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Latin America: A Region in Transition

By Mary Dempsey
September 25, 2012

Report from the XVI Annual CAF Conference
September 5-6, 2012

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The United States is not adequately supporting human rights, peace and sustainable economic growth in Latin America—and is unlikely to do so in the near term, former US President Jimmy Carter told participants at the XVI Annual Conference of CAF-the Development Bank of Latin America. 

Carter’s presidency included the signing of the Torrijos-Carter Treaties 35 years ago to transfer control of the Panama Canal to Panamanian authorities. He talked about his administration’s deep involvement in Latin America then added: “I have not seen that interest in either candidate for president of the United States, unfortunately, and my prediction is that they will not elevate Latin America to the highest priority in the next four years unless some negative crisis evolves.”

Carter’s comments highlighted the Sept. 5-6 conference sponsored by CAF, the Organization of American States (OAS) and the Inter-American Dialogue. The wide-ranging discussion about the region’s economy, political trends, drug policies, challenges to development and relationship with China and Africa drew an audience of some 500 government officials, politicians, diplomats, economists, journalists, scholars, students and business executives.

Following Carter’s presentation, CNN Senior Anchor Claudia Palacios moderated a Q&A with the former president and OAS Secretary General José Miguel Insulza. Insulza noted that the region is a different place from when Carter was president.

“The relationship between the US and Latin America can be better or worse, but it certainly cannot be similar or the same to what we had 30 years ago because the region has changed substantially,” he said. “Today Latin America is seeking its own destiny rather than a purely hemispheric relation.” 

Carter and Insulza offered their perspectives on key issues, including the relationship between the United States and Cuba. Both men agreed that the 50-year-old US embargo has been an obstacle to protecting human rights.

“If [the United States] could change their relationship with the Soviet Union, if they could change their relationship with Hungary or Poland, for example, why can’t they change their relationship with Cuba?” Insulza said.

The former US president, meanwhile, called for civic and business groups in the region to exert more influence over policies. “Business and trade leaders should be involved more directly and courageously to correct the mistakes of their governments,” he said.
 
During his keynote address, Leonel Fernández, whose term as president of the Dominican Republic ended in August, credited Carter for helping his Caribbean nation move to democracy.  

“Usually when they talk about President Carter, people talk about the Panama Canal treaties, but they don’t reference the importance of the influence Carter had on the democratic process in Latin America,” he said.
 
Fernández, who leads the Global Foundation for Democracy and Development (FUNGLODE), said Latin America’s ongoing economic expansion has happened at “two speeds.” He said growth in South America, with its strong links to the robust economies of Asia, outpaced that of Mexico, Central America and the Caribbean—tied more closely to the US economy. However, he cautioned that all of Latin America must embrace new policies if the upward trajectory is to continue.

The great challenge, he said, will be to embrace reforms that bring value-added production chains, increased productivity and more competitiveness. He cited the quality of education as one of the region’s weaknesses.

“Latin America needs to move from being labor intensive to being capital intensive, with a strong technological component,” Fernández said. “Although Latin America did not feel the impact of the economic crisis to the extent Europe did, we must leverage the current economic bonanza to transform the region’s primary export-based economic model into a diversified economy.”  

In a session titled “Is this Latin America’s Decade? Pending Development Challenges,” other experts discussed the impact of the global economic crisis. They predicted that Latin America will remain on a growth path, adding that how fast and for how long will depend on the region’s response to underlying problems.

CAF President Enrique García, noting that Latin America learned the hard way how to manage its economies, said he favored a strategy that falls between austerity and stimulus measures.

“Austerity produces declining growth rates, higher unemployment and social pressure. On the other hand, growth cannot take place without macroeconomic stability,” he said. “That’s why we must find a middle-ground solution that is tailored by country, since cookie-cutter programs will not necessarily work.

“Focusing solely at the macro level is not enough,” he continued. “Latin America as a region needs a strategy to promote greater microeconomic efficiency, increase investments, foster innovation to increase productivity, strengthen institutions to build investor confidence and encourage pragmatic participation in international markets.”

The panelists at the session talked about the region’s resiliency amid the global recession and its adoption of effective macroeconomic policies. However, they acknowledged that the tail wind that came with China’s thirst for commodities has been a critical factor in the gains of recent years.

“The next phase is going to be tougher,” said Hasan Tuluy, the World Bank’s vice president for Latin America and the Caribbean. He said the region will need a sustained effort to maintain growth, and it must post progress in several areas, most notably productivity.

“If you look at the Asian tigers, their productivity has grown,” Tuluy said, “but in Latin America, it’s declined.”

