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 You are in: Bureaus/Offices Reporting Directly to the Secretary > Policy Planning Staff > Secretary's Open Forum > Proceedings > 2004

Latin America and the Caribbean Economic Outlook

Enrique Iglesias , President, Inter-American Development Bank
Remarks to the Secretary's Open Forum
Washington, DC
June 24, 2004

Opening Remarks and Introduction

DR. IGLESIAS: Well good morning, thank you very much something, for this very kind invitation. This is not the first time I have been to this open forum. I think its a very something opportunity for me just to share with you some of the concerns some of the ideas we have around the Latin American economy, and a little bit more in some political reflections which must accompany also this economic picture.

Let me start by saying that we spend, after the decade of '90s full of euphoria, then we had a period of three to four years which were not very good in Latin America, and you know that. We grew one percent in 2001. We came down to -06 percent in 2002, only 1.3 in 2003. So in a way this was a period of stagnation in which we have some big crisis, and I think the crisis in Argentina, the crisis in Uruguay, the crisis in Venezuela -- all this make this average go down. The rest of the countries were not that poor, but in general the average was really discouraging.

Now, this year we come here with a much brighter picture. I think the economy of Latin America will be growing something around 4 percent, which is very decent. It is not enough. I think it should grow much more. But the Americans -- we look to Asia when they went through a couple of years of big crisis. Then the third year they growing 8 percent. So I think it's good, but it's not as well a we would like to have it. In any case, there are winds of bonanzas we say in Spanish -- I don 't know how you say that in English, but you know what I mean -- that good wind is coming in the region. And these winds come from outside and inside. I mean, from outside because vigorous expansion of economy is a very important element for all of us. I would say also the expansion of Japan is playing a certain role. But basically China -- China is becoming a very important partner to Latin America. And the way China's economy behaves is very important to us. We know that from Guatemala down the impact of China in the raw material prices has been very strong, and some of the big winds have come from precisely the activism of China in the area of raw materials which they are very, very thirsty, and they are importing a lot of things from many countries, becoming the second or the third largest destination of exporting countries -- like Argentina, Brazil, Chile, Peru, et cetera. So these are winds from outside.

I would say also the rate of interest is very important. We are in the lowest interest rates in the last almost 50 years, which is for a country which is highly indebted, low interest rates is a blessing, and vice versa.

So I would say also that the representation of the dollar vis-a-vis the euro increases our competitiveness in the euro zone. And the financial flows that were becoming stagnant are starting to come back again -- slowly -- but come back again, very selective. We used to have in the '90s up to 6.9 percent of Latin American GNP in foreign direct investment. Then we went down to 2.3 percent, which means clearly how the international markets were retraining coming to Latin America in recent years for reasons that we all know, but basically linked to precisely this stagnant Latin America over the last three of four years.

So in a way I would say the humor, the spirit of the region, is improving. You go everywhere in Latin America, there's a feeling that something is coming up, and therefore the feelings of hope.

Now, I will say also that remittances -- we have been highlighting in recent years the whole question of remittances, and I'm very happy to say that this is starting to create reverberations everywhere, from the G-8 to this country in general. The public opinion is becoming alert on the importance that the remittances are having in our economy. We are reaching $40 billion or more, which is a substantial amount of money. So this is the external winds of bonanza.

They're internal too. I think the internal winds are basically with all the differences that you may have, the fiscal discipline today in Latin America is deeply rooted in the consciousness of the government. And even governments with different orientation, with more progressive looks, when they come to power they respect very much the fiscal discipline. And this is very important. And when you look back to the history of Latin America, you have a respect for the fiscal discipline, which is extremely important -- we learn it, and it is there. And even as you say the newcomers don't play games with fiscal discipline.

Monetary policy makers are becoming very respectful. You see you have central banks are really becoming more and more technically-oriented, and playing its role in an orthodox and professional way. And I will say, last but not least, that the big lessons of inflexibility of exchange rates in the '90s has been very well learned too. And today the flexibility of exchange rates is a major element of good capacity of the region to grow and to resist the pressures from external origins.

