U.S. State Department Geographic Bureaus: Latin America Bureau

U.S. Department of State
96/05/06 Remarks by Anne Patterson on Latin American Economies
Bureau of Inter-American Affairs

Remarks by Anne W. Patterson
Deputy Assistant Secretary
Bureau of Inter-American Affairs
at the Council of the Americas Conference
Washington, D.C. - May 6, 1996

U.S. PRIORITIES IN THE AMERICAS

It is a pleasure to be here with you at your twenty-sixth annual conference. This is always an important event for the Department and the Bureau, and we value this opportunity to exchange views with such an informed and engaged audience.

It is traditional during these remarks to review the progress of Latin American economies over the past year, and discuss some of the policy challenges of the future.

1995-96 - A Record of Continued Progress

As I look at what is happening in the region today, I see the impressive breadth and depth of reforms as enunciated by our leaders at the Miami Summit: democracy, open markets, respect for the environment, and broad-based growth. Many of these reforms are areas which would not usually be called "market-oriented", but they are crucial to the success of growth.

Looking back over the past year, I would make three points:

First, 1995 was a year in which Latin America's commitment to market reform was tested and proved its strength. Even in the face of recession and balance of payments pressures, Mexico, Argentina, Brazil and other countries continued on the path of reform.

And the steadfastness of the region's commitment to the market has shown its wisdom. Countries that have taken the hard steps necessary to get on the path of self-sustaining growth are now getting good results.

o Last year's inflation of 25% was the lowest in a quarter century. The regional average, moreover, obscures some remarkable individual successes. As Mr. Shafer mentioned, Argentina achieved an annual inflation rate of 2%. Not too long ago, monthly inflation of 2% was considered positive. In Brazil, last year's inflation was 22%, the lowest in 30 years.

o Despite last year's recessions in two of the region's key countries, cumulative growth of 15% for the five years of 1991-95 exceeded the 13% rate growth for the entire decade of the 1980's. Once again, regional averages obscure some remarkable individual successes: this decade, Peru, Chile and El Salvador have annual average growth rates exceeding 6%. Note that these three countries not long ago were experiencing protracted and severe political and economic stresses.

o With President Caldera's courageous reform package announced on April 15, Venezuela has now joined the ranks of reformers. The initial adjustment no doubt will be tough, since the economic distortions have taken a toll. But the reintroduction of market forces on interest, exchange rates, and consumer prices should soon restore investor confidence and reinvigorate Venzuela's growth. The International Monetary Fund, World Bank and Inter-American Development Bank have responded with substantial financial pledges, and we fully support those efforts.

Second, as in the case of market reform this past year, the region's commitment to democracy and peace was tested and proved itself strong. Let me give you four specific examples of progress on the political front:

o Early last year, armed clashes erupted between Ecuador and Peru over a nineteenth century border dispute. The conflict threatened our common vision of hemispheric integration and peaceful settlement of disputes.

The "Guarantors" of the Rio Protocol (Argentina, Brazil, Chile and the United States) first brought an end to the fighting and then facilitated talks between Ecuador and Peru to achieve a lasting solution. Our coordinated military and diplomatic actions demonstrate that a regional approach can be effective even on sensitive issues of national security.

o As the Secretary mentioned this morning, the U.S.-Mexican Binational Commission Meeting, now taking place in Mexico City, is another example of political progress.

Ten Cabinet-level officers are participating in these talks, which in their fourteen working groups, range from education and culture, to law enforcement. The Commission serves as the anchor to the fruitful and mature bilateral relationship that the United States and Mexico have fostered over the past several years.

o In Haiti, democracy remains fragile but in place.

The new Preval government faces enormous problems of poverty and weak institutions. But there have been remarkable achievements to date in Haiti. The transfer of power from one elected president to another on February 7 -- unprecedented in the tragic history of Haiti -- is an extraordinary achievement. During President Preval's visit to Washington in March, he reiterated his commitment to economic reform, including privatization. The government of Haiti is now negotiating with the international financial institutions on a new agreement to support such reforms.

o In Paraguay, only two weeks ago today, constitutional order was threatened by the refusal of General Lino Oviedo to accept President Wasmosy's order removing him from the post of army commander.

