Remarks by Alexander Watson at the 24th Washington Conference on the Americas

Speaking at the 24th Washington Conference on the Americas, Alexander Watson, Assistant Secretary for Inter-American Affairs, focuses on the role of government in increasing economic growth. He emphasizes the importance of the Americas banding together to expand trade and create an exemplary partnership from which all countries in the Americas will benefit.

***As Prepared for Delivery***

It is a truly great pleasure to be here this morning with so many friends in the Council of the Americas. I have enjoyed a very close association with the Council and the Americas Society for many years - but most intensely during my 3 1/2 years as the Deputy U.S. Representative to the United Nations in New York immediately before I assumed my current position. I am pleased to be able to continue that association now.

Today, we do not really have time for me to present a full overview of the Clinton Administration's policies toward Latin America and the Caribbean. So I will focus on some of the broader trends I believe will be of particular interest to the Council. I will be glad to discuss other issues - including the Administration's energetic new efforts to restore democratic governance to Haiti - during the discussion period following my remarks.

From Consensus to Partnership

The theme for this, the Council's 24th Washington conference - after NAFTA: The Road to Hemispheric Growth - is very well chosen. I believe we have entered a period in which the countries of our hemisphere have within their grasp the ability to generate long-term, broad-based, sustainable economic growth and development. Of course, all of our countries face very difficult problems in this regard. We always have, and we always will. But we are better positioned to overcome these problems than before. In fact, I submit that prospects for our countries and, more importantly, for our people generally are brighter than at almost any of your previous 23 Washington conferences.

It is a very exciting moment in our hemisphere for political as well as economic reasons. Reflect for a moment, if you will, on political developments over the past year. How many free, fair, legitimate elections have there been since your last conference? Look at the quality of the chiefs of state and heads of government that those elections have produced in Bolivia, Paraguay, Belize, Venezuela, Honduras, Costa Rica, El Salvador, and Chile - to name a few. And there will be more elections this year. There is a strong commitment throughout the hemisphere that elections must be fair - that victory in an unfair contest is not really a victory and that the resulting regime will suffer severe problems of legitimacy at home and internationally, to the serious disadvantage of the country concerned.

This consensus that only freely and fairly elected, democratic governments are legitimate is profoundly important in facilitating relationships of confidence and trust between our countries, in laying the basis for broad cooperation between governments and societies, and in enhancing possibilities for hemispheric integration.

Similarly, economic reform has proceeded apace. Governments, by and large, have put their macroeconomic houses in order, and, in many cases, this has not been easy.

The fiscal and monetary discipline which is at the base of these reforms is being reinforced with fundamental tax reforms, restructuring of financial markets, privatization, and establishment of independent central banks.

These efforts are bearing fruit, however, as tariffs and inflation rates tumble into the low teens in most countries. Latin America is experiencing its third year of solid growth with capital flows that continue to be high despite some setbacks.

Most important of all is the synergy among these political and economic reforms. They give our governments the political incentive and economic capacity to address more effectively the social needs our people face. President Clinton is endeavoring to address those needs in his powerful initiatives on health care, welfare reform, and crime, to mention only a few. Leaders throughout the hemisphere are making similar efforts.

Addressing these social needs and providing greater social equity and more responsive, honest, and effective government generates greater popular support for democratic government, increasing social stability and broadening the base for economic growth. These, in turn, reassure investors and encourage flows of capital and technology and trade which produce growth.

Some have described this next phase as the "second generation" of reforms. The first generation of reforms aimed at taking government out of the things that it didn't do well and probably shouldn't do at all and at empowering markets to be the main decision-makers for the economy.

The second generation of reforms aims at giving government the capacity to do well what only governments can do and what markets cannot do or do only imperfectly. The idea here is shared growth to benefit all elements of society and to benefit future as well as present generations.

In a broad sense, we are all facing similarly daunting new challenges, within the U.S. as well as in Latin America and the Caribbean:

* Redefining our communities so that growth and job opportunities reach all parts of our society;

* Reforming our social systems so that health, educational, and welfare services are delivered efficiently, free of abuses, and responsive to the needs of all our people; and

* Restructuring incentives so as to protect our countries' resources for sustainable, environmentally sound use.
There is considerable work already underway. A couple of examples follow.

