(Archived Content)
FROM THE OFFICE OF PUBLIC AFFAIRS
JS-1497
Thank you so much for having me here today.
In a world that has grown smaller thanks to information and travel technology, it is more important and more attainable than ever before that a plurality of nations is prosperous. It is also easier than ever for nations to work together to achieve that goal.
The continuation of that growth is important to each individual country, and it is important to the world collectively.
I was reminded of that fact during my conversation with the G7 Ministers and Governors here in Washington two weekends ago.
The unifying theme of our discussions was economic growth, and the strengthening global recovery provided an upbeat backdrop.
I was proud to share the news of terrific economic growth here in the United States. President Bush’s tax cuts have precipitated the growth that our country needed, and indicators are very good across the board, from GDP to consumer and business confidence to job creation.
And there is good news beyond the United States. Japan has turned in several good quarters, as has the United Kingdom. In continental Europe, there are some encouraging initial signs of an upturn, but growth still lags in too many areas and thus needs to be more broad-based.
My fellow G7 ministers and I agreed that this is the time to redouble our efforts to
strengthen and broaden growth for the future. We reviewed the progress made under the G7 Agenda for Growth, including key steps on tax reform, and labor markets flexibility.
But we also agreed that additional pro-growth reforms are essential to boost employment and raise incomes. We focused in particular on the importance of low marginal tax rates in encouraging job creation and income growth.
Of course, sound fiscal policies are also fundamental to sustained growth, and we underscored the need for fiscal consolidation during times of expansion.
During the G7 meetings we were reminded of how important it is for leaders and governments to work together toward the shared goal of global growth. The purpose of your group is to encourage and foster that type of cooperation among countries in this region, and I applaud your work.
Latin America is a region that is very important to the United States. Our desire to see the Americas flourish is strong, and we appreciate the good working relationship that we have established with so many of the governments and leaders of the region.
There have been a considerable amount of improvements to economies in the region that I’d like to talk about today – because I think there are some key factors behind the successes.
I’d also like to discuss the efforts of the United States to reinforce the region’s economic recovery and help the countries of Latin America lay a solid foundation for sustained growth.
Although the United States is a “young” country by world standards, we are the clear global leader in terms of prosperity and growth. Other countries are in awe of our resilience and our strength, and wish to emulate our formula for success.
I believe our economic strength has lasted, and recovered after hard times, because we have a solid foundation. Our country was built on the principles of the rights of the individual and the strength of the individual. In our founding, we established a free-market economy that we have maintained, and today strive to keep as unfettered as possible--deferring to individuals and businesses as engines of growth, not government. Government can only create the environment for growth.
Economic stability is a prerequisite for a thriving free-market society. The countries of Latin America have made important progress in improving economic stability over the last year and a half. Financial conditions have strengthened and capital flows to the region are up. I would like to take a few minutes to talk about the stronger fundamentals and better economic policies that are behind these improvements.
First, economic growth in the region is picking up along with the recovery in the global economy. GDP in the Americas was flat during 2002, then increased to 1.7 percent growth in 2003 and is expected to grow 3.5 to 4.0 percent in 2004. That’s terrific news.
Second, external balances are strengthening in the countries of Latin America. The current account as a share of the region’s GDP swung into surplus for the first time in decades in 2003. Central banks have wisely used the opportunity to increase their accumulation of foreign reserves to provide a cushion against future market turbulence.
Third, Latin American authorities have pursued sound fiscal and monetary policies. For example, six of the seven largest economies in Latin America – Brazil, Argentina, Colombia, Mexico, Chile and Peru – successfully increased primary budget surpluses to bring down debt levels over time and reduced or maintained low inflation in 2003.
Achievements in monetary policy in Brazil and Argentina merit special recognition. Both countries experienced large currency depreciations in 2002, but good monetary management prevented these depreciations from turning into inflationary spirals.
The positive consequences of strong fiscal and monetary policies are ongoing. In Brazil, for example, improved confidence in fiscal policy and the downward trend in inflationary expectations have enabled the central bank to aggressively cut interest rates over the last 10 months. Real interest rates are now less than 10 percent, which helps spur faster economic growth and levels of investment.
A fourth step that has led to improved, more stable economies is countries’ progress on strengthening their debt profiles and deepening their domestic capital markets. For example, Brazil has sharply reduced the proportion of its debt that is linked to the exchange rate. Last year Mexico issued its first 20-year fixed-rate peso-denominated debt.
