I am delighted to be here today with such a distinguished group to share some ideas about the future of the Americas. The timing for this discussion could not be better. Our future will be shaped by the challenges that the new generation of leaders will have to confront. And, they are certainly very different from those we experienced in the last fifteen years.

For a decade and a half, Latin America experienced dramatic transformations. The so called "lost decade" of Latin America was in fact a period of astounding accomplishments.

From a political perspective, our region was able to leave behind a long-standing tradition of dictatorship and authoritarian regimes and constructed democratic institutions in practically every country.

From an economic perspective, Latin America emerged from the debt crisis with profoundly restructured economies, driven by market forces and private initiative. The opening of the economy, combined with the move towards a more prudent and orthodox macroeconomic policy, resulted in higher productivity, dynamic trade, greater stability and lower inflation rates all around the region.

From a foreign policy perspective, the region re-discovered the political and security benefits of integration, of embracing the notions of common markets, alliances, confidence building measures and peaceful resolution of disputes. Conflicts certainly still exist, as was painfully illustrated by the tensions between Ecuador and Perú. But today there is a clear preference for the instruments of diplomacy in order to solve the latter.

The traditional apprehensions and distrust that undermined relations between the U.S. and Latin America are receding, opening a window of opportunity for constructive interaction at the Inter-American level. NAFTA and the Summit of the Americas are good evidence of this new climate.

This short summary of the transformation of Latin America in recent years could leave you with the impression that what is left for future generations is basically to manage and enjoy the legacies of this period of change. Unfortunately, things are not so easy. To support this warning, I have chosen to focus my remarks tonight on the economy and the liberalization process of the Americas. Their success will make the difference.

The real challenge for a revolution is not only to reshape the existing order. To be successful, it must create a permanent alternative that is able to sustain its achievements into the future. The revolution in the Americas must realize a new vision for this hemisphere.

In fact, the transformation of the region has just started. In addition to deepening and consolidating what has been accomplished, there exists a second generation of issues that are critical to maintain the momentum of progress.

How will we face the future of the region at a time when people feel that the benefits of economic reform are exhausted ? How can we reform the state to ensure it fulfills its obligations and responds effectively to the new circumstances ? How can we put this continent on a path of sustained and balanced high rates of growth ? Is there any way to change the fate of the growing number of people living in poverty in our countries ? These are some of the most pressing questions that must be answered if the new vision of the Hemisphere is to take root.

To encourage discussion in line with your debates, allow me to present some ideas about how the agenda of Latin America could look in the future.

The need for political consensus:

On the economic front, the first and probably most profound issue will be how to preserve the political and technical consensus about the fundamental desirability of free markets and of macroeconomic stability. The times when it was sacrilegious to advocate free markets in Latin America as an effective and socially convenient organizing principle for the economy must not come back. And that is both a policy and a political enterprise.

We may then ask : Do the current political trends in Latin America favor the breakdown of the consensus in favor of market-driven economies and macroeconomic stability ?

The region learned, certainly the hard way, that inflation accentuated poverty to such oppressing levels and made economies behave so erratically, that along with the return of democracy also came a widespread popular demand for price stability and market oriented reform. Fortunately, until now, it seems that the political will of Latin Americans has survived the harsh stabilization policies.

The recent cycle of elections in Latin America can also be interpreted as a renewed mandate in favor of reform. Voters have already cast their ballots in favor of macroeconomic stability and economic reform. President Zedillo of México, for example, was elected on a platform that strongly favors modernization of the economy and -- above all -- monetary and fiscal stability. The Argentinean people once again chose rightly between the old regime of hyperinflation and the stable and market oriented economy built by President Menem.

President Fujimori was also re-elected due to his successful program to recover institutional and economic stability. And millions of Brazilians enthusiastically voted for President Cardoso as the symbol of economic stability.