* The recent historic capital replenishment of the Inter-American Development Bank - which increased the IDB's capital from $60 billion to $100 billion and added almost another billion dollars to its fund for special operations - also marked agreement on reorienting IDB lending to investment in health and education, to protection of the environment, and to harnessing the energy of the private sector. As Under Secretary of the Treasury Summers said at the IDB annual meeting last month, "growth must be inclusive if it is to be enduring."

* Another innovative example is Bolivia's "capitalization" program, which will simultaneously privatize a large part of its state enterprises while giving every Bolivian over age 21 assets to use toward his or her retirement.

In addition to the essentially domestic political and economic reforms I have mentioned, one of the most significant trends in the hemisphere is that of regional integration. For those of us in North America, certainly, the most dramatic manifestation of this trend was approval of the North American Free Trade Agreement. NAFTA was a historic watershed, the full effects of which we will only realize years from now. It is already making a profound difference in the nature and intensity of relations among the three partners. In speaking to the Council of the Americas, which played such an important role in the genesis and approval of NAFTA, I need not dwell on its virtues and significance, although I will return to some aspects of NAFTA later in my remarks.

But I would like to note here that many other manifestations of integration have taken place. For example, bilateral and multilateral trade liberalization arrangements are burgeoning. At last count, there were 23 bilateral and multilateral subregional trade arrangements.

One noteworthy example is the Andean Pact that, next year, is expected to become a single market with free internal trade and a common external tariff no higher than 20%. To give you a notion of the size of this integrated market, at that point, the five members of the pact will become one of the top 12 markets for the U.S., accounting for more than $10 billion in U.S. exports. We sell more to the Andean Pact's 95 million people than to China's 1.2 billion.

Economic reforms and trade liberalization have caused trade within the region to boom. Intraregional trade is outpacing growth in both regional GDP and overall world trade expansion. During the past five years, world imports as a whole increased 19%. Latin American imports from the world increased 79%. I believe we are at a defining moment in hemispheric relations. You have heard this Administration's emphasis on the convergence of values and interests that has emerged among us. The challenge we face is to transform this broad, although far from perfect, consensus into a new partnership for action to address our common problems and approach our common goals. We must consolidate and institutionalize our domestic gains in mutually reinforcing fashion and shape a new web of relationships which define our hemisphere's future. That's what the Summit of the Americas is all about.

The Summit of the Americas
In describing his vision of the Americas, President Clinton said:

We have a unique opportunity to build a community of free nations, diverse in culture and history but bound together by a commitment to responsive and free government, vibrant civil societies, open economies, and rising living standards.

Our effort to realize this vision will be one of history's exciting endeavors. We believe the Summit of the Americas, which will take place in Miami on December 9-10, will be an unparalleled opportunity to consolidate our achievements and chart our future course.

We envision that the summit will produce a declaration of principles that will guide relationships among our nations and an action plan of specific initiatives. We have found support and enthusiasm for a summit built on the themes of democracy and effective governance on the political side and trade expansion, investment, and sustainable development on the economic front. We are developing many specific ideas to present to our partners in an intense process of consultations during which we expect to hear many other proposals.

We have met with our Mexican neighbors and will continue our discussions next week during our Binational Commission meeting in Mexico. The U.S. delegation will be led by Secretary of State Christopher and will include other Cabinet secretaries.

We hope to complete the first round of consultations on the summit this month, meeting with representatives of CARICOM, Central America, the Rio Group, and Canada. Of course, we will continue discussions at the OAS General Assembly in Belem next month and follow up with many other meetings throughout the year to make the Summit of the Americas as substantive and significant an event as possible.

We also look forward to receiving input on the summit agenda and specific initiatives from a wide variety of sources - certainly the Council of the Americas, as well as other private sector and non-governmental groups. We eagerly invite your views. We hope that the summit will provide impetus and direction on issues such as the consolidation and defense of democracy; government accountability, efficiency, and transparency; empowerment of civil society; and the rule of law, including steps to combat the dangerous narcotics cartels. We will offer ideas for harmonizing financial, legal, fiscal, and other regimes to facilitate hemispheric integration. We may examine innovative ideas for developing health, labor, environmental, and educational standards. We will seek ways to enhance hemispheric cooperation on security issues in the post-Cold War era.

