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Globalization with
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8. In 1996, UNCTAD IX held in Midrand, South Africa, coincided with a phase of economic growth and optimistic prospects for Latin America and the Caribbean: the financial crisis that began in Mexico in 1994 had been overcome faster than expected, the capacity to attract foreign capital had been recovered; the implementation of the Uruguay Round agreements had created new expectations regarding the region's position in global trade; the subregional integration processes (MERCOSUR, Andean Community, Central American System and CARICOM) initiated or increased both institutional reforms and negotiation processes aimed at convergence1; the FTAA was being perceived as a new potential instrument for free trade and participation in the international economy.
9. Four years later, the preparation and holding of UNCTAD X coincides with a different international and regional environment. Starting in 1997, the crises of Southeast Asia, Russia and their strong impact on Brazil and other countries in the area revealed a new phenomenon in the region which is directly linked to the globalization process and which had been less evident in 1994-95. As of this decade, the monetary and financial crises cause rapid and deep ramifications on trade currents and on the capacity for economic growth.
10. We are not witnessing short-term disruptions, but profound turbulences, whose oscillations undermine the very foundations of national economies and the global system. In effect, the main characteristic of the new crisis is its systemic impact, even though it is far more intense in developing than industrialized countries. It is systemic to the extent that it increasingly affects the international system and simultaneously influences several areas of the national and international economies. Within less than 3 months, the Southeast Asian crisis affected the stock exchanges of Latin America and elsewhere, crossing oceans and indiscriminately affecting countries, subregions and the behaviour of the system as a whole. In addition to its geographic extent, it triggered inter-sectoral repercussions, which were not restricted to exchange adjustments and stock crises, but went beyond them and generated destabilizing short term capital outflows. They also affected long-term investments, albeit more slowly, widened the interest rate spread for bonds issued by the region and had a negative impact on the risk classifications of all emerging economies, hampering access to international capital markets and passing on the effects to the domestic banking systems.
11. Subsequently, the systemic impact of the new crises widens: inter and intra-regional trade flows change as a result of devaluations and a fall in demand, modifying the patterns of competitiveness of products and countries, and changing the prospects for market penetration.2 Due to the accumulation of these negative and uncontrollable factors, the impact of the crisis means lost opportunities for growth, as can be seen in Latin America and the Caribbean,: according to ECLAC, in 1998 the region's GDP increased by 2.3% (instead of the 5.1% forecast prior to the crisis); in 1999, in an optimistic scenario, that growth rate will be -0,8 %, 2.5% the following year and 3.9% in 2001, according to the World Bank's most recent calculations.3
12. These figures must not be seen as mere indicators of the behaviour of productive activity in the region. They indicate growth, but also the potential for development, because for each percentage point increase in GDP, there is a real possibility of reducing the rate of poverty, generating employment, creating new firms, attracting investments, improving infrastructure and investing in human capital. In its third annual report on development indicators, issued in April 1999, the World Bank pointed out that a sustained rate of annual growth of at least 2.7% is necessary to halve the poverty rate of the Latin American and Caribbean population by 2015.4 The cost of the crisis is also measured in social and therefore in political terms. Democratic governance of the region’s countries depends first and foremost on the governments’ capacity to minimize and absorb such intense shocks as those generated successive crises.
13. The impact of the recent crises affects the policies of the countries of the region, the workings of the global economic system, and the capacity of the States and the multilateral organizations to manage and lead it in the right direction. The market economy-based model had not envisaged mechanisms for either the prevention, the forecast or the management of a crisis of this nature and of its repercussions.5 People are only just beginning to reflect on its inadequacies, above all in Latin America and the Caribbean. But it seems clear, to the governments and companies of the Latin American and Caribbean countries, that a revision of the policies being implemented does not mean a return to the widely questioned interventionist policies. It is not a matter of having reached a crossroads (and having to choose between keeping the same policies or abandoning them), but of an indispensable and urgent reformulation of the model, critical but constructive, rich in different but feasible proposals, where innovation is going to be more important than the repetition of former policies.
