Media Center



February 8, 2005 - Washington, DC

Chairman of the Permanent Council, Acting Secretary General, Chairman of the Committee on Juridical and Political Affairs, Dean, Representatives, friends here in this room and those who are listening to the broadcast. I would like to begin by once again thanking the OAS for this invitation that is a very great honor and also to be commended for this initiative. Ambassador Alberto Borea described to me some time ago what it was about and I thought it was a excellent idea to have an opportunity for a dialog and to avail ourselves of the new mechanisms for broadcasting in order to share it with the Americas. I think this is an excellent idea, it’s good for us, it’s good for the OAS, good for all of us, and for this reason we accepted to participate and share some ideas in regards to the subject that I wanted to address to you. It’s a great pleasure for the President of the IDB to be at the OAS, we are part of this family, we were born under their auspices and to a certain extent we were conceived in this very same organization many years ago. I usually recall something that we underscored with the brief history of how the bank was born 40 years ago. This is something that not everybody knows and those who recall the conference of 1888 or 89 thereabouts as the conference that gave rise to the long path that ultimately ended in establishing this organization. But sometimes what we forget is that in that conference convened by the government of the United States or rather the Congress of the United States that asked the President to convene that meeting, there were three initiatives. One was the creation of a common market; the second was the establishment of a common currency and the third, the establishment of a bank. So with the birth of the OAS, there was this idea also of establishing the bank; you took 20 years, it took us 70 years. It was a longer delivery time but we did finally end up being created after many of the meetings that were carried out within the OAS over that 70-year span. The projects were negotiated and discussed until finally the institution was established thanks to the meeting between President Eisenhower and President Kubtischek. So we feel at home here and it is a pleasure to share with you some outcomes of our personal experience and institutional experience. When I was given the title for the conference “the Americas from Economic Integration to Full Cooperation”, the first question I asked myself was: What integration are we talking about? Are we talking about regional integration or Latin America and the Caribbean or are we talking about the hemispheric integration? And I really think that that is the core subject since we are at the OAS. But nonetheless, it is worth while clarifying that because the term and cooperation goes along many paths in our region. We have the regional channel in the strict sense of Latin America and the Caribbean. We have the hemispheric channel and this gave rise to hemispherism, if you allow us to coin a word and ultimately we have global or international cooperation through the global entities. In the three areas, Latin America is truly an example of important action, sometimes not highly valued, but the region has played and has important actions in the area of regional integration of Latin America and the Caribbean. For many years, it has already been active in hemispheric cooperation and it has a growing participation at international fora. Regionalism in Latin America was born at the time of Bolivar and it was maybe the first call for cooperation among countries to build together a common future. And quite honestly, we should say that if we look at our regions and these 200 or 180 years of experience, despite some painful conflicts, this region, nonetheless, in its struggle for peace does not leave its place to anybody else, it is important to state this. We have had more years at peace than at war or in conflict but there have also been many years at construction, of building and this organization has been at the center of a lot of these activities. In the fifties, there is a certain level of economic regionalism at CEPAL at the time and Raul Previch began to incorporate the economic model of substituting imports and that is in its notion of regionalism and it does it with a broad vision because in 1952, these seeds were sown for Central American economic integration and that was even before the European integration. There was an initiative but it wasn't yet formally established in Europe. And I think that that regionalism really was based on Previch’s vision. In 1959, he published a document talking about the limitations of development in isolated compartments and how it was necessary to move into a phase in which we would have processes to open up markets and he saw it at that time, as Europe did, as expanding regional markets and that is where the closed regionalism was born, of limited achievements based on the experience at that time but this was an important step to get to know one another better. Trading in America was very limited, I think it was 5% of the trade but at least it gave us an opportunity to get to know one another, to not only meet the public but the private economic agents; the major contacts between companies began then. I recall the high hopes that we had in 1959 when in Montevideo, we had the first agency but it also resulted in establishing the regional banks, the Andean Pact, the Central American Market, the Caribbean Trading Partnerships; this regionalism was very powerful in the first phase of the closed regionalism. In the 90’s, after the major economic crises and the debt of the 80’s, when the reform process began in Latin America, when the Cold War came to an end, one would think then that maybe regionalism was going to be left aside but quite on the contrary, it really was invigorated in a manner