Trade expansion will be a major focus of the summit. There is overwhelming regional interest in this subject. The President remains fully committed to his desire to expand NAFTA to include other market oriented democracies in Latin America and the Caribbean. While I know you are eager to know what future steps on trade the Administration has in mind, I will defer to U.S. Trade Representative Mickey Kantor, who will speak to us at lunch today.

I will say here, however, that our concept of free trade expansion includes underlying components such as investment agreements and understandings concerning intellectual property rights, the environment, an labor. As Vice President Gore said in Marrakesh on April 14:

The relationship between trade and the creation of wealth is manifest.... However, economic growth cannot be pursued without vision or compassion for the way it may affect working men and women and without regard for its environmental consequences.

For expanded free trade to reach its potential, these underpinnings are essential.

Similarly, free trade means not just new opportunities for exports but also stronger linkages among our societies. More open economies, based on competition rather than access and privilege, provide more opportunities for economic and social mobility; stronger economic growth and broader markets; and greater flows of capital, goods, ideas, and technology. The promise of hemisphere united by open markets is a powerful tool in the hands of reformers throughout our hemisphere.

The Impact on American Business

This congeries of developments and trends in our hemisphere has profound implications for American business. The Western Hemisphere is the United States' largest trading partner. President Clinton is committed to reaching out to the other market-oriented democracies of Latin America to join what he called "this great American pact." This will be good for American exports and American jobs. Some facts follow.

* 37% of U.S. exports go to Western Hemisphere nations.

* The U.S. sells as much to Brazil as to China, more to Venezuela than to Russia, and more to Ecuador than to Poland and Hungary combined.

* The value of U.S. exports to Latin America and the Caribbean has increased 144% since 1986, while our exports to the rest of the world rose 90%.

* Latin America is the largest developing country destination for U.S. private investment, accounting for $5.1 billion in 1990-92, or almost 70% of all our investment in developing countries.

* The IMF predicts that "upper-middle-income markets" in Brazil, Mexico, Colombia, Venezuela, and Argentina are among those likely to grow fastest.

* Proximity, investment patterns and established cultural ties all help to give American products important advantages in these markets, which have a high propensity to purchase our products.

* The countries of the region are moving rapidly beyond traditional Third World status. Mexico has just joined the OECD as its first Latin American representative, and Brazil and Argentina have been admitted to the OECD's development center. The U.S. strongly supported - in fact, proudly led - these initiatives in the OECD.

* The major components of U.S. policy toward Latin America and the Caribbean - promoting democracy and human rights, strengthening U.S. economic security, and building cooperation on global issues - are at the heart of the Administration's overall foreign policy agenda. This endows our efforts in the hemisphere with consistency and sustainability.

Thus, our interest in the region is clear. Our engagement is firm. Our vision is powerful.

The rapid evolution of our hemisphere is a complex phenomenon involving many intertwining strands. Far-sighted American business leaders understand this and are among the strongest proponents of market-driven change throughout the region. It is strongly in your interest, I believe, to support Latin American and Caribbean leaders who undertake the second generation of reforms I mentioned earlier - those aimed at making growth inclusive and at giving a stake to all parts of society in the market - based democracies.

Structural reforms bring some costs, as all change inevitably does. We are aware that elements of the business community, as well as other groups, opposed and still oppose the dismantling of special privileges and protection. But it is a credit to the vision of many business leaders that they see beyond the temporary costs of transition and change and recognize the immense benefits to themselves and to all in their societies which come from greater competition and democracy. Your vision, energy, and talents are urgently needed in making sure that the ideals of political and economic democracy become a reality for all.


Let me conclude by observing that what we are pursuing in our hemisphere is more than expanded free trade. We seek a community of nations committed to democracy and human rights, bound together by open markets and rising standards of living, and dedicated to the peaceful resolution of disputes. Such a community implies a new kind of relationship between the United States and our neighbors: a more mature partnership, based on mutual respect and cooperation and on the convergence of our values, interests, and objectives.

President Cesar Gaviria of Colombia, whom we are proud to have supported in his successful candidacy for Secretary General of the Organization of American States, expressed this idea eloquently a month ago:

From the Americas of the past with its arms extended and crying out for its proper destiny, we will see born a new hemisphere that calls for solidarity and cooperation to develop economic and trade relations based on parity and dignity.

We look forward to working together with him and with all of you to realize this vision.