World Economic Forum's
Business Meet on Latin America

Agenda for Action
Consensus on Investment in Education, Infrastructure
By Dev Varam

Decision-makers in governments, economists and bankers, participating in a two-day “Business Summit” on Latin America, organized by the World Economic Forum in the Brazilian Capital city of Sao Paulo, have unanimously agreed to initiate an “Agenda for Action”, identifying Ten Top Social and Economic Priorities, for immediate implementation. These priorities are aimed at bringing about an equitable distribution of wealth across the region and improve its global competitiveness in the fields of commerce and industry. After reviewing the list, participants voted to focus over the next year on education specifically teacher training and improving the quality of schools and on using public-private partnerships to invest in infrastructure in rural areas, underdeveloped regions and urban slums. There was also strong consensus on efforts aimed at removing social and economic inequalities, eradication of corruption and organized crime.

“Education is the most important investment that we can make,” Jorge Gerdau Johannpeter, President and Chief Executive Officer, Gerdau, Brazil, and Co-Chair of the World Economic Forum on Latin America. Added fellow Co-Chair Luis A. Moreno, President, Inter-American Development Bank, Washington DC: “The lack of infrastructure and investment is really the bottleneck to global competitiveness.”

Earlier, in a special address to participants, President Luis Inacio Lula da Silva also stressed the importance of investing in knowledge and learning. “Education at all levels is the number one priority,” he said, adding, “We should not blame American imperialism for our misery or Europe for our poverty.” After reviewing the list of 'Priorities for Action' in the region, participants agreed with him that education should be the main focus in the near future.

“Our problems do not lie with other people but with ourselves,” Lula said. “The problem with South America is that we have looked to the United States and Europe and admired their wealth, and we have looked to China and admired its growth, but we haven't thought about what we should be doing ourselves,” he said.

Referring to Latin America's realism and newfound self-confidence, he said, “When our region raises its head and negotiates on equal terms with rich countries without arrogance but with humility and perseverance, we will achieve more than when we were just crying out and weeping. We are ready to do that now.”
Lula called upon Latin American countries to cooperate more, particularly in building the infrastructure it needs to be competitive and to attract investment. “We will be much stronger if we develop together,” he said.
“Private business must be interested in share value but also in 'shared values' as part of their social responsibility obligations. Business can no longer survive in a failed society," said Ivan Zurita, Chief Executive Officer, Nestlé Brasil. "I don't believe in the future of food companies if we don't eliminate poverty," he said.
Moreno said that Latin America was moving forward. “It's important to focus on the trend lines, not the headlines. This hemisphere is doing much better. But it is important to continue to talk about how we can close the social gaps.” Gerdau agreed. “We cannot afford to come up with economic equations without looking at the social side. Unless we invest in the social side, we will not be politically positioned to tackle economic problems,” he said.
The participants agreed that most Latin American countries are today 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, Organization of American States (OAS), Washington DC. “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.
Participants felt that the question of stability is relevant, for example, to the issue 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 said 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.

China challenge & opportunity
Business leaders as well as analysts agreed that China is both a challenge and opportunity for Latin America. The fast-growing Asian giant is an increasingly open market and a formidable manufacturing and trading powerhouse. China needs the natural resources that Latin America has in abundance. The challenge for Latin America is to restructure its manufacturing base and invest in the technology needed to produce higher value-added goods and services to enable the region to compete. Mauricio Mequita Moreira, Senior Trade Economist, Inter-American Development Bank, said, “there are huge opportunities in China for Latin America in natural resources. “But agricultural tariffs are too high, and non-tariff barriers are blocking Latin America from gaining a greater market share”.
Guillermo Perry Rubio, Chief Economist, Latin American and Caribbean Region, World Bank, Washington DC, said that recent good growth in the region would 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.
Rubio said that compared to the start of the 90s, Latin America is in much stronger shape. Then, growth was fueled 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, Rubio 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:
• Use of up-to-date knowledge throughout the productive sector;
• Infrastructure investment to recoup the backlog built up through under-investment in the 80s and 90s; and
• Continued attention to the quality of institutions, where Latin American countries today have an advantage relative to some other regions.
On the negative side, Rubio said, 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, Chairman, 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 São Paulo, I see the huge opportunities that exist,” he said.

Pliego said that there was a risk of the high regional inequality leading to populist solutions, but 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, Pliego 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.”
Insulza said 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 said 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.
Insulza 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”. Rubio 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 felt 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, Johannpeter 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.
The World Economic Forum, which organized the two-day summit on Latin America, is an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas.
Incorporated as a foundation in 1971, and based in Geneva, Switzerland, the World Economic Forum is impartial and not-for-profit; it is tied to no political, partisan or national interests.