105,721 International: $3,587 South America: $24,920 Caribbean: $28,636 Mexico, Central America: $18,911 Source: Economic Commission for Latin America and the Caribbean

Times staff writer Juanita Darling in Mexico City contributed to this report.