14. From the point of view of Latin America and the Caribbean, the coming years will be marked by the medium and long term financial impact of the Asian and Brazilian crisis - as well as by the concern for preventing and controlling future crises. In this context, it will be essential to learn quickly from new situations occurring during the process of global integration. This learning process, which is at least as important as that of the phase of macroeconomic adjustment at the end of the eighties, will involve changes in government policies and business procedures. It will also require broader and more precise analyses on the development strategies in order to identify those best suited to the period after the present crises, and to the needs of Latin America and the Caribbean.
15. There are two inter-related aspects to the challenges for the countries in the region. Firstly, there is an increasing need to boost the ability of democratic regimes to meet the population's demands for better living standards, if they are to consolidate and increase the political achievements of the last two decades. Not only have the expectations aroused since the end of the eighties by the new policies aimed at opening up and modernizing the economy not been met - since poverty is increasing at an alarming rate - but they are growing exponentially. In addition to having to deal with rising and legitimate expectations at home, governments must handle the implications of crises that sometimes originate very far from their borders, without really knowing whether each country's macroeconomic policies and institutional reforms will be enough to alleviate the domino effect. So far, the monetary and financial impact of the Asian and Brazilian crisis, though not as strong as expected in the region and thus refuting the most pessimistic forecasts, did nevertheless deal a severe blow to its rate of growth. So the success will remain relative, as long as the development of the region continues to deteriorate due to the recession caused by the financial crises.
16. In the second place, on an international level, the region's economic environment is perceived by the public and private sector as an increasingly deciding factor for the success of domestic policies. The crises and their repercussions have revealed not only the permeability, but also the vulnerability of Latin America and the Caribbean to exogenous factors that fall outside its sphere of influence. Although the achievements reached at high cost in the national economies during the process of liberalization are considered incomplete, they do show that their consolidation and efficacy largely depend on a favourable external environment. When referring to the financial implications of the Asian crisis in Latin America and the Caribbean (capital outflows, limited and costly access to capital markets, deterioration of securities, etc.), the Managing Director of the International Monetary Fund spoke of "unfair punishment". The same principles of economic governance that are required within States should be applied at the international level, incorporating economic concepts (such as crisis prevention, competition, growth and sustainable development), policies (such as the treatment of asymmetries, transparency, participation), and even ethical concepts (such as equity solidarity and human development) in the management of the global system.6
17. Just as a process of learning, re-thinking and reformulation of the model in force has taken place domestically for national economies, it must be applied at the international level in the coming years. In effect, while the shortcomings of the interventionist policies of the past decades have largely been corrected, the time has now come to correct the market-generated failings, within and between the States. In that context the region would probably be well advised to debate on the State's role in the globalized economy from a pragmatic point of view.
1 It should be remembered that between 1991 and 1997 the economic policy climate in the region has been marked by important events in relation to subregional integration: the Ouro Preto Protocol of Mercosur was adopted in 1994: the following year, the transformation of the Andean scheme began with the Trujillo Protocol; the Central American and CARICOM schemes adopted fundamental decisions on their institutional operation and policies. In 1995 and 1996, Bolivia and Chile became associated members of MERCOSUR, and negotiations between that scheme and the Andean Community began.
2 See SELA: Impact of the Asian Crisis in Latin America and the Caribbean, Caracas, June 1998 (SP/DRE/DI No. 21-98/Rev.1).
3 World Bank: Global Development Finance, Washington, D.C., 1999.
4 In that regard, the Inter-American Development Bank has pointed out that the GDP must increase by 6%in order to obtain a 4% increase in real GDP per capita.
5 These three shortcomings are pointed out by Barry Eichengreen: Toward a New International Financial Architecture. A Practical Post-Asia Agenda, Institute for International Economics, Washington, D.C., 1999.
6 It is worth remembering that the concept of governance applied to the internal policies of the developing countries, has been dealt with in greater depth and implemented through several technical co-operation loans and programmes of the World Bank and the Inter-American Development Bank. By contrast, the South Centre speaks of "hegemonic global governance" (see South Centre: Towards an Economic Platform for the South, Geneva, 1998), and "governance of the global economy" (South Centre: Elements for an Agenda of the South, Geneva, 1999).
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