FROM THE OFFICE OF PUBLIC AFFAIRS

It is a pleasure to be greeting you on home ground. Thank you, Enrique, for another successful year at the IDB. And thank you, Governors, for your support for our Chairmanship of the Board of Governors for the next year, which we hope will build on the successes of the past year: resolving the financing and structure of the Inter-American Investment Corporation, and moving on to the discussion of the strategic direction of the Bank and ensuring full participation in the expanded Highly Indebted Poor Countries (HIPC) initiative.

It seems a long time ago now, when I attended my first IDB meeting in Guadalajara in 1994. The Clinton Administration was a little more than one year-old. NAFTA was younger still. And the Mexican peso crisis was only lurking in the wings. At that time, we knew that the 1990s were a decade of change and reform. What we did not know was how it would end.

Six years - and one and half Administrations - later, we know the answer. It was a decade of many things - of sudden financial crises and natural disasters, and some hard-fought elections. But most of all, we can now say that for Latin America the 1990s were the decade that reforms were sustained.

That "quiet revolution" that President Clinton has spoken of, "bringing our hemisphere together around common values of democracy, free markets, mutual respect and cooperation" - that revolution has continued. And its core ingredients are very largely in place. We are, with but one exception, a community of democracies. Governments supportive of markets are in office across the region. And the United States today exports more to Chile than to India, and more to Brazil than to China.

Today I want to reflect on 3 issues:

• First, what the past decade has meant to Latin America.
• Second, this hemisphere's agenda for the next decade: the creation of a more inclusive and enduring prosperity.
• Third, how the IDB can best contribute to this agenda in the years to come.

Moments of difficulty always raise a fundamental question: whether to change course, or to redouble one's efforts to pursue the course that had been chosen. As a region, Latin America has largely and emphatically stayed the course.

• In response to financial instability - first in Mexico, and most recently in the wake of the Asian and Russian financial crises of 1997 and 1998;
• In response to devastating natural disasters, from El Nino, to Hurricanes Mitch and George;
• In response to roller-coaster swings of prices in commodity markets;
• In response to the inevitable pressures and stresses of the electoral cycle;

In response to each of these challenges, the governments and peoples of this Hemisphere have pressed forward even more vigorously with the cause of reform. And what has been true of the past decade has been even more true of the past year, as key countries have persevered with reforms have been rewarded for their perseverance by the markets.

• Brazil's crisis, in many respects, turns out to have been stillborn. The impact of last year's devaluation and the turbulence surrounding it will be felt for some time to come. But growth in 1999 was actually positive, inflation ended the year below 10%, capital outflows and the exchange rate stabilized and foreign direct investment rose to new record levels.
• Mexico's recent promotion to investment grade has put the seal on an impressive year and truly an impressive decade. We applauded when strong policies restored growth and stability after the crisis of 1995. And we applaud again, today, Mexico's growth rate of 3.6% last year and the expectation of faster growth, and lower inflation, in the year to come.
• With effective policies, recessions in Chile, Argentina and elsewhere have given way to renewed growth. Private sector analysts expect the region to grow more than 3 percent this year, and inflation to move a little below last year's 8 percent. Perhaps most encouraging, electorates have once again opted to continue with the path of reform. In the past 6 months alone, the electorates of Argentina, Chile and Uruguay have returned governments committed to market reforms and market-led growth.
• In Central America and the Caribbean, the picture is perhaps more than usually diverse. El Salvador's impressive economic achievements have continued to impress investors and seen it retain its investment grade. While Honduras, Nicaragua and Guyana are working with the IFIs in designing strong programs that will realize the benefits of HIPC. And Haiti remains preoccupied with the creation of the most basic institutions of a functioning democracy.
• The countries of the Andean region continue to underscore President Clinton's caution that weak states, in today's world, may present as grave a threat as strong states have done in the past. The resolution of political uncertainties will be especially important in Venezuela in the months ahead. And issues of governance issues will certainly continue to loom large in Colombia, even as the government's strong adjustment program helps to build confidence that Colombia's enviable postwar economic record will remain intact. Ecuador's challenges remain immense. But the government has taken bold steps to restore stability and growth, and is well on its way to earning the support of the International Financial Institutions.

The dominant challenge of our region today must be the promotion of a prosperity that can be inclusive and can be sustained. A decade of reforms has not yet made this vision a reality. But in Latin America and around the world, the reform experience has taught a number of lessons about what the core ingredients for such a prosperity must be.

We have seen here in Latin America what we have seen in every region of the world at every time in history: that growth is the most potent weapon for combating poverty ever invented.

