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October 28, 2014 - Toronto, Canada

Thank you for this invitation to participate in this very important conference. Many of us have met in recent years in similar meetings, which are always most constructive and a good occasion to experience moments of intellectual exchanges, in the midst of many official activities and travels. This meeting is the last time I will address you in my capacity as Secretary General of the Organization of American States. When, in May next year, I end my tenure, Canada will be celebrating 25 years of membership in the OAS, the only international institution that includes all the independent nations of the Americas.

So let me begin by thanking the International Economic Forum of the Americas and my friends Gil and Nicholas Remillard for all these opportunities to learn more about the present state of the world economic and political landscape and to share experiences that are always useful in our different fields of daily work.

This is therefore an excellent opportunity to make some remarks comments about the present situation of our hemisphere and the role our Organization plays in that context.

The main topic of this Conference: rethinking growth coincides very much with the challenges Latin America is facing today, when we are also faced with the dangers of a prolonged period of slow growth.

The point of departure is different. In spite of the crisis, the last decade, from 2002 to 2012 was particularly positive for most countries of Latin America. The region enjoyed healthy economic performances and its share of the world economy went for a little over 5% to close to 8%. When the global recession hit us in 2008, most nations, especially in the South were able to control the situation and resume growth after a year. This economic growth, while made possible by a boom of exports to old and new markets (Latin American exports to China went from 4 billion to 71 billion in the decade) allowed us to grow more in one decade than in the previous two decades put together. This growth made it possible to obtain some remarkable achievements. Close to 70 million people were lifted from poverty, with the rate declining from 43% of the population in 2002 to 28% in 2012.

The compliance of Latin America with the UN Millenium Development Goals is unparalleled in the developing world.

However, this situation has changed and Latin America is again faced with poor figures of growth, for the second year in a row (mind your, there are exceptions, but if Brazil is growing by around 1% this year and Mexico, though higher, is below the expectations at the beginning of the year, as almost all of the bigger countries, that accounts for a low rate for the whole of the region)

If there is some truth that we have learned about Latin America it is that our political and economic development has never followed a straight line, but has been full of surprises, successes and setbacks and carries several historical burdens which are never easy to shed permanently.

Latin America’s economic prospects are complicated by changes in response to three main factors: declining trade, moderation of commodity prices and increasing uncertainty surrounding external monetary and financing conditions. This is a consequence of the euro area’s weak performance, the slowdown in China’s economy, changes in U.S. monetary policy. While rising domestic demand could make up for some of this weakening in external demand, the previous period was not fully used to introduce the changes that could have allowed for a significant rise.

The last estimates announced by the IMF expect the region to grow at less than 2% in 2014. That is a little better than last year, but for two years in a row our economies grow less than any year of the past decade. They are also below those projected for the world economy as a whole and for emerging and for developing economies.

The reasons are well known. The bulk of the gains achieved by Latin America came from external factors, including a boom in demand and in prices of the commodities the region produces [coal, iron, soy, copper, gold and coffee]. Latin American exports to China — mainly commodities —soared from nearly $4 billion in 2000 to $71 billion in 2012. China is the largest importer of goods from two key emerging markets, Brazil and Chile, and the second largest in the case of Costa Rica and Peru. It is also the third-largest source of goods imports for Latin America and the Caribbean, accounting for 13 percent of the region’s imports. Latin America has also become a major destination for Chinese foreign direct investment(FDI).

But prices for raw materials have fallen sharply over the past year amid lower demand from China. China’s growth has fallen from 10% annual rates in recent decades to a projected 7.5% this year and could face a further slowdown to 5% over the next decade according to the World Bank. Some economists had predicted that China would surpass the United States as Latin America’s top trading partner by 2015. This seems increasingly unlikely.

The main economic challenge facing Latin American markets in developing their potential inside and outside the Hemisphere is to find ways to build economies that could allow the region to maintain high growth rates on its own without relying on erratic commodity prices in global markets or the abundance of foreign investment. These issues must be faced in the next years, if we want to maintain rates of growth. The smaller economies, dependent largely on remittances, tourism and other external factors, will continue to depend on them. The larger and middle size ones can certainly improve their chances of sustained growth if they undertake many pending reforms.

While many good things can be said about the economic progresses of Latin America, domestic savings and investment continue to be our Achilles heel. The important growth of our region in the past decade was not made possible by any increase in internal savings and investment. On the contrary, consumption increased steadily through the decade at a rate slightly higher than GNP. Saving and investment in most countries of the region are absolutely insufficient to sustain the present rates of growth, much less to increase them.

With the reduction of foreign resources easily available for investment in emerging economies, our countries face a double challenge: to increase competitiveness and stability, in order to attract capitals in a tighter market, and to adopt policies that can increase internal revenue.

Export diversification, improvements in the quality of education, public investment in much needed infrastructure, improving productive sector competitiveness and debt sustainability, developing the many energy resources that are sufficient for sustainable development, 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.

And then, there is the pending matter of inequality, recently defined by the International Monetary Fund not only as a consequence, but also as cause of low growth, which the countries of the Americas, North and south, have not been able to overcome. Growth and the reduction of extreme poverty, have not substantially increased the levels of equality and social inclusion in our region.

It is common to hear that many countries of Latin America have reduced their levels of inequality and even that there is a new “middle class” in the región. While it is true that the number of people in the lower middle income sector are equivalent today to those in the “poor sector”, in fact many of those who have gone over the poverty line are faced with a very precarious condition, with incomes still below 10 dollars a day per family. These “strugglers”, as a recent study calls them, are still very vulnerable and could fall again in poverty if the economies deteriorate much.

The good years that our economies have undergone in the past decade have prepared most of our countries to muster the resources to face these challenges. Much of this preparedeness depends of on the quality of public policies.

The countries of Latin America have shown to be much more prepared to manage their economies, most of them have strong and healthy banking systems, have developed fairly open economies, run good fiscal balances and have manageable debts. Most of them have democratically elected and stable governments. The big question is if the institutions and practices developed in the years of bonanza will be able to withstand the increasing, and contradicting, pressures of economic growth and competitiveness and demands for an improvement in income distribution, public services and accountability that come from their constituents.