Media Center



April 9, 2013 - Palm Beach, United States

Let me first express my thanks to the organizers, and in particular to Gil Rémillard, the founding chairman of the International Economic Forum of the Americas, for inviting me to address the Third Palm Beach Strategic Forum and discuss with you the issue of economic integration in the Americas.

This Forum is taking place at a time when most Latin American countries have been enjoying a favorable economic outlook in recent years.

There is a newfound sense of optimism in our region today and the primary reason is economic. After the fears and the uncertainties triggered by the Great Recession of 2009, the region’s economies begun soon to show vigorous growth, beginning with Brazil and Argentina, but also Peru, Colombia, Chile, Panama, Uruguay and, more recently Mexico.

While the region managed to continue growing in the worse years of the crisis, it is expected to grow by 3.6 percent this year, close to the average growth rate of the last 10 years, according to data from the World Bank. But several countries (Peru, Panama, Chile, Colombia, Mexico, Uruguay and some more) have grown at a faster pace, and this year may reach levels over 5%.

The fact that the economies bounced back so quickly, just one year after many of the leading economies experienced even negative growth rates, spurred optimism. If you compare the region throughout the last decade, from 2002 to 2012, that period saw more growth than the two previous decades put together.

During this decade poverty rates have dropped to levels not experienced since before the 1980s. Tens of millions of Latin Americans have moved out of poverty and a large number of jobs have been created.

A vigorous, industrious middle class has risen from 103 million to 152 million, a key factor of the progress of Latin America.

Part of this success has to do with public policies. The fact that some countries overcame the crisis earlier was not just due to the rise of commodity prices, but also to the fact that their economies were better prepared and were managed in a much better way than in previous crises.

The quality of macroeconomic policies adopted by the governments before and during the recession enabled them to mitigate the impacts of the economic downturn. Even countries that proclaimed their aversion to policies of the past acted with fiscal prudence and accumulated the reserves needed to implement anti-cyclical policies.

Two examples are revealing. Twenty years ago, Bolivia had a negative reserve and now it has more than fourteen billion dollars in international reserves. Now, as a percentage of its GNP Bolivia has by far the highest foreign exchange reserves in the continent. And Nicaragua follows Panama and Costa Rica in the list of countries receiving Foreign Direct Investment, in Central America while giving all kinds of guarantees to investors.

Today, our countries are open to the world in a great variety of ways. Using the new opportunities that arise in China, India, and other Asian countries, they have It has opened numerous new markets around the world, while maintaining solid trade with the Americas and Europe.
As a result the growth of its expansion has been steep and it is safe to refer to the current bonanza in several countries as “export led”.

Hemispheric trade has grown substantially since the first Summit of the Americas held in Miami, almost 20 years ago, in December 1994. Countries of the Americas have signed over 80 free trade agreements. The success of intra-regional trade agreements is such that by 2015 these agreements will have freed more than 95% of the covered products at the regional level.

The United States has FTAs in force with 12 countries of the region, [Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, and Peru] and the Hemisphere is the U.S. main trading partner. Canada has also signed several agreements with the same countries.

At the same time, in the growing Asian involvement with our region, Chile, Peru and Mexico have been among the first signatories of FTAs with Japan, China, Korea, and New Zealand.

Latin America’s economy is almost as big as China’s; and, in my view, more than China it represents a huge opportunity for the US and American investors. There is virtually no important language barrier; and more than 50 million US citizens are from Latino descent. We have more open economies and economic, political and cultural relations that cover all our independent existence.

I truly believe there is a huge untapped opportunity down the border that hasn’t been taken full advantage of.
Four countries (Canada, Mexico, Brazil, and Venezuela) accounted for 32% of total U.S. trade in goods in 2011. In comparison Asia’s share [China, Japan, South Korea, Taiwan, India, and Singapore] was lower at 26%. In the past two decades, U.S. trade with the Americas has grown faster than the country’s trade with most of its main partners, [except China].

