By Steven Pearlstein
                  Washington Post Foreign Service 

                  TORONTO, Sept. 2—It's getting closer.

                  What started out a year ago as a financial market crisis in far-off Asia has
                  turned into a full-blown economic downturn in the economies of Canada and
                  Latin America, raising the risk that the global contagion could eventually
                  spread to the United States through its closest neighbors and most important
                  trading partners.

                  Over the last month, currencies and stock prices have fallen sharply while
                  rising interest rates have slammed the brakes on economic growth. And with
                  consumer and investor confidence evaporating by the day and
                  unemployment rates beginning to rise, voters are beginning to balk at pushing
                  ahead with market-oriented economic reforms.

                  "I don't think the U.S. economy can go unscathed if its major trading
                  partners in the region are falling apart," said Carlos Samur, the Chilean-born
                  chief economist at Petro-Canada, a large oil and gas producer. "Within the
                  framework of NAFTA, we are becoming such an integrated economic
                  system that places like Mexico and Canada are as important to the U.S.
                  economy as California and Texas. I'm not sure Americans are generally
                  aware of this."

                  Some Americans may be unaware, but people can't help but get the
                  message these days in the hemisphere's other countries, which together buy
                  40 percent of U.S. exports.

                  In Mexico, stock prices are down 40 percent since mid-July, and the peso is
                  down 13 percent against the dollar. So unsettled is the financial situation that
                  Mexico City auto dealerships this week stopped making car loans -- in a
                  country that had been the fastest-growing market for the American Big
                  Three automakers.

                  In Venezuela, meanwhile, the fallout from the decline in the price of crude
                  oil, the country's key export, has suddenly emptied government coffers and
                  brought the economy to a standstill. The crisis has already driven bank
                  lending rates above 70 percent, cost 12,000 auto workers their jobs and just
                  this week triggered a strike by many of the country's physicians. Fearing
                  economic slowdown and an eventual devaluation of the Venezuelan bolivar,
                  now pegged uncomfortably to the dollar, General Motors recently delayed
                  plans to build a new $100 million painting plant.

                  Remarkably, it was only eight months ago that the Venezuelan economy was
                  growing at an annual rate of more than 6 percent. Analysts now say they
                  believe it is shrinking at the annual rate of 1 to 2 percent.

                  "In my 30 years in Latin America, this is the first time I've seen a country go
                  from boom to bust without some warning in between," said Donald McBride,
                  president of Madosa, a Venezuelan appliance manufacturing company. In
                  Madosa's case, the path from boom to bust has meant that sales have fallen
                  by half and nearly a third of 2,100 employees have had to be laid off.

                  Things are better -- but not much better -- in Brazil, Latin America's largest
                  economy. In just the last month, Brazil's stock market lost all the gains it
                  made in the previous two years, when it had outperformed every exchange
                  except the one in Moscow. More than $10 billion flowed out of the country
                  during the month, as investors -- some foreigners but Brazilians as well --
                  sought the safety of other markets and currencies.

                  At his office in Sao Paolo this week, Segio Haberfeld, chairman of Dixie
                  Toga S.A., a large packaging concern, said he had decided to put much of
                  his company's free cash into dollars. Although the Brazilian government was
                  able to tame the country's infamous hyperinflation by roughly pegging the
                  value of its currency, the real, to that of the dollar, the price of that peg has
                  been to drive interest rates so high that it threatens to throw Brazil into a
                  deep recession. That's why Haberfeld, like many in Brazil, fears the
                  government eventually will have no choice but to bow to market pressures
                  and allow a devaluation.

                  "We don't necessarily predict a devaluation, but, as a company, we have got
                  to protect against it," Haberfeld said. "You've got to spot a crisis before it
                  drains your company -- and Brazilian companies have learned this the hard
                  way through the years."

                  It is that kind of defensive withdrawal by businesses and investors that now
                  threatens to become a self-fulfilling prophecy in Brazil and turn Latin
                  American into the next trouble spot on the world economy.

                  "As we see it, there is no way that Brazil, Mexico and Venezuela can now
                  avoid facing a substantial and painful slowdown," said John Lipsky, chief
                  global economist at Chase Manhattan Bank. "And that can't but help to have
                  an impact on the United States."