He called on the region to look more at medium and long-term issues, adding that by addressing these “you’ll also be dealing with short-term issues.” He also cautioned that as countries become wealthier, their citizens’ expectations for economic equality would also grow.

Tuluy said there is an urgent need to improve education, upgrade infrastructure, better use technology and embrace innovation—largely through R&D investment. He said public-private partnerships could play a key role.

Alejandro Foxley, the former finance minister of Chile and now president of nonprofit CIEPLAN, also advocated for public-private partnerships.

Latin American countries must figure out how to diversify their economic drivers to include products with added value, he said. Foxley called for more strategic associations within the region, including the exchange of engineers and other professionals.

He also warned that the next steps are critical in determining whether the region continues to flourish or if “this is the last decade.”
 
Luis Miguel Castilla, Peru’s minister of economy and finance, described how his country opened its economy and posted success in fighting poverty, growing its middle class and attracting investment. However, he noted that as prices fall for commodities, especially copper and gold, that expansion will be curtailed.
 
“Beyond simply maintaining growth, one must also think about the type of growth the country needs and how to transform this growth into development,” he said, adding that the government must reconcile its focus on extractive industries with the needs of the local population. 

“There may be a middle class, but there is still a large part of the population that hasn’t shared in the progress of the country,” he said, mentioning retirees in particular. “We need to attend to human capital. We need better training and education. We need innovation.”

Although Latin America’s growth looks impressive beside that of developed countries, its failure to keep pace with nations in Asia and Africa is a concern, said Mario Pezzini, director of the OECD Development Centre.

He said Latin America must move in two directions: It must build better multilateral relationships and it must embrace other world regions as partners, rather than competitors.
 
“Latin America needs to build its capacity to think strategically,” he said. He used Korea as an example of how to build strategy around comparative advantages. He said strong planning and policy have bolstered Korea’s productivity.
 
On a similar note, Luis Alberto Moreno, president of the Inter-American Development Bank, said countries of the region must stop using Chile as their benchmark and, instead, look to the gains of Asia. Like Foxley, he called for the region to embrace public-private partnerships.

Moreno said the governments must save more so they can invest more. And they need to address the themes that are slowing their development, among them the cost of energy and concerns about security. He raised the longstanding issue of regional integration in relation to energy.

A separate panel of experts from four continents discussed the rise of emerging countries in the “South”—Asia, Africa and Latin America—and how this affects the world order and economic and trade relations. Chris Alden, a professor at the London School of Economics, moderated “The Emergence of the New Global South” panel. 

World Bank Chief Economist Augusto de la Torre said the title of the panel suggested that something has happened in south-south relations. He said the south-south connection is not new, but its size and relevance have changed. China, in particular, has become an independent engine of growth and the emerging markets that coalesced around it have spearheaded the global recovery.

He characterized this as a reversal from the past when emerging markets had to wait for developed economies to lead recovery.

While noting that Latin America is increasingly connected to China, de la Torre said that connection is not necessarily at a more advanced economic level. And although Latin American countries are linking more strongly to Asia, they are failing to interact with one another, limiting the ability to share lessons. At the same time, he added, Latin America may be connecting more and more to China, but the opposite is not true. 

Equally important, although trade may be south-south, finance still follows a north-south path.
 
Changyong Rhee, chief economist at the Asian Development Bank, said Asia and Africa are changing the “economic geography of the world.” He said Asia served as the world’s factory, with exports going to the West. But he noted that new development models are emerging and pointed to configurations that include Latin American countries doing their production in Asia—targeting Asian consumers—or Asian companies producing in Latin America and Africa.

The export-to-west model must change to embrace more local production and consumption, with energy inputs affecting many of these decisions around location. Rhee said the challenge of this “localization of production” will be “how to move from resource-intensive low-income manufacturing to higher skilled manufacturing and increased investment.”

He also rejected the notion that emerging countries are a threat to the developing world. “The rise of emerging economies means the reduction of poverty and the spread of democracy,” Rhee said.   

Mzukisi Qobo, a professor at the University of Pretoria, took issue with the notion that there is still an “old” global South. Emerging nations, most notably the BRICs, are different from the old south-south models, which were more politically focused and drew from anti-imperialism and anti-colonialism movements.

He said the current framework is more pragmatic and stresses—among other things—inclusion. He also said the emerging countries don’t speak with a single voice. “These are diverse countries, some are democracies, some are not democracies,” he said. 

Qobo noted that there are impressive lessons to be learned from a bloc of nations that has carved out legitimacy and respect that would not have been possible in the past. And he said the countries can develop shared ways to address their common challenges: inequality, infrastructure development and unemployment.

However, he warned against overestimating the extent to which BRICs can set the agenda and assume leadership roles in multilateral processes.

