Media Center



February 28, 1995 - Washington, DC

"Frankly, I do not see serious internal political challenges for a policy of economic reform. Throughout Latin America, fiscal discipline, efforts against inflation and sound macroeconomic management predominate. There is always fluctuation, but as a whole it is difficult to deny the overall trend in the region toward orthodox economic management with economies open to world markets."

The perceptions of the region’s business climate are affected by opposing forces. On one hand, the monetary and exchange rate tribulations in Mexico fuel pessimism. On the other hand, there is an unstoppable enthusiasm among investors for the limitless opportunities brought by the resilience of reform and economic dynamism in the region.
These mixed signals create confusion and uncertainty. Therefore, if you ask me what is next for integration and trade in the Hemisphere, I must reply that what is next is to restore confidence. Let me try to address some of the doubts and fears that may be in the back of your minds when you think about Latin America. Contrary to what the skeptics predict, I find sufficient grounds for hope for a bright future for the Americas.
The first question that investors and entrepreneurs usually ask is if the economic reform process will maintain the swift pace shown in the last four years. Many see the upcoming elections in Latin America as a plebiscite between reform and a return to the past.
If that is the case, voters have already cast their ballots in favor of macroeconomic stability and economic reform. President Zedillo of Mexico, for example, was elected on a platform that strongly favors modernization of the economy and—above all—increasing monetary and fiscal stability. Ask an Argentinean worker if he prefers the old regime of hyperinflation to the stable and market-oriented economy built by President Menem. Or ask the millions of poor Brazilians that enthusiastically voted for President Cardoso—as the symbol of economic stability—if they want to return to the past.
Frankly, I do not see serious internal political challenges for a policy of economic reform. Throughout Latin America, fiscal discipline, efforts against inflation and sound macroeconomic management predominate. There is always fluctuation, but as a whole it is difficult to deny the overall trend in the region toward orthodox economic management with economies open to world markets.
If anyone is a reliable partner for the investment community, it is precisely the country or region that is willing to use the necessary discipline to keep its house in order. I venture to say that no other region has shown a greater capacity than Latin America to accept sacrifice and periodically take the difficult steps required for sound economic management. That a country boldly moves to confront its economic difficulties should be a source of confidence, not apprehension, about the future of Latin America.
For example, savvy investors should read President Zedillo’s difficult and timely decisions as a signal of effectiveness and as a strong confirmation of the ability of Mexican authorities to overcome short-term imbalances by furthering economic reform, even at the expense of the Government’s political capital.
The second question usually raised by investors is the consistency of the trade liberalization policies in Latin America. Again, I see a strong tendency around the region in favor of moving forward with freer markets and stronger economic integration agreements.
Here in the U.S. the focus has been NAFTA. But the truth is that even before the North American Free Trade Agreement existed, Latin America was working silently but effectively to tear down the long-standing walls that isolated our economies for decades. In the region there are more than 23 trade liberalization arrangements, including MERCOSUR, the Andean Group, the G-3 agreement, as well a vast number of bilateral accords. Intraregional trade is growing very rapidly and Latin economies are increasingly integrated.
There are even more recent events that show the strong commitment Latin America has to open markets. Just a few months ago, the Presidents and Prime Ministers of all the democratic nations of the Americas unanimously decided to build by the year 2005 a Hemisphere without economic borders.
There is now a mandate from the highest level to spark a process to converge all the different trade agreements into one single scheme. I must say that I am very pleased that the heads of state entrusted the OAS with the critical responsibility of encouraging and nurturing those discussions. Currently, in association with the U.S. Government, we are preparing a hemispheric-wide conference of trade ministers, which will take place in Washington at the end of June.
The purpose of such a meeting is to map the course that will lead to the convergence of the multiple trade agreements that exist in the Hemisphere. These are positive developments that provide greater assurances to those who are betting on a freer trade environment in the upcoming years.
Also, events such as the recent proposal by the Brazilian government to explore the possibility of merging MERCOSUR with other South American trade agreements, as well as the strength shown by the free-trade relations between Colombia and Venezuela, despite the difficulties experienced by the Venezuelan economy, illustrate the commitment of the region to open markets and trade liberalization.
But is not only the political will and actions by governments that should foster confidence in the economic future of the Americas. One of the things that most stimulates hope in the future continuity of market-oriented modernization is the silent revolution in the private sector. The freeing up of markets, deregulation, and privatization sparked an explosion of entrepreneurship and private initiative.
