Looking Back at the 21st CAF Conference

Established in 1996 as a joint initiative of CAF – Development Bank of Latin America, the Inter-American Dialogue, and the Organization of American States, the Annual CAF Conference brings together more than 1,000 world leaders to debate and discuss the most pressing developments facing the Americas. Now in its 21st year, the conference has grown to become the primary forum for policy makers and analysts, journalists, government officials and business leaders, entrepreneurs and investors, and civil society representatives to review progress in the Western Hemisphere and address pending challenges. 

This 21st edition of the CAF Conference took place on September 6 and 7 at the Mayflower Hotel in Washington, DC. Of course, these are no ordinary times. Uncertainty prevails. Both for the region as well as its relations with the United States and beyond, the themes of this conference are more urgent and consequential than ever. What does President Trump’s foreign policy mean for Latin America? How does the region fit into a changing global order? What are the sources of the region’s growth in coming years? Along with these questions, the conference explored the role of independent judicial institutions in light of high-profile corruption cases throughout the region; the electoral map and shifting political landscape; and the challenges and opportunities facing Latin American cities.

Introduction and Keynote Address

In his introductory remarks, Michael Shifter, president of the Inter-American Dialogue, welcomed attendees and reminded guests that this conference represents the start of a third decade of cooperation between the Dialogue and CAF – Development Bank of Latin America. Shifter discussed the importance of the annual CAF Conference, and the role the conference plays in reviewing recent developments in the hemisphere. Shifter then welcomed Luis Carranza, president of CAF – Development Bank of Latin America and invited him to offer a brief keynote address.

Carranza focused on the recent economic experience in Latin America and the evolution of “three political pacts.” First, Carranza discussed how the lost decade led to a new political consensus on the importance of macroeconomic stability. This pact was successful and allowed for structural reforms in the region to promote economic growth. Although this success led to a reduction of poverty throughout the 1990s, the region saw increased levels of inequality, leading to the creation of a second pact. Carranza noted that, in the 2000s, the region saw a dramatic reduction in both poverty and inequality, largely driven by two fiscal instruments—an increase in social expenditures and an increase in infrastructure and public investment as tools for social inclusion. This helped build a new, growing, middle class, which improved demand and resulted in self-sustaining economic growth.

Finally, Carranza discussed how the experiences of more recent years led to a new pact, a “pact for productivity.” Here, Latin America learned that if it wants to hold on to the gains of recent social transformations, the region would have to find a way to improve productivity. But, looking at the long term, Carranza noted that there needs to be a political consensus on a sustainable strategy for continued growth. “We must have a comprehensive vision,” Carranza concluded, “that includes multiple, asymmetrical lenses on development.”

“We need to be there for those who are trying to be competitive in the 21st century.”

– Luis Carranza, President, CAF – Development Bank of Latin America

Video: Opening Remarks (English), Palabras de Bienvenida de Michael Shifter (Español), Discurso de Luis Carranza (Español)

A New Global Order and Trump’s Foreign Policy Towards Latin America

The first panel, moderated by Michael Reid of The Economist, focused on how Latin America fits into the new global dynamic. In particular, Reid focused on the impact of globalization and questioned whether there is a new global order or a “global disorder”.

“Is there a new global order, or is there global disorder?”

– Michael Reid, Columnist, The Economist

Video: A New Global Dynamic, A New Global Order? (English), Una nueva dinámica mundial: ¿un nuevo orden mundial? (Español)

Susana Malcorra, the former foreign minister of Argentina, spoke of how the pressures of modernity and globalization are bringing into question political and business leadership in almost every country. Specifically, she noted that the recent history of global power dynamics, a unipolar order since the fall of the Berlin Wall, has been gradually eroded. Combined with challenges that are increasingly global, Malcorra urged leaders to think about “a renaissance of the global system” that seeks solutions with a collective mindset. Unfortunately, she conceded, this wasn’t likely anytime soon—but encouraged the audience to allow time for this thinking to emerge

Former foreign minister of Canada Pierre Pettigrew pointed to the election of Donald Trump and the success of Brexit as turning points for the world, but held that this backlash against globalization will not necessarily succeed. Pettigrew noted that there is no clear alternative to globalization and that the driving force of technological and global progress will continue unabated. The question, however, is whether or not political systems and institutions can adapt.

