Dear friends,

I would like to begin by expressing my appreciation to Enrique Garcia the Andean Development Corporation for its leading role in working with the governments and private sectors of the Andean Community in confronting the challenges that the countries of the region face. I would also like to thank the Inter-American Dialogue for organizing this important conference with the cooperation of CAF and the OAS.

This is the fourth year on a row that this "Conference on Trade and Investment in the Americas" is organized here in Washington, and over the course of the last four years there have been enormous changes in the world economy, in Latin America and in the Andean Community countries.

In these inaugural words I would like, first, to look at the recent past, then to turn my sight to the present and future of Latin America. I would like to finish with a word about the challenges of strengthening the partnership between the US and Latin America.


I. THE RECENT PAST

In looking at the recent past, the dialogue and atmosphere surrounding each one of the three successive conferences in this series provides an excellent snapshot about the major changes in Latin America in the last four years. In this short cycle we have gone from high hopes to despair and to a more sobering view of the challenges ahead. We can recall many of the salient approaches of those conferences: the lack of economic reform in Ecuador, or the "adjustment fatigue", or the decision to start negotiations of FTAA, or how the Asian crisis hit Latin America, or how some countries came back and some others are still in a recessive period.

We have talked of how the impact of international events was transmitted to the region through three different channels: "financial contagion" steep downturns in commodity prices, or a temporary slowdown in the growth of world trade in 98.

We also saw how the international financial crisis increased the accumulated costs of a decade of economic adjustments and exacerbated the problems of adjustment fatigue. After more than a decade of economic reforms, it became clear that in most cases the benefits were not reaching the poor, the middle classes found themselves worse off, and economic inequality had at best not improved and at worst had even deteriorated in some of our countries. There is no doubt that large segments of the population in Latin America found themselves disappointed and frustrated.

It also became increasingly clear that democracy starts with fair elections but requires much more than this. Old and new threats to democratic consolidation became more evident: drug trafficking, terrorism, impunity, crime, corruption, and institutional weaknesses in the judiciary and in the rule of law. These threats underlined the importance of the new agenda for cooperation in the inter-American system developed and revitalized by the Summit Process.



II. THE FUTURE

How can we characterize the situation of Latin America today, as we again gather six months before next Summit of the Americas in Quebec, Canada? And what are the prospects for the future?

Today, I think Latin America is at a crossroads. Some countries are having an strong comeback, some others reacted only modestly and some others are still fighting to grow. This is, then, a time of contrasts and paradoxes, that more than ever requires clarity of purpose and hemispheric cooperation, to solve our collective problems and challenges.

Anyhow we should have in mind that , economically, Latin America's performance in the year 2000 and the prospects 2001 and beyond are, generally speaking, much better than many expected just a year ago when we last met. After the crisis on 1998 and 1999, this year Latin America is predicted to grow at an average rate of more than 4%, while the inflation rate is expected to remain around 10%.

This positive evolution is grounded on a combination of factors:

· The recovery of the world economy, led by the continued dynamism of the US and Canada, the impressive recovery in the Asian countries, and an improvement in Europe.
· The increase in primary commodity prices, which will improve the terms of trade for most Latin America countries.
· The policy stance of the key Latin American economies, which is based on a commitment to macroeconomic discipline that gives confidence to international markets, as well as on a commitment to continuing with economic liberalization and integration efforts.
· The payoff from investments made during the 1990s, an area in which Foreign Direct Investment has played a major role and where the communication and information revolution is starting to increase growth.
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Is this positive outlook for the year 2000 sustainable? What are the strengths and weaknesses for economic stability and sustained growth in the future?

On the weaknesses side, I think there are four main vulnerabilities that will influence future scenarios for growth and development in Latin America.

1. External vulnerability

First, the external vulnerability, which in turn has two basic dimensions, both of which were underlined by the recent crisis. One is the fact that, despite significant progress in the area of export diversification, many Latin American countries are still too dependent on a number of primary commodities, so that variations in the prices of these commodities still have strong influence in the economic performance of the region's economies.

Multilateral trade negotiations, bilateral trade agreements and the creation of the FTAA are strong forces that could reduce this source of external vulnerability in the coming years by generating new lines of business, increasing flows of Foreign Direct Investment, and diversifying the economic structures in the region, both in terms of sectors and of markets. The fact that countries are working hard in this respect is a good signal and should be seen as a source of strength.

The other source of external vulnerability is, of course, financial volatility under the new conditions of globalization. However, it is important to remember that this is a fact of life in an increasingly globalized world and not a feature exclusive to Latin America. What is remarkable in the case of Latin America is not that the countries of the region were affected by financial contagion, but their impressive capacity to weather the storm, to implement effective policy responses and to overcome this economic adversity. We have emerged of each crisis in a sense strengthen, better prepared, with better instruments, and with sounder institutions. This result vindicates the view by many observers of Latin America that the reforms conducted since the 1980s would enable Latin American nations to weather the financial storm better than most other emerging markets.



2. Sluggish growth performance

The second major source of vulnerability is the apparent incapacity, at least so far, of the new development model to generate sufficient and sustainable growth. Why did the region, with all the economic reforms implemented, do not deliver higher rates of growth? This is a question that still puzzles economists and international financial institutions. It is a fundamental question, partly because the perceived failure to deliver higher growth, more employment and better social indicators is at the basis of the backlash against the free market that we are seeing in some countries. There are some exceptions: (Dominican Republic, Chile, in some years Argentina, very recently Mexico)

What are the strengths from which Latin America can build to deliver dynamic, sustainable growth and development in the next decade? I hope this conference will give us the opportunity to discuss these important issues. I am convinced that one of the strengths is the solid commitment of the authorities in most countries in Latin America to macroeconomic discipline and market-oriented policies.

