before this, the default of Mexico had a great impact on the world economy not comparable to that of Poland. Brazil and Argentina had the same trouble, and the problem of accumulated debts shook the world economy for a few years.

However, there has recently been a boom in interest in Latin America. The Economist carried an article called “Singing Latin America” (April 18) and Newsweek put out a special issue under the title “A Giant Step toward Free Market” (June 15). This is attributable to the resolution for the time being of the problem of accumulated debts thanks to international cooperation. The capital flight had been a major problem, but recently this capital flow has been reversed.

The more important factor is the adoption of privatisation policy. Mexico decided to privatize its telephone public corporation, the Mexican Airlines, etc., while Brazil decided to privatize Usiminas Steel Mill and a manufacturer of military aircraft. Argentina and Venezuela followed suit. Going to public of stocks associated with privatisation boosted demand for funds, and European and American financial institutions seized these business opportunities. It is estimated that in 1991 private capital worth more than 40 billion dollars flowed into Latin America, far exceeding the 13.4 billion dollars posted in 1990. This brisk inflow is attributable to favorable Western reaction to the future of trade policies, the liberalization of capital and a reduction in the budget deficits. In fact, these liberalization policies have boosted economic development. However, there is a view that the reverse capital flight is nothing but a short-term phenomenon resulting from the facts that capital liberalization has made it possible to shift funds to the advanced industrialized countries whenever wanted and that at present interest rates are much higher in Latin America than in advanced industrialized countries.

Privatisation creates the basis for successful industrialization. North American Free Trade Agreement (NAFTA) will enhance this possibility. This Agreement, which includes the United States and Canada, will have an impact which cannot be compared with that of Latin America Free Trade Alliance created in 1961. Moreover, President Bush of the United States emphasized the importance of entrepreneurship and proposed the creation of American Enterprises Initiative (AEI). He is trying to remove the word North from NAFTA and make it into an American free trade agreement.

Whatever the impact of these moves on other regions, they are welcome to Latin America. They mean access to markets in the United States and Canada, two advanced industrialized countries, and facilitate the introduction of foreign capital. Combined with the policy of giving priority to the market economy, including privatisation, these moves may lead to a new path to dramatic progress in industrialization.

It is expected that not only the United States but Japan and other countries will again increase investment in Mexico to produce goods to be shipped to the giant markets in the United States and Canada. This is the possibility which is most worrying the proponents of EAEC, such as Malaysia. They fear that not only the source of exports but also investment may shift to Mexico. They question, what will happen to ADEs then. Regional integration stimulates trade and changes the flow of trade. The view that development resulting from integration will stimulate imports and increase imports from other regions is based on the stimulative effects of integration on trade. However, the integration could also replace