FROM THE OFFICE OF PUBLIC AFFAIRS January 25, 2005 Economic Policies in the Western Hemisphere: Thank you very much, Ambassador Abdenur, for inviting me to join you and your ambassadorial colleagues today. It is an honor to be here and to have the opportunity to speak before members of the diplomatic corps of the Latin American region. I have enjoyed working with many of you while I have served as Under Secretary at the U.S. Treasury. And I appreciate the warm hospitality I have received on visits to many of your countries during the last four years. I would like to take this opportunity to talk to you about the remarkable economic accomplishments we have seen in many countries in the region over the past several years. I have heard some critics say that the To be sure, there are still challenges. Simply put, we need to work together to make the current economic recovery long-lasting, broader, and stronger so that people throughout the region can see significant increases in income and reductions in poverty. The Bush Administration in its second term plans to continue to work closely with the region to advance an ambitious agenda and meet these challenges. Recent Accomplishments The economic news from the region has been exceptional, exceeding even the most optimistic forecasts. Forecasters are now estimating that economic growth in There have also been dramatic improvements in economic stability. There are no countries in the region that are in a recession or financial crisis. Capital flows to I contrast this with the situation when I entered my current job four years ago, when I remember being briefed on the latest $14 billion IMF rescue package for It is also instructive to contrast the current situation with the wave of financial crises and contagion in the 1990s. Ten years ago What have been the causes of this improved growth and stability? Good economic policies, both in the region and the Within the region, governments have taken very significant steps during the last few years to improve fiscal policies aimed at reducing debt levels. Monetary policies have also improved, supported by a move to more flexible exchange rates and inflation-targeting regimes. These good economic policies set the stage for the robust recovery in economic growth that we have observed in Future Challenges Despite these accomplishments, this is no time to be complacent. I see the current situation as a moment of historic opportunity for the region and emerging markets in general to put themselves on a robust growth path and act as stabilizing force in the world economy rather than being vulnerable to developments in the rest of the world. Emerging markets are accounting for an increasingly large share of global growth, inflation, and financing and as a consequence are playing an increasingly important role in determining their patterns. Despite the political challenges in the region, I think there is the strong political leadership needed to take up this challenge. Just to name a few, we have been particularly impressed by what President Lula and Finance Minister Palocci have accomplished in Brazil, how President Gutierrez and Finance Minister Yepez in Ecuador have maintained disciplined fiscal policies in an unsettled political environment, how President Uribe in Colombia has simultaneously tackled economic reform and improved security, and how President Frutos has moved forward a broad-based reform agenda in Paraguay. This is the time to be ambitious on economic policy and put in place what is needed for sustained growth by pursuing reforms aimed at, first, locking-in improvements in macroeconomic policy and, second, creating the microeconomic environment for higher productivity growth. On the first of these, a lot of progress was made in 2004 in strengthening fiscal balances and lowering debt levels. However, debt levels in the region at 55 percent of GDP are still too high and a source of financial vulnerability. Further fiscal efforts will be needed to bring them down and to give the region greater financial flexibility as it encounters shocks in the future. Part of this effort will involve advancing what we call structural fiscal reforms in order to ensure continued strong fiscal performance and lock-in the improvements we have seen over the past couple of years. Key among these include reforms to strengthen tax administration and broaden the tax base, pension reform to ensure the sustainability and solvency of pension systems, and fiscal responsibility regimes to institutionalize fiscal discipline at the provincial and regional levels. On the monetary side, additional work can be undertaken to bolster the operational and institutional underpinnings of inflation-targeting regimes. Chief among these is legislation to increase central bank autonomy and independence; The second challenge is to raise the region's growth rate so that we see the nearly 6% growth in 2004 not only in one year but every year. Growth of 4% as expected this year is simply not high enough to generate the large, sustained reductions in poverty that we all want to see. I think the region can do better. The key to achieving higher per capita income growth is boosting productivity growth. Higher productivity growth translates into higher wages, and higher wages reduce poverty. Productivity growth in The "Business of Growth" study also discusses the range of policy issues that need to be addressed in order to achieve higher rates of productivity growth. Improvements to the business climate, or microeconomic reforms as we call them, are central for creating the incentives to innovate and invest that are essential for boosting productivity. These are reforms that include trade liberalization, business deregulation, labor market reform, financial market reform, strengthening property rights, and fighting corruption. They also include investment in physical infrastructure and human capital or skills development. The Bush Administration is firmly committed to working with countries in the region--both through our bilateral relationships and in multilateral fora--to help achieve higher rates of productivity growth and rising living standards. We remain committed to further regional integration through advancing our ambitious trade agenda. We have concluded or are in the process of concluding a raft of FTA agreements throughout the region. These include the U.S.-Chile FTA, the Central American Free Trade Agreement (CAFTA), as well as our ongoing negotiations with The recent economic recovery in We are committed to working with the countries of the region to seize the opportunity of the November 2005 At the upcoming Our bilateral dialogues continue to be a critical resource for sharing experiences and policy views about how to boost productivity growth. To take a couple of examples, we have made important progress in reducing the cost of sending remittances from the United States to Mexico in part through the work of the U.S.-Mexico Partnership for Prosperity launched in 2001. We have had valuable policy exchanges in the U.S.-Brazil Group for Growth that have helped refine approaches to reforms in areas like small business regulation. A major way in which we are working with countries to meet the challenge of increasing productivity growth is through the Millennium Challenge Account (MCA). The MCA is an important bilateral initiative that the Bush Administration has developed to help the poorest countries in the region and around the world--countries that are putting in place the policies that encourage innovation and investment. I am particularly pleased to see that three countries in the region, Conclusion In conclusion, let me say that I am pleased to have had the opportunity to work with you over the past few years--years in which we can be proud of a number of significant achievements. I look forward to carrying forward this work in our joint efforts to create better lives for all the peoples of our hemisphere. |
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