New priorities for Latin America and the Caribbean.

The Economic Commission for Latin America and the Caribbean (ECLAC), in the half century since its founding, has made significant contributions to the economic and social regional development, through interactive cooperation among Governments of the region and throughout the world.

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After an era of elevated State intervention and protectionism, it was expected that market-oriented reforms, including trade liberalization, would provide the basis for rapid growth in the developing world, particularly in the context of globalization. Although the decade of the 1990s was characterized by major macroeconomic achievements, such as falling inflation, rapid export growth and increasing foreign direct investment, it also presented mediocre economic growth (2.6 per cent annual average), weak overall productivity performance and high levels of unemployment, poverty and income disparities. Therefore, economic reforms have been frustrating for the region's countries. One of the lessons learned is that macroeconomic stability, open economies and a more active participation of the private sector in the production of goods and services are not enough to induce growth, much less to create development marked by sustainable growth with social equity.

As history shows, development is a complex process that should take into account the particularities of each country. In fact, development should be almost tailor-made, taking into account the specific political, economic, institutional and social realities of each country.

That aside, we have also learned that from a macroeconomic point of view, low inflation and a manageable public debt are crucial elements of any strategy, but they are not enough. Sustainable current account deficits, "right" relative prices and policies, and savings goals during the "good times" to allow the enforcement of counter-cyclical policies are all crucial elements of a development strategy. The rule of law and complying with contracts should go hand in hand with a more active participation of the State in the design and implementation of policies aimed at systemic changes in productive structure.

These policies, which should include innovation (creation, adaptation and adoption of new technologies), human capital accumulation, incentives to small and medium enterprises and the creation of new enterprises and new dynamic sectors, are essential elements in determining changes in the momentum of economic growth. A smaller State should not mean an absent State, as many did during the 1990s. The challenge now is how to pursue these policies in a globalized world.

We believe that there are clear advantages to strengthening regional and sub-regional schemes as a platform to worldwide integration. Open regionalism, as ECLAC has promoted repeatedly in the past, should be the name of the game. Latin American integration has been subject to strong tensions in recent years, which can only be solved by a renewed political commitment to deepening current integration processes. This means that beyond trade liberalization and the design of common trade rules, there is a strong demand for macroeconomic and financial cooperation, harmonization of regulatory regimes, complementary physical infrastructure, defense of regional commons, and a gradual advance in social and political integration.

To face these challenges, five priority issues should be emphasized.

1. Hemisferic integration. The proliferation of bilateral agreements between the Latin America and Caribbean region and the United States shows us that it is more difficult than ever to put forward strategic alliances among the Latin American countries. These agreements, while possibly convenient from an individual country's point of view, result in a very bad scenario for the region as a whole. Low bargaining power, trade diversion in favour of the North and against the region, and high transaction costs related to multiple rule of origin are among the shortcomings. The effects of these agreements on sub-regional treaties, and vice versa, need to be understood, and ECLAC should be able to advise the countries on their multiple negotiations, as well as give guidelines regarding the best regional strategy.

2. Increasing the productive potential of the region. The transformation of production structures must be an explicit priority of any development strategy. Progress on this front requires innovative public-private partnership, key and strategic state policies, and efficient institutions ECLAC will continue analysing different strategies aimed at increasing the productive capabilities of Latin American and Caribbean countries. Efforts are focused on policies that induce flexible economic structures, are capable of incorporating and knowledge, add value and help gain access to world markets.

3. International migration. Too much capital mobility and too little labour mobility are what the region has experienced during several decades. However, the last decade shows the relative importance of emigration to the North. The remittances of those emigrants to the country of origin have increased substantially, representing last year an inflow of funds to the region greater than foreign direct investment. Growing international labour mobility is posing new challenges both in the economic and social fronts, particularly regarding women and youth. Linking social and economic impacts of remittances in terms of poverty and productive activities must be assessed. The topic raises different issues, among them the economic drive behind migration; financial linkages between emigrant labour and the family group in the home country; and cultural and political integration of flowing migrants. ECLAC is addressing the problem by pointing out the complexities of the issues at hand and will be making proposals that can be incorporated into public policy.

4. Improved socio-cohesion. High poverty incidence and huge disparities in income distribution are widespread in Latin American and Caribbean countries. While progress on this front requires setting the development process on a firm footing, social policies can address some of these challenges. Political efforts must therefore be placed on designing a fiscal covenant that satisfies the need to finance social protection networks, and at the same time to develop human and social capital. In that regard, the impact of different social policies on income distribution and poverty must be assessed.

5. Sustainable development. The effective incorporation of the environmental dimension into the development agenda places additional demands on economic strategies and, in particular, on the mobilization of investment in dynamic production sectors that use clean production methods and technologies. ECLAC is actively working on an integrated follow-up of the global summits from a regional perspective by assisting United Nations Member States in making the Millennium Development Goals operational.

Last but not least, the effects of various economic and social developments on the political stability of the region's fragile democracies merit a great deal of attention as part of the United Nations efforts in the area of conflict prevention. This requires a coherent United Nations agenda at the regional level and will oblige us to revisit interagency cooperation, which implies stronger institutions based on a network of regional institutions as a midway point between the global and national orders. ECLAC is particularly well positioned to meet these challenges while offering a multidisciplinary method of analysis highly responsive to the region's specific traits, with the sole aim of assisting States to further their economic and social development.

Jose Luis Machinea has been Executive Secretary of ECLAC since December 2003. He was Argentina's Minister of the Economy from 1999 to 2001, and also served as a consultant to the Inter-American Development Bank and the World Bank.

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