Now, these winds of bonanza should not create a false situation of things that have been done, no. I think we all know how these things happen in the cycle. The cycle is always with us when you finish from outside. Sooner or later these things will change, or you will have certain adjustments. I think that exchange rates sooner or later have to increase, and this is going to have an impact in the highly-indebted region.

Then also we want to know what's happening with the soft landing or hard landing of China. China today is very important to us. And the way China is going to make the necessary adjustments they have to follow is something that in a way is in our concern. And oil is another issue which is playing its importance, and this is very much linked to the political instability in the world, which in itself is a potential element also in which we can not foresee. So in a way political events or issues very much present in the world of today may in a way create some elements of impact on the economy, and therefore these are unforeseeable projections. But I think in a way we must be prepared to use this period of bonanza to do several things, which is to prepare ourselves for the moment in which really this wind will not be so strong, or simply will not be there. And I would put emphasis in three areas in which I see the challenges are with us. The first is to manage the bonanza. The second is to increase the social dividends of this bonanza. And the third is to use this opportunity to strengthen our decision capacity in the international negotiations.

Now, the first one, to manage the bonanza: What I am saying is that we must use this sort of fiscal room we have now and this balance of payments room just to use for three or four purposes. The first is to strengthen the fiscal situation. Fiscality is becoming the major headache everywhere, and when you judge a government whether it's serious enough, you see what they are doing with their finances. As anybody in the room knows, the financial system is extremely important and their fiscal system. We used to have more or less fixed-income receipts from the countries, but the amounts are increasing. The more we have increasing interest rates it will affect the fiscal situation. It will demand more resources to pay the debt.

And of course at the same time we have impact of the devaluation of the currencies in our region, which is indebted in foreign currency, most of it. Then they will also impact the service of the debt. So we must be prepared to have a fiscal situation strong enough to confront increasing interest rates, or eventually the valuation of the currency. This is why the deficits have increased. In '97 the deficits were 2 percent of GNP. Now we are averaging 5 percent -- but still with a deep consciousness of the countries to fight to reverse the situation.

So what would be the advice in this fiscal challenge? To modernize the fiscal structure, the fiscal system. We are working in many countries in that sense. And, number two, try to spend well. You see, the efficiency of the social expenditures is something which I always pay a lot of attention, because I think it is a major source we have now to increase our social situation, is by spending well the money in education, in health, in housing. And this has not been done so far in Latin America. We are not spending well.

So the first question is to take care of the fiscal situation. The second question, very linked to the previous one, is try to improve the profile of our debt. Latin America is highly indebted. As you know, the IMF is fixing in 40 percent more or less the debt which is more or less sustainable. But in the case of Latin America we move from '97, in which it was 57 percent, to 51 percent. In some countries the debt is 80 percent, 90 percent or more than 100 percent GNP. This is a dangerous situation. Therefore Latin America must make an effort to reduce the debt and to exchange the proviso that it not be long unsustainable in the medium run. So I remind you that we made estimations that for 200 points of increase of interest rates in the United States it will reflect 500 points in our economies. So in the way we prepare for the interest rates increases is very much a part of this management of the debt, as I said before.

The third front is the financial system. We have lived the most difficult crisis in the '90s on the big financial crisis in the banking system. I think much has been done, and very painfully I must say. I am thinking of my own country. But I think these are lessons which were learned. This cannot happen again -- never more. Now the credit to the private sector in Latin America is 20 percent below what it used to be in '97. That means we have less credit than we used to have in those days. I was talking to some countries now where the credit with the balance interest is 20 percent, 30 percent -- in the United States 140 percent. So that gives you an idea how much the financial system becomes a major support of the private sector. Latin America is extremely weak. So the whole question of the financial system and the banking system is a major priority. That looks to the private banking sector and to the public banking sector. In the private banking sector, the sanitization of the banking systems, continues to be an issue. And for that purpose, a good regulatory system and good supervisory continues to be a major objective. Something has been done -- a lot has been done, but much more still remains to be done.

