Speakers:

Abel Beltran-del-Rio, President and Founder, CIEMEX-WEFA (Eddystone, PA)

Ernani Hickmann, Professor of Economics, Fundação Getulio Vargas, Graduate School of Economics (Porto Alegre, Brazil)

Abraham F. Lowenthal, Professor of International Relations, University of Southern California and President, Pacific Council on International Policy (Los Angeles)

Michael Pettis, Managing Director, Head of Capital Markets Strategy Group, Bear Stearns & Co. Inc. (New York)

Olman Segura-Bonilla, Director of Research Program, International Center for Economic Policies for Sustainable Development, National University of Costa Rica

Moderator:

Carlos Asilis, Chief Emerging Markets Equity Strategist, JP Morgan Chase & Company (New York)

Summary:

Moderator Carlos Asilis began the session with a simple, urgent question: "Should we be optimistic about the future in Latin America?" While Latin America has taken encouraging steps toward democratization, much of the region has funded its accompanying economic growth through mounting external debt. Debt and currency exchange problems continue to plague many of the region′s major economies and threaten further growth. These challenges are not new ones for Latin America.

"Globalization is producing trends that the region has seen many times before," asserted Michael Pettis. Technological advances and massive capital inflows from richer countries are spurring a huge increase in international trade, a trend that has occurred in Latin America six times in the previous 180 years. While the common assumption is that political reform in less-developed countries leads to capital inflows from outside investors, Pettis asserted the opposite: that the investment capital comes first, and makes the ensuing political reform sustainable.

Latin America can be divided into three distinct regions. The primary Southern Cone countries of Argentina, Brazil, and Chile enjoy political cultures that take place under well-established laws and procedures, but Argentina currently faces a number of economic woes. In fact, Buenos Aires may be forced to rely on assistance from Brazil, the largest of the Mercosur economies. As a result of a lagging Argentina, Brazil′s future growth will be hampered. The Andean countries suffer from chronically weak civil institutions, and are subject to unrestrained conflict and erratic behavior. The well-known Colombian conflict shows few signs of being resolved, and President Chavez allows the high price of oil to substitute for good governance in Venezuela. The outlook for the countries in the region is grim. In Mexico, new rules and institutions are being tested. The economic reforms of the 1980′s allowed political reforms to happen a decade later. Now it is likely that a wave of "second generation" economic growth will occur. "Mexico has bet its political and economic future on the United States," said Dr. Abraham Lowenthal, and its future stability will be largely intertwined with its northern neighbor.

Lowenthal cited the central challenge of Latin America as no different from other developing areas of the world: building institutions that can produce consensus for sustainable policies. In the disputed 2000 U.S. election, disagreements were mediated and resolved through civil channels. In Latin America, Chile is most advanced in achieving this goal. Mexico is making rapid progress, but still has a long way to go. The current climate of high global liquidity and commodity prices will continue in the era of globalization, and recurring economic crises will be a permanent feature of the future financial landscape. The Latin American countries that can sustain reforms through the inevitable crises and periodic contractions in the U.S. economy are the ones that will prosper in the future.

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