In her remarks, special counsellor to the secretary general, chief of staff, and OECD Sherpa, Gabriela Ramos argued that the global panorama is more complex and that the macro framework for trade and investment has been created without trying to make it work for everyone. “Increased inequalities of opportunities” represent a fundamental failure on the part of the global system—“it has not delivered for everyone.” Voters are supporting anti-establishment parties out of a belief that “I am not getting what I am supposed to be getting.” That said, however, Ramos argued that we need to be careful not to let this backlash create more crises. Just because trade and investment can’t do everything doesn’t mean that they’re responsible. She argued that governments need to find ways to create more inclusive growth without closing the door to integration and globalization.

Lionel Zinsou, the former prime minister of Benin, remarked that Africa is more optimistic than other regions. Zinsou noted that Africa is particularly interested in how Latin America fits into the changing world order, because the continent needs examples to follow. Despite Latin America’s challenges, it offers an important set of lessons for the African continent. “You can’t be very strong in a global system if you are not strong at home,” said Zinsou.

Chris Alden, the director of the global south unit at the London School of Economics, argued that “without the global south, there is no global order.” Practically the only way to solve transnational global issues is by engaging countries in the global south. Alden argued that the system must include all actors involved, especially in the rapidly emerging “new marketplace of ideas” on development. The dynamic of the global order is no longer coming just from the experiences of the industrialized world, but also from the experiences of industrializing countries. There is no longer a monopoly on knowledge, which is exciting for development.

Reid asked Wang Huiyao, the president of the Center for China and Globalization, to talk about the role of China in this new global order and, more specifically, the role of China in Latin America. Wang spoke of the growing potential for investment and bilateral trade between Latin American countries and China. Wang also said that the role of China in the global order can’t be turned around, so the world should stay the course and work through this challenging moment.

The second session of the conference focused on Trump’s foreign policy towards Latin America and its implications for regional integration. The session was moderated by Arturo Sarukhan, former ambassador of Mexico to the United States. Sarukhan noted three key issues that are important for US-Latin American relations—immigration, drugs, and Cuba—all of which have moved backwards under the Trump administration, to considerable damage to the US reputation.

Video: Trump’s Foreign Policy Towards Latin America (English), Política exterior de Trump hacia América Latina (Español)

Francisco Palmieri, the acting assistant secretary of state for Western Hemisphere affairs, opened the session saying that the administration has “made clear its strong interests in Latin America,” in particular an interest in democracy in the Americas. Palmieri highlighted Vice President Pence’s recent trip to Latin America as one of the administration’s attempts to engage Latin America directly. He described Mexico as a critical partner for national security and foreign policy goals, and argued that “there’s no question that this administration has a clear sense that we’re going to be directly engaged in the hemisphere.”

Regarding Cuba and Venezuela, Palmieri specifically commended Peru’s leadership on Venezuela and held that it showed how the United States has ready and eager partners willing to work together on important issues. Finally, he argued that the administration is examining the underlying conditions that are driving migration in the hemisphere, and said that the administration is working with the Northern Triangle in particular to create economic opportunities and improve the security situation to build communities.

“We have to work together on issues of democratic governance and security. This administration is not going to stand back on these issues.”

– Francisco Palmieri, Acting Assistant Secretary of State, Western Hemisphere Affairs

In her remarks, Marta Lucía Ramírez, former defense and trade minister of Colombia, stated that Vice President Pence’s visit to Latin America was an important gesture, but that the United States is currently driven by protectionism; hesitancy about immigration, which is a critical concern for many countries in Latin America for human and economic reasons; and narcotrafficking, which is a shared concern for regional stability. She argued that the United States has returned to “an agenda of the past” and isn’t looking for more forward-oriented solutions. She claimed that the region must work together constructively and try to focus on the issues that affect people’s lives: education, economy, and development, among others. 