And in the public banking system -- and this is another area -- again, there was a lot of cleaning of the situation, but still I think we must continue doing things. In particular, we are certain key points which become extremely important, like the protection of the legal rights of the creators for instance, and the famous -- (inaudible) -- all these kinds of things become extremely important, and that is an area where we must concentrate efforts in the years to come.

The fourth and last element in this question of managing the bonanza is the competitiveness efforts. You see, if you ask me which are the two major weaknesses of the Latin American economy to grow more, we have small exports and small savings. So these two weaknesses are very important. We must save more to depend less from the foreign flows. We must export more to be protected for the servicing of our needs involving imports and servicing the debt. So I think in order to look to the stability of the system, these two points are becoming a major target. And in order to do that, we must increase our competitiveness. We are developing a problem in the bank, trying to look to what are the basic elements that will increase the competitiveness of Latin America? When we compare Latin America to the rest of the world, you will see how low we are in competitiveness. Really we are extremely low. And this cannot continue. We cannot gain in the international market without competition and capacity. I mean, we cannot export our inefficiencies. We have to export our efficient organizations. And what do I mean by that? I mean infrastructure. You know how much money have to spend according to the World Bank and to our own estimations? We have to invest in the coming 10 years $70 billion per year of infrastructure investments in energy, in transport and telecommunications. And I think we can finance maybe a little bit more than 50 percent. We have a big hole to finance. And this is a tremendous dynamo in the economy if we can really achieve this infrastructure.

But we also can impact a lot in our competitiveness capacity. Of course competitiveness means education, means technology, means infomatics. And it means basically also an environment which is conducive to more investing. That means good respect of the contracts, good labor or work -- so-called work legislations, legislacion laborale, and I think we must try to concentrate an effort in this question -- Latin America cannot continue with this low capacity of competition in a world, particularly in markets which are becoming everyday more competitive.

So this is to me what I mean by the different challenges that we see in the area of managing the bonanza, this sort of maneuver that we got because of the situation coming from our world and from inside.

The second area is the social dividends. And we're very short here. There is effective adjustment in Latin America. I will come back to that at the end, in the later part of my presentation. But poverty is increasing. In the '90s, we were expecting a big reduction in poverty in very few countries. Chile did a fantastic job. In three years it reduced the poverty to half. They did it. So it is possible. In Brazil, when they made the stability in Brazil of the real, also they put down a big number of points, because the poverty people were coming out of poverty. But we know also the impact that poverty had in the case of Argentina, in the case of Uruguay, in the case of Venezuela because of the crisis. So in a way I think poverty is not a biblical curse. It's something manageable. But nowadays we came down from 48 to 42. Now we are 44 percent. That's a lot of poor people. It's really -- the region does not deserve to be in such a bad position. With 220 million, poor people half of these. So we have an issue there, and that is extremely important to recognize from the very beginning.

I think unemployment is another issue, which is becoming a major source of unhappiness, because unemployment is touching -- we went up in unemployment to 12, 13, 14 percent. And if you look at this unemployment in the young generations, it's 40 percent of the young people. This is a major problem, because it's a major problem of social unrest, political unrest and of violence, because in a way this is fueling the reaction of the young people. So we have there an issue which we must confront.

And inequality you see. We expect too much in our international forma on an agenda for poverty. I say we must speak of an agenda for equality, because inequality is something which affects a lot our social structure. You see, inequality makes people very unhappy, because they know the inequality is there. They see that everyday on the TV, in the streets. Everywhere you notice. So something must be done to fill that gap. But their inequality has been increasing in Latin America, with some exceptions. I was in my country, the commercials is one exception.

But I think it's very important to keep that in mind, that the agenda for equality is extremely important. The government has inequality and poverty at the same time -- two things linked together. So I think -- and what does that mean, inequality? It means education, it means supporting the small micro-enterprises. It means all these areas which build a new society with a cohesive approach. And this is possibly much more difficult than to fight poverty. Poverty is much easier to achieve than inequality, which has roots in colonial times. So it's not so easy to. But this is an issue we must talk about -- agenda for equality in the region.

