Strategies for promoting Latin America’s economic development

The report also highlights that, in the case of countries that would expect to benefit from an opening up of multilateral trade in the area of agriculture (Bolivia, for example), the anticipated net effect on poverty is positive owing to the fact that the increase in real wages generated by this opening of trade would offset any potential increase in food prices.

This CAF publication seeks to contribute to the debate and orient the implementation of public policies in order to achieve greater access to international markets and increase economic growth.

(La Paz, August 31, 2006). - The Economy and Development Report for 2005 on Latin America in World Trade: Winning Markets was presented at an event attended by the Executive President of the CAF, Enrique García, and representatives of the Universidad Católica Boliviana’s Masters’ for Development (MpD) program, held in the Pérez de Holguín Salon at the Hotel Radisson.

In his speech, the CAF’s Executive President, Enrique García, was emphatic in stating that developing Latin American economies’ participation in international trade was a key component of a development agenda for resuming sustainable, quality economic growth that includes all sectors of society.

Miguel Castilla, the CAF’s Chief Economist, pointed out that this report “seeks to contribute to the debate on how to achieve sustainable, quality economic growth for Latin America that will benefit all its inhabitants” and that developing the region’s participation in the global economy was a key component.

According to the report, despite the fact that Latin America opened up its markets to international trade, its share of that trade, in relative terms, has declined systematically and today is less than half what it was 40 years ago, clearly pointing to a need to build a coherent negotiating strategy for the region from the multiple trade options available, but one that focuses on the goal of moving ahead in opening up on the multilateral front. In this regard, achieving a larger, better share of international trade for Latin America requires the implementation of a strategy that uses different routes of insertion geared to the economies of the region.

It also states that free trade agreements with developed countries are a good option for promoting development in the region. An FTA with the European Union would be the second best option for Bolivia, for example. If Bolivia were to reach an FTA with Europe, it could expect additional growth of 0.44 points in GDP and 1.97% in exports, in the short term, and 1.39 points and 2.61%, respectively, in the medium term; although the overall impact could be even greater, because the methodology used does not take into account effects such as the increase in investments and the opening up of new markets.

The analysis of Bolivia’s case also shows the importance of the preferences under the Andean Trade Promotion and Drug Eradication Act (ATPDEA), where, in the long term, the non-renewal of said preferences would have a negative impact on real GDP of 0.3 points and on exports of 0.52 points.

In the global free trade scenario, it is worth mentioning that, for most countries in the region, the sectors that most clearly benefit within the WTO are agriculture and the food industry. In the specific case of Bolivia, the agricultural sector would increase by 3.76 points over the long term, and, if an FTA were reached with Europe, the biggest gains would be specifically in agriculture and mining, where long-term growth would increase by 1.87% and1.66%, respectively.

The report concludes that, in order for the benefits of international insertion to be felt, the trade agenda needs to be accompanied by a transformation on the production side that would achieve improvements in productivity and a more diversified productive apparatus. In fact, this issue will be dealt with in the Report for this year (RED 2006).

With this publication, CAF seeks to contribute to and encourage debate on public policies and orient implementation of those policies so as to achieve greater access to international markets, the ultimate purpose being to achieve greater growth and a better standard of living for the inhabitants of the region. In 2004, the CAF published a document along similar lines, “Reflexiones para Retomar el Crecimiento” (Reflections on Resuming Growth). Both publications are available on www.caf.com/publicaciones.