I should note that Latin American countries have also played a leading role and had great success in making bonds with collective action clauses the market standard, with Brazil, Colombia, Peru, Panama, Costa Rica, Uruguay and Venezuela following Mexico’s pioneering issuance in February of 2003.
A final trend that has improved economic health in the region is countries’ steps toward making structural reforms that will lock in improvements in macroeconomic policy.
For example, Argentina and Peru have worked to fight tax evasion and improve tax compliance. Success in those efforts is needed to avoid the pattern of ever-increasing tax rates chasing ever-lower collections.
Brazil and Colombia have moved forward with reforms of their public pensions, which free up savings that can be used to reduce public debt or increase key infrastructure investments.
More needs to be done in the region to lock in sound public finances, but the direction today is good. And the incentive to continue in this direction is strong. After all, countries that achieve and maintain good policies are positioned to benefit from, and contribute to, global economic growth.
With this progress in improving economic stability, it is now time to energize our efforts to remove the other barriers to higher long-run economic growth. What barriers stand in the way?
Simply put, anything that is constraining entrepreneurs and the formation of capital must be loosened or removed for the enormous potential of the region to be unleashed.
The economic success of the United States is due to the government policies that have done well by the entrepreneur. A good example of this: it takes an average of 70 days to start a business in Latin America. In the U.S., it takes about four days. Reducing the time it takes to start a business provides an enormous incentive for starting new enterprises and creating new jobs.
Businesses also need access to credit. So banks have to be sound and well-regulated, and do a better job of providing access to capital for productive entrepreneurs.
Labor markets have to operate efficiently and flexibly, allowing each individual to find jobs that maximize his or her potential. Society as a whole loses when poorly designed labor policies keep unemployment high and relegate workers to employment in the informal sector.
The tax, legal and regulatory environments also has to be such that risking capital is more attractive, more promising. This is especially true in the case of large, multi-year infrastructure projects where the returns are generated over an extended period of time.
Governments have to invest in health and education for their citizens – basic needs that build a foundation for human success.
And markets for goods and services have to be open for competition and for international trade.
These are the kinds of policies are essential for success in any country, anywhere in the world. Progress is being made on these fronts in the Americas, but a great deal remains to be done.
Our desire to see other countries prosper is why the Bush Administration has acted consistently and quickly to support countries that are pursuing pro-growth policies. Accountability and ownership are essential to the success of these policies.
This has guided our approach to IMF engagement in the Americas. U.S. support for IMF programs in Colombia and Brazil in 2002 is a good example. In both instances, the governments articulated strong policy programs aimed at restoring stability through fiscal discipline and other reforms. International support succeeded in these instances because of the countries’ strong ownership of good economic policies.
This emphasis on accountability and ownership has also guided our approach to U.S. development assistance, as evidenced in President Bush’s Millennium Challenge Account (MCA), targeted toward countries that invest in people, pursue good governance and the rule of law, and promote economic freedom.
The MCA is an example of an initiative aimed at increasing economic growth, promoting job creation, and raising the standards of living in poor countries. That’s also why we have such an ambitious trade agenda for the region. The U.S.-Chile Free Trade Agreement has already been completed, and an agreement with five Central American countries and the Dominican Republic has already been negotiated (CAFTA).
We have also announced our intent to negotiate an agreement with the Andean countries—aimed at eventually including Colombia, Peru, Ecuador and Bolivia—and to launch negotiations with Panama. A successful trade capacity-building exercise will continue under CAFTA and be replicated in negotiations for the Andean FTA. Our efforts also continue toward a Free Trade Area of the Americas that would encompass all countries in the Hemisphere in an integrated market.
We are committed to working with those in the region to create the environment for encouraging entrepreneurs. The U.S. is also proud to have led the effort at the Summit of the Americas to establish goals regarding the cutting of time and expense for starting a new business, and tripling bank lending to small and medium enterprises – with the help of the Inter-American Development Bank – by 2007. I do not need to tell this audience that small business is the engine of growth and job creation in Latin America and throughout the world.
A final issue that I want to mention today is U.S. support for facilitating access to remittances from workers in the United States to their families back home. This is a powerful and largely untapped source of funds for economic development, and we are committed to working with the countries of the region to achieve the Summit of the America’s goal of halving the average cost of remittance transfers in the region by 2008.
When looking at the positive trends in the Americas, I am optimistic. Sustaining them and implementing additional pro-growth policies will take a lot of work, but I believe the time is ripe for economic success in the region.
I look forward to working with you on achieving that goal.
Thank you very much.