                  It is because of secondary impacts from the Asian crisis that Lipsky and his
                  Chase colleagues now predict that the U.S. economy will not grow in the
                  second half of 1998.

                  Lipsky and other economists say that the primary channel by which the
                  Asian crisis has crossed the Pacific has been commodity prices. With Asian
                  economies contracting, world demand for basic raw materials plummeted
                  even as supplies were still on an upward growth curve. The result has been
                  a steep drop in world prices: 14 percent for gold, 26 percent for copper, 33
                  percent for oil, 41 percent for top-grade construction timber, 56 percent for
                  wheat.

                  To varying degrees, all the major countries of Latin America rely on
                  commodity exports: Venezuela and Mexico on oil, Chile on minerals,
                  Argentina on wheat. But the fall in commodity prices has also delivered a
                  triple-whammy to Canada, whose commodities account for 40 percent of all
                  its exports.

                  The most direct impact of the commodity price decline has been a quick 10
                  percent drop over the summer in the value of the Canadian dollar, known
                  affectionately as "the loonie," after the bird that graces one side of the
                  copper coin.

                  Meanwhile, prices have fallen 30 percent on the Toronto stock exchange,
                  where the major stock indexes are dominated by large oil, timber and mining
                  companies whose profits were squeezed by falling commodity prices. As in
                  other countries, the stock slide was accelerated by the fall in the loonie as
                  some investors, Canadian and foreign, moved their money out of Canadian
                  stocks and into American stocks and bonds.

                  The third blow came just last week when, in an effort to bolster the loonie
                  and restore the confidence of international investors, the Bank of Canada
                  raised interest rates a full percentage point. Within days, most forecasters
                  had lowered their estimates of economic growth for the United States'
                  largest trading partner from 3 percent to 2 percent.

                  Even before the rate hike, much of resource-rich western Canada was
                  already taking it on the chin. Brian White, the top market analyst for the
                  Canadian Wheat Board -- the exclusive marketer for all western Canadian
                  wheat -- said most farmers will turn in a money-losing year in 1998 despite
                  the second-best crop in history. A typical Manitoba wheat farmer, White
                  calculates, will receive only $55 per ton of wheat after paying shipping costs,
                  while spending $120 to produce it.

                  "To tell you the truth, things are looking pretty dismal out here," he said,
                  noting that thousands of farms are closing down, farmland is selling at deep
                  discounts and the sale of farm equipment -- much of it made in the United
                  States -- is off by 30 percent.

                  Farther west, in Vancouver, MacMillan Bloedel Ltd., a major timber and
                  forest products producer, says the falloff in its exports to Japan has
                  prompted it to reduce capital spending for the second time this year while
                  laying off 2,600 workers and spinning off subsidiaries employing 2,400
                  others.

                  While all this doesn't approach the near crisis conditions now facing
                  countries in Latin America, it has had a noticeable impact on the attitudes in
                  the more densely populated eastern provinces, where consumer confidence
                  -- a leading indicator of future spending -- fell 17 percent over the summer,
                  according to a poll released last week by the Toronto Globe and Mail. The
                  Globe and other newspapers are full of stories about what Canadians will do
                  about their cherished Florida vacation this winter if the loonie and the stock
                  market don't rebound.

                  In Latin America, the stakes are much higher, particularly for political
                  leaders caught in midstream as they try to wean their countries from state
                  ownership and control of the economy and secure the support of
                  international investors.

                  An unscientific survey in Mexico City this week finds that voters tend to
                  blame government corruption -- not economic woes in Asia or Russia or
                  falling commodity prices -- for that country's economic predicament. "Our
                  only hope is a change in the political system," said Rogelio Garcia, who
                  shines shoes outside Mexico's stock market, the Bolsa.

                  In Venezuela, meanwhile, recent polls show that radical populist candidate
                  Hugo Chavez holds a commanding lead in the campaign for president in
                  December's election. Chavez has already raised the possibility of suspending
                  some of the country's debt payments and dismantling many of the country's
                  recent economic reforms.

                  Correspondents John Ward Anderson in Mexico City, Serge F. Kovaleski in
                  Miami and Anthony Faiola in Sao Paolo contributed to this report.