that nobody expected. And it was based on the new concept of economic development and policies. The regionalism of the 90's is the outcome of the vision of a stable economy, an economy following the rules of the game and of the market and opening up to the market where regionalism not only makes a regional market stronger but opens up to the rest of the world. It is important to see the contribution of this regionalism between 1957 and 1990 and to date, there are over 162 agreements that are recorded under the GATT or the WTO, many of them approved after 1990. This shows the strength that regionalism acquired in our region. In addition, there are more than 37 sub-regional agreements among groups of countries such as the recent agreement with Mercosur, and it shows how this dynamics continues, how new explorations are continuing and new directions and with new governments. But other things were also added to this open regionalism, specific cooperation, some are very interesting, we have UNIRSA, which involves South America, we also have the Plan Puebla Panamá, which looks at the Mexican initiative with the Central American isthmus. There are other ambitious lines of action. We are talking today about things that are much deeper such as macro economic coordination, about tax restructuring, in other words, the concept of cooperation has expanded roundabout this regionalist attitude and maybe what is most important is when Latin America and the Caribbean start looking northward and I think that one of the major qualitative steps of this regionalism has been the NAFTA Agreement between Mexico, the United States and Canada, the agreement between Chile and the USA, the Mexico and Chile Agreement with the European Union, the recent approval of KAFTA, the negotiations that are currently underway with the Andean countries. So this regionalism is gradually taking on forces that are external to the region and this is another element on the table. So this transition means that the region has always been very active on the regionalism that I have just mentioned both the open and the closed regionalism. The second major line is the hemispheric line or channel as I was saying a few moments ago, and it was born under the Pan American Union and this is one of the broadest examples of cooperation that I know among developing countries and even between developed countries. There are not many institutions that have the field of action as the OAS generated over the years; it goes from economic cooperation, social cooperation, political cooperation, human rights cooperation and military cooperation. In other words, they have incorporated elements that are quite at the state-of-the-art such as the democratic levels. And all of this shows how this hemispheric vision has gained ground in a broad range of activities and one of the important elements was the Alliance for Progress. I worked with them many years ago. I remember in the 1990 and 1994 the initiation of the Summit of the Americas process. When you look at this in perspective you have to acknowledge that, to a certain extent, we are looking at a hemispheric action, a dynamic action. A last major step that promoted this summit was this movement towards the FTAA, an initiative that is currently underway and that hopefully it will be strengthened through consultations between the co-chairmen and my understanding is that we have another important element here to not forget. The third major channel for Latin American cooperation has been the global one, we had the GATT meeting in Havana, Latin America played a major role there, and throughout the entire life of the GATT, Latin America was extremely active at that club. It was more like a club of the developed countries, the industrialized countries but I think that 1986 was really the starting point of an important presence of Latin America and the Caribbean in the international debate about trading issues. And the launching of the Uruguay round in 1986 that culminated in the early 90’s is a historical step where this region as such takes on a central role in harmonizing the global trading rounds, they are now showing this in Cancun and also in the Doha negotiations, so I think that the region here again, over the years, has played an important role and I think this is something we can see in the initiatives with the European cooperation. We can see it in the cooperation with the Asian countries and with developed countries under the leadership of President Lula. There is an international projection and this is part of this three-pronged initiative and activities that the region has undertaken in trade and cooperation. Let’s look at some of the conclusions, only some because we don’t have time to go into all of the details. The first thing is that the region is interested and should be interested in developing the three channels. We are interested in having even greater integration of the Latin American and Caribbean countries. We are also extremely interested in expanding the hemispheric relations and extra regional and obviously we also want the entire world to start a new commercial order based on and revolving around the WTO, and we are also interested in ensuring that there are relationships between the different channels because coordination among the countries in the region could also facilitate the FTAA agreements just as the agreements that allow us to move forward in the Doha rounds would allow us to resolve issues that are currently obstacles in the attainment of the FTAA goals, for instance. So I do believe that there is an interaction that allows us to see that the topic is good, it’s good for the region to be active in all areas, all fields and to further develop those processes as they interact with one another. It’s important, however, to point out that these agreements that originally had an eminently commercial profile, in practice have opened