José Antonio García Belaunde, the ambassador of Peru to Spain and former foreign minister of Peru, discussed the changing politics of the Trans-Pacific Partnership (TPP) and trade integration in South America, arguing that at many points countries haven’t been on the same page when it comes to political consensus about trade. The Pacific Alliance, he argued, was an attempt to bring together “likeminded people who want to advance.” He agreed with the other panelists that many US foreign policy issues—especially Cuba—continue to be irritants, but that the region may also be looking to new creative ideas because of them.

In his remarks, Juan Gabriel Valdés, the ambassador of Chile to the United States and former foreign minister of Chile, argued that the relationship between Chile and the United States was extremely strong between the 1990s and 2016, and therefore the sharp shift on trade in the United States was “surprising” and “challenging” for Chile. Sarukhan asked Valdés how he would rate the current logic of the US approach to Latin America and Valdés responded, calling it “somewhat bumpy continuity.” For example, most of the Obama administration’s policies on Cuba have been maintained. Furthermore, the US line on Venezuela also largely continues, except for the declaration of President Trump that a military intervention is possible. This continuity allows Latin America to continue to work together with friendship and respect, in spite of the bumps.

Keynote Address: Dr. Ricky L. Waddell

The second day of the conference began with a keynote address by Ricky L. Waddell, deputy national security advisor to President Trump. Former US trade representative and co-chair of the Inter-American Dialogue Carla Hills introduced Waddell, describing his impressive career as a major general in the US Army Reserve, including key staff positions in the United States, US Central Command, and deployments to Iraq and Afghanistan. In his civilian career, Waddell spent seventeen years working in South America, including twelve years in São Paulo, Brazil.

Waddell began by emphasizing that the White House deeply cares about the Western Hemisphere. Waddell focused on the importance of combatting corruption, which “could erode the foundations of our democratic systems” and argued that new endeavors must be made to work together against organized crime and drug trafficking, particularly in Mexico, Central America, and Colombia. On trade, Waddell discussed the importance of “modernizing” NAFTA and other trade agreements to account for changes in the 21st century economy.

“NAFTA needs to modernize to remain relevant, boost our competitiveness.”

– Ricky L. Waddell, Deputy National Security Advisor to the President

Finally, he made comments on “Venezuela’s descent into dictatorship.” Waddell described the government’s behavior as “contrary to the progress we have made in the rest of the region.” The humanitarian crisis in Venezuela is turning the country into “a failed state,” and he argued that the Trump administration is making every effort to put pressure on the regime while supporting the Venezuelan people. Waddell congratulated other countries in the region, Peru and Brazil in particular, for taking action and attempting to unify the hemisphere against dictatorship. Waddell concluded by saying that there is a clear opportunity to deepen prosperity and democracy in the hemisphere, and that the Trump administration is a “committed partner” in this effort.

Video: Keynote Address (English), Discurso (Español)

Challenges in the region: Latin America After the Commodity Boom and a Region Facing Corruption

Monica de Bolle, senior fellow at the Peterson Institute for International Economics, moderated the third session of the conference on new strategies for economic challenges in the region. De Bolle opened with remarks on the crisis in Brazil. She argued that the economy has “bottomed out,” evidenced by a surprisingly quick drop in inflation, which has allowed for some new wage growth. De Bolle also discussed the upcoming elections, calling them “a turning point in one way or another”—it may help bring new, better economic policies, or it may be a return to past cycles. Either way, it is unlikely that considerable changes will occur before then.

Video: Latin America After the Commodity Boom (English), América Latina después del auge de los productos básicos (Español)

In his remarks, Pablo Sanguinetti, chief economist of CAF – Development Bank of Latin America, began by discussing positive developments in Latin America, in particular highlighting how more stable fiscal and monetary policies have helped the region respond to the crisis. Going forward, he argued that Latin America needs to focus on productivity growth through innovation and consolidation of companies into larger, more productive firms.