So I come back again to one point I mentioned before, which is deficiencies of the social expenditures in education I think. You know that some people complain when they talk about the reforms and the performance of the '90s. But the social expenditures in real terms increase by 58 percent, and we have more poor. This is something which should be put in the agenda. Why? We have 58 percent of modest spending, and still we have these poor people. So something is wrong, and I think this kind of question has to do with deficiency of the social expenditures. So this is something which we must keep in mind.

And I said also the labor markets continue to be a very important issue. Sometimes the labor laws protect those who work, the formal workers, but at the expense of putting aside or abandoning the former side. So the corporation that doesn't need to abandon the legal conquest of the labor, but I mean we must take into account also the rights of those who are not in the formal market, and this is why the legislation should be equally oriented to protect both.

The third issue, and the last one, is the negotiations on the international trade negotiations. We are in a time of very important implications for Latin America. We are negotiating in the coming two or three years Latin America and the Caribbean. We will confirm negotiations that will shape the chapters of navigation of growth and social development in the years and the decades to come. We are negotiating within ourselves -- in Mercosur, South America, Central America, the Caribbean. We are negotiating in Mercosur, the Andean community. We are going to make a very important agreement. We are negotiating with the United States, ALCA. We are negotiating with Europe. We are negotiating with Doha. Countries are negotiating with Japan and Korea. So all these decisions are extremely important. And as I said before, these will in a way characterize the roles of navigation in the years to come. They will be historical decisions, and must be prepared for that. The capacity building -- we have done that with the USTR and Zoellick, who has been very insistent on that -- we have been working very closely to help countries to prepare themselves for this process. There are very important decisions. And I think that we must negotiate then together. I think the negotiations of Mercosur together makes a lot of sense, because increasing our capacity of negotiations. And also I think we continue supporting two initiatives which are in Latin America today. I would like to draw your attention, because a very important one is ILSA, which is infrastructure of South America. And the other one is Puebla-Panama, which is infrastructure within Mexico and Central American countries. And these are things which will help a lot to increase our trade among ILSA and at the same time increase our competitiveness.

These are more or less the three prongs on which I would like to put the emphasis these days as the message we are giving in the bank to our governors. But I think I should say before closing a few words on the political side -- it's not my cup of tea -- this house is a political house. I am much more from the house on the other, IMF and the World Bank. But still I think I should say something why. Well, first of all because we live in Latin America, we live every day in politics. You know we produce a small booklet which I recommend to you because it's quite good, which is called "Politics Matter." I guess it matters a lot. It matters a lot for everybody -- for our economic decisions, for our social decisions. And I think that first of all before entering into comments on this, some political issues which are very important in my view to the economic side of the equation, I must put in front some very positive signs of what are happening in Latin America. For those like me who have been in this region for a few decades, many things have changed in a good direction, and we have democracy now in the region with one exception. But we have a lot of democracy in the countries. We have more human rights respect. We have also free press in the countries. We have also -- it's very interesting that at least 12 presidents left office in the last 10 or more years, but all of them through constitutional means, which is very important. So when I compare, and when I go to Central America, I remember very well the old times. I say something has happened in Latin America. So first of all we must try not to be too pessimistic, because sometimes we try, become very depressed, and now to understand that something has happened in the region.

Nevertheless, I will mention three areas which I think at least to me are challenges. One is the disenchantment of Latin America in public opinion with reforms. You see and therefore there is disenchantment with the market economy. I was reading somewhere in -- (inaudible) -- which we were looking really this issue, this disenchantment is something worrying, because people for different reasons are trying to look -- only 25 percent of the people at the most is in Brazil, and 23 in Chile -- then it's below that. So you see this is why we must answer why.

First of all in the '90s we had a lot of expectations about the way the opening of the economy and the more routes so they might -- they would perform. And they didn't. Lack of social dividends is an issue which is very much in the center of this unhappiness.

