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Jeffrey Davidow Assistant Secretary for Inter-American Affairs Remarks to the Miami Conference on the Caribbean and Latin America Miami, Florida, December 8, 1997

It is a pleasure for me to join you again at this conference. As my first point, I want to congratulate Caribbean/Latin American Action for its effective work over the past 20 years on behalf of strengthening relations between the United States and Latin America and the Caribbean. For all the challenges which this hemisphere faces today, we have seen extraordinary progress over the past two decades, and C/LAA has played a major role.

Of the benefits that this annual conference offers to its participants, certainly one of the most important is to provide an opportunity to reflect upon the state of the region, to draw some lessons from the past, and to clarify our goals and strategies for the future.

I would guess there are several concerns foremost in the minds of this audience: the failure of CBI trade enhancement legislation, the delay in passage of U.S. fast-track legislation, and the turbulence in the region's and the world's stock markets. I share those concerns, and I would like to use this opportunity to review how those events impact on our goals and our capacity to reach them.

Where are we going?

Since the Miami Summit three years ago, relationships within the hemisphere have been driven by the common goals of building strong democratic societies and prosperous market-oriented economies whose benefits would be shared by all classes of society.

These goals have not been changed by the events of the last two months. The fundamental hemispheric consensus in favor of democracy, market-based economies, and shared growth remains strong. Work on specific programs to achieve these grand goals is underway at both the national and international levels. We have under the Summit an ongoing process of regular reviews of the specific initiatives launched at Miami, which are moving forward at a substantial pace.

Of course, there have been disagreements and problems with regard to specific issues, but they have not shattered the consensus nor the spirit of cooperation. We will continue, from time to time, to disagree and encounter difficult problems. The turn of the millennium will not--unfortunately--bring on a golden age of perfect wisdom and perfect foresight by either nations or human beings. But the difficulties and setbacks that we encounter should not distract us from the remarkable degree of agreement that exists throughout the hemisphere on what we are working toward.

Where are we now?

I do not wish to minimize the problems. Clearly, we are not as far forward as we had wanted to be. But we have not changed course, nor are we stopped dead in our tracks.

The loss of CBI enhancement and the delay in fast-track are great disappointments to the Administration as a whole, and to me personally. I saw how hard this Administration, all the way to the President, worked on these issues. I know that many of you in this audience have also given generously of your time and energies.

But I want to emphasize that the United States remains committed to the economic development of the Caribbean Basin and to creating the Free Trade Area of the Americas by the year 2005, as was agreed in the Miami Summit. The Administration will continue its efforts on these issues. In the days and weeks ahead, we will be discussing within the Administration and consulting with Congress to determine the best way to proceed. It will not be easy. But I want to draw your attention to what the President said last month when he announced his decision to delay the fast-track vote: "This is not dead. I will be very surprised if we are not successful in developing a bipartisan, constructive, successful approach to fast-track before this Congress is over."

I am confident that the Santiago Summit will launch the FTAA negotiations, as was agreed by the hemisphere's Trade Ministers in Belo Horizonte in May. The United States will continue to be active in the FTAA process, as we have been to date. Let me emphasize that the United States needs the fast-track procedure in order to conclude and implement the FTAA and other major trade negotiations, but we can begin serious negotiations without fast-track in effect. Many of you will recall that in the Uruguay Round, the United States participated in multilateral trade negotiations for two years before Congress actually approved fast-track procedures.

I want to emphasize particularly that we must not let the delay in passage of fast-track distract us from the work that is before us. There are still a number of issues outstanding about the structure and scheduling of the negotiations that the Trade Ministers must resolve at their next meeting in Costa Rica in March. Fast-track is a problem, but it is a short-term problem. The FTAA, on the other hand, is about building a long-term hemispheric partnership among all the nations of the Americas with all our diversity of culture, size and level of development.

Similarly, the current turbulence in stock markets, while disruptive to the process of growth and modernization, needs to be examined in a long-term perspective. And when we focus on the long-term, we see that the economic fundamentals of Latin America are strong.

We have seen time and again that markets, and the individual investors and institutions that make markets, can over-react to specific events in the short run. But in the long run, they accurately reflect the economic fundamentals. As such, they have proved themselves to be an indispensable discipline for firms and countries to get their policies right.

As we look at the fundamentals in Latin America, we can see that there is no reason to abandon the market model. The economic situation of Latin America is good -- not perfect, but very much better than in the 1980's, and substantially better than in the period leading up to the 1994-95 crisis of the Mexican peso.