Mario Bergara, president of the Central Bank of Uruguay, built on Sanguinetti’s remarks, providing context, which he claimed has a strong effect on the policies that have been made—in particular, countries are constrained by financial markets and uncertainty in global political environments. He discussed the impact of “implicit coordination” behind policymaking all around the world, and how expectations tend to herd and group together and respond quickly to political uncertainty. 

Next, Jorge Familiar, vice president of Latin America and the Caribbean at the World Bank, argued that many of the concerns about the development agenda, including productivity, poverty, and the middle class, among others, continue to be of concern. Familiar called for a “strengthening of the social compact,” which improves public services but, for that to happen, there must be tax increases. In other words, Latin America needs to escape the vicious cycle of discontent with public services and resulting unwillingness to pay taxes.

The session also included Santiago Levy, vice president for sectors and knowledge of the Inter-American Development Bank, who focused primarily on NAFTA. Levy argued that the agreement has generally been a success, but there are many parts that could be modernized. However, Levy cautioned that NAFTA cannot be used as a way to “fix” the US trade deficit and argued that there is a risk of the Trump administration attempting to do so.

The next session focused on corruption in the region and strengthening accountability, transparency, and independent institutions. The session was moderated by Gustau Alegret, the US news director for NTN24. Alegret opened the session discussing the wave of corruption facing the hemisphere and the two undercurrents of the conversation: judicial independence and political leadership.

Video: Latin America Facing Corruption (English), América Latina se enfrenta a la corrupción (Español)

Ana María Sanjuan, a senior political advisor for CAF – Development Bank of Latin America, argued that development banks and other multilateral institutions can help in the fight against corruption both by highlighting its importance as an obstacle to development (for example, the need to pay bribes for public services), and by providing technical assistance to help strengthen institutions.

When asked about Brazil, Melina Castro Flores, a federal prosecutor in Brasília and member of the Lava-Jato working group, described how the Lava-Jato investigations have uncovered a massive corruption scheme, with current cases against 282 individuals. Discussing the importance of public opinion, Castro Flores noted the efforts that the Lava-Jato group has made to make almost all of its investigations public, which has helped bring about a change in voter attitudes and allowed investigators to move forward with structural reforms.

Laura Alonso, secretary of public ethics, transparency, and the fight against corruption of the Anticorruption office of Argentina, discussed the need to build strong institutions to prevent corruption. Alonso noted the progress made under the Macri administration in beginning to dismantle corrupt institutions. She agreed with Castro Flores that citizens are firmly committed to transparency and are, for the first time, holding their governments and institutions accountable.

“For infrastructure, bridges must be built. Institutions must be built to prevent corruption.”

– Laura Alonso, Secretary of Public Ethics, Transparency, and the Fight Against Corruption, Anticorruption Office of Argentina

 

In his remarks, Eduardo Engel, president of the Presidential Advisory Council against Conflicts of Interest, Influence Peddling and Corruption in Chile, commented on the importance of the growing middle class in building political will against corruption, calling the current moment a significant opportunity for reform. Engel also noted that low tolerance for corruption is an important opportunity for political reforms that can help constrain and limit further corruption; however, this requires strong leaders. He mentioned that Chile has had several opportunities for change, but that reformers haven’t had the political capital to carry them out.

Claudia Escobar, a former magistrate on the Guatemalan Court of Appeals, highlighted the importance of strong judicial systems. Escobar also noted how international cooperation has been critical in Guatemala, especially in the success of CICIG, the UN Commission against Impunity in Guatemala.

At the end of the session, panelists discussed the importance of international cooperation and how multilateral institutions can work to help prevent corruption; the ability to sanction countries that don’t make progress on corruption; about how corruption affects voter preferences and why voters continue to elect candidates with corruption allegations on their records; the importance of paying taxes to building public concern about corruption; and, how corruption relates to narcotrafficking and other criminal activity.

