Source: http://worldcityweb.com/home/MIA/publications/magazine/4/570/

Q&A with Peter Hakim

by Mary Dempsey

The last two years of growth in Latin America may be just a blip on the screen unless the region pushes serious reforms, according to a new report by the Inter-American Dialogue, a Washington, D.C., think tank.

“We argue that political success, economic progress and social advance in Latin America require fundamental changes. Among the most important are efforts to promote increased exports and foreign investment, sharply boost savings and tax revenues, invest more in infrastructure, improve the dismal quality of education and directly attack the region’s pervasive inequality,” says the Dialogue’s report, “A Break in the Clouds.”

Peter Hakim, president of the Inter-American Dialogue, spoke with WorldCity about the annual report.

**The report carries a laundry list of problems. Which ones need to be addressed with the greatest urgency?

No country is going to really move on the undone economic reforms, the more difficult reforms, unless there’s the right political environment. These are not things that can be done overnight. But one thing that stands out is education. You’ve got to get started on it. Latin Americans keep postponing what needs to be done.

**If Latin America can’t move forward now, during good times, can it ever progress?

This is the best of times for growth, given the vibrant global economy and low international interest rates. Still, Mexico is struggling to get [GDP growth] above 4 percent, Brazil may come out even worse than we predicted at maybe 3 percent. What is striking is the degree to which even as economies are doing well people are asking whether this will last. There seems to be a certain pessimism about Latin America, both inside and outside the region. The one good sign is that Latin Americans understand better than they ever have the need for growth, and they know what reforms need to be made. Countries are showing themselves resolute against the temptation of populism, even countries like Argentina. Most governments are choosing to maintain disciplined economic policies.

**Has the region seen any important reforms?

On the economic side, the trade barriers today are far lower than they’ve been any time in the region’s history. Latin American tariffs in the past closed off trade and closed off internal development because of the cost of buying capital goods. Those tariffs also allowed the survival of companies that were totally unproductive. Another improvement is inflation rates. In the 1990s, there were three or four countries with more than 100 percent inflation. Now there’s just one with high inflation, Venezuela, and that has its own particular sets of problems, feeding off an oil boom and a populist president.

Another improvement, related to the low inflation, is the fiscal discipline that exists in most countries.

**Much of the region’s growth comes behind China’s thirst for commodities. Why won’t it last?

A few countries Argentina, Chile and Brazil and the oil producers have benefited. And it’s not just exports to China. The U.S. is importing, too. But the question is to what extent we are going to see this demand continue. Markets tend to adjust. Other countries [outside the region] will see opportunities. And even if China’s demand keeps up, Latin American countries will not be able to supply it, not because they lack the capacity for growth but because the region’s infrastructure is in such a bad state.

**The report seems to put the full burden of infrastructure investment on the governments.

Governments must take the leadership. Look at Chile. Santiago has a new road from the airport. It is privately owned, built with private investment and something that will take 20 years to pay back. But the companies investing had confidence that the rules governing the management will stay in place. Brazil, on the other hand, is quite a ways from that. The Wall Street people are happy with Brazil because it’s managing its economic system judiciously. But foreign investors are not happy with the Brazilian government. Investors feel the management of the regulatory system is not consistent.

**Although foreign direct investment is far below levels of the late 1990s when privatizations swept the region, it rose dramatically in 2004. Can we be encouraged by that?

I would be very encouraged. There’s a lot of money out there. People are looking for investment opportunities. It should hold through this year and maybe through next but everyone is predicting some slowdown in the global economy after the next couple years.

**The relationship between Latin America and the United State has deteriorated. The report says that is having a serious impact.

This is often characterized in the press as a one-way phenomenon: the U.S. ignoring Latin America and Latin America fed up and disappointed with the U.S. But in some ways, the U.S. has also been disappointed in Latin America. It has not been able to count on Latin American support for its international policies the Middle East, anti-terrorism, the war in Iraq. The United States doesn’t feel that Latin America has cooperated very effectively on the drug issue. Remember, there was a time where Peru and Bolivia were dramatically reducing or eradicating their production of coca. Then in the last two or three years, the amount of coca grown has shot up again.

There was also some hope the U.S. could find some agreement with Mexico on migration and, obviously, this is a disappointment. Even the collective approach toward democracy is disappointing. There’s not the hoped for level of concern from Latin America on Venezuela’s deteriorating circumstances.

**But hasn’t the region worked to entrench its democracies?

In some ways, Latin America seems to be sliding backwards. Presidents being removed [from office] have become a regular occurrence. The military is no longer the key element; street demonstrations have toppled several presidents. At the same time, there are governments exceeding their power, like the Venezuelan government. And you have corruption in some places. Latin America hasn’t been terribly successful either in rooting its democracy or in bolstering its economies.

**In the absence of the Free Trade Area of the Americas, several countries have entered bilateral trade pacts with the U.S. or Europe. Can those agreements be used as channels through which tax, trade and domestic reforms are pushed?

It’s a bad thing that the bigger FTAA isn’t in place. From every perspective, it’s a messier situation than it needed to be. The agreements are not as good as they might have been if they were region-wide with every country participating. Opportunities are being lost.

**And if CAFTA fails?

That will be devastating to the U.S. trade agenda, to the hemisphere and beyond. The U.S. set the terms of these agreements it wasn’t pressure from the Central Americans on what to put down and in the end, the U.S. is unable to move it through a Congress where the administration has a majority in both houses. This will make the U.S. look terribly unreliable as a trade partner.

**How are Latin Americans reacting to “A Break in the Clouds?”

In the past, we’ve always found that the Latin Americans tended to be unhappy when we produced hard-hitting or critical analysis. What’s interesting this time is that we had little objection from Latin Americans. In some ways, this is a positive thing. The first step in dealing with your problems is to recognize them.