Experimenting Under the Sun

By John Greenwald

Reagan's Caribbean initiative is off to a bad start

Poverty and lagging economic development have long plagued the nations of the Caribbean basin, which stretches from the Bahamas off Florida to Surinam in South America, 2,000 miles away. The region's islands and Central American countries sorely lack the skilled manpower and other key ingredients of modern industry. The hot, tropical area simply remains the developed world's supplier of raw materials like sugar, coffee, cotton and bauxite, the ore from which aluminum is made.

Last February the Reagan Administration proposed a three-pronged effort to bolster the Caribbean economies and prevent them from being drawn into the Communist orbit. The plan would allow most exports from the region to enter the U.S. duty-free, give a tax credit to encourage American companies to invest in the Caribbean, and grant an additional $350 million in direct economic assistance this year.

The Reagan program, however, is off to a bad start in Congress. The House Ways and Means Trade Subcommittee voted to deny duty-free status to Caribbean goods like shoes, handbags, luggage and leather clothing and to limit the amount of rum that could be imported without the imposition of a tariff. Last week two other House subcommittees barred any Caribbean nation from receiving more than $75 million of the $350 million extra-aid package. The Administration had earmarked $128 million for strife-torn El Salvador, nearly twice as much as for any other country. One of the panels also insisted that one-quarter of the $350 million be used for health, education and other economic development projects. The Reagan Administration had wanted all the money to go to the private sector.

Washington officials are now increasingly doubtful about how much of the Reagan plan will be left when Congress gets finished. Says one well-placed congressional observer: "The trade portion is controversial. The tax portion is controversial. There is no significant constituent interest. Unless the President himself puts an awful lot of pressure and political muscle on the line, this bill is likely to have a hard time."

While it is promising aid to the Caribbean economies, the Reagan Administration has dealt a blow to one of the region's key exports: sugar. Two weeks ago, the White House announced that it was imposing quotas on sugar imports. The countries of the Caribbean last year shipped 1.25 million metric tons of sugar to the U.S.

Reagan has personally lobbied leading American businessmen to support his program and increase their investments in the area. Last month he told a group of top executives, "The Caribbean region is a vital strategic and commercial artery for the United States. It's literally our third border."

Instead of stepping up investments, though, many U.S. corporations, out of fear of terrorism and revolution, are actually scaling back their activities in the area. Said Richard Feinberg, a visiting fellow at the Overseas Development Council: "Businessmen looking at the turmoil there are certainly more inclined to withdraw funds than to invest more money, regardless of the apparent incentives." Added Joseph Grunwald, a senior fellow at the Brookings Institution: "I don't see U.S. business rushing down there. The profit prospects are simply not very encouraging."

Meanwhile, economic conditions in the area are going from bad to worse. Business in El Salvador is in catastrophic shape. The nation's gross domestic product has plunged about 20% since 1978, and analysts expect a further slide this year. The unemployment rate is approximately 30%. Two years of guerrilla warfare have nearly bankrupted the country and have destroyed tens of millions of dollars' worth of crops, roads, bridges and power stations. Says Georgetown University's Georges Fauriol: "The Administration will have a very hard time convincing any businessman who has to respond to his shareholders that investing in El Salvador is a good thing."

Many of the island nations in the region also have deep financial woes. Jamaica's G.D.P. fell every year from 1973 to 1980. The country had a trade gap of $237 million in 1980, even though major U.S. companies like Alcoa, Exxon,

Pillsbury and Colgate-Palmolive operate there. Jamaica stands to receive some $50 million from the Reagan program, but that would fall far short of the $687 million that Jamaican planners want to pour into 424 development projects they are now studying.

Even Costa Rica, whose stability has given it the nickname "the Switzerland of Central America," is having troubles. It currently owes nearly $4 billion in public and private debt and is in a deep recession.

American companies with a stake in the region still have enthusiastic hopes for the Reagan plan. Says Thomas Johnson of the American Chamber of Commerce of Guatemala: "It's marvelous. It's perfect. It's just what we needed." U.S. firms in the country include Texaco, General Telephone & Electronics, Rayovac and Du Pont.

The tiny island nation of Dominica (pop. 80,000) also has great expectations. Last November investors from the U.S. and Dominica opened a $400,000 sports-clothing plant in a new industrial complex. Says Prime Minister Eugenia Charles: "The Reagan initiative might just turn the tide as to whether people invest here or not." But so far it looks as if those and other high hopes about Reagan's Caribbean proposals are unlikely to be fulfilled. --By John Greenwald. Reported by Gisela Bolte/Washington and Bruce van Voorst/New York

With reporting by Gisela Bolte, BRUCE VAN VOORST

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