U.S. DEPARTMENT OF STATE
95/06/16 Remarks: Alexander Watson on South America
Bureau of Inter-American Affairs
AS PREPARED FOR DELIVERY
Remarks by Alexander F. Watson
Assistant Secretary of State for
Forum on Infrastructure Opportunities in South America
New Orleans - June 16, 1995
Ladies and gentlemen: It is an honor and a pleasure to be with you today. The topic of your conference -- infrastructure opportunities in South America -- is one of the most promising for business today. Most of Latin America needs large amounts of new infrastructure in all key sectors, and a substantial portion will be financed by international private capital.
o Recent reports suggest that in order to grow at 5% per year and to keep pace with the average investment rate of other developing regions, Latin America must spend about $700 billion over the next decade on infrastructure -- that's double its current rate of spending.
o Furthermore, substantially greater investment than this would be needed to approach the infrastructure of the developed world. On a per capita basis, Latin America has about $1100 of infrastructure, compared to $8500 in developed countries.
Certainly, these are formidable numbers. They indicate the great potential for development of infrastructure. And, the region is well poised for increased growth and infrastructure development. The combination of market-based economic policies -- including increased reliance on privatization to finance infrastructure -- , the resumption of economic growth in the region, the growing strength of democratic institutions and the reduction in regional tensions, all produce major new opportunities for national and trans-national projects.
In earlier sessions, you have focussed on specific opportunities and the programs of OPIC and Eximbank which are available to you. I'd like to take this opportunity to put all this into the context of our overall economic and political relationship with Latin America. The U.S. Stake in Latin America
Latin America and the Caribbean are increasingly important participants in the world economy, and increasingly important to us. I am confident everyone here understands that. However, some less informed are asking: "With all the demands at home and elsewhere in the world, what's so important about Latin America and the Caribbean? What's in it for us?"
The answer is: "A lot!" Some statistics help to illustrate that point.
o Latin America and the Caribbean purchased $92 billion of U.S. goods last year. It has been the fastest growing region for U.S. exports, and current projections indicate that our exports to Latin America will surpass those to Europe in a decade.
o Even so-called "small" countries are important for U.S. trade. We sell more to Chile (14 million people) than to India (920 million). We sell about as much to Costa Rica (3 million) as we do to all Eastern Europe (100 million).
o Latin America tends to import more from the U.S. than other regions. (For example, China buys about 10% of its imports from the U.S.; Latin America buys more than 40%.) So, increasing our neighbors' capacity to import is important for the U.S. -- for U.S. business, for U.S. jobs.
Moreover, our neighbors' success in confronting the problems of crime, narcotics, poverty, migration, the environment and political stability have enormous impact on the United States. So clearly our interest in the region is great.
The Summit of the Americas - Agenda for the Future
The opportunities for cooperation between the U.S. and Latin America are extraordinary. For the first time in history the Americas are united in their commitment to democracy, respect for human rights, open markets and free trade, preservation of the environment, and sharing of the benefits of growth among all segments of the population. Last December in Miami at the Summit of the Americas and following a year-long consultative process, our leaders articulated and consolidated this convergence of values which has been emerging over the past decade. They also defined a course of action not only for the United States but for all the hemisphere.
The 23 initiatives agreed to in the Miami Plan of Action comprise a comprehensive and mutually reinforcing agenda to achieve the goals which the hemisphere now shares. To promote prosperity, for example, we agreed to work toward free trade, which was the most dramatic and visible outcome of the Summit. But we also agreed to a major initiative on infrastructure, including asking the multilateral development banks to develop mechanisms to deal with lending and investment issues, and encouraging governments to develop mechanisms to promote private investment, both domestic and foreign. Supporting both these initiatives are Summit commitments to strengthen capital markets, and improve cooperation in telecommunications and information, energy, science and technology, and tourism.
And the Summit recognized that prosperity cannot be achieved without parallel action to strengthen democratic institutions, fight corruption and narcotics trafficking, combat terrorism, improve education and health, ease poverty, and conserve our natural environment for future generations.
We are moving very rapidly in implementing the comprehensive agreements reached last December. In fact, Secretary Christopher chaired a meeting of foreign ministers June 4 on the margins of the General Assembly of the Organization of American States in Port-au-Prince to assess the results achieved to date, both regionally and in individual countries. The Ministers also discussed ways to improve the implementation process and highlighted areas needing greater attention; among these was infrastructure development. The Challenges of 1995
Progress toward the Summit commitments has indeed been impressive, and I will give you some specific examples a little later. Nevertheless, over the past few months, events such as the Mexico peso crisis and ensuing tariff increases in several countries, and the border war between Peru and Ecuador have raised concerns that the Summit marked the high point of convergence and progress, and that since December, the Hemisphere has begun a downhill slide. These views arise from a fundamental misunderstanding of the Summit and of what is actually happening in the hemisphere.