At the end of the last decade, Latin America and the Caribbean as a whole was the U.S. largest export market accounting for 23.2% of total U.S. exports, slightly ahead of Asia at 22.4%, Canada at 19.4%, and the EU at 18.8%.
The Hemisphere is also important to U.S. investors. By the end of 2010, the Americas was home to $1 trillion in U.S. direct investment, which represented 26% of total U.S. direct investment abroad.

It is also worth pointing out that, by the end of the last decade, Latin America and the Caribbean’s share was larger (18.5%) than the share captured by the Asia Pacific region (15.6%).

In a moment in which, unfortunately, little is happening in the world in matters of free trade, there is new movement in Latin America.

Initially motivated by a desire for deeper economic integration associated with stronger ties with Asia, Peru, Colombia, Mexico and Chile launched the Pacific Alliance in April 2011. The main objective of the Alliance is to move towards the free movement of goods, services, capital and people among member countries, and to strengthen trade and investment ties with Asia. But this Alliance can also expand trade inside the region itself and thus create new opportunities for exports and investments.

With a population of 215 million people, these four countries accounted last year for 35% of Latin America’s GDP. Their exports reached $445 billion, which means that they topped the exports of MERCOSUR countries by a margin of 60%.

The Alliance countries have already taken concrete steps. This past November, they eliminated visas among themselves. Colombia, Chile and Peru have created the Mercado Integrado de Valores Latinoamericano (the Integrated Latin American Securities Market). A few weeks ago [March 31], the members of the Alliance liberalized trade for 90% of their products. The other 10% has a timetable to rapidly reach 100%.
Originally set up as a bloc for Latin American Pacific countries, the Alliance counts several non-Latin American countries as official observers: Canada, Australia, New Zealand, Japan, and Spain. These countries hope the Pacific Alliance will emerge as a robust trade link between Asia’s vast markets and Latin America.

Trans-Pacific relations will also be enhanced by the conclusion of the Trans-Pacific Partnership or the TPP. Two of the world’s most dynamic regional markets -Asia Pacific and the Americas- are moving towards integration through the establishment of a free-trade area unprecedented in size and scope. With its aim to connect the economies of the Pacific Rim, the TPP has generated excitement and debate around the world as a twenty-first-century agreement and the first of its kind.

The United States, Chile, and Peru, as well as Mexico and Canada who joined the negotiations last year, along with 6 Asian Pacific countries [Australia, Brunei, Malaysia, New Zealand, Singapore and Vietnam] are actively participating in these negotiations. The impact of a concluded TPP will be significant.

The Pacific Rim is home to 40% of the world’s population, produces over 50% of global GDP, and includes some of the fastest growing economies in the world. With the announcement of Japan’s interest in joining the talks a few weeks ago [March 15], its impact will be even greater.
There is also interest on the part of several countries of our Hemisphere in forging closer economic ties with the European Union. Earlier this year the U.S. and EU agreed to launch negotiations on what would be the world’s largest free trade deal. Several of our countries [Mexico, Chile, Central America, CARICOM, the Dominican Republic, Colombia and Peru] already enjoy a comprehensive trade agreement with the EU, while others such as Canada and MERCOSUR countries are currently negotiating such deals.

Ladies and gentlemen,
I have spoken a lot about our achievements; so allow me to say a few words about our challenger.

1.- The first challenge is achieving stable sustainable growth, using the present cycle of growth, supported by good economic policies and based on the good prices of commodities, to correct many of the insufficiencies that our countries still have: lack of sustained internal investment, of adequate infrastructure, of a well-trained labor force; accompanied by excessive accumulation of wealth on a small upper class, more prone to consumption than to productive investment. Savings and investment are still inadequate, and have negative repercussions on job creation.

Today, the main economic challenge facing Latin American and Caribbean countries in developing their potential inside and outside the Hemisphere is not related to traditional trade barriers such as tariffs, but rather to transportation and logistics costs. This is due, among other factors, to the inadequate physical connectivity and to the inefficiency of our infrastructure. Logistics costs in the region represent on average between 15 and 20 percent of the value of the final product. In North America and Europe, this percentage is about 6 to 8 percent. Therefore, I think that there is ample opportunities for investment in the infrastructure sector as the needs keep growing at a fast rate.

