MercoPress. South Atlantic News Agency

Upbeat message on future of Latin America

San Pablo- World Economic Forum participants heard a message of optimism for the future of Latin America, with many countries today said to be in a vastly stronger economic situation than at the start of the 90s, and democracy itself no longer in question.

However, to maintain its advantages and to maximize its potential, the region must pay close attention to the quality of government.

"Thirteen presidential elections in one year would naturally create a certain climate of political uncertainty," said José Miguel Insulza, Secretary-General of the Organization of American States. "People wonder what a new government will do, if it will have the support of congress, and if it will do what it promised." However, he said, that was different from doubts about the solidity of democratic systems.

"I am sometimes surprised by what I might call the ?venezuelization' of the discussion about how politics are going in Latin America," he said, noting that the region no longer has a problem with the mechanisms of democracy ? fair elections, peaceful handover between governments, and so on ? but with the results that democratic governments are generating for their citizens. "The problem of political risk in Latin America today is much more about the stability and quality of governments," he said.

The question of stability is relevant, for example, to the question of investment in infrastructure, where businessmen must commit themselves for a horizon of up to 30 years. In this respect, the example of Chile is relevant. The key differential for that country is not education, Insulza said, but its open economy, the stability of political coalitions and the quality of its government.

He noted that 40 percent of people in Latin America still live in poverty and that the quality of education and social services provided by governments is generally low. Guillermo Perry Rubio, Chief Economist, Latin American and Caribbean Region, World Bank, Washington DC, noted that recent good growth in the region can continue. "The fundamentals are good," he said. "There is the prospect for several years of more or less benign times." Now, therefore, is the moment to lay the foundation for continued strong growth.

Perry said that compared to the start of the 90s, Latin America is in much stronger shape. Then, growth was fuelled mainly by capital inflows. Today, growth is being led by exports and many countries have current account surpluses. "Now the situation is inherently more stable," he said, with countries on average holding reserves equal to 2.5 times their annual debt service obligations.

That said, Perry noted, there is always room for improvement, and fiscal restraint in good times will help countries weather future possible downturns or turbulence. He listed three key drivers for the future, in addition to sound macroeconomic policies, an open economy and a level playing field:

a.. Use of up-to-date knowledge throughout the productive sector; b.. Infrastructure investment to recoup the backlog built up through under-investment in the 80s and 90s; and c.. Continued attention to the quality of institutions, where Latin American countries today have an advantage relative to some other regions.

Perry noted, on the negative side, a possible return to government based on excessive intervention and insufficient respect for the rule of law. However, on the plus side, he saw good macroeconomic management, respect for a pro-market environment and a determined effort to direct social policies towards the most needy. Increasing equality of opportunity in education and the reduction of poverty can be strong drivers for growth, he said.

Ricardo B. Salinas Pliego, the chairman of Grupo Salinas, Mexico, compared the great opportunities in Latin America and the prospects for a better return on capital with the current less attractive potential of Europe. "When I look at the outlying districts of Sao Paulo, I see the huge opportunities that exist," he said.

Salinas noted a risk of the high regional inequality leading to populist solutions, but said he saw the inequality as an opportunity. "We don't want to take from the rich to give to the poor to make everybody poor, we want everybody to be prosperous," he said. the importance of governments can be seen by contrasting Mexico and Chile. "It is easier to do business in Chile," he said.

Another area where government can make a difference is in simplifying the fiscal system. "In Latin America these are too complex and costly." The goal, he said, should be for small companies to be able to make a single page tax return. "There are great opportunities in Latin America, but the lack of competitiveness has a lot to do with the quality of governments."

In the same line, Insulza noted that many central banks are today much more independent. "But there is still a trend towards changing rules and regulations. We must learn to respect institutional stability." He noted that there are only two paths to achieving institutional stability. One, via autocratic government, is "fortunately" today ruled out in the region. That means the path must lie through strengthening democracy. He said he sees a tendency for people in Latin America to harp on about the region's problems, whereas in Asia people tend to talk about their success and ignore the "hundreds of millions of poor."

Perry said Latin American countries in general had been slow to wake up to globalization, the importance of education and the need for macroeconomic stability. However, he said, the region's relatively strong institutions now provide a basis on which to build. "But we need to keep on improving to maintain this advantage." Salinas noted that the cultural heritage of Latin America was to seek solutions designed abroad ? "principally in Washington" ? but all countries are different and must decide for themselves what will work or not.

Summing up, session chair Jorge Gerdau Johannpeter, president and CEO of Gerdau, Brazil, said the need for good government was absolutely clear, but so were the "immeasurable business opportunities" in the region. "I am more optimistic now than at the start of this discussion." he said. (News Agencies)