• The absence of high and hyper-inflation has helped the poor more than any other group in the past decade, with poverty levels falling in most of Latin America and the share of households in poverty falling from more than 40 percent.
• Growth and improved budgetary choices have also permitted social spending to rise, indeed nearly to double in countries such as Bolivia, Colombia, and Peru. And they have helped to boost key social indicators. Infant mortality in Latin America fell by roughly 25 percent in the 1990s, and life expectancy rose by more than 2 years.

Never forget that the preeminent reason to combat financial crises and instability is to safeguard improvements such as these. For if growth is the greatest force for human development, then instability and reversals in growth are its greatest foes. It has been estimated that a single year of recession in this region in the 1990s has been enough to wipe out anything from 50 to 100 percent of the reduction in poverty achieved in 4 or 5 years of growth.

Globally the message has been repeated again and again in recent years: that successful national economic development depends above all on the promotion of open markets and the institutions and policies that are needed for markets to function well.

• That means support for openness and integration. We must work to deepen and accelerate the regional integration that we have achieved. And the United States is committed to doing its part. That is why we are committed to passing legislation for an enhanced Caribbean Basin Initiative this year. And that is why we remain committed to building a Free Trade Area of the Americas. It has perhaps gone with too little notice that the negotiations for the FTAA are continuing. The machine is not yet up and running. But gradually the nuts and bolts are falling into place.
• And it means developing the intangible infrastructure for markets: strong and consistent norms of transparency and integrity in both the public and private sector; respect for contracts and effective means of enforcing them; continued efforts to root out corruption; and a strong and enduring rule of law that is not merely even-handed but seen to be so.

President Clinton has spoken often about the need to broaden the circle of economic opportunity to include all of our citizens. If there was ever any doubt that inequality of opportunity and resources would hold the Latin American economy back - that doubt has surely vanished today. Policy-makers across the region are realizing that issues that were once considered social questions are of increasingly direct macro-economic importance.

• At a time when the market will value more of our contributions by the knowledge we able to apply than by the muscle we are able to bring to bear, it cannot be a recipe for regional success that only slightly more than half of the children of secondary school age in Latin America and the Caribbean were enrolled in school in 1997. A recent IDB study concluded that Latin American education had "gone backward" in the 1990s, with the workforce averaging two years less schooling than other countries of similar national incomes.
• At a time when investors sometimes seem to have eyes only for the Internet and the market opportunities that it presents, it cannot escape their attention that barely 4 percent of Latin America's population has access to a PC. Or that there are only 11 phones for every 100 people in Latin America - compared to nearly 70 in the United States.
• And above all, at a time when we are emphasizing the creation of economic opportunities, we must remember that opportunities mean very little to people who lack the basic tools to make use of them. We must never forget that one third of the people in Latin America live on less than $2 a day. And we in the US must never forget that male life expectancy in Washington, DC is today lower than it is in Mongolia and Belarus - and that right here in Louisiana, fully one third of children under 18 live below the official poverty line.

That is why President Clinton has always placed such emphasis on investments in people and on policies to promote economic inclusion. And that is why so many of the leaders of Latin America - notably Presidents Zedillo and Cardoso - have rightly chosen, as we all of us did at the Santiago Summit of the Americas, to make education and social inclusion such an important part of their mission in government.

Here and around the world the question is being posed: what are the distinct and distinctive roles of the various IFIs in a world economy that is dominated by private sector capital flows? In recent statements in London last December and last week at the Council on Foreign Relations in New York I have laid out our response to this question in a broad agenda of reforms for the IMF and the multilateral development banks. And as I said in New York, there is a crucial role in this evolving framework for strong and effective regional development banks (RDBs).

Right from the beginning, the Clinton Administration's approach to the IDB has been framed by the recognition that RDBs are as important to the new world order as the regional security organizations were to the old one. Just as the regional security organizations were directed to the challenge of combating communism, so the RDBs are directed to the central challenge of shared prosperity and enlarging the circle of prospering democracies.

The IDB has amply justified our commitment to this institution in the past seven years in its dogged support for market-led growth and prosperity across the region. At the same time, as President Iglesias and others recognize - and as I have said many times of the other IFIs - to say that the IDB is indispensable is not to say we can be satisfied with the IDB as it now is.

The Eighth Capital Replenishment that we celebrated in Guadalajara has served the IDB well. But the fact that we will not be reviewing the quantity of the IDB's resources in the near future should not deter us from a consideration of how those resources are being deployed.

Specifically, over the next year, we believe there should be a full review of the IDB's lending policies and financial instruments - leading to concrete agreements on new procedures in the following five areas:

IDB lending in 1999 was broadly in line with IDB 8 priorities to allocate 40 percent of the total volume and 50 percent of the number of IDB operations to poverty reduction and social equity. We can and should debate whether this share might be increased in the future. But let us all agree now on the need for new procedures to ensure that this lending is as effective as possible. The IDB's Institutional Strategy is a welcome start on this kind of approach. Today we call for this to find clear expression, in the development of a performance matrix to guide IDB decision making that links lending to a small number of measurable performance benchmarks that will be rigorously adhered to.