Interview with Francis Fukuyama

Following the fourth session, Susan Glasser, chief international affairs columnist at POLITICO, conducted an interview with Francis Fukuyama, the Olivier Nomellini Senior Fellow and Mosbacher Director, Center on Democracy, Development, and the Rule of Law, Freeman Spogli Institute for International Studies, Stanford University. Their conversation focused on Trump’s new global order and Latin America.

Video: Trump’s Latin America and the New Global Order (English), La América Latina de Trump y el nuevo orden mundial (Español)

To open, Fukuyama presented the rise of Donald Trump as a fascinating political science experiment—an individual driven by a relentless drive to accumulate power and whether or not American political institutions can contain authoritarian, populist behavior. Glasser asked about the definition of populism and whether or not his agenda—advocating for ideas that elites don’t like—is really populist. Fukuyama responded by highlighting Trump’s economic agenda on trade and the welfare state, saying that they were indeed populist.

Glasser talked about the importance of understanding global context, and asked if Trump is connected to a wave of global populist-nationalist politics.

Fukuyama said yes, Trump is connected to a rise of populism globally. There are leaders all around the world that are getting elected democratically and then using that power to undermine institutions and the rule of law. He claimed that this trend is tied to the political divide between urban, educated voters and rural, less educated voters.

“The Latin American wave [of populism] that started with Chavez is receding, and our wave [in the United States] is just beginning.”

– Francis Fukuyama, Olivier Nomellini Senior Fellow and Mosbacher Director, Center on Democracy, Development, and the Rule of Law, Freeman Spogli Institute for International Studies, Stanford University

After prompting from Glasser about the economic differences between US and Latin American populism, Fukuyama argued that inequality has been more of a persistent problem in Latin America. What we’re seeing in the developed world is a different thing, a group of formerly middle class agitators.

Glasser wondered about the idea of democratization as we continue to see an apparent democratic decline. Fukuyama argued that “it’s pretty clear that globalization… is good for aggregate growth” but “in a free trade world, not everybody benefits.” That feeds into a populist pressure on democracy, which is eroding politics in many countries. He also argued that there are other factors involved. For example, as time goes on, voters seem to lose faith in democracy and care less about institutions.

Glasser brought the conversation back to the beginning, asking about the role of institutions and their ability to weather this storm. Fukuyama emphasized that even if Trump isn’t able to do much of what he wants to do, he still may erode norms and the rule of law in a way that will continue even after he’s gone.

Electoral Cycle in Latin America and Cities in the Americas

The next session, moderated by Michael Shifter, focused on the electoral cycle in Latin America and questioned whether the region was experiencing a democratic renewal or political decay. Shifter laid out the electoral cycle ahead in Latin America and noted that, in many major countries in Latin America, there is “great uncertainty,” perhaps more than ever in recent history, about what the political trajectory will look like by the end of 2018.

Video: The Electoral Cycle in Latin America (English), El ciclo electoral en América Latina (Español)

Marta Lagos, founding director of Latinobarómetro, opened the session by arguing that Chilean democracy may be in retreat and that the political system has become dysfunctional. She noted that voting rates are falling consistently in Chile and estimated that as few as 38 percent of the electorate will vote in the upcoming presidential election. At the same time, there has been a massive segmentation of the political parties, resulting in intense fragmentation, particularly on the left, allowing candidates on the right to rise without a strong challenge.

In his remarks, Rodrigo Pardo, editorial director of Semana, focused on various underlying factors that will affect the Colombian elections, including corruption, the economy, and the situation in Venezuela, all of which he felt would be more decisive factors than the peace process with the FARC. Pardo noted that the electorate in Colombia may look to an outsider for one of the first times in Colombian history. Considering the “depth of the dissatisfaction,” he argued, this may be more possible than ever before. In particular, the corruption scandals—above all Odebrecht—have undermined both the government and the opposition, making it feasible that voters may abandon both major coalitions in favor of a political outsider.

