I would like to thank the President and Bayh Hagel senior member for holding this hearing to discuss U.S. policy economically to Latin America and the role of international financial institutions.
The strengthening of U.S. ties and increased economic growth in many Latin American countries are central to the agenda of President Bush, not only because we want to help our neighbors, but because its stability is of our interest. The United States will benefit directly from having neighbors strong and tangible economic gains obtained when the rates of the region as well. But we run the risk of loss in that Latin America suffers economic crisis – especially given the increasing integration in the hemisphere.
When he testified before the committee last February, the economic and financial conditions throughout much of Latin America, with the exception of Argentina, who seemed to be recovering after the slow growth of last year along with the recession in the United States and the global slowdown. However, since then, the conditions throughout the region became more difficult, and economic growth this year is likely to be zero at best. This is in contrast with other regions of the developing and emerging markets where growth is positive this year – about 6% in Asia, 3% in Eastern Europe, and 3% in Africa. It is clear that increased economic growth in the region must remain a high priority.
An economically diverse
Considering Latin America as a single entity with a view to its diversity – in poor countries face difficult challenges in developing economies with sophisticated financial markets. Some countries in Latin America have a good economic performance, have implemented good policies. Others are beginning to implement good policies, and have long to wait. There are others who have recently experienced crises or potential danger.
Mexico and Chile’s sound economic policies and solid political foundations distinguish in the region. Chile is still ranked among the most open and competitive and economic stability in Latin America – the factors that help explain its average annual growth rate of 6.8% over the decade of 1990, a figure far above the regional average of 3.3%. After experiencing high inflation (70% annual average) and almost no growth throughout the 1980s, Mexico’s economy grew at an average of 5% per year between 1996-2000 after its leaders had begun to implement a number of important free-market reforms – including North America Free Trade Agreement.
A number of countries strive to implement sound economic policies, but still have a long way to go to achieve its full economic potential. El Salvador stands out among those who have made great strides by implementing sound policies, while Bolivia, Colombia and Peru are also working hard to implement a combination of sound policies that enhance stability.
Other countries have experienced significant turbulence in recent months despite the political fundamentals have generally been strong. United States is closely following Brazil and the IMF supported assistance in August due to their economic policies have been strong. Events in neighboring Argentina has contributed to significant difficulties in Uruguay this summer, but the Uruguayan authorities have responded with force in cooperation with the international community.
Finally, Argentina is beginning to stabilize, although still in crisis after a significant decline in 2000, culminating in late 2001 with the freezing of bank deposits to dollar-peso convertibility, and a payment of its debt. Argentina and the IMF are working to reach an agreement in the near future that will help Argentina to strengthen its monetary and fiscal framework.
Following the crisis in Argentina, the experiences of the different economies of Latin America and other emerging markets have been instructive. In the months following the collapse of Argentina, we have seen little impact on other emerging market countries, including Latin America. This is in contrast to the effects of the crisis in Russia in 1998, which was accompanied by immediate and strong increase in lending spreads to other emerging markets, even those with few real links with Russia. It seems that in recent years investors have become more adept at differentiating between countries and markets based on fundamental economic evaluations. We have tried to promote greater progress in this direction, stressing that political decisions are not based on unfounded claims of contagion.
We have, however, supported programs where there was direct or fundamental interdependence between countries – as in the case of the effect of Argentina in Uruguay – in order to mitigate such effects.