Then it's true also that some of the benefits of the market economy so far have been captured by certain sectors. They were not -- in a way I think we must understand that there are some things to put the people unhappy again. The agenda for equality is part of the problem. And I think that more than ideology in this reaction is the whole question of corruption you see. In the case of privatization -- people reject privatization by a majority -- not so much because they don't like the privatization. On the contrary, because simply some of them were the source of corruption, and it is something that really offends a lot of public opinion. So in a way this to me is a very important issue, because this reaction against the market economy is part of a problem which pretty soon we'll have to deal with.

The second question, which is also to me extremely relevant, is the dynamism of the civil society, which is very important. It's a product of democracy. I think it's very important to see -- well, you see what's coming -- people in the streets -- in the streets of Buenos Aires, in the streets of La Paz or in the streets of Ecuador or the streets of Venezuela -- there is a kind of this activism of the citizen -- a demonstration that democracy is working. But at the same time it's put in some times the rule of the street instead of the rule of the law. And that is very dangerous. And I'm thinking one area in which we must take care about is the dynamics of some sectors like the indigenous rule for instance, the landless, the homeless. We have a program of social dynamism which is very good in terms of democratic sentiment and it puts some sort of yellow or red lights in the way they will affect the performance of our democratic systems.

In the third area, which is also worrying to us, is the whole question of the political system as such. You see, I think there is a big fragmentation with political systems in Latin America. And you know democracy requires solid practice and solid programs. If those two things are not there, then I think you have risks. And this risk so far is that the political system as a system is not working very well. Some countries are simply blocked in their parliament, incapable of deliver, because simply there is not a real capacity to unleash the minimum of social consensus which are essential. Democracy is essential, but at the same time consensus -- if there is not consensus, the system is blocked. And I say that with certain concern, because I see some countries, some governments paralyzed, because the political system, because of this weakness, fragmentation, weakens the political system so that the political programs are getting more room to illegal leadership and leaders of political parties. And that I think is something which creates some sort of -- because I am not a political expert -- and I see these three points which really should be in a way taken into account when we analyze the region as a whole.

Let me finalize with my final comments. I will make five concrete conclusions at this. The first one is that we have a major capital in Latin America today, which is the big mistakes and the big successes we had in the recent years. And we must learn out of them. This means that pragmatism is extremely important in these days. This does not mean that I ignore the role of ideas and objectives -- no, on the contrary, they play a very important role in history, and they will continue playing that. I think it's extremely important that we must look to what has happened and what did work and what didn't work. You see, before entering into discussing a new model, a new parallel, let's see exactly why certain things work in certain countries and didn't work in others; or why certain things work in some countries and simply in the same country didn't work before, because something happened in the political situation. What are the limits of our action and what are the constraints in which we move? And I think the lesson of pragmatism to me is very important in these moments in the region.

The second lesson or conclusion is that I think there is a peaceful acceptance in the region today that in order to grow we need a stable market economy. A market economy is neither right or left. It's simply common sense, as I said before. So you cannot play games with the microeconomy. And I'm very happy to see that the governments I mentioned that came with some sort of progressive agendas and big criticisms to the past -- when they came to power they behaved very well, because they recognized the facts, and these facts are basically with a microeconomy you don't play games. I think this is a very important lesson. And I think discipline in the fiscal is very important -- discipline for the local governments is an issue in which I cannot respond, but I think it's in our area. We are entering finally not only the discipline of the central government; also we are entering the discipline of the provinces, of the states, of the departments. That is an issue which I think is a major conclusion in which we are navigating very well.

The third issue is that I hope that we are approaching a moment in which we can finally put aside this whole discussion which is in Latin America for so many years, markets versus governments, heads of state. I think we need more market and a better state -- a better government. You see, when I travel to Asia I don't see this discussion. This is something -- it's becoming oldish in a way. It's very important. It's becoming oldish. And I think that we must understand, yes, we need more markets because the markets shows really that there is the capacity to make the country to progress. But I think we have a state government.

And the reform of the state is to meet one of the most important challenges in every single country in the region today. It's a very challenging thing. We must recognize that in order to have a solid market working well, you must have a solid government providing their rules, regulations, their behavior. And this is an extremely good lesson we must learn from history.