To speed growth, each country must identify its comparative advantages, according to
Lu Bo, deputy director for American Economic Affairs at the Chinese Academy of International Trade and Economic Cooperation.

But governments must also study the sustainability of those advantages. For example, cheap labor soon will no longer offer an edge. “If we want to grow… we have to find new, potential comparative advantages,” he explained.

With relation to Latin America and China, Lu Bo said it is a mistake to think of Latin America as a single economy.

“There are too many differences among countries in Latin America,” he said. “China’s relationships with Mexico and Argentina are strategic. With Chile it has a free-trade agreement, and with Costa Rica and Peru,” he said. “When they talk about the relationship with China and Venezuela, it is a cooperative strategic partnership for the future.”

He also said that the importance of the Chinese market “cannot be overemphasized.”

Harinder Kohli, president and CEO of Centennial Group, used the example of climate change as a case to show how global dynamics have shifted. He said the Kyoto Protocol called for obligations from developed countries because “developed countries created the mess.”

But now China and India are viewed as major polluters. “It is in the self-interest of developing countries to reduce emissions,” he said. “The environment at the local and global level is of interest to every country in the world.”
 
In a discussion on “The Vision of New Leaders on Key Challenges for Latin American Societies: Violence, Transnational Crime, and Drugs,” the focus turned to the region’s so-called War on Drugs. Moisés Naím, senior associate at the Carnegie Endowment for International Peace, moderated the energetic exchange.

Naím referred to 2012 as a turning point year, explaining that the region is seeing important changes in attitudes and perspectives related to security and drug policy. The Summit of the Americas in Cartagena called for new strategies around drugs.
  
Diego Cánepa, secretary to the Uruguayan president José Mujica, explained drug laws in Latin America’s most permissive country, where marijuana use does not carry criminal charges. Uruguay’s Congress is now debating a measure to give the state control over cannabis marketing, including oversight of production and distribution for both medical and recreational use.
 
“This isn’t a battle between good and bad… it’s more complicated, and for that reason Uruguay has adopted a different perspective,” said Cánepa. “At first, the population of Uruguay was against this new policy but the opposition has declined over time.”

He added that it is a “profound error” to become mired in moral arguments when drug trafficking is a matter of economics.

Peru takes a tougher approach, owing to its recent history that saw terrorism linked to narco-trafficking. Luciana León, who serves in Peru’s Congress, said the laws must be complemented by investment in poor rural areas that haven’t benefitted as much from recent economic growth.

Drug trafficking’s impact may vary from country to country, meaning more research is needed and a single solution may not work everywhere, the panelists said. A shift to treatment over punishment also needs consideration. Money laundering needs to be policed. Countries must respond to the cooptation of their politicians and political parties, judges and police departments by drug dealers. And the United States and Europe, the markets for drugs, need to become more involved in finding solutions, the experts said.

Cánepa described US policy on drugs as “bad” for the region, adding that countries should develop their own approaches.

Alejandro Hope, director of the public safety project “Less Crime, Less Punishment,” agreed that narco-trafficking cannot be addressed with simple answers. The problem in much of Latin America, he said, is cocaine, not marijuana. In Mexico, however, he said the drug spectrum is more complex.

“Mexico is a special case. It’s production is diverse, not just cocaine,” said Hope, whose project is jointly sponsored by México Evalua and the Mexican Institute for Competitiveness (IMCO).

He also said the link between drugs and violence is not always clear cut. Fernando Carrera, the secretary of planning for Guatemala, concurred. He acknowledged a causal link between drugs and violence, but said it was not the only cause of violence.

Rather than focusing only on drug trafficking, Carrera said his country has addressed the issue of security more broadly. “We improved the police, the public prosecutor’s office, and have seen a reduction in homicides,” he said. “We don’t use as an indicator of success the number of people we ‘grab.’”

He said certain practices work, such as interdiction, while others, notably eradication, are less effective.

There was not agreement on the panel about the link between violence and drugs. Daniel Mejía, a professor at the Universidad de los Andes in Bogotá, said the correlation was clear in Colombia, where drug trafficking is the principal driver of violence. 
   
The conference also devoted panels to discussion of the US election and to political trends in Latin America, particularly Venezuela and Mexico.

The panel on “The US Presidential Elections and Latin America” featured remarks from advisers to the Romney and Obama campaigns, and Charles Shapiro, president of the Institute of the Americas, offered commentary. Dan Restrepo, the former director of Western Hemisphere Affairs for the National Security Council and an adviser to President Barack Obama, maintained that the current administration is active in Latin America but is not receiving credit for that engagement.

