Thank you very much your Excellency Pedro Pablo Kuczynski, Prime minister of Peru,
Mr. James Fendell, Chair of the Association of American Chambers of Commerce in Latin America (AACCLA),
Mrs. Kathleen Barclay, Treasurer of the Association (AACCLA),
Mrs. Linda Eddleman, Executive Director of the Trust for the Americas,
Distinguished ambassadors from Latin American and Caribbean countries,
Distinguished Guests,
Ladies and Gentlemen,

First, let me begin by expressing my gratitude for having been invited to this Annual “Forecasts on Latin America and the Caribbean Conference”. I feel honored to be here today and I would like to take this opportunity to congratulate you (Association of Chambers of Commerce in Latin America) for organizing this very important event around and issue which is so relevant to our region today, such as integrating the Americas in prosperity. Certainly, democracy, prosperity, and integration are our main goals, and that is probably the main challenge we are facing today.

Of course this is not a region that’s easy to understand. It has complexities, it is very diverse, it has deep contradictions, a world of dreams and of many frustrations. However, our diversity has not proved an obstacle to our agreeing freely to adopt democracy as the common form of government in our nations. And this development of recent years is totally something we must want to keep and want to strengthen very thoroughly.

We have recently had some encouraging economic results. Per capita income rose about 4.1 percent in 2004 in the region, and is projected to rise again significantly in 2005. Average inflation has been brought down to single digit levels. Most countries are running trade surpluses and have significantly reduced their external financing needs. Fiscal deficits have been cut and countries’ public debt profiles have improved, though they remain very serious in some of them. Banks are stronger, exchange rates are floating, and the forecasts indicate that Latin American and Caribbean economies will expand by 4.3 percent in 2005 and by as much as 4 percent in 2006. In 2004, exports from the region rose by 22.8 percent. That was a high rise from 8.8 percent in 2003, and the first half of 2005 saw a similar pattern with a 17-percent increase in merchandise exports.

Of course, in order to sustain the current growth, countries must be alert of downside risks of external and domestic origin. We know the downside risks from the economic point of view that continued spikes and the growth of international oil prices, as we have seen in past weeks, subsequent inflationary pressure in oil exporters; the possibility of a rise in U.S. interest rates, stronger-than-expected global desacceleration and reduced global liquidity.

We are making a lot of efforts to strengthen our economies in this direction. But we must agree that many of the challenges that we face are closely associated with the globalization process, which we joined a couple of decades ago and we have to continue working in the global arena, avoiding any temptations of isolating ourselves artificially from the problems we have.

Efforts are therefore being made towards expanding trade and increasing competitiveness. And in this context, trade liberalization has been a cornerstone of the development strategy of our countries and there is evidence that our countries have benefited greatly from export expansion and foreign investment in physical infrastructure. We must recognize, however, that this is not a panacea for each of our problems and continuous turning to increase our access to markets, even though this is a necessary but not a sufficient condition.

In fact, I think that Latin American and Caribbean countries are increasingly aware of the need to “complement” their trade agreements with domestic policies in areas such as infrastructure, modernization of small and medium-sized enterprises and competitiveness. In recognition of this fact, several newly negotiated trade agreements, starting with the CAFTA-DR FTA, have included during the negotiations a mechanism addressing trade-related technical assistance and capacity building needs.

Sub-regional groupings such as MERCOSUR have also acknowledged the urgency to address trade-capacity related needs. At their Twenty-Eighth Summit in June 2005, MERCOSUR members created a structural convergence fund (FOCEM) aimed at developing infrastructure, fighting poverty, and promoting competitiveness.

Sustaining a steady growth in foreign direct investment is another challenge facing Latin American and Caribbean countries. FDI flows totaled about $54 billion in 2004, which is one third more than a year earlier, although considerably below from the $80 billion that were invested in 1999. Fostering investment, both foreign and local, also means eliminating a series of factors, of internal factors, starting by red tape, that impede a better flow of investments. The recently published [13 Sept] World Bank “Doing Business in 2006” highlights that Latin American and Caribbean economies have been the third-fastest reformers over the past year in this matter, though behind OECD countries and Eastern Europe. Three quarters of the countries have made improvements to their business environment but much remains to be done.

It is interesting to note that preferential liberalization in our region in recent years has been mostly investment-driven. This explains why free trade agreements that have entered into force over the past twelve years contain disciplines calling for deeper integration in “new” areas such as trade in services, investment, intellectual property, and government procurement.


However, I think that after more than a decade of economic reforms, of opening to the world and to globalization, and of the return to democracy, Latin American and Caribbean countries acknowledge that it is imperative to ensure that these reforms result in concrete benefits for their people in terms of increased growth, job creation, and reduction in poverty levels. We have to, as the General Assembly of the OAS said in June, be able to deliver the benefits of democracy. In this sense, of course, the private sector must play a vital role, as it is the main engine of growth for job creation and for improving the region’s prosperity.