This widespread and renewed political mandate is a unique opportunity to reinvigorate the scope and depth of our economic reform agenda for the region. We should take advantage of the fact that committed governments with popular support are devoted to guiding their societies towards prosperity through a combination of the right policies. We have the luxury of having a second chance to move forward.

The nature and focus of the economic reform process has to be adapted to overcome the frustrations as well as encourage the successes of the last decade.

The reform processes experienced by Latin America and the Caribbean during the eighties were designed to respond to severe external sector and public finance imbalances. The resulting "Shock Therapy" addressed the worst distortions and urgent macroeconomic disequilibriums.

The "Second Wave":

Those policies tried to avert the collapse of the economy and set general ground rules for long-term systemic change. Although some economies may currently lag behind or require further structural reforms, for many others it is time to move to a new stage. This is what Moisés Naím calls a "second wave" of reforms.

During this "second wave", the goals of reform should widen. Without leaving aside the objective of macroeconomic stability, I believe, achieving dynamic and growing economies, reduced poverty levels, and effective democratic states, should become urgent goals. In that context, major institutional change is the critical variable to accelerate economic growth and to promote equality and social justice. Without a doubt, political and institutional reform should be placed at the core of our concerns if we want to promote future progress.

Each country and each case will demand specific policy mixes. But certainly in every case we will need less of what makes a State an obstacle; more of what builds institutions that provide basic services --such as justice, police and education-- efficient, focused and specialized; and, in between, a State that is firm, open and rigorous in its regulatory responsibilities.

But there is another side to the debate of State and institutional reform that goes beyond the concern for governance or the search for fiscal prudence. I am referring to the need to construct democratic states that are not only stable and efficient but also legitimate.

The task of the coming years is more than fine-tuning specific reforms, or just improving the transparency of markets, or with designing appropriate legal frameworks for private investment. Those things are very important -- no one denies that -- and we must defend them. But it is equally important to foster the legitimacy and the institutional strength of the democratic state. If we do not complete the task of consolidating the hold of democracy throughout the Hemisphere, anything else we seek to achieve in the economic front will be meaningless.

Savings in Latin America:

The second major challenge that we must overcome in the economic arena has to do with savings and investment. The fundamental vulnerability of the Latin American economies lies in the fact that the level of domestic savings and investment can not support a growth rate congruent with the expectations and needs of the peoples in the region.

The dramatic boom and bust nature of economic cycles in Latin America has much to do with this inadequacy of the savings rate. The structural inability to finance capital formation --both physical and human-- with internal resources, leads to a dependency on external finance.

These exogenous capital movements cannot usually be sustained because eventually those resources have to be paid back; because we have a strong tendency to over-indebtedness; and because the flows can be unexpectedly reversed by the uncontrollable dynamics of the highly volatile international capital markets.

Hear me correctly. I am a believer in the advantages that come with the opening of our economies to foreign investment and international financial flows, but they will never be able to substitute the positive effect of domestically generated strong savings.

If we want to see a successful Latin America we need to develop a strategy that fosters the conditions for a permanent and structural increase in savings. However, the precise recipe to increase the rate of savings of a society is still unknown.

The experiences of Chile and other countries suggest that increasing the efficiency and the coverage of private social security systems promotes capital accumulation. Also, allowing for a more efficient and reliable financial sector, able to protect and better remunerate the individuals' savings effort, acts as an incentive. And capital markets in Latin America need to evolve from speculative-oriented trading pits to truly global capital-raising mechanisms.

The Private Sector:

The next frontier for reform should also encompass the private sector. We are used to blaming governments, with good reasons, for much of the difficulties experienced by our region in its path towards development. But I am increasingly under the impression that in our eagerness to promote private initiative, we have overlooked the problems and distortions affecting the development of a sound and dynamic entrepreneurial spirit in the Americas.