The fourth conclusion is that Latin America -- we must understand that we are entering into a period of tremendous changes in the world economy, and world geopolitics too. The entry of China and India into the world markets is like putting a second floor to the world. This opens our region with tremendous opportunities -- but also tremendous challenges. And we must recognize that. I think that the problem in Latin America as a producer of raw materials of abundant nature -- God was very generous to us -- maybe opens a new opportunity to the region, to give a dynamic society in which we can use these dynamics of our raw materials -- energy -- we are the second reserve of energy in the world. We have all the agriculture you can imagine, all the metals. And so the capacity of the region's resources is immense when you look at the history of Latin America. Well, it may be now because of this new floor we are opening a new window of opportunity in the region. We must use it well, to produce a solid economy with social justice and dynamic growth. And this is very much why issues like technology, education, all these kinds of things become so relevant in the Latin America of today in our view.

And the last point is democracy. I am optimistic about the region, and I am optimistic about democracy. It's very interesting to know that in spite of the crisis, still democracy continues to be the first choice of our people, including the poor people. But let's be careful. Democracy is not a heroic thing that has been reproduced and fortified when we ought to vote. It's an everyday target. It's very pedestrian in that sense. And we must feel it. We must accompany it with a lot of measures which can produce what? Confidence, the capacity of growth and social justice -- brings on confidence. And I think Latin America should be careful about that to produce confidence -- confidence in what? Confidence in the markets, confidence in the institutions, and confidence in the political sector. I repeat here what I used to say many times. For many times the political system in Latin America will be challenged by very important definitions and directions. So the quality of the politics is becoming today more important than ever. Some countries have responded to that. Some are not there yet. But I hope that we recognize with pragmatism on these factors we will make it. That's it. Thank you. (Applause.)

MR. KEPPLER: Ladies and gentlemen, Dr. Iglesias has very cordially consented to take your questions. What I would ask is if you're sitting in front of a microphone just press the microphone button to activate it. If you're not sitting in front of a microphone, I would encourage you please to go to the microphones we have set up in the back there so we can record all your comments and questions for the transcript.

Who would like to go first? Ambassador? Yes, just press the button, please.

Q Dr. Iglesias, I would like to follow up a little bit on your question about the problem of corruption. You mentioned also wise spending -- it fits together. And I think there has been some progress. But if you could tell us a little bit about how you see whether there's progress and what can be done to make more progress. I know there's the OAS Convention Against Corruption, but how do you see the possibilities for improving?

MR. IGLESIAS: Look, ambassador, I think it's an issue, and I believe that in a way it's facing -- because of democracy. How to end corruption? We cannot end it now -- but not because of democracy. We have free media, we have public opinion. So in a way it's a byproduct of democratic ruling, the democratic system.

And this of course is creating some reaction in the people. But some reactions are on the institutional side. For instance, the judiciary system is an extremely important area, and there's a lot of movement in that sense, in the good direction. And I think in that sense we have been very helpful in the bank to do that, when we have at least 18 countries working in the regional system which is a very important instrument against corruption.

I would tell you also that we are trying to work in our modest approach in areas in which the door of corruption is open -- like procurement for instance is very important, and the managing of the civil service is another area. So I can see a lot of movement in one which is extremely important, in the sanction of the society to corrupt practices in the political system. If you look to Latin America in the last 10 or 15 years you will see how important this sanction of the public opinion is becoming evident in our region. This is something we might recognize and repeat. People are in a way conscious of that, and the sanction to the political system in the political area who do not apply these transparent measures is there. So this is very good. So we are moving.

MR. KEPPLER: Doctor, I'd like to ask you a question while we're waiting for the others to formulate their questions. You have stressed how important becoming competitive will be in order to fuel the engine of economic progress. And I'm wondering as an old MBA best practices -- how will “best practices” be accepted versus some of the cultural considerations in many of the Caribbean and Latin American countries? Implementing “best practices” a lot of times is less labor intensive. Do you see any conflict between embracing “best practices” and cultural considerations?

MR. IGLESIAS: These cultural considerations will always be there, because culture is very important. Every society has cultural values behind us. And I think we must understand that they will always play a very important role.