to a whole series of expectations and new lines for cooperation that we were not aware of 20 or 30 years ago. And we have basically seen three models: cooperation that evolves after a trade agreement, where there are new commercial activities, those that bring about cooperation in other areas of joint activities between countries, such as the agreements with the European Union or in parallel as in the case of the FTAA and cooperation that is carried out without there being any trade agreements in place. What is important throughout this cooperation process, at least in my view, is that these trading agreements are the fulcrum, and sometimes even the starting point for cooperation in expanded economic activities, microeconomic policies, social policies, labor, employment, environment, culture and also political cooperation. CARICOM is an excellent example where cooperation began being commercial but has now extended to the other domains that I have just mentioned and I think that the European Union is maybe the most exemplary case. This now presents us with an extremely wealthy and rich Europe and with a lot of social cohesion. So the starting point based on trade has made it possible, has given support for other objectives. They could be economic, political, social, cultural and these are the ones that truly make up the contribution and the support that we can term as the expanded cooperation. It’s very important for us to bear this in mind as the key point. How trade programs can be the starting point for any kind of other expanded cooperation for as to work and development in the coming years in the three channels that I have mentioned previously. So we have seen major channels for cooperation and phenomena that allow us to move from purely commercial aspects to cooperation in fields in what the title of this conference has called ‘full cooperation’. Now, full cooperation is very ambitious, it means we have the major political cooperation. I would rather call it the expanded cooperation, because everything else is on the agenda for the future, but that is what we have today. When I see that these are the instruments of cooperation, I ask myself, today, in the year 2005, what are the major shocks in Latin America for its economic development programs that should be the platform to build the new forms of cooperation and to seek the new support? I have identified four, maybe five areas, which I think that as of today, and from the viewpoint of the bank, are extremely important to underscore as the major challenges, opportunities and possibilities for the future. The first is globalization. This is now a fact, it has been broadly discussed that we have a region today that is confronted with globalization. We have trade globalization, financial globalization that has caused so many headaches in recent years because its complexity was more than what was expected and we were not really prepared to face the capital market challenges. Then we have the investment issues, we have highly competitive sectors and the very globalization of corporations that are starting to feel the impact of this new global corporation, a new concept that I am extremely impressed by because of its dynamics and everything it promotes. So, all of this is a major challenge for the region. Globalization and our dynamic insertion into this process, a process that we want to join, a process that has opportunities, but also tremendous risks and dangers and we have to acknowledge this from the onset. The second front that I think is very important, and worth highlighting, is the violent change in the economic geography of the world. We have to see the Asian impulse here; we have to specially focus on China. As of today, this is a pointer, a benchmark through experience, also an opportunity because it is opening doors for us to exports raw materials and a challenge because it is a tremendous competitor. Sometimes we said that the Chinese phenomenon, the Indian phenomenon as well, are something like adding a second floor to the world in the economic area. And this second level is a major challenge in these 3 levels. We need to understand what took place in that region, so countries like China and India have managed to overcome poverty in twenty years. We who have poverty in our countries have to look at what these countries were able to do. It is also a great opportunity because China is today one of the major destinations for our raw materials and commodities. To a certain extent, I think that this is very important. Maybe we are opening a new historical opportunity for Latin America which is the revaluation of commodities and raw materials through a massive income and presence of these markets that have practically multiplied the number of people by two. So this is a major opportunity but we also have another aspect that some countries are well aware of which is the tremendous competition that we face from this enormous competitive country with so many conditions on all fronts. So the change in geography is something that interests us in particular. The third subject is technological shock, including of course, information technology and there we have to recognize this is a shock that concerns us a great deal. Latin America was structurally weak from the technological point of view. We are being left behind, dangerously behind, compared to the world in the exterior, that is why we are constructing at the bank a fund for technological innovation, which we think is important, provided by the government of Korea which is in the bank now and also the setting up of a special department where higher education and technology are united into a common front which is a tremendous challenge for the region nowadays. If the region does not make a conscious effort, a deliberate effort with full political support to improve the quality of its human resources, its capacity for innovation