A remarkable indicator of this resolve is the fact that countries did not close up their economies during the recent crisis. Instead, they stayed the course, and now they are seeing the rewards of recovery. The turnaround from crisis to growth and stability that still surprises even the most perceptive observers is that of Brazil. Brazil seems to have found a swift way to achieve fast growth with low inflation and is expected to grow next year at 5% to 6%. We might learn important lessons for growth in Brazilian performance over the next few years.

Another source of strength is the vitality with which Latin America has been pursuing economic integration with larger markets under modern trade disciplines and commitments. The region's interest in the multilateral system and its pro-active participation in the FTAA negotiations are also indicators of the governments' resolve to reform economic and social institutions to meet the demands of a globalizing world economy. In this road, Mexico led the way by negotiating the North American Free Trade Agreement with the United States and Canada. MERCOSUR is another strong example of a successful subregional effort in integration.

All these policy efforts are to be welcomed, however, one thing is certain, growth will not be delivered by governments but will ultimately depend on the business opportunities perceived by the private sector. I am sure you will agree with me that Latin America is a continent of tremendous opportunities for business. This is why it is so urgent to continue with the task of developing well functioning markets under the right framework of regulatory institutions, complemented by efficient, strong state institutions and safety nets.

3. Social vulnerabilities: poverty and inequality

So far I have talked about economic factors and their impacts. Other major sources of vulnerability in Latin America have to do with the internal social and political conditions. One is the fact that, despite moderate growth in the 1990s, Latin America continues to be the region with the worst indices of social inequality, high unemployment and relatively high proportion of population in extreme poverty. By now we know that macroeconomic balances per se are not enough to bring about growth, expand employment and improve social conditions. We also know that trade and investment are key as engines of growth, but that growth in and by itself will not take care of poverty and equity. We have learned that in order to achieve growth and equity, in order to make growth more inclusive, there are no shortcuts or quick fixes or magic formulas to generate development. The so-called economic miracles have been blurred and diluted.

Until very recently some people believed that globalization, prosperity and economic reform were unstoppable trends and they tended to downplay the potential political and social roadblocks. Yet this euphoria has been fading, in the face of the risks and surprises that have accompanied the process of globalization, and the difficult hurdles we have encountered in our path.

The tasks before us are urgent because unless tangible improvements in people's living standards are achieved soon, further economic reform and liberalization will be increasingly questioned. And the credibility of democracies to deliver the basic needs of people will further erode. This is the Latin American version of the globalization backlash. Let me say it again, it is not just a backlash against economic reforms, or against the Washington consensus, or against freer trade. In some countries we are facing a new and deeper phenomenon, a disillusion with democracy and its basic institutions, and this is particularly acute in some of the countries of the Andean Community.

3. Political and democratic weaknesses


And this takes me to the second type of internal vulnerability; this is the vulnerability of democracy. Democratic political systems in Latin America are under stress from a number of sources. One stress source is at the interface between economics and politics that I already mentioned. People want their basic needs satisfied and opportunities for their children, people are now demanding more results in the battle against poverty, and they want a fairer distribution of income, higher real wages for workers, lower unemployment rates, and a educational system that can cope with the requirements of globalization and the communications revolution.

And if democracies do not deliver these economic goods, people can succumb to the calls of those that promise them some hope of change even at the risk of undermining democratic institutions. In other words, democratic systems are fragile when and where the economic systems do not perform well. But of course, economic systems rarely perform well when there is no peace, politics is in disarray, and where at least a minimum of national consensus is not present. Democracy is also threatened by phenomena such as drug trafficking, corruption, personal insecurity, institutional inefficiencies of the state, and others.

We must be able to respond to these realities without rigid preconceptions, in fact, we must develop new thinking on democracy and economic development. The next generation of reforms must be more pro-growth and more pro-poor. Latin America and the Caribbean countries have a lot of catching up to do in terms of human capital accumulation. Ensuring greater and more efficient social expenditure, especially in education, must be a priority. Also, in a region subject to as much volatility as this one, safety nets are a must. Issues of governance and institutional development are also a major and urgent challenge.

Since there are no magic formulas or recipes, we also need to be open to a diversity of legitimate national paths and trajectories. Above all we need to keep vigilant and we should be prepared to act with strength and resolve, making use of the valuable instruments for collective action that have been developed in the inter-American system, when democratic institutions are threatened.

III. US - Latin American Relations

Let me finish with a brief comment on US - Latin American relations and the next Summit of the Americas.

The end of the Cold War introduced a new set of motivations and mechanisms for hemispheric relations. In particular, the Summit Process has mobilized policy engagement by Latin American and Caribbean countries like never before across a wide range of issues -from trade to democracy, from labor and environmental issues to new security concerns-reinvigorating the principles and instruments of the inter-American System and redefining the concepts of national and collective security of all participating countries.

As I mentioned at the beginning, at the turn of the century Latin American, and the Andean Community countries in particular, are at very particular crossroads, facing many challenges and trying to overcome deep-rooted historical problems. More than ever at this juncture these countries need the steadfast engagement and the perseverance of the friends from the rest of the hemisphere. For the US this underlines the importance of building upon the trust and understanding that the Summit Process has created, to maintain policy engagement across a wide range of issues. The approach between the Andean Community countries and the rest of the South American neighbors, highlighted by the recent South American Summit, is another example of strategic cooperation and solidarity across key areas of common interest. The next Summit of the Americas provides a unique opportunity to strengthen hemispheric trade and cooperation initiatives to help countries steer through difficult times.

I look forward to a fruitful discussion of these issues during the course of this conference,

Thank you.