It gives me great pleasure to welcome to the headquarters of the Organization of American States the distinguished experts who have come from various nations of this hemisphere to participate in this seminar, which will examine the contribution of transportation infrastructure to the integration process and to economic development in the Americas.
Integration is a fitting topic for OAS dialogue, research, and action and is one of the objectives of the inter-American system. It calls for collective action on the part of the member states, and requires their governments' political commitment if it is to be used as an instrument.
Integration is one of the many fields of action designed to increase productivity in the medium and long term in the region, as are the deregulation of markets, fiscal balance, liberalization of the various prices of the economies, the opening up of the foreign investment system, environmental protection, and the divestiture of all assets that are unrelated to the essential functions of the state.
We know that economic openness and liberalization have a salutary effect on productivity. Successful export economies rely on technical change (more than investment and labor) for their growth and promote proper plant sizes and specialization. International competition is healthy for innovation, product quality, and efficiency by business executives. The exporter enjoys low-cost access to countless technological improvements from abroad, has superior designs for its products and a better command of quality.
But the economic and social development of the hemisphere needs not only sound economic policies, but a politics in which the strengthening of democracy must be the central concern. The relationship between democracy and growth is a two-way street. Its continued existence requires sustained growth and a strategy of incorporating the large marginal sectors into market economy, the justice system, and citizen participation. Increased social investment, strengthening of democracy, and greater respect of human rights are needed.
Summing up, the economic reforms mentioned earlier seek to raise our people's standard of living, improve the distribution of wealth, and advance policy reforms that allow for greater citizen participation.
Before addressing the infrastructure issues, I should like to say a few words about integration.
During the last few years significant progress has been made on trade and investment in the region, especially in the field of integration. In addition to a set of very broad bilateral agreements, last year the United States, Canada, and Mexico signed the NAFTA agreement; Colombia, Venezuela and the Central American Common Market continued to grow stronger.
The economic results have been surprising, but there is more or less a consensus among our countries that a strategy for free trade across the hemisphere is needed relatively soon and that it might include the following: (a) a set of multilateral measures; (b) the expansion of the bilateral and plurilateral schemes in the direction of open integration; © the coordination of the rules and regulations established under the various agreements; and (d) support for the integration of the "small" countries.
We have offered this organization as a forum in which to discuss the consolidation of the proposed process. The OAS brings together all the countries involved in hemispheric integration and can collaborate with the other institutions that make up the inter-American system (the IDB and ECLAC, among others) to decide on research priorities, standardization of information systems in the region, and the creation of rules that would guide the process.
Among the multilateral possible activities are successive accessions to a major subregional agreement (NAFTA, the Andean Pact, the G3, and the Mercosur are the obvious candidates), the adoption of a plan to extend throughout the region the preferences accorded under the various agreements, or the adoption of simple multilateral liberalization rules.
Progress can also be made on the bilateral and plurilateral front, in an effort to get the existing agreements to conform to what ECLAC calls open integration. In essence, this means that under the treaties a considerable portion of the potential trade between the countries (i.e., with few or no exceptions) would have to be exempted from tariffs, a wide group of non-trade activities would be regulated, and accession clauses would be relatively simple, transparent, and functional.
The development of infrastructure has been a vital element in our countries' growth. New ports and railroads generated opportunities to export raw materials, electric power made industrial development possible, and the provision of drinking water helped to eradicate diseases and improve social conditions. Moreover, since more than 60% of the exports of the developing countries nos go to OECD countries (over half are manufactures), our exporters will be able to sell on these increasingly competitive international markets only if they have the same kind of transportation, storage, and communications facilities.
Unfortunately, the crisis of the eighties also eroded infrastructure in Latin America, since investment, which has traditionally been financed with fiscal deficits or external debt, fell substantially; infrastructure expenditures amounted to 4% of the region's gross domestic product in the seventies, but dropped to only 3% in the eighties. According to a recent World Bank document:
Latin America is the most urbanized region on the globe, and air and water pollution have reached critical levels in Mexico City, Sao Paulo, and Santiago. The gradual deterioration of the water supply and sanitation services caused a recurrence of cholera in the region in 1991 after an absence of over 100 years. Traffic congestion in the major cities has reduced urban productivity, and the acute problems with income distribution have limited access of marginal groups to essential services. The empirical evidence indicates that the efficiency in investment and operation has been low. It is the rule -not the exception- that in electric power line drops are over 20%, that too many telephone calls never go through, that 45 % of the paved roads are in poor condition, and that 50% of the water produced is lost because of leaks and poor connections.
