Good Morning. It is a great pleasure to be with you this morning to participate in the inauguration of this VII Annual CAF-OAS-Inter-American Dialogue Conference on Trade and Investment in the Americas and US-Andean Community Relations.

Perhaps more than ever before this Conference provides a very valuable and timely opportunity to look at the realities of the Andean Community and Western Hemisphere countries, explore internal policy options for the countries as well as for US-Andean and US-Latin American relations, and propose new ways to ensure the attainment of a more prosperous, democratic and peaceful region.

Economic and developmental challenges

Let me start with some issues around the critical economic challenge of how to promote growth and development in Latin America. More than a decade ago, Latin American countries decided that achieving this objective would require increased trade and investment, the main title of this Conference, which in turn needed freer trade and integration as well as appropriate policies at home. Much has been done in trade policy in the last few years, however, in 2003 the economic and political environment for trade liberalization and negotiations has become more complex and more difficult.

Today countries have not only the FTAA avenue, which is almost within their grasp as the target date approaches. They also have the multilateral road of the Doha Round, a process that is holding this very week in Cancun a mid-term Ministerial Meeting. And with the adoption of Trade Promotion Authority and the new US policy of “competitive negotiations”, many are also enthused by the prospect of a possible bilateral negotiation with the United States. How to prioritize and decide among these different options? How are they linked? What do these options imply for regional integration efforts such as the Andean Community? These are key questions that I hope you will discuss in this conference.

My own view is that countries should be pragmatic, and that this means pursuing negotiations on multiple fronts: active participation in the Doha Round and in the FTAA, as well as exploration of bilateral possibilities. Trade policy is business as well as politics. But for Latin American countries trade policy is also, and fundamentally, the business of growth and a fundamental pillar for their development. Countries should pursue those paths that have the potential to give them the highest returns in terms of growth and developmental possibilities.

Further international integration has been and, we can be sure, will continue to be a key component of the development strategies of countries. However, the economic and political context for trade liberalization and economic reform in the Western Hemisphere is now very different compared with say, ten years ago, in at least four respects.

1. Trade Liberalization has Become Less Popular in Latin America

First, trade liberalization and policy reform have become less popular in Latin America. A decade ago most Latin American countries had enthusiastically put in place largely similar types of economic reforms inspired in the Washington Consensus, and designed to open markets through trade liberalization and privatization. Along with reforms, long-standing prejudices against economic cooperation and partnership with the United States went by the wayside. Now there is a widespread disillusionment, for right or wrong, about the wisdom of this course of action, and it is widely felt that the reforms did not live up to their expected results. Important sectors of society in Latin America and the Caribbean are now questioning and resisting further reforms and liberalization and pointing to what they perceive as a failure to deliver higher growth, more employment and better standards of living. Even among those that are convinced about the need to maintain the course, there are doubts about the appropriate speed and depth of this process.

The skepticism over further trade liberalization and reform is compounded by the significant deterioration in the economic situation in many countries of the hemisphere during 2001 and 2002, with growth slipping to negative numbers and poverty on the increase. For instance, average growth for Andean countries was a negative 2.2 percent in 2002.

Unsatisfactory economic performance and persistent poverty are trends that cut both ways. On the one hand, they exacerbate fiscal, social and political constraints, and make the task more difficult, even for those reformist governments committed to freer trade. On the other hand, the more difficult macroeconomic context makes it more imperative to progress toward and complete the FTAA in a timely manner so as to anchor economic policies, attract investment, and promote growth.

What is clear is that the “selling” of further trade liberalization and economic reform has become much more difficult in Latin America. And yet, as a recent report by the Inter-American Dialogue argues, the FTAA will only become a reality if each government in Latin America and the Caribbean can make a credible case that the FTAA is good for the country, that it is a key ingredient to restore economic growth, increase employment, reduce poverty, in short, that the FTAA is an important element of a broader national strategy to reduce the economic and social distress that has been on the rise in recent years.

2. And also in the United States

Second, the situation changed in the United States as well. On the positive side, there is a perception of renewed and increased commitment to free trade by President Bush himself and his Trade Representative, Ambassador Robert Zoellick and his team. Trade Promotion Authority legislation was finally passed last year, allowing the FTAA negotiations to proceed without one of the main uncertainties that had previously surrounded them. However, the narrow majority amassed by the bill to pass Congress indicates to some that the broader bipartisan consensus of ten years ago has not been rebuilt and that trade liberalization no longer commands general congressional backing.

The approval of the steel safeguard and the Farm Bill of 2002 have done much to reinforce this perception by countries in the hemisphere, and there are fears that protectionist constituencies in the U.S. will continue to resist liberalization on issues such as textiles, citrus fruit and other agriculture, coastal shipping, and changes in antidumping laws, among others. Countries have also been concerned about the stronger parameters put in place by the Trade Promotion Authority on negotiated outcomes with respect to labor and environmental issues and trade remedy laws. In strictly mercantilistic terms, the bottom line issue is whether the United States will be able to deliver sufficient concessions to compensate the concessions it is seeking from Latin America.

But the FTAA project goes beyond a strict mercantilist calculus, and this is the way it should be. It has been from the beginning a key part of an integrated vision and a working agenda among Inter-american governments to promote prosperity and democracy and advancing political and security objectives.

This is one of the reasons why I feel strongly that while bilateral trade agreements can make a contribution, we must not allow bilateral agreements to substitute for the creation of the FTAA. The FTAA is not just one more policy option, it is a key part of the sense of collective purpose, shared values, and common interests of the Summit of the Americas process and the inter-american system. But the FTAA is not destiny either. Governments must continue to work hard and with vision both in the trade negotiations and in the Summit of the Americas process to make the FTAA a reality. The Andean countries have a pivotal role to play in maintaining the momentum of the FTAA project. I am convinced that it is in the interest of the Andean countries, as well as of all LAC countries, to push for the completion of the FTAA.