In our region, the presence of a relatively high degree of monopolization, corporativism, and concentration of property and productive assets in a few hands, creates entry barriers to new firms and discourages the enthusiasm of many entrepreneurs and potential investors. Thus, the euphoria created by the recovery of economic freedoms can be frustrated.

The access to competitive markets is denied not only by governments. Private actors can also become serious obstacles to a wider and more dynamic entrepreneurial class. That is why we should include the reform of the private sector as part of the agenda in the discussion of the future of Latin America and the Caribbean. We need a revolution of entrepreneurship to unleash the potential of private initiative, so often restrained by the absence of competitive environments.

In policy terms, this means that a deliberate and strong anti-trust effort, combined with measures to encourage a broader and more equitable access to finance, capital and asset ownership, can have a significant impact on the investment potential of the economies of Latin America. This aspect has generated less attention in the reform process and it could emerge as a critical obstacle for translating structural adjustments into long term growth.

Latin America devoted much energy creating the macroeconomic structure required to build market economies. But much less attention has been devoted to the institutional, regulatory and legal framework that is needed for the miracle of private initiative to occur.

The strong economic incentives which to promote the blossoming of private initiative can be frustrated by the archaic and, in many cases, corrupt environment in which entrepreneurs have to operate in their real-life daily struggle. Regulatory, administrative and procedural reforms are often messy and apparently less exciting, but without them we will loose much of the potential for change and growth generated by economic reform.

Trade and Integration:

Leaving behind the tribulations of the private sector, let me enter into the issues of trade and integration in Latin America. During the late eighties and early nineties our region discovered, almost by chance, the renewed appeal of free trade agreements and economic integration.

After unilaterally liberalizing their economies, several countries witnessed the rapid expansion of bilateral trade with their neighbors. Open markets uncovered latent complementarities and synergies between the economies of several sub-regions of Latin America. Governments reacted positively trying through free-trade agreements to organize and encourage this revitalization of neighboring markets. And the result was an explosion of new or revamped integration and free-trade arrangements such as MERCOSUR, the Andean Pact, G-3, many bilateral understandings, and even NAFTA.

In the Americas we have a web of over 26 finalized agreements and at least 8 are being currently discussed. At the same time, almost every Latin American countries is bound by the global commitments achieved at the Uruguay Round. And if that was not enough, we also have the mandate from the Summit of the Americas that set the year 2005 as the date to create a hemispheric-wide free trade area.

The concurrence of all these efforts to open markets and integrate economies in Latin America raises several questions. First, how will we make compatible the regional commitments with the global trade obligations ? And second, how will the process of liberalization in Latin America and the Hemisphere proceed ? Those are urgent "second generation" trade issues that demand prompt technical answers and urgent political decisions.

A detailed comparative analysis, done by the Trade Unit of the OAS, suggests that, in general, the different agreements are compatible with GATT and have a technical proclivity towards harmonization and convergence. Therefore the issue is more political than technical.

Furthermore, at the political level we are approaching a pivotal moment. The countries and the different integration agreements in Latin America are confronted with three basic choices. First, they can follow the path of convergence on a wider regional scheme, probably under the leadership of MERCOSUR; second, they can apply for accession to NAFTA; and third, all the countries and agreements can collectively build a Hemispheric-wide free trade zone.

As I see it, probably the most desirable outcome is the third option because of its ability to offer a bigger market; promote a more transparent environment; and reduce diversion of investment and trade flows. Even accepting the theoretical desirability of the Hemispheric-wide approach, the ultimate decision of Latin America will depend significantly on its perceptions of long-term intentions of the United States.

When NAFTA was signed, many Latin American countries bet on a fast and generalized opening of the treaty to other willing partners. The message received then was that the U.S. was in the mood for a "big-NAFTA". Unfortunately, the bitterness of the NAFTA congressional battles, plus the Mexican crisis, forced the Administration to tone down their eagerness for swifter terms of accession.