By contrast, the Asian countries now earmark over 5 % of their gross domestic product for infrastructure projects and plan to increase that figure to 7% during this decade. There is an abysmal difference between the two groups of countries in terms of the quality of port services, roads, and communications. And so it is time to rethink old ideas and find novel solutions to this very pressing situation.
First, we have to start building and managing our infrastructure as if it were a business. It is a service industry that must be responsive to users' needs and that can generate large profits. Recent studies done for developed countries show that the contribution of infrastructure to growth can be even greater than that of investment in machinery and equipment. The available studies on the developing countries indicate rates of return of over 60%. Of course, the private sector will not obtain the returns that these projects can potentially offer if the rates charged do not reflect the costs of the service.
Second, competition among producers is vital. The barriers to entering markets must be removed in sectors where there are no technological barriers, and competition for the right to supply the service must be ensured otherwise. Technological development and new forms of regulation have noticeably reduced the "natural" barriers to involvement in infrastructure activities, especially in communications and power generation. The strategy used by Argentina, Chile, Colombia and Guatemala, which is to separate the production, transmission, and distribution of electricity has also proved successful. The private sector can play a variety of roles, from monitoring projects already built by the public sector to building and operating the projects under long-term concessions. Of course, it can also completely manage some sectors like communications and water supply.
The role of the government will remain pivotal, but should shift from the direct production of services and to the shaping of policy and regulations and to proper environmental protection. Many cases will require projects in which the public and private sectors participate jointly.
Of course, the main benefit of this strategy will not come solely from the increased efficiency that an improved infrastructure provides. Equally important is that massive participation by the private sector in infrastructure projects will free resources for "social" spending on education, health, and justice in our countries. The governments will thus be able to improve the living conditions of marginal groups.
The funds "liberated" will be considerable, considering that World Bank projections for the period 1994-2000 show that Latin America will need an annual investment of close to US$24 billion in electric power US$14 billion in transportation, US$12 billion in water and sewage, and US$10 billion in telecommunications.
Of course, economic integration among our countries will require additional efforts in the field of infrastructure and transportation, and offers new opportunities for cooperation.
The physical interrelationship among the countries of the hemisphere has been an issue since the start of the Pan American integration projects: the development of highway and rail transportation networks gradually put together a relatively structures system that was particularly geared to overseas exports. The backbone of the read system was the Pan American Highway. Later, national networks diversified, as did the international linkages.
In the second stage, the problem of transportation for integration became that of functionally integrating the various networks and improving transportation markets through bilateral or regional agreements.
Noteworthy during this period are the various activities under way in the region to reorganize the transportation sector, which are influencing the design and financing of infrastructure projects. Important among these have been the deregulation of ports and railroads, and port-reform laws and their regulations.
At the present time, the physical integration of the transportation infrastructure is being addressed in the various integration arrangements and in their operating mechanisms such as the Conference of South American Ministers and others of equal importance. The matters discussed at these meetings are basically:
· The development of transportation infrastructure networks for integration of the subhemispheric systems (South American Transportation Network, Central American Transportation Network, binational and multinational projects).
· Strenghtening the communications systems of landlocked countries and regions among themselves and with sea ports, so that all member countries enjoy more equal access to overseas markets and coastal economic zones.
· The effective use of the existing infrastructure and of interior waterways and the construction of ports to permit modernization of intermodal and multimodal transportation.
· The identification and the provision of sources of funding to maintain and restore the transportation infrastructure, which in many countries is long overdue.
It is my hope that this seminar will offer alternative solutions to the various challenges, by describing the problems within the sector, examining thoroughly the options available to correct them, and making recommendations that can be presented to the governments.
This will undoubtedly be an important contribution to the formulation of national and regional policies that accord the role of transportation infrastructure its proper priority in the integration of this hemisphere.
These contributions could also serve as inputs to the agendas of future inter-American meetings of ministers of public works and transportation and as important components of the proposals for cooperation from international financing and development organizations.
Ladies and gentlemen, I wish you every possible success in your work during this seminar.