There is a new kind of entrepreneur in Latin America—one with a more global vision, one hungry for joint ventures and foreign capital, one who assumes the gigantic task of replacing official bureaucracies with innovative and profitable private sector solutions. These new entrepreneurs constitute a formidable force for change in the region and an additional guarantee of a bright economic future in the region.
The next concern that investors usually have in relation with Latin America has to do with political stability. The democratization of Latin America is certainly a recent phenomenon. But today practically all the Hemisphere has shown a firm and solid commitment to democracy and respect for civil liberties.
At the Summit of the Americas, the leaders reaffirmed that effective democracy is the only basis upon which to build an integrated and prosperous Hemisphere. The Miami Summit, furthermore, adopted institution-building programs and other initiatives for social change, and even directed the OAS, the IDB and the World Bank to finance policies to further deepen democracy.
Isolated crises will come and go, but I see a strong will to press forward with the consolidation of democracy. Certainly there are political problems, but governments are choosing to confront them with more opening, more democracy and institutional reform.
A good example is Mexico. While some expressed concern about the consequences of the defeat of the PRI in the recent state elections in Jalisco, I believe the results suggest that Mexico is firmly progressing towards a pluralistic, open and truly competitive democracy.
Latin America is in sharp contrast with other regions of the world that unfortunately believe that development and democracy are incompatible. On this side of the ocean, democracy has flourished hand in hand with economic reform.
Many now claim that economic reform left behind the poorest segments of society, and that these groups represent a threat to stability. As I mentioned before, I am convinced that economic reform fosters investment, growth, jobs, income and stability for all. But it is also true that poverty in the region is unacceptably high.
Again, at the Miami Summit, the need to aggressively fight poverty was endorsed by all the heads of state of the Americas. Specific goals and programs were adopted. It is clear that a significant reallocation of resources towards social expenditures and investment in human capital is occurring throughout the region.
As you can see, I am on the side of those who find sufficient political, economic and social arguments to believe in the immense possibilities offered by Latin America. But I am not an utopian. I certainly understand that there are many problems to be solved. Paradoxically, the greatest challenges to the stability of economic reform in Latin America come from abroad. Let me explain.
The first challenge is to tame the "herd instinct" of the international financial and capital markets. If investors and bankers hastily jump to the unrealistic and unsustainable conclusion that Latin America is heading towards a generalized crisis and returning to models of the past, they will actually encourage that process.
An objective assessment and viewing the recent and future crisis from a long-term perspective will certainly contribute to the stability of economic reform and change in the region. Difficulties will no doubt come and go, but those who understand Latin America and keep faith will be generously rewarded.
The other real threat to liberalization and reform also comes from abroad. I am referring to the potential rebirth of protectionism and isolationism in the United States. If those who believe in "fortress America" and a disengaged U.S. Government get their way, then you may forget about all the positive developments that we currently foresee for the relationship between Latin America and the U.S.
Fortunately, the leadership shown by President Clinton in convening the Summit of the Americas and more recently in taking—with the support of congressional leadership—the right decisions to avoid a major financial crisis in Mexico, is sufficient evidence that this country is well aware of the need to stay engaged in promoting stability and economic reform. This is very encouraging and should be interpreted as a significant signal for all of those considering doing business or investing in Latin America.
I am convinced that President Clinton’s bold move to support Mexico’s adjustment policies was a critical decision in favor of both U.S. interests and the future of an integrated Hemisphere.
Although some degree of sacrifice is almost unavoidable when serious adjustment efforts are undertaken, the pain—for Mexicans as well as for U.S. workers and business—would have been much worse if a short-term liquidity crisis was allowed to wipe-out the fundamental soundness of the Mexican economy.
On the other hand, the political viability of what we claim is our common vision, a politically and economically integrated Hemisphere, was at stake. The situation in Mexico was a test of commitment by the United States and the rest of the Americas to the ideals and objectives spelled out in Miami just a few weeks before the crisis. By avoiding the "ostrich syndrome" and by decisively facing a problem that had serious implications for the whole Hemisphere, President Clinton demonstrated in concrete terms that the spirit of the Summit of the Americas is alive.
I want to finish by saying that all the opportunities that exist in the region can only come ifpeople like you understand the strength and vast potential of Latin America. To you I say, keep the faith, and with the perspective of a sober and long-term view that transcends any particular episode, be partners in the progress of the Americas.