technologically, I am afraid we are going to be on the last wagon of the train and this would be a serious problem for this region. We are doing very little in qualitative terms. All of this leaves us to the fourth challenge, which I find important and that is competitiveness, which comes together with what we said earlier: there is a serious growth problem. We have to look at the world, and to look at the world we have to recognize that in that competitiveness goes our life. The world in the future who doesn’t compete won’t live, won’t survive and Latin America to the contrary can’t just be living on the export of raw materials, because that provides us with foreign currency but not employment, we have to improve the quality of our exports. There are important things happening in the region already. Agricultural renovation, for example, has been of the greatest importance but this is a subject of competitiveness and challenges of the greatest importance. I wonder how we could ask for cooperation from all its sources, in supporting these new elements which are before us, regionally, first we have ask for that extended cooperation, the support to our efforts for competitiveness and then the subject of infrastructure comes in, integration becomes an important element, the summits have shown this clearly. All this I am saying is covered by the summits to some extent. The subject of infrastructure today in a region that requires investments of 70 billion dollars a year in power, transportation, communication, water, is a really formidable challenge. There’s a subject of the greatest significance to deal with. In the second phase, what we said earlier, the need to develop cooperation mechanisms which are extended in terms of higher education and technological innovation, we cannot stop asking for extended cooperation along those lines. We are concerned with another channel which is the development of capital market. One of the vulnerabilities in the financial shock of recent years has been low saving and capital in Latin America. There we do have an alternative which is prioritized or we should be prioritizing which is fundamental so the region can better defend itself financially and feed itself with the resources generated from its own capability for saving within the capital markets, growing capital markets. A fourth line is how that cooperation can continue supporting political development. The OAS has conducted a tremendous task along these lines. It is very important for this organization to be aware and assume that responsibility as it is doing with the utmost priority. And I also mentioned something which goes hand in hand with what I have been talking about and that is the subject of cooperation in natural disaster resources. We have to provide a great deal more attention to natural disasters. We are doing things when regional cooperation develops when a disaster occurs worldwide, but this is becoming something which is too much of a burden for some countries in the Caribbean, Central America, and the Andean Group. It is worthwhile that this forms part as well of a prioritized agenda for cooperation, extended cooperation at that. These subjects have already been referred to, but I am giving you a little of what I feel is in the first line of an agenda for cooperation, an extended one as suggested by the title for this meeting. How to do this? How can we in one way or another stimulate this extended cooperation? The summits as I said have provided response to this. How to make viable these objectives? First I am going to insist on the central thesis, which I want to leave with you today, which I referred to earlier. I think that the agreements, the trade agreements are the most important support point for that extended cooperation, and this is being ensured by all experiences in recent times, maybe the European experience is the most significant, the most telling. This extended the vehicle for this extended cooperation; those agreements are vehicles, which would allow us to extend cooperation over all. And fundamentally, this third mechanism of discipline, we have seen how cooperation mechanisms for trade, duly negotiated of course, properly negotiated, the case of the relation of Canada and the United States with Europe, all that has a profound sense of anchoring, decisions in policies, anchoring macroeconomic activity, and generating opportunity to extend that cooperation in growing lines for me and for our people at the bank. This is a deep conviction that we have and we can observe in the systematic behavior of this issue in other cases. A second response to the how is that this extended cooperation is not going to work if the domestic agenda is not present with proper responses and a proper response is to face up to the problem, the social problem of the region: poverty, distribution of income, exclusion, unemployment. So in one way or another, together we are looking to that front for international cooperation based on cooperation agreements fundamentally, the idea of having a domestic agenda which will start to prioritize these subjects, because it is very difficult to have extended cooperation such as social recovery as the ones in Latin America and the Caribbean. Nowadays, I think it is necessary to recognize once again that the problem of poverty is essentially a domestic problem to which international cooperation can contribute in mitigating if we manage to obtain access to the markets and eliminate protectionism which violently affects or limits the income some of our countries receive, especially the poor sectors in our countries. Let’s not forget that the agenda of poverty is an agenda of basic national policies, and the international world of cooperation has to understand that the best way we can cooperate in this area, the most effective vehicle is to open trade opportunities, access to markets and provoke a drop in