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Latin American Business Summit Questions Free Trade Model - 2002-11-23


In Rio de Janeiro, participants at an international economic conference are questioning whether the free market-free trade economic model can generate enough growth to alleviate poverty. Such criticism and soul-searching about the impact of globalization is unusual for the World Economic Forum. The group's defense of globalization has drawn protests in recent years.

The Latin American Business summit, sponsored by the World Economic Forum, has brought together several hundred business leaders, government officials and others to discuss the future of economic development in Latin America. The region has been battered by political and economic crises over the past year, and economic growth has slowed compared to the 1990s.

Regional powerhouse Brazil, which is the 10th-largest economy in the world, is not expected to grow by more than one percent this year. Argentina, whose economy collapsed late last year, will see its economy shrink by 14 percent in 2002. Overall, the Latin American region will expand by less than two percent this year, according to some economic projections.

This compares to average regional growth rates of around 3.3 percent a year during the 1990s, not high, but better than the previous decade.

The 1990s was a period when many Latin American countries embarked on reforms to open up their markets, and impose fiscal and monetary discipline. These reforms, advocated by international lending institutions and the United States, became known as the Washington Consensus. Latin American countries were told that, by adopting the Washington Consensus, sustained economic growth would follow.

But this did not happen in many countries, for a variety of reasons. Disenchantment has set in, benefiting populist leaders like President Hugo Chavez of Venezuela. The recent election of former trade union leader Luiz Inacio Lula da Silva as Brazil's next president is seen, in part, as a reaction against the economic policies of the outgoing government.

These developments have prompted some participants at the World Economic Conference in Rio to call for abandoning the Washington Consensus. Addressing a discussion panel, former Colombian Finance Minister Juan Manuel Santos called for dramatic change.

"I think, politically," he said, "it would be a good step forward, if the World Economic Forum, which is the symbol of globalization, that this forum bury the Washington Consensus. Not bury some of the good things that the Washington Consensus promoted in Latin America, such as low inflation, fiscal discipline, and open markets, but to build a new paradigm from the Washington Consensus."

While not calling for an end to the Washington Consensus, World Bank President James Wolfensohn issued a stern warning at the conference. He said, while many of the problems experienced by Latin America cannot be blamed on globalization, there must be a new awareness among the private sector that maximizing profits cannot be the only goal. "More and more business people understand they cannot live in a vacuum, that if the society around them is going to burn down their factories, or, if they're not going to develop their markets, or if they're going to ruin the environment, they themselves might profit, but their children will not," he said. And, I think that some businessmen, being rational, recognize that you cannot separate profits from social responsibility."

The issue of private sector social responsibility has gained ground at the World Economic Forum. On Thursday, organizers of the Forum issued what they called a "Private Sector Declaration," calling on business to move beyond its traditional role, and support governments in their efforts to alleviate poverty and improve basic healthcare and education.

Representatives of about 100 companies signed the declaration.

U.S. Deputy Treasury Secretary Kenneth Dam, who participated in the forum, acknowledges that globalization must be accompanied by more social responsibility. But Mr. Dam, who described the washington consensus as a term, not U.S. policy, was adamant that economic reforms work. "Obviously, there have been a lot of problems that have developed, but I would say two things about it: reform works, economic reforms bring advantages," he said. "Perhaps what has happened is not that the Washington Consensus has failed but that it hasn't been consistently followed. If the Washington Consensus is a code-word for globalization…that somehow globalization is somehow a movement that has to be re-examined, all I would say is globalization is not a policy option, globalization is a fact."

Former Costa Rican President Jose Maria Figueres, who is a top member of the Forum, says there is no alternative to sound free-market policies. But, he says, business must become more engaged. "We do have to look for new fresh approaches, to the development equation, to the development proposition that can make this global market, where we already have a global economy, a market of three or four billion consumers," he said. "That would mean that we would have lifted many more people out of poverty, that they would have had well-being, that they would have been able to become consumers. There's a lot we can do in that direction, and that is going to require multi-stake-holder coalitions. Governments, private sector, NGO's [Non-Governmental Organizations] can't do it by themselves. We all really have to step up to the plate and bat [do our part]."

World Bank Chief Wolfensohn made a special appeal to the private sector to come up with a new model. "The only way we're going to solve this problem is, if we understand that there's a mutual responsibility, and that we need to work in ways together that we have not worked before," he said. "We have to think of new paradigms of development, not as a matter of charity, but as a matter of self-interest. And all of us must understand that, unless we deal with the question of poverty, there's just no world worth living in. I think, in the end, that's what's going to drive business to understand the issue of social responsibility and environment."

The Private Sector Declaration issued by the Forum appears to be a step in that direction, and an acknowledgment that simply pursuing the Washington Consensus is not enough to lift 224 million Latin Americans