Export diversification, improving productive sector competitiveness and debt sustainability are essential to the region’s long-term growth prospects. Strengthened horizontal cooperation, sharing of best practices, and the adoption of initiatives geared toward improved public policies and institutional capacity building are key for supporting the advancement of national development objectives. So too is ensuring that micro, small and medium enterprises (MSMEs), which account for more than 90% of all businesses in the Hemisphere and employ close to 70% of workers, are fully integrated into the productive fabric and development calculus of countries.

2.- Sub regional economic integration processes have seemed to stagnate in the past ten years. In spite of the growth on exports and the important rise of Latin Business (the so called multilatinas) our governments have not taken new significant steps to raise their competitiveness and increase their market access by reaching better economic agreements among them.

MERCOSUR, SICA and CARICOM are still plagued by some of the same deficiencies that faced them a decade ago. That is why I attach so much importance to the Alliance of the Pacific, not only as an opening to the world, but also as an answer to the slow pace of sub regional integration and the development of internal markets.

3.- Poverty and inequality continue to be the prime factors that hold back Latin America. The fact that a very small minority of the population accounts for the largest part of national income does not fit with our democratic discourse and does not favor the full participation of more citizens in our markets. m. Neither tax systems nor labor laws have been reformed to provide for a better distribution of wealth, as shown by recent OECD studies on the virtually zero change in the Gini Coefficient after taxes in our region of Latin America.

Although we are now regarded as a region of opportunities, where, since 2002, more than 50 million people have escaped poverty, much remains to be done with the poverty level reaching a bit less than 30%. It is still at an unacceptable level but if the trend is confirmed, we are effectively addressing this challenge that has haunted us for so many years.

4.- In Latin America our democracies are not perfect, but the region has come a long way in recent decades. The unanimous adoption of the Inter-American Democratic Charter on September 11, 2001 by OAS member states represented a significant milestone on the path toward democratic consolidation. But democracy has to be seen as a process, and we have to consider what advances and what obstacles lay ahead in that process.

There are two areas in which the democratic trend has been quite successful. All but one of the governments in the region have been elected democratically and, while some of us may not like all the choices that the peoples have made, all of them can withstand scrutiny: elections are clean, the majority of the citizens vote, and the results reflect the actual vote. In accordance to our Democratic Charter, we have observed more than 80 electoral processes in the past eight years and, while some are better than others, we have never found cause, in any of them, to question the results.

Governability has also been greatly improved. In recent years, governments have also increased their staying power, while in the 1990s they had a tendency to end before the conclusion of their term of office. In the fifteen years from 1990 to 2005 eighteen elected governments ended their mandates prematurely, by coups, resignations in the midst of severe upheavals or impeachments. From June 2005 to this day, only two such events have occurred.

But while democracies are stable, the institutions are still very fragile, and this is a crucial problem for democratic governance. We have weak and poorly financed governments to tackle such serious problems. Our governments, in response to their citizens (and exaggerated electoral promises), take on social and security responsibilities that they are not in a position to fulfill, because they lack the necessary resources, as well as strong and reliable institutions to spend them. Government reform should start with fiscal reform that will increase government revenue and, at the same time, become a legitimate method for redistribution of revenue, as occurs in all countries of the developed world.

In closing, let me say that for the first time in its history, Latin America achieved during the past decade a combination of high growth, macroeconomic stability, poverty reduction and improvement in income distribution. All this while achieving a development of democratic governments that is the best we have had in any period of our history. But let me emphasize that though the region is rightly proud of its recent economic success, it still has to grapple with the issue of how to achieve more inclusive societies. As the Hemisphere’s population approaches one billion, governments, business and international organizations have an unprecedented opportunity to work in partnership to position Latin American and Caribbean countries to maximize their individual and joint capacities to reap the benefits of deeper economic integration, and to achieve sustained growth, stability and prosperity. I strongly believe that the time is ripe to engage in an effort that will finally provide the Americas with the appropriate framework for a deeper trade and economic integration.