For a moment, it looked like the return of a discarded anachronism in the region, the military strong man. In the end, however, the General lost his job because he could not challenge the array of forces that came to the rescue of Paraguayan democracy. Popular support for President Wasmosy was reinforced by a clear message from the hemisphere that extra constitutional action would not be tolerated. The United States spoke out quickly and firmly, immediately followed by a strong OAS resolution.

OAS Secretary General Gaviria and the Foreign Ministers of Paraguay's Mercosur partners were on the ground in Asuncion less than twenty-four hours after the crisis began. Bolstered by the expressions of solidarity at home and abroad, President Wasmosy was able to face down the General.

Third, to develop institutions, in 1995 implementation of the Summit of the Americas Action Plan moved forward quickly. Some impressive results are already in place. Mack McLarty and the Secretary have mentioned the historic corruption convention. There are two other examples drawn from areas which are not usually considered to be in the economic sphere but which are critical to achieving our economic goals:

o To strengthen peace and security in the region -- an indispensable condition for business confidence -- countries have taken a series of measures to cooperate more closely against terrorism, culminating in last month's OAS Terrorism Conference held in Lima.

o Finally, to improve transparency in civil/military relations, the Declaration of Santiago in November 1995 outlined a series of confidence-building and security-building measures for the hemisphere. We have contributed to that process by becoming the first country in the region to notify countries of our significant military exercises, and we hope others will do the same.

The speed and comprehensiveness of Summit implementation are due in large part to the establishment of high-level follow-up mechanisms. Each of the 23 initiatives has a country or international institution serving as its "responsible coordinator". A Senior Implementation Review Group meets about every four months. Finally, the hemisphere's Foreign Ministers will meet on the margins of the OAS General Assembly to review Summit progress next month in Panama City.

The Remaining Challenges

In reviewing these, substantial achievements since our last meeting, we are not declaring victory in our effort for a stable, democratic and prosperous hemisphere. Rather, we now have considerable resources with which to face the problems and challenges of the rest of the decade. Among those challenges, two are critical to continued economic and political progress.

First, we need to fully absorb the lessons of the financial crisis which began with the Mexican peso devaluation of December 1994. One of those lessons is to address forthrightly the problem of low domestic savings. Sebastian Edwards, the World Bank's chief economist for Latin America, has noted that "the low level of domestic savings represents one of the most -- if not the most -- serious weaknesses in the region's macroeconomic position. Latin America's median savings rate has been around 20% of GDP, about 10 points below that of East Asia. A large part of that disparity consists of capital flight. To quote Dr. Edwards again: "To achieve rapid growth, Latin American countries must raise domestic savings and investment to levels closer to those of the successful East Asian economies."

Growing successes in the battle against inflation, increasing prospects for political and macro-economic stability, renewed expectations of growth, all bode well for increased savings.

Another critical element is regulatory reform to build financial institutions which are efficient, transparent, and accessible. The experience of the high-growth countries of East Asia shows that even small entrepreneurs and poor families will save if they have reliable access to efficient savings institutions. Further, the ability to save effectively for a better future is one of the most powerful tools of the individual against hard times, and of society against political instability.

This brings me to the second and longest-standing challenge, the region's persistent poverty. Reliable data on poverty are hard to come by. But we know that a very large proportion of Latin America's people live in poverty -- 39% in 1990, about 169 million people, according to estimates of the U.N. Economic Commission for Latin America and the Caribbean. The poverty rate in 1990 was roughly the same as in 1970, but because of population growth, the number of poor people increased by 57 million in those two decades.

I would guess that the lives of most poor people today are probably better than they were at the start of the decade. But disparities between rich and poor are very wide in Latin America; historically the poorest 20% of Latin America's population had about 3% of total income, compared to 6% in the rest of the world.

Over the long run, the most powerful weapon against poverty is education.

Enrique Iglesias summarizes years of research and experience on this issue across the world as follows: "The experiences of industrialized and developing countries alike indicate that education has been the cornerstone of economic and social progress attained by people everywhere."

Most Latin American countries already have a commitment to universal education. The challenge is to provide practical access to quality education, especially at the basic level, in both rural and urban areas, to both girls and boys.

Public spending for education in the region fell on a per capita basis during the 1980's. Further, the emphasis on university education eats up the funds for basic schooling. Administrative costs for education in Latin America are inordinately high by world standards. Gross enrollment ratios look good, but quality is poor, with extraordinarily high repetition rates. According to 1988 data, the average student remains in the school system for seven years, yet completes only four grades. This means that almost half of those who enter school do not stay long enough to acquire full literacy and other basic skills.

