Strategies to promote the economic development of Latin America

The Report on Economy and Development RED 2005 was presented in a seminar held jointly with the Central Bank of Ecuador and the Business Development Institute (IDE).

The study finds that after the multilateral opening the best options for Ecuador are free trade agreements with developed countries. In the long term the FTA with the United States would lead to growth of exports and have a positive, though moderate, impact on generation of employment in some sectors, especially textiles which would expand 5.7%.

The CAF publication contributes to the debate and to guiding the implementation of public policies in an effort to expand access to international markets and increase economic growth.

(Quito, July 6, 2006).- The Report on Economy and Development 2005: Latin America in Global Trade: Winning Markets was presented in the auditorium of the Central Bank of Ecuador in the presence of the Minister of Economy, the President and general manager of the Central Bank, the Foreign Trade Minister and prominent national and international economic analysts.

CAF chief economist Miguel Castilla said "this publication contributes to the debate on how to achieve sustained quality economic growth for Latin America which results in benefits for all inhabitants."

According to the document, although Latin America has opened its markets to international trade, its relative share has fallen systematically to less than half what it was 40 years ago, evidencing the need to construct a coherent negotiating strategy for the region from the multiple trade options available, but directed to the objective of moving forward with the multilateral opening. In this respect, the greatest and most effective participation of Latin America in international trade requires the start of a strategy that uses various routes to participation adapted to the economies of the region.

The report adds that the free-trade agreements with developed countries are a good option for promoting the development of the region. In the case of Ecuador, an FTAA would be the second best option, while the FTAs with the United States and the European Union are among the options with greatest impact. In the case of the FTA with the United States in the short term the economy would grow an additional 0.4 points of GDP and 1.92% of exports. In the long term, these increases would be 0.81 and 3.4 points, respectively. The effect could be even greater because the methodology does not take into account effects such as the increase in investment and the opening of new markets.

The analysis for Ecuador also reveals the importance of the ATPDEA preferences. In the long term the non-renewal of these preferences would have a negative impact of 0.3 on real GDP and 0.52 points on exports.

From the sectoral point of view, in the world free-trade scenario, always in the framework of the WTO, the agriculture sector and food industry are the main beneficiaries in most of the countries of the region. In the case of Ecuador, the agricultural sector increases an additional 3.76 points in the long term. With the FTA with the United States, the highest gains are in the textile sector, whose long-term growth increases 5.7%.