Denise Dresser, a professor at the Instituto Tecnológico Autónomo de México, argued that corruption has been the main driver of the political collapse in Mexico. Dresser stated that Andrés Manuel López Obrador (AMLO) seems like the best candidate at capturing the “anti-system,” anti-party mood that has swept across Mexico and that it really does seem like someone with a populist agenda could succeed. That said, she claimed that while AMLO started with a strong advantage, he does not have a clear idea how to reform the government. The election will be a referendum on “AMLO yes or AMLO no.” She concluded by emphasizing “regardless of who wins,” there will not be change in Mexico unless civil society is successful in applying pressure to reform public institutions.

When asked about the situation in Brazil, João Augusto de Castro Neves, director of Latin America at the Eurasia Group, said that the wave of corruption that began in Brazil has broken the pendulum swing of left versus right. In Brazil, the next election will be much more about old vs new. At least when it comes to the demand, there’s a clear trend of public pressure calling for new things, and approval ratings for almost all politicians is at “rock bottom.”

Luis Vicente León, president of Datanálisis in Venezuela, argued that change in Venezuela can come either through political negotiation coming out of a collapse and total breakdown, a negotiation that reduces the exit costs for the current government, or a coup that removes the government. The government doesn’t feel the need to negotiate because it’s not immediately threatened, and the opposition is deeply fragmented, limiting their negotiating power. León concluded that there are likely to be elections, but they will not be competitive until the aforementioned factors are addressed. And, while there may be elections, there will be no competitive or fair transfer of power.

“Are we going to have elections? I think so. The question is whether we have competitive elections. And the answer is no.”

– Luis Vincente León, President, Datanálisis (Venezuela)

The final session of the conference examined how to make cities in the Americas smarter, safer, and more climate resilient. The panel was moderated by José Carrera, vice president for social development at CAF – Development Bank of Latin America. Carrera described how the growth of cities has created challenges in terms of inclusion, productivity, and integrated risk management, but that there have also been important innovations from the public to improve the quality of life.

Video: Cities in the Americas (English), Ciudades de las Américas (Español)

The session opened with remarks from Aníbal Gaviria, the former mayor of Medellín, Colombia. Gaviria noted that the two biggest problems in Latin America, inequality and violence, are particularly prevalent in cities. He spoke specifically about Medellín, formerly one of the most violent and impoverished cities in Latin America, and how the articulation of good long-term policies, including investment in education, helped improve the city. 

 

Mayor of Montevideo, Uruguay, Daniel Martínez, talked about the importance of strategic planning. Martínez noted that, while Uruguay has been very successful in promoting economic growth and effective public policies, Montevideo still has significant problems with inequality. He emphasized the need for cities to constantly reevaluate their policies based on lessons learned. He also highlighted several innovations in Montevideo, specifically the use of tech-enabled trash collection, and how technology can help cities in new and exciting ways.

“There has been growth and real development, which is valued by economists… but the challenges of inequality are enormous.”

– Daniel Martínez, Mayor, Montevideo, Uruguay

Fernando Straface, secretary general of the city of Buenos Aires, discussed the importance of the new concept of resiliency in cities. A key part of this, he argued, is the ability to extend public services and utilities to the least-serviced parts of the city. Urban planning and municipal policymaking that make life better for these populations has to be done carefully and comprehensively. It is not enough to just bring in jobs — you have to create effective public spaces, security and safety, and efficient public services.

Danny Leipizger, the managing director of Growth Dialogue, described what it means to be a “smart city.” First it is to use technology, second to involve citizens, and third to have an effective government. He also talked about the need to make cities more productive, which involves how to make cities innovative. Leipziger concluded by noting the importance of developing secondary cities as well as a way to promote growth and avoid some of the problems that come with the development of megacities, including helping to distribute production across a country.

The session concluded with Carlos de la Torre, finance minister of Ecuador, who discussed the importance of coordinating national and state-level policies with urban policymaking. He argued for better coordination between national macroeconomic policy as well as the development of economic policies at the level of cities, which can help improve production in the cities and help make industries more efficient.



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