7th Annual Latin America Conference: Social Investment and Development in the Americas

Just two days prior to the vote on Venezuela’s constitutional referendum, AS/COA brought together prominent public and private sector leaders for the Annual Latin America Conference. With over 100 senior-level attendees, the conference looked at how to promote development through investment and trade, in addition to the then-upcoming constitutional referendum in Venezuela. At a time of changing political dynamics and market conditions, panelists examined how governments can facilitate long-term growth and competitiveness. Keynote speakers included:

• José Sarney, Senator of Amapá and Former President, Federal Republic of Brazil
• Alejandro Toledo, Former President, Republic of Peru
• Hon. Joseph Crowley, U.S. Representative, New York

Conference panelists and moderators included: 

• Fuensanta Diaz Cobacho, Managing Director and Head of Structured Finance for North America, Banco Santander
• John Hewko, Vice President, Operations, Millennium Challenge Corporation
• Jeffrey Schott, Senior Fellow, Peter G. Peterson Institute for International Economics
• Michael Penfold, Professor of Public Policy, Instituto de Estudios Superiores de Administración (IESA), Caracas
• Andy Webb-Vidal, private business consultant and former Financial Times Correspondent in Caracas
• Robert Kaufman (moderator), Professor, Rutgers University
• Christopher Sabatini (moderator), Senior Director of Policy, Americas Society and Council of the Americas and Editor-in-Chief, Americas Quarterly

Economic growth is essential to address these challenges. However, as highlighted by President Toledo, greater investment hinges on legal stability, social justice, respect for freedom of the press and human rights, and strong democratic institutions. Investments in health, education, and quality infrastructure are vital to achieving socio-economic stability. As seen in North America, infrastructure stitches a country together. At this pivotal moment, President Toledo urged leaders to have the courage and patience for increasing social investments. In doing so, a long-term economic vision is necessary as progress will not be immediate.

The Millennium Challenge Corporation (MCC) helps to promote such long-term, sustainable economic growth and decrease poverty. As noted by John Hewko, the MCC is committed to investing in transportation, water and industrial infrastructure, agriculture, education, private sector development, and capacity building. Fighting corruption is a top priority, given its effects on sustainable development. Seven countries in Latin America including Peru, Bolivia, Paraguay, Nicaragua, Honduras, Guyana, and El Salvador currently receive or will soon be eligible to receive MCC funds. Each country meets certain development criteria and has strong democratic governments committed to freedom, social justice, accountability and investing in their citizens.

Long-term growth requires a shift away from dependence on foreign investment. According to Fuensanta Diaz Cobacho, countries must develop their own companies and local capital markets. Foreign investment is important and can act as a catalyst to economic growth, but it is not sufficient. Citizens must also invest and believe in their own economies.

But trade agreements should reflect economic realities and opportunities. With trade and investment, social and political benefits are likely to follow. According to Congressman Joseph Crowley, new free-trade agreements reinforce comparative economic advantages and require increased worker rights, better environment protections, stronger democratic principles. The Congressman looked specifically at the pending free-trade agreement with Colombia. Despite significant advances in addressing violence and impunity, congressional passage may hinge on the government taking further steps to increase funding for social justice issues and ensure democratic accountability.

Venezuela’s Constitutional Referendum

The second panel discussion focused on the upcoming vote on the constitutional referendum in Venezuela. (On December 2, 2007, Venezuelans rejected the 69 proposed changes to the referendum by a vote of 51 percent to 49 percent.) According to panelists, if passed, the referendum would have furthered President Hugo Chávez’s powers through measures such as indefinite re-election, elimination of central bank autonomy and restrictions on access to information during states of emergency. Proposed changes would have also undermined local officials through an increased role for the central government in the provinces. Michael Penfold noted how many Venezuelans consider the reform a setback for the country.

Results aside, Penfold believed that the referendum would polarize Venezuelan society. Prior to the December 2 vote, opinion polls showed a very close contest. Support for the referendum was lower than the margin by which President Chávez won the presidential election in 2006. According to Penfold, these numbers demonstrate that his movement may be splintering.

Panelists agreed that both a “yes” and a “no” vote would have serious implications. According to Andrew Webb-Vidal, referendum approval would have had positive short-term implications for the President and provided legitimacy to pursue the revolution. This would have resulted in a destitute opposition and perhaps mass migration out of the country. But with a “no” vote, Penfold noted that many of the President’s supporters might view the leadership of the movement as undermined, possibly leading to increased radicalization. Either way, the December 2 vote is not the end of the saga; a fractured society will persist.

The outcome of the referendum may not affect President Chávez’s actual power. Rather, according to Webb-Vidal, the referendum is essentially a formality. Venezuela is already ruled by decree and the President can legally govern until 2012. This gives him ample time to continue to push for changes to the constitution. Turning to the role of the military, panelists agreed that the armed forces are a reflection of society. This carries important implications for the military’s loyalty. At present, a military coup is highly unlikely. However, both the government and the opposition must address pending concerns for nationwide stability.

Current levels of economic growth in Venezuela are not sustainable, according to Penfold. Despite historically high oil revenue, exchange rate and price controls have led to widespread corruption and a parallel market. This undermines social programs that seek to provide better access to basic food items. In fact, both Penfold and Webb-Vidal highlighted that staple food products are scarce in many parts of the country. Adding to Venezuela’s challenges, price distortions are creating a microeconomic crisis.