As part of increasing the IDB's effectiveness in this area we must also consider concrete ways for the IDB to enhance popular participation. This is perhaps nowhere more important than in Latin America when so much of the population is left on the margins of economic life. I welcome the IDB's efforts to enhance its dialogue with the labor organizations of the hemisphere represented in the Inter-American Regional Labor Organization (ORIT). We believe that the IDB should work to expand opportunities for these and other new forms of dialogue, particularly with respect to rural and other groups that too often are without a voice.

Given the rapid growth in financial techniques and instruments, we ought to be able to find better ways to insure countries against the shocks that so often afflict this region: be they dramatic swings in commodity prices, natural disasters, or sudden shifts in global market conditions. The advent of more sophisticated ways of parceling out and hedging risk has transformed the basic menu of offerings of the private financial institutions. The IDB and other RDBs should be able to use their unique franchise to innovate in this area as well - with new lending products that are tailored to the needs and situation of the IDB's diverse clientele.

We must recognize the real danger that official development lending turns out to be pro- rather than counter-cyclical - with too much lending when it is not needed, and too little lending when it is needed most. This points up a need for greater emphasis on building reserves and the reversal of funding when times are good. And it underscores the importance of maintaining a strong capacity to respond quickly and substantially to crises when they occur.

We categorically reject the view, embraced by some, that crisis response is not development lending. Given the degree of social distress that these moments bring, and given the opportunities that they present for achieving, in a matter of months, structural reforms that might otherwise have taken many years - we believe that these are moments when the development banks can truly show their worth. The IDB has borne this out in the past year in its emergency lending programs for Brazil, Argentina, Colombia and others. It must have the capacity to respond even more rapidly and effectively to such emergencies in the future. To that end, and assuming we husband our resources in the good times, we believe that we should be prepared at times of crisis to waive traditional limits on the share of lending that can be fast-disbursing.

In line with the reforms that we have supported in other official financial institutions, we also believe that this review of IDB lending and procedures should consider new pricing policies that will more accurately reflect the access that beneficiaries have to a range of financing options, including from private providers competing for the business. While respecting the December 1998 FSO agreement, we believe that marginally higher IDB spreads in cases where countries have substantial access to private markets would be appropriate. And a strong case can surely be made for the shared regional benefits of making available additional IDB resources for regional public goods and technical assistance.

This is the most urgent and morally important issue on the IDB's agenda today. Let me express my full support for the Committee of the Board of Governors' actions yesterday, committing the Bank and its shareholders to ensuring full financing for the Bank's participation in the enhanced HIPC initiative - and creating a working group to establish an agreement on how to achieve this, that will be reported by the end of June. I also want to express my appreciation for the work done by the IDB Executive Board in proposing elements that can contribute to such an agreement.

What is most crucial now is that the working group moves forward quickly, so that Bolivia and others who have made such strides to reform in recent years can obtain the additional support that they so desperately need. The United States is working with Congress to make a significant contribution to this effort. But we all need to work together for HIPC to move forward. We must each acknowledge that a successful package from the working group will require a balanced mix of internal Bank resources, new regional contributions and new non-borrower contributions.

Let me conclude where I began. The 1990s were a decade that reforms continued - often against the odds. Here in New Orleans, we must celebrate that fact. And the United States, especially, must reaffirm our commitment to the more integrated and economically successful continent of the Americas in which we have such an enormous stake.

As we look to this new century it is perhaps more crucial than ever that we look outward as a nation and work to promote the more global prosperity upon which our own prosperity will increasingly depend. As President Clinton has said: "a strong economy in a foreign land is not a threat to our jobs, it's a new market for America 's products; an engine of human dignity and environmental preservation; and a partner for peace and freedom and security." And nowhere are these real and potential benefits more visible than in Latin America.

From that perspective, the greatest threats to our economic security may lie within our country - in the form of economic insecurity that leads some to reject global integration. As we were reminded last year in Seattle and most recently in debates in this country over granting Normal Trade Relations to China, globalization is and must increasingly be much more than a narrow economic challenge. Global integration simply will not work if it means local disintegration, and if our people do not believe that integration works for them.

For all of these reasons, international institutions that can help to promote more rapid and inclusive growth within countries - and a more stable flow of capital between them - may be the most effective, and cost-effective investment that we can make in forward defense of America's core interests. And among the IFIs the IDB continues to make a crucial contribution to these goals. That is why the Clinton Administration has been so committed to the unique work of the IDB - and why we hope and trust that future Administrations will maintain our support for this great institution in the years to come. Thank you.