protectionism, agricultural protectionism, which we are all aware of. That is the first subject on the agenda, domestic agenda. The second subject on the domestic agenda on this point for me is trying to understand that opening up to the world by way of an integration mechanism on all fronts implies preparing, of course it implies proper negotiation, the countries have to have a capacity to negotiate, they should develop it, but it also indicates very importantly introducing structural reforms for that openness, we have been telling our friends in Central America, be careful, this openness is fundamental for you in many aspects but you have to prepare because times for adjustment start today. Consequently, it is fundamental; we are providing a great deal of priority to structural changes, to the contrary we might be terribly frustrated. Openness is a two-way street. We import and export. W might just run into costs but not benefits. But in that case we would have many hopes today and lots of tears later. So I think that in one way or another, this structural change is important and we are taking this very seriously. We are being pioneers in Costa Rica, we have been working for a year and a half in that country to develop cooperation at a large scale in relation to the country because we want to deal with the subject of cooperation to prepare the countries to openness, otherwise we are going to be paying very high costs and obtain very few benefits. That is the second front, the domestic agenda, in the social aspect and in the preparation for openness. The third front is to work seriously, serenely on the subject of solidarity, solidarity among those countries which can more and those which can less. There is a whole gamut of countries in the Americas. This means that in one way or another we have to recognize that there are tremendous differences between countries like in Europe at one time, the Mediterranean countries, and there is awareness on that subject and there was a solidarity commitment among them on all of this. I think that in one way or another this is a subject which has replaced the center of concern in the case of Mercosur, for example, we have seen President Duhalde dealing with the subject, but I think that if we are going to launch ourselves on this tremendous adventure to push these countries forward from social justice with greater openness integration we have to understand that this is in the interest of all and the solidarity of those who can do more compared to those who can do less should be a point on which the two of them should reflect. I think in one way or another, this can be achieved by way of loans and that is what we and the World Bank are there for. I believe cooperation and the cooperation funds should form part of the debate to carry forward the principle of solidarity which is made manifest financially but also is reflected in other elements especially in the process of negotiation of free trade agreements. The fourth response to how is incremental cooperation. Sometimes, I am concerned that carried away by the enthusiasm of the different fronts of cooperation, we open up a series of objectives and then we have little capacity to attain them, to implement them, so I think that in one way or another, it is important that in the selection of priorities we work fundamentally in the area of the possible and not in the area of the desirable. I say this because sometimes this places us in the field of frustration and anguish which are bad for the process itself. So once we go consolidating our achievements of the few objectives, we can move forward and make progress more firmly. Finally, I say the last point of how is to strengthen regional institutions. Very often it happens that we provide mandates to the institutions and no resources so it is very difficult to comply and we all become very frustrated both those who ask and those who cannot give. So I think it is very important to have these organizations realize they have certain limits in terms of what they can do and we have to be place things in the field of the reasonable and the possible. This is one of the best ways of strengthening the capacity for action of these organizations. These then are some of the comments I had for you. I think this is a special moment in LA, a bonanza and I don’t know how long it is going to last but we are in a period of optimism, cautious optimism, I’d say, we are starting to grow once again in a favorable international atmosphere or setting, this is going to last, but of course we all have the same enigmas. But maybe the great capital we have acquired in Latin America is the number of good and bad experiences we have had and I think this gives rise to certain specific points on which the debate has already been overcome by history and by fact. One is surely is economic balances; we cannot play with macroeconomics and the other is the need to have an efficient market with an efficient stage in the background as well, two things that go hand in hand in hand. We need markets because they are the best assigned resources but the state should also contribute with elements which can regulate the markets and compensate the relegated sectors and allow all of us to participate in the process of change. And economic openness, I believe that nowadays we are very convinced, the whole world is convinced, the ex-socialist world China has had, India, the search of these countries is no doubt whatsoever, that progress runs through a selective and intelligent openness. We have three channels by way of which we have been able to develop openness. the gamut of opportunities is too big to be too pragmatic about it for allowing us to move ahead. I think that if we manage to develop this openness and that openness is going to be a very important source of that extended cooperation to which the title of this conference aspires. Thank you very much.