My feeling is that there is more and more acknowledgement that we need to compete. And I notice where in the young generations -- it's very interesting to notice something which sometimes was not so well noticed. There is a group of young business men in Latin America -- very important. And these people, they travel, they see -- they tend to understand that something has to be done. That is my real hope. So there are traditions, yes, we would like to be protected all the day long, in a closed economy. But the realities are so strong. When you see very successful countries -- to mention Chile -- Chile is a very important dynamic -- how they are managing their economy -- and this is very much part of pragmatic capacity of managing of the country, opening of the government. And these sorts of young generations are there. So that is to me the major source of hope.

MR. KEPPLER: What is the degree of Internet use throughout Latin America?

MR. IGLESIAS: It's growing a lot. I don't have the figures now, but it's growing a lot -- really is becoming a major element. And you know something very interesting too: We are working in some of the principles of the Summit of the Americas. And one of the areas in which we are developing a lot of -- in the name of connectivity -- you see how this connectivity is changing the lives of some. Yesterday I was talking to the vice president in Honduras, his delegation. And he was telling me, look, you see how we are changing the countryside of Honduras -- because these small little towns in the middle of nowhere, with these new centers of Internet and telecommunications -- it's changing the life of the people. We must concentrate on that. It's a tremendous effort. It would change the life of Latin America in the years to come, because this is really in cooperation with society in the modern world. So these are the type of things we ourselves appreciate, and the young generations. It's an area of growth demand in Latin America -- but for the young people it's Internet -- where you use Internet in the schools, Internet in the high schools, Internet in the -- (short audio break for tape flip).

MR. KEPPLER: I think the potential for e-commerce in Latin America is just incredible.

The gentleman here, please.

Q President Iglesias, during your discussion of need to improve international competitiveness in Latin America, you mentioned the problem of infrastructure, inadequate investment for infrastructure. I believe you said the needs were about $70 billion per year, but the identified funding was about half that. Do you anticipate that this funding gap will be made up by private sector investment, or will Latin America continue to rely on government sources for infrastructure?

MR. IGLESIAS: There are no sources from government -- mainly private. Because you see the way our fiscal capacity today -- this is limited, and the indebtedness capacity is also limited. You see, when you speak about such a big debt, the thing that we are going to confront these needs with more debt is almost as real. You see? So what we are doing now is trying to engage the private sector, and that is something which requires governmental action, particularly, in respect to contracts and good supervisory and regulatory systems to be respected. And new mechanisms. Nowadays Brazil is now putting in place a PPP, the private-public parcerias, which is a very important association between private and public sectors, in which we are trying to become very active. Look -- if you let me a commercial -- but I came from Brazil last week, in which we are creating the first private structure fund in which the bank is an associate with the pension funds, and this is going to finance private sector investment in infrastructure. We must invent these things. But money must come primarily from private sources. There's no way to otherwise.

Q Thank you. Dr. Iglesias, still on the topic of competitiveness, you mentioned in your presentation the new opportunities offered to Latin America by the emergence of markets, such as China, that are a draw and a pull for the importing of raw materials, for instance. And we saw recently the mission of President Lula to Brazil and all this great expectation that there is in terms of revitalizing exports in these markets that can absorb them. But also there's the other side of the coin it seems to me is the opportunity for China now as it revs up its manufacturing engine to displace many of the emerging economies in terms of their abilities to be low-cost providers and exporters whether it's to the U.S. market or elsewhere. We are already seeing some effects of this in Mexico for instance, which is not technically Latin America. But how do you see the opportunities of Latin America to improve its competitiveness vis-a-vis the phenomenon of low-cost production from China? Say, for instance, to be specific in the apparel sector with the end of the multi-fiber agreement and the opening up of the markets and the opportunities for China therefore to displace a traditional export producer and exporters in Latin America to the developed world? Thank you.