The Summit of the Americas was conceived to celebrate the hemisphere's remarkable progress toward democracy and free markets. But as important, the Summit was designed to chart the course for dealing with the issues we recognized we must address. Far from declaring that all problems were resolved, the Summit identified them clearly and projected how we should deal with them. In this regard, the Summit recognized that capital markets, trade liberalization and regional security would be challenges for the hemisphere. The paramount lesson of these recent events is that we are in much better shape to deal with such crises than we would have been without NAFTA and without the Summit. The Mexican crisis did not weaken but rather strengthened the commitment of the Zedillo Administration and other hemispheric governments to economic reform.
The multilateral support for Mexico's recovery led by President Clinton; the creative package of financing extended by the international financial institutions to Argentina; the assurances from Mexico, Argentina and Brazil that their trade actions are temporary and will not jeopardize the momentum toward hemispheric free trade; the united hemispheric effort to separate Ecuadoran and Peruvian forces and thereafter to work at resolving the underlying issues; the unprecedented unity in support of democracy in Haiti, reinforced by the successful meeting of the OAS General Assembly earlier this month in Port-au-Prince -- these are dramatic examples of new attitudes and stronger cooperation: what we call the Spirit of Miami.
Benefits to Business Flowing from the Summit
And we can already see, flowing directly out of the Summit, some specific actions of major benefit to business, as well as to societies as a whole.
o For example, in the fight against corruption -- which is so important to ensure a level playing field for our companies in the region -- a number of governments are putting teeth into their legislation and enforcement, among them Argentina, Chile, Colombia, Costa Rica, Mexico and Uruguay. Venezuela has proposed a draft inter- American convention against corruption, and Colombia a draft convention on money laundering.
o To promote the development of capital movements and the progressive liberalization and integration of capital markets, we are establishing a Committee on Hemispheric Financial Issues, which is expected to meet at the vice-ministerial level in July. We expect that this Committee will also be used to deepen cooperation among finance ministries. We are aiming for a ministerial meeting in early 1996.
o In the fight against poverty -- which will help develop a healthy workforce with the skills necessary to compete in the world economy -- , let me cite Chile's National Service program in which young professionals dedicate a year to working in poor communities; and the Inter-American Development Bank's commitment to increase its lending in education and health by $5 billion over the next five years.
o To encourage small businesses, our own Agency for International Development is launching a $15 million program to assist microenterprises throughout the hemisphere, and the IDB has established a new fund to help reduce start-up costs and improve access to credit by micro and small enterprises.
o To improve cooperation in energy, governments have agreed to convene a hemispheric Energy Symposium, to be co-chaired by Venezuela and the U.S. in the first week of October in Washington. The main goals of the Symposium will be to further the development of national sustainable energy strategies to promote economic growth and environmentally-sound development. Key issues identified for the symposium are:
-- the development of regulatory frameworks;
-- encouragement of regional integration of energy networks;
-- preparation of an inventory of energy projects;
-- establishment of a working group on financial engineering techniques for energy cooperation;
-- creation of business roundtables to include governments, the multilateral development banks, investment banks, and energy companies.
o With respect to the agreement to complete negotiations on the Free Trade Area of the Americas by 2005, we are energetically preparing for the Trade Ministerial, and the Trade and Commerce Forum, both taking place in Denver at the end of this month. The Forum will likely be of particular interest to you, since it will bring together government officials and business executives from throughout the hemisphere, and I encourage you to consider attending it. The Forum will focus on various dimensions of market-driven integration, such as interconnected energy grids, accessible telecommunications networks, transportation systems that flow together, regulatory systems that encourage trade rather than impede it through artificial barriers. The goal of the Forum is to develop recommendations to ensure that trade expands and economies become more integrated through day-to-day business activity, in parallel with the movement of governments toward formal negotiations.
I could go on with a multitude of examples, but the main point is that the countries of the Americas have an agreed plan of action and are working energetically and cooperatively to implement it.
Within the U.S. government, we are moving aggressively to ensure that U.S. firms can compete for the enormous new business opportunities opening up in the region.
Secretary Christopher is personally committed to an effective "America desk" in the Department of State. Under his leadership, and in cooperation with other U.S. government agencies, the Department of State is working with U.S. companies to promote U.S. exports and protect U.S. investment overseas. The State Department in Washington and our 266 posts overseas provide advice, orientation and problem-solving assistance to U.S. companies. Business people come to the State Department and our posts overseas for comprehensive information about current economic and political conditions, biographic information and advice on the business climate and stability of foreign markets. Reports from State Department officers abroad are a primary source of economic information and analysis for all Federal agencies. Business people also come to the State Department for help with visas, both to and from the U.S. The security programs of our Overseas Security Advisory Council (OSAC) are also available to business people.