• Growth remains solid. It is expected to be well over 4% in 1997, and most observers estimate that growth for the next several years will continue somewhere in the region of 4%.
• Inflation continues to decline. For 1997, it is estimated to average 12%, the lowest in 50 years.
• Private capital flows continue strong. And a key point is that the structure of financial flows is very different from what it was in 1994-95, with a growing proportion in long-term flows.
• The financial structure of the region is much improved. As has been pointed out by the World Bank, most Latin American countries today would meet the criteria established in the Maastricht agreement for the European Union--a fiscal deficit of no more than 3% of GDP. No country in the region now has a current account deficit similar to Mexico's 7% of GDP in 1994, or Thailand's 8% of GDP this year.
• When viewed in a longer perspective, the performance of Latin America's stock markets is quite favorable. The four major markets in the region (Argentina, Brazil, Chile and Mexico) are all substantially higher now--despite their drops this fall--than they were last year, in December 1996. Despite its sharp drop over the past few months, Brazil's Bovespa today is still more than twice as high as it was four years ago, in December 1993. Indeed, in this respect, Bovespa has significantly outperformed the Dow-Jones index.
• Finally, there has been a striking improvement in financial and economic transparency--and hence credibility with investors and potential investors. Argentina, Mexico, Colombia and Chile have all signed up to the IMF's new international data transparency standards, and they post financial and economic data on the Internet.

What are the lessons for the future?

Continue and deepen reforms--this was the main lesson of the "lost decade" of the 1980's, and of the 1994-95 peso crisis. And it remains the main lesson for today.

Looking at the region overall, the pace of macro-economic reforms and economic integration has increased during the last few years. But much remains to be done. Some countries still need to complete what has been called the first generation of reforms--monetary and fiscal policies to achieve macro-economic stability, and to build a positive investment climate. The current market uncertainties reinforce the need to avoid any slippage in macro-economic policies and to move quickly on structural reforms--the so-called second generation of reforms such as: restructuring pension, tax and financial sectors to stimulate savings and channel investment; and modernizing government to make it transparent, efficient and responsive. Most countries have just started on this process. But under current conditions, where capital can flow almost instantly around the globe, governments no longer have the luxury to postpone difficult economic decisions.

This is the point that we cannot lose sight of. No country in today's world that seeks to grow and prosper can escape the judgment of the markets. Nor can any responsible policymaker. This is not to say that financial markets, fickle or otherwise, govern the world. But it does say that markets matter; their daily functioning has influence and exercises discipline--sometimes harshly. We must therefore all place a higher priority on understanding market developments in the global setting.

Finally, poverty and income inequality are widely--and in my view correctly--perceived as the fundamental economic and political problem of the region over the long run. The poorest fifth of Latin America's population receives 4.5% of the region's income--that is lower than in any other world region. For democracy and the market model to prosper in Latin America, the benefits of growth must be increasingly available throughout society. The keys to dealing effectively with issues of poverty and inequality are to deal with the basics--growth and global competitiveness to provide jobs; education and health to enhance the capacity of the poorest and marginal groups.

In this connection, I am particularly intrigued by the growth of micro-lending institutions, notably in Bolivia, Paraguay, Peru, El Salvador and Honduras. Providing access to credit for micro-enterprises and the poor surely is one of the most powerful ways of improving their welfare and giving them a real stake in market and democratic institutions.

Conclusion

To sum up, the problems facing the region are serious. But the region also has many strengths. Indeed, in the two decades during which I have been involved in one way or another in Latin America and the Caribbean, at no time have I seen as many positive signs.

The most important of these, of course, is the commitment to democracy and to reform.

Another element is the steady movement toward trade liberalization and economic integration, not only through the FTAA but also sub-regionally through MERCOSUR, the Andean Pact, the Central American System of Integration, and the CARICOM.

Still another strength is the unprecedented level of regional cooperation, as embodied in the Summit of the Americas. The Summit process is something unique to Latin America. Nowhere else in the developing world has there been agreement on an action plan that is so broad in scope, covers both political and economic issues, contains such specific and time-delimited commitments, and is subject to mechanisms for review and follow-up. When the leaders meet again in Santiago, they will review progress on the Miami commitments and focus on four "baskets" for additional action: education; democracy and human rights; economic integration; and poverty and discrimination.

Another element is private-public cooperation, as symbolized by this conference.
With these strengths, I am confident that we will continue to move forward toward Bolivar's vision of the Americas as the greatest region on earth, "not so much by virtue of her area and wealth, but by her freedom and her glory."

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