MR. IGLESIAS: Well, you put a finger on a very important issue. And if you remember I said that was a region from Panama down, which is basically the producer of raw materials, Panama. There are very strong concerns. But it would be a major mistake just to respond to that by crossing economies. That would be a historical mistake I hope even what would be done in the year to come, it is very important to respect the contracts. And the agreement with WTO, this is very important -- by China. But it is very important first of all to work in competitiveness for us, and to use the possibility of the free trade agreements. This is why I favor the free trade agreements. We have CAFTA in Central America -- because it's a way to create some sort of advantages which are very important precisely to increase our capacity to compete in the international markets. You see, China will be there with or without any sort of reaction from our side. They are there. And this is something we have to live with. So it's very important to put in place the whole mechanism of the WTO, this is for sure. But at the same time to increase our competitiveness capacity and use our initiatives of comparative advantages, one of those initiatives emphasizing the possibility of entering into a free trade area. This is one area which -- but your issue is extremely important, and we must sit down and see what can we do to profit by our gross geographical region with the United States or our initiatives. So this has put us in a very strong position to compete, but we must be aware of that. Closing is not a solution.

MR. KEPPLER: Ambassador Ferarro, please.

Q Thanks for your excellent presentation. It was very good as always, and very clear.

There's some old problems always mentioned, of course you have mentioned again, with the debt, foreign debt -- foreign debt, what to do with foreign debt. The economies -- we have good news about Latin America, about the Latin American economy, about the American economy. But the same problems stay until their foreign debt -- and there is no activity to tackle with this issue. How can we build new mechanisms to solve this issue, because it's a long way with payment of interests, but the capitals to their -- and Latin America continues to pay a lot every year for foreign debt. How do you see this? How indeed can you tackle this issue to solve it? What would be your opinion and your recommendations and your position on this issue? Thanks.

MR. IGLESIAS: It's an old issue and a very demanding one. Look, I think the IMF is very much the one who should give you a more precise answer to that. But I'll try to give you mine.

I think that sustainability of the debt is a very important issue. Most of the countries in Latin America have sufficient sustainability. Your country is a good example. If you continue to grow, you are going to have a very important debt incident -- you are one of the less indebted. But if you continue to grow 5 percent or even more, it will not be a problem in paying the debt. And without any real danger.

In those countries who are really highly indebted, where we're putting HIPIC now, which was a response to reduce the debt of those countries who were highly indebted. Other countries who have a high debt, they must try to understand that the solution comes through growth and exports to make it manageable. And this is why it is very much part of the system in which the IMF is working now to study country by country. It's very difficult to give an answer in general.

In general the solution is growth, is the opening of economies to capital inflows, it's more capacity of investment. So this is very much the real answer to that. In certain cases there are specific situations in which we cannot deal with it. But in general I think Latin America is very highly indebted, but also has the capacity in most of the countries to survive without making debt a real constraint to growth. I am worried sometimes that we put too much emphasis on that. But I think it's an issue -- no question about that -- but it's manageable that way -- and it's growth, it's investment in exports. If these things work properly you can move ahead in most of the countries. Certain countries have some problems now -- Argentina is a good case -- now it's trying to make an agreement -- this is a more extreme case -- but in general I think it can be manageable -- if we continue growing. If growth is not there, it's another story.

MR. KEPPLER: And on that note I would like to thank our distinguished guest speaker. All I can say is if the economic and commercial and political leaders of the nations of Latin America and the Caribbean bring to the challenge the same intelligence, compassion, commitment and optimism that you have, I have every confidence in the economic success of that region. Thank you very much Dr. Iglesias for being our Distinguished Guest Speaker. (Applause.)

I'd also like to thank again Assistant Secretary Noriega for participating in our program today. All those attending the WHA Economic Outlook Meeting, I'd ask you to join us at the podium now, please.

And I'd just like to remind everybody that next Tuesday we are going to have a program, "In Between Hard and Soft Power: The Rise of Civilian-Based Struggle and Democratic Change" Our distinguished guest speaker will be Dr. Peter Ackerman of the Carnegie Endowment. He is the Chair of the International Organization for Non-Conflict Resolution. So I hope you'll join us next Tuesday. And that program will be at 12:00. And thank you again for joining us today.

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