3. Civil Society Concerns about Globalization and Income Disparities

The third change as compared with a few years ago is that the very success of global markets and the growing interdependence of our societies has ironically given way to discontent about the consequences of this interdependence now called “globalization”. Concerns range widely from irrational fears and misconceptions, to legitimate issues. The book by Professor Stiglitz on Globalization has become a best seller in Latin America. How to respond to these globalization worries is one of the major political challenges for governments and international institutions in the next stage of economic reform.

One specific concern is not only legitimate but also fundamental, and I would like to emphasize it today. This is the fear that the large gaps and disparities between poor and rich countries, and poor and rich regions, will be larger rather than smaller as a result of fostering greater hemispheric economic integration and lowering trade barriers. This is an issue that should receive a studied policy response, not only at the domestic level in each country but also as a matter of collective action in the Inter-American system. It is an issue that requires an effort to put development, poverty and equity considerations side by side the trade and investment policy agenda. A number of NGOs and distinguished academics go beyond in this line of thinking and believe that in order to accelerate “economic convergence” among countries of the Americas, there will have to be explicit transfers from the richer countries and regions to the poorer ones to close the infrastructure, education, and other gaps.

A step in the right direction is being undertaken within the FTAA process through the Hemispheric Cooperation Program, approved by Trade Ministers at their meeting in Quito, Ecuador last November. This Program represents a forward-looking effort to deal with the differences in the trade capacities of countries and to place trade within a broader development perspective, which recognizes that both trade and aid are important not just for the implementation of trade agreements, but also for economic development. However, to accelerate economic convergence in the Americas the challenge of resource mobilization to finance the needs is much larger than is at present being contemplated. At a practical level Ministers of Trade and Ministers of Finance need to talk more and develop a common vision about trade capacity building priorities and about how to finance them.

Of course, aid and international resource transfers for capacity-building need to be supplemented by appropriate internal social policies and redistributive mechanisms in the form of tax policy, social insurance policies, and adequate social safety nets. Economic integration is a vital part of the answer to stimulate economic growth, but by itself it is not enough to address developmental needs and concerns.

4. At the Root of the Growth Gap there is a Governance Gap

There is a fourth fundamental dimension in which conditions have changed in Latin America. A decade ago we were celebrating the transition to free elections and representative democracy. Today, democracy is being threatened by new subtle and difficult problems: imperfections in the rule of law, corruption, drug trafficking, reduced legitimacy of political parties, institutional malaise of various kinds. And yet, we know that democratic stability, freedom from civil strife, respect for the rule of law, and good institutional quality are the basis for an environment that favors investment and growth. In other words, at the root of the growth gap there is a governance gap.

It has surely been a mistake to somewhat underestimate the importance of political variables in the 1990s and to have believed that development is determined solely by economic factors. Therefore, what was once a question of economic models has become an eminently political issue.

Globalization puts enormous pressure on our political systems. It unveils and unmasks problems that have been present in our societies for decades. And this is not necessarily bad. On the contrary, a global awareness has emerged about a number of democratic imperatives: social justice; free and fair elections; separation of the branches of government; an independent justice system and the fight against impunity; the need for an unrelenting assault on corruption and the quest for more transparency and accountability. Defense of freedom of the press and of expression has taken on new momentum; our embattled institutions have been shaken to their foundations by the growing presence of civil society, with its fierce criticism, cries, and protest. As never before in our history, the fight against discrimination and defense of the rights of the weakest, women, indigenous peoples, and children, have surfaced with intensity.

In many of our countries, major shortcomings in the delivery of public services prevent our people from leading dignified lives. All are offended that Latin America is the most inequitable region of the world. Few are interested in whether or not this is a consequence of the previous or current economic model. And all this undermines democratic governance and creates urgent needs for political reforms.

Faced with the magnitude of these challenges, we must continue to equip the OAS and the inter-American system in such a way that governments in difficulty are able to make effective use of their institutions, face the problems, and, as President Lagos has said, govern over and above globalization.

Opportunities Offered by the Summit Process

And since these political dimensions are also part of our collective action mechanisms in the Inter-American system, let me finish with a comment on the opportunities offered by the Summit Process.

Balancing trade and development concerns in the Americas can be achieved by working on parallel tracks vía not only the FTAA and its Hemispheric Cooperation Program but also via re-energizing the Summit Process with political support and resources, as well as strengthening Inter-American institutions to be fully up to the difficult and complex tasks ahead.

In the new socio-political reality of most countries in the Americas, this integrated approach would go a long way in allowing each government in the region to make a credible case that the FTAA, and the broader Hemispheric process in which this project is embedded, is an important element of the broader national strategy to promote economic growth, increase employment and reduce poverty.

However, doubts have been expressed not just about the FTAA but also as to how powerful is the glue provided by the Summit process. The extraordinary Summit to be held in Mexico in January 2004 is an opportunity to answer some of the concerns.

Key countries will need to be prepared to back the vision of shared values and interests with two essential ingredients: increased political commitment to multilateral cooperation in the Americas, including but not limited to the strengthening of some inter-American institutions, and significant additional resources and creative initiatives to bolster the credibility and the effectiveness of Summit Initiatives.

The answer to these questions will have an important impact on how the idea of partnership with the United States, so enthusiastically embraced ten years ago, will evolve in the future in Latin America. Only with more reforms, more democracy, and better state institutions and policies will we successfully address the tasks of growth, social equity, inclusion, and well-being for all people of the Americas.

Thank you very much,