MERCOSUR is now exerting a gravity pull inside the region as intense as the one shown by NAFTA two years ago. In the space of a few months, Chile and Bolivia started discussions to explore their potential accession to the treaty. Obviously this is not incompatible with a future Free Trade Area of the Americas, but with a limited institutional capacity to handle trade negotiations and with other foreign policy benefits attached to the MERCOSUR option, it will be hard to focus Latin America on a hemispheric approach without strong leadership by the United States.

The Trade Ministerial meeting in Denver at the beginning of this Summer was a key event that signaled the U.S. commitment to remain engaged in pushing forward the mandate of the Miami Summit and reassured the rest of the continent of the advantages of exploring a Hemispheric-wide process.

Whatever final decision is taken, the challenge for the next decade is to guarantee the continuity of the liberalization process in Latin America and do it in such a way that it does not become discriminatory or incompatible with the efforts to expand global trade.

Social Policy:

There is a revolution that never happened during the eighties and nineties in Latin America and the Caribbean and that cannot be postponed any longer. I am referring to the fight against poverty. The problems in this area are acquiring the semblance of a crisis.

Despite the increased allocation of resources to social expenditure in Latin America and the Caribbean, the target population -- the poorest sectors -- have not seen substantial improvement in their condition. In the area of social development we have to simultaneously address deeper structural problems as well as the issues related to the quality of policy formulation. The evident lack of effectiveness of the systems being used suggests that we are in desperate need of a better way to carry out social policy.

For decades we left social policy-making in the hands of weak institutions, dis-interested bureaucrats, and inadequately prepared professionals. That must change. From now on, the best and the brightest of the region must devote significant energy to improving the plight of the poorest of their countrymen.

Within the field of social policy making, one sector is of crucial importance. If we wanted to define the topic with the most profound implications for the future of Latin America, because of its consequences for development, democratic institutions, economic growth, and the alleviation of poverty, it would be education.

Despite the relevance of the issue, Latin America and the Caribbean are not only doing poorly in comparison with other regions, but our countries are rapidly loosing ground. We have allowed significant segments of our population to remain without the necessary skills to improve their income and to contribute to a more dynamic economic growth. If Latin America and the Caribbean want to join other areas of the world that have shown persistent high rates of growth, a dramatic and swift transformation of that sector must be achieved.

Tonight, I was asked to speak about the Future of the Americas. I think you will agree with me that it bright. But, that real work remains to be done to secure its place in our common future. The OAS has been given a unique opportunity to play a very constructive role. I hope we will grab it with enthusiasm.

The New OAS has been undergoing a profound transformation. But, not for its own sake. Rather, we are clearly aware that to achieve all that we have discussed, tonight, the nations of our Hemisphere have much to accomplish together in a very short time frame. By repositioning itself, the OAS is responding aggressively to the needs of its member states to share in the burden of this daunting process.

Nothing has been spared. From Personnel, to technical assistance, issue prioritization and even our institutional objectives have been thoroughly reviewed. Wherever old ways seem to impede concerted action, we have chosen reform. I am confident that the New OAS is already re-emerging as an institution capable of offering a pragmatic and cost effective application of the best of multilateralism in service of an unequivocal hemispheric agenda for the true benefit of the peoples of the Americas.

Dear friends :

A final suggestion to all of you for whom the future of the Americas is a passion of the highest order. To consolidate economic reform in Latin America, to sustain structural reforms, and to guarantee development and growth, we need to enhance and enrich the political life of the peoples of the Americas.

We need to promote more democratization, wider participation, local democracy, and a strong involvement of the people in the oversight of the policy-making process. We have to empower our societies with the ability to -- again and again -- transform themselves. That is the most essential task to ensure a never ending revolution in which democracy and economic freedom became the only answer to confront the challenges of the moment.

I am sure that the discussions during this 19th Congress of the Latin American Studies Association will greatly contribute to our region as it seeks answers to the problems that will have to be address by the next generation of leaders.

Thank you very much.