The fight against poverty is one of the highest priorities in the Summit Plan of Action, and in U.S. policies. A host of initiatives is under way to increase job opportunities for the poor and to improve health and education.

o Among these, the Inter-American Development Bank, for example, has earmarked $500 million for loans and grants to bolster micro-enterprises and small businesses, and $1.5 billion in loans for education infrastructure, particularly for primary education.

o Our First Lady, Hillary Rodham Clinton, recently launched a hemispheric Partnership for Education Revitalization, focussed particularly on improving basic education.

o The Pan-American Health Organization last April initiated a program to eliminate measles from the hemisphere.

But the problems of poverty are huge and difficult, and their resolution will require many years of determined and well-focussed efforts by governments, international and national institutions, and non-governmental organizations such as yours, working particularly at the local level.

The U.S. Policy Agenda

The U.S. agenda toward Latin America and the Caribbean reflects the issues I have just reviewed -- market-based reforms, democracy, strengthening basic economic institutions, and alleviation of poverty. Over the next year, our agenda is necessarily focussed on the long or medium run, both because the issues are inherently resolvable only in the long run and because, as you well understand, it is difficult to launch major or controversial initiatives during an election period. At the same time, the major issues in the U.S.-Latin American relationship, in our view at least, transcend partisan concerns, and we will be moving steadily forward on them through the end of the year.

Let me close with two specific issues which are of special concern to this audience.

First, there is the Free Trade Area of the Americas (FTAA). I believe the record from the Denver and Cartagena Ministerials shows that the commitment to achieving the FTAA remains strong, and that there is real progress toward meeting the 2005 goal. For that reason, I believe the momentum was never really lost.

Perhaps your sense of lost momentum comes from the perception that this initial pre-negotiating phase -- data collection and analysis, and development of negotiating procedures -- is not all that important or difficult. But in fact it is indispensable, especially for negotiations as complex and technical as the FTAA. Given differences in legal systems, government practices, language and technology, even establishing a good data base is no easy matter. Further, an accurate, comprehensive, up-to-date and accessible source of data on the trade laws and practices of the entire hemisphere will be a real boon to private traders and an incentive to trade expansion well before any trade agreements can be implemented.

Finally, the real energy in the drive toward the FTAA -- indeed, toward any major trade liberalization effort -- comes from business. Day-by-day deals are cumulatively and rapidly producing economic integration de facto, while we in government work on integration de jure. One of the greatest successes of the Cartagena meeting is the acknowledgement by all the hemisphere's ministers by providing an explicit role for the private sector in the FTAA process.

Finally, we have received many inquiries from businesses about the Cuban Liberty and Democratic Solidarity Act, otherwise known as Helms- Burton, which the President signed into law on March 12 in response to the Cuban Government's unjustified shootdown of two unarmed U.S. civilian aircraft on February 24. The Act increases economic pressure on the Cuban Government by discouraging foreign investment in confiscated U.S. properties. Title III enables Cuban Americans to file suit in Federal court against those firms and individuals "trafficking" in confiscated property in Cuba. Title IV requires the exclusion of "traffickers" from the United States, particularly corporate officers and directors. This has been the most publicized portion of the bill, and our allies have asked for consultations. The President may suspend the lawsuits for six months at a time if he determines that the suspension is necessary to the national interests of the United States and will expedite a transition to democracy in Cuba.

The Act also mandates the preparation of a plan for assistance to future Cuban Governments to aid in the island's transition to democracy. We hope this plan will make clear to the Cuban people that the United States stands ready to help them through this challenging process.

We are moving expeditiously now to implement the Act's provisions. We also remain committed to strengthening civil society in Cuba through public and private programs of support for the Cuban people. We encourage NGOs and private sector firms to explore what opportunities might be available for them to support independent organizations on the island. Our goals are a peaceful transition to democracy and Cuba's reintegration into our Hemisphere's democratic community.

Closing

I'd like to close my remarks by emphasizing that the region's solid economic prospects, combined with the growing strength of democratic institutions, make Latin America and the Caribbean an excellent partner for the U.S. Our relations with Latin America are based on mutual benefits and mutual responsibilities. The past year has shown that we are moving together, in a joint effort among all the governments of this hemisphere, and among the public and private sectors.

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