(Respuesta a la primera pregunta)
Well, listen; I don’t know what advise I can give you. I don’t know about a new paradigm. What I can tell you though is that we have had so many experiences accumulated in the region over the years but for me more than a new paradigm, I prefer to talk about an incremental paradigm. Let’s take the things that have been working well, that work elsewhere and leaving behind the series of consensus as to what I was mentioning just now. I think that what the incremental model tells us is that surely we have to have a healthy macroeconomy where we can handle and manage fiscal policy and a monitoring policy with prudence to be able to ensure stability. I think we can all agree on that. An interesting thing some people don’t realize is that the big process of inflation in Latin America has finished. We have had a number of years but we can remember in the past, but Latin America is a stable region now. That is very important. And I think that is a point to be born in mind in any model we may want to develop as part of the equation. Second, I think we can all agree, as I said just now, that the market has been the best assigner of resources but there are important failures in markets that have to be corrected. The rules of the game for the market have to be the rules of the game, which will really allow for efficiency and also respect the different conditioning factors in the market. I think there the subject of state has to be made present, has to become present. At one moment we were thinking in an exaggerated manner, that we could live without state. In the 90’s, there was a current, a neo-liberal current, which led us to understand that this was the case. But this is not the case, everyone needs a state. Of course, the state cannot suffocate private activity. It has to control and it can compensate and ensure the rules of the market are applied. And above all, the subject of justice which is fundamental in every model. All this has been left behind. Openness abroad, I think that there is a fact supported by history that openness is an instrument for development. Now where have we seen the large criticisms to this model? Basically, I would say that they are to be found on the side of privatization on the one hand, second external openness, I think that privatization, which is one of the important subjects for the model, whenever they ask us I say this is not a religious problem. The firm can own a firm as long as it abides by the rules of the game. European countries have many public entities and they obey the market rules. So privatization is an instrument, it is not an objective. If we can agree with that we can live very well, very happily. The same thing goes with the case of openness. We question openness and what is the alternative, to remain closed? No we have to open up but intelligently, we have to negotiate properly, of course. But I think those things are the ones which go falling part of the experience I was talking about, lessons learned, and try to go moving upward toward the objective on the strength of those experiences. More than a new model then I’d say, try to correct what did not work in the past and above all most importantly ask yourself Ambassador, honestly why do certain things, why did they work in certain countries and why didn’t they work in others. So when we get to that question and we can answer it, then we are ok because we are learning our lessons.
(Respuesta a segunda pregunta)
Well look, I agree with you from a social standpoint. We have in the domestic agenda the social aspects which are poverty, exclusion, unemployment, and inequality most surely it is hard to explain in a world nowadays that one travels around, how is it possible this region with three thousand dollars per capita has two hundred and twenty million poor people. This is very complicated. I was mentioning China which is a thousand dollars per capita and a thousand 300 million people has made it impossible to solve problems of total poverty and hunger there are many poor people but they have made an effort, an important effort in the right direction. They have a lot to do with a thousand dollars; they have been able to resolve more than we have with three thousand dollars per capita. So there is the central subject there and I think the fiscal problem is one of the components it’s not the only one its an important one and I think that yes, important reforms are being introduced, I think countries are being very successful in this area, Chile for example, which has had tremendous success in terms of increasing collections and avoiding tax evasions. And it is true, poor states cannot contribute really to social solutions, to the social subject. There has to be a certain capacity for intervention and this allows for control and providing a market for maneuver into the different states. There are interesting programs available. There have been any numbers of changes, fiscal changes. Today, I would say, and in general, the fiscal subject is at the heart of the thoughts of governments, a great deal of interest in countries as to how to deal with the subject, how to approach it. There are specific examples of this of which are working. Thank you.