Access to markets is therefore, as I said, the necessary but not sufficient. We have to be able to complement, at least with domestic policies that really open our markets also internal to the people of the region and improve the conditions of the majority of our populations.

As we will know, we must admit that, the key political issue today is an issue of democratic governance. We have grown several times before, we have had periods as the one we are facing now, but the question is will we be able to hold this growth or will, as so many times, it become ephemeral as subject to changes provoked from abroad or from within. In Latin America, in the past 15 years, there have been 11 elected presidents – and a further five or six, that were not elected but constitutionally generated– who have failed to complete their terms in office. That makes it important to find out the real weaknesses of our democracies and to see how they can be strengthened. Weaknesses are not ideological in nature and do not follow the pattern of previous undemocratic situations in the region. In fact, they are more related with the insatisfaction of the people with the quality of government they receive, and with their inability to cope with the major problems that continue to challenge us. We must be capable of providing effective and good governance and thus put an end to a situation in which our democracies and governments are transitory affairs. It is not enough to console ourselves with the fact, as we always do, that the changes were legal, but they were done constitutionally.

These crises are harmful for investment, for growth and stability, and they have caused Latin America to fall behind other regions of the world not afflicted with problems of this kind. This is a fact that cannot be denied. Restoring the stability of democracy is a process that has required huge sacrifices and even though we are proud to have all over the continent democratic governments, now we must make sure that they fulfill their role democratically.

Investor sentiment is extremely sensitive to political instability, and we must continue maintaining this stability. And those are the disciplines of economic policy especially when the next two years we are facing elections practically all over the region.

Democracy and the observance of human rights are the linchpins of a hemispheric coexistence, but this coexistence must also be based on growth, reduction of poverty, job creation and equitable distribution of opportunities for social progress. Even though we have had, as I just said, an upsurge in economic activity, massive inequalities still exist and poverty rates are still excessively high in the region, with 43 percent of Latin Americans living on less than two dollars a day. The Hemisphere must also confront unemployment rates, which are almost double what they were in the mid-1990s.

This situation poses a major ethical and political challenge, which the Heads of State and Government took on in 2000, when they signed the Millennium Declaration, and our Heads of State will examine again when they meet next in Mar del Plata. Our hosts, the Argentinean government, has arranged for this summit to revolve around one of the worse problems confronting the region: the number of poor. If we succeed with the Millennium Goals, in 2015 we should have reduced poverty to half of what it is today. And this means that we will still have one hundred and twelve millions poor in the region, and this means that we will have almost fifty million people living in extreme poverty. And that is we the good result in the Millennium Goals a decade from now. As you will agree, this is unacceptable in any part of the world, particularly since this is not in fact the poorest region in the world. It is the most unequal region, not the poorest. One quarter of Latin American and the Caribbean people still live in the same condition as they did in the late 1980s.

And it is difficult to talk about democratic stability and democratic governance in a region with such high rates of poverty and inequality. While it is true that we have important progress in educational institutions, health services, and housing in a par, in some cases, with some of the most developed in the world, it is also true that great numbers of our citizens still struggle in illiteracy, unemployment, malnutrition, and poor sanitary conditions.

Poverty and inequality are also elements which are fundamental to the products of governance we still have. That is why what we are trying to do now, and I think that everybody agrees, is that the moment has come to concentrate our efforts on the development of government institutions able to deal with these problems. We have demonstrated in the last few years important capacities in term of economic development, we have democratic governments, but we don’t have is government institutions that are able to deliver to the people what our people really want and to open a possibility for half of the population of our region to benefit from democracy. That is why democracy is in doubt today in Latin America. It is not democracy that has failed; it is probably the leadership to create the appropriate institutions to carry out the job of giving the benefits to the people. There is complete discontinuity; absolutely no differentiation can be made between economic growth, democratic government, and the fight against poverty, and for the large inequality in our region.

We have made all the efforts to open the region to the world. We trade all over the world, we want to receive more investment, we want to increase our stability, we want to make this hemisphere an appropriate place for business, for trade, for the development of individual possibilities. But this cannot be done in a hemisphere which is so played still by the problems we are played with.

Let me remind you that in a famous speech, one of the most famous speeches pronounced in this country, that one in which president Kennedy spoke about “what you can do for your country and not what your country can do for you,” he also said that we certainly have to take care of the possibilities of those who have, but we cannot do it if we do not before take care of those who have not. We cannot protect and develop the interests and the possibilities of business, if we do not look after the many poor that exist in our region. And that is not just a matter of progress; it is also a matter of democratic governance, it is a matter of table governance, it is a matter of continuous government or governance that can rule and that can take their countries ahead through a democratic process.

And I am certain that the private sector shares this, because I think that you really have a lot to do to help us improve not only the conditions of our people, but to help us also improve the conditions of our public institutions, which are, in the end, the ones that are in charge of facing this major challenges of our region today.

Thank you very much.