Restrepo ran through a laundry list of bilateral meetings between Obama and Latin American leaders, pointed to support of the Dream Act, cited ongoing dialogue with Brazil around energy issues, underscored increased funding to fight transnational crime in the region and noted passage of the free trade agreement with Colombia.

Restrepo said Obama believes “what’s good for the people of the Americas is good for the people of the United States.”

Clifford Sobel, former US ambassador to Brazil, said the Republican presidential candidate, Mitt Romney, would put priority on the region if elected.

“Governor Romney has articulated a policy in the region for all countries that want to participate. Governor Romney wants the United States to contribute to the hemisphere,” said Sobel, who has advised the GOP contender on foreign policy issues but said he was speaking on his own behalf, not as a spokesperson for Romney.
 
“The US has potential for greater prosperity,” he added. “That involves seizing opportunity in the region, both on bilateral and multilateral levels.”
 
Shapiro said he was encouraged by the presentations—but added that he had not seen much indication of Latin American interest from the candidates themselves. 

“We are ignoring Latin America and the Caribbean at our own peril. This is where two of our largest trading partners are located,” Shapiro said. “There are enormous opportunities for the United States and we are, unfortunately, ignoring them.”
  
On the other side of the border, after generations of dictatorships, elections are now solidly anchored as the vehicle for power to change hands in Latin America, a development that was addressed in the panel on “Elections and Political Trends in Latin America: Focus on Mexico and Venezuela.” 

“We can disagree, argue, but no one disputes that the acceptable way to acquire political power is through the electoral process,” said Kevin Casas-Zamora, OAS secretary of political affairs. “One of the fundamental vehicles for remedying problems in a country is clean, transparent elections.”

The results of those elections reflect ongoing changes across the region.

 “One positive trend is that we’ve developed some consensus about what good governance means. For example … policies that address not just poverty, but also inequality,” said Luis Vicente León, director of Caracas-based Datanálisis. “Latin Americans understand this as good governance. They don’t care if the person implementing this package comes from the left or the right.”

At the same time, political power no longer holds a monopoly on representation. Civil society and the business sector are also powerful forces while the military has less power than in the past.
 
Former Mexican Senator Rosario Green, was asked if the return to a PRI government would also mean a return to the old practices of the party that had dominated Mexico’s political landscape for more than 70 years. She replied that the country is no longer the Mexico of the past.
 
“And it is unlikely that Mexico will repeat the past,” she said. “This is a time when civil society plays a role. The PRI will have to be what it promised: a renewed party with new people.”

Green added that President Enrique Peña Nieto had named a transition team that contained members of other parties and new, young players, rather than members of the old guard. She said this has boosted the public’s confidence in the new president.

Lázaro Cárdenas, a senior scholar at the Wilson Center, added that the PRI is now governing a country with changed institutions and a different society. He said the surprise in the election was the remarkable level of citizen involvement, particularly among young people. However, he cautioned that there is still concern about the quality of democracy in Mexico.

“We should be vigilant and cautious about groups with power and money,” he explained.
 
In looking forward to Venezuela’s October presidential election, León said Henrique Capriles is President Hugo Chávez’s strongest challenger to date. However, he described Venezuela as a country that is deeply polarized around politics and added that many factors could affect the election outcome.

“There’s even a risk of attacking Chávez too hard, opening the way for the government to claim that they are unfairly bullying a sick man,” León added. Chávez was diagnosed with cancer but the extent of his illness and the effectiveness of the treatment he has received in Cuba are closely guarded secrets.

Ana Maria Sanjuan, a senior executive at CAF, said there is not uniform trust among Venezuelans when it comes to the electoral process. If Chávez is re-elected, he will face new expectations from the electorate. 

“The most important thing is that Chávez’ fourth term would not be the same as previous ones. Venezuela is simply different now. People are better off, more educated and more involved in politics,” she said. “The Chávez administration would need to change its approach to the country.”

She said whoever captures the presidency will need to be more responsive to the middle class. She noted that Venezuela has showed signs of improving its relationships with the United States and Colombia, and its role within South America has strengthened.

Despite optimism about how well electoral processes are entrenched in the region, there is still room to improve the quality of the region’s democracies, according to the panelists

“The threats to the integrity of the election process in Latin America are different from those of the past—and much more sophisticated,” said Casas-Zamora. “Blatant fraud isn’t used now, at least on the national level. But there are other avenues, such as the financing of elections.

“The regional instruments to protect democracy were set up to respond to fraud and coups, but they are no longer the threats,” he continued.
 
CAF’s García noted that significant challenges still remain for the region.

“While there is no lack of interesting and innovative initiatives to generate development in Latin America and the Caribbean, there are few opportunities to share knowledge, lessons and results,” he said. “That’s why conferences like this one are so valuable.”