The Department can advocate on behalf of U.S. companies seeking business opportunities abroad. Our Embassies are developing information on new projects, and working to ensure that U.S. firms are treated fairly in bidding and implementation. We are confident that, when U.S. firms are playing on a level field, their efficiency, modern technology and aggressive management give most of them a natural advantage. An example of successful U.S. government advocacy for U.S. business is Brazil's huge Amazon Radar Surveillance System, SIVAM, which will provide about $1.4 billion of business to a consortium of U.S. firms. We are watching closely other big projects which are gestating in Brazil, such as the clean-up of both Guanabara Bay, and Sao Paulo's Tiete River. The Bolivia-Brazil gas pipeline, along with its downstream production facilities could amount to about $2 billion, assuming its approval by the World Bank. And the Brazilian Congress has voted favorably on the first round of constitutional reforms to open up the petroleum and telecommunications sectors to private investment.
Another example is Venezuela, where Louisiana and the state of Zulia have an active state-to-state partnership program. The preliminary agreement recently signed by Conoco for extraction and upgrading of extra-heavy crude illustrates the major opportunities already offered by Venezuela's energy sector. In addition, the Venezuelan Congress is finishing up debate on a landmark bill which would open up that country's massive oil sector to exploration and production by foreign companies. The bill, if passed by July as anticipated, would provide Venezuela the fresh capital and technology it needs to reinvigorate its energy sector, meet the U.S.' growing demand for oil and provide jobs in both countries.
There are many other examples. U.S. economic and business issues are a priority in the policy-making process in the State Department. We are committed to helping U.S. firms compete in Latin America's expanding economies. Secretary Christopher has made clear in no uncertain terms that he expects every Departmental officer to sit behind the "America desk" with him. His Coordinator for Business Affairs, David Ruth, who moderated this morning's session on industrial projects, is charged with making sure that the views and concerns of business are integrated into the policy making process. And our Embassies are ready to work with you "on the ground".
The Broad Context of U.S. Economic Policy
I understand, of course, that you as businesspeople are primarily interested in U.S. trade and investment policy in the hemisphere. It is gratifying to note, however, that many business leaders share our conviction that neither we in the Administration nor the business community can afford the luxury of focusing too narrowly on those issues. As I noted before, in addition to trade our neighbors have a major impact on our ability to deal successfully with issues of vital national concern, such as: migration, drugs, law enforcement, and the environment.
Continued support by business leaders, both in the United States and throughout Latin America, for strengthening democratic institutions in the hemisphere is critical to the realization of a prosperous and stable hemisphere. Because of their fundamental legitimacy, democracies are more likely to achieve domestic consensus for implementing far-reaching policies, including in trade and investment. The endorsement of economic reformers by the electorates of Brazil, Peru and recently in Argentina is a dramatic illustration of that principle.
The Summit of the Americas highlighted the importance of effective and honest government to the success of democracy and economic integration. The rule of law and judicial systems which are efficient, impartial, transparent and fair, for instance, are important not only to citizens but also to foreign investors who work within countries' legal frameworks. The same can be said for tax systems and regulatory procedures.
The Summit's emphasis on social equity and the eradication of poverty makes sense not only in terms of our national ideals of compassion and our interest in political stability, but also because growing economies need healthy and educated workers and consumers. Similarly, a modern state cannot ignore environmental issues. Countries must carefully husband their resources for maximum benefit not only for today but for tomorrow, not only for the elite but for all their citizens, so that development truly improves peoples' lives, and economic growth is sustainable over time. The scope of the Summit agenda thus provides a realistic framework for long-term growth and for sustained expansion of hemispheric trade.
Trade and Aid - Legislative Priorities
Let me just mention very briefly some of our most important legislative priorities of interest to you. We are moving energetically to get appropriate Congressional procedures to implement trade negotiations, the so-called "Fast Track". As emphasized by USTR Kantor in recent testimony, timely passage of fast-track is crucial to expanding NAFTA to include Chile, and other countries thereafter. And remember that we are not the only player in the game. Economic integration in South America is moving quickly, and the Europeans and Asians are knocking at the door. We want Latin America to integrate and participate fully in the global economy. But if we abandon the Latin American playing field to others, we will lose some major opportunities for investment, trade, and jobs. The game is on, and we can compete very effectively. If we don't play, however, we lose.
Foreign assistance is also crucial. U.S. direct assistance to Latin America and the Caribbean has been dropping over the past few years. It is, therefore, extremely important to maintain our support of the World Bank and the Inter-American Development Bank, which are deeply involved in our key efforts in the region, and which mobilize resources from other donors and the private sector far beyond our bilateral capability. We must also maintain carefully targeted U.S. bilateral aid to strengthen democracy; modernize judicial, law enforcement and other institutions; increase economic integration; combat the drug trade, and address destabilizing social inequities. These are indispensable to a positive long-term trade and investment climate.
Achieving the objectives defined at the Summit of the Americas will require major and sustained effort. We in the U.S. need to explain more clearly to the American people just how important is our stake in a stable, prosperous and democratic hemisphere. The peoples and leaders of Latin America need to move forward aggressively to complete the great work of economic and political reform which is underway. In these efforts, the support of the U.S. and Latin American business communities has proven invaluable in the past. Once again, we call on you to help define and defend a dynamic, constructive relationship between the United States and Latin America. Working together, we can achieve our ambitious agenda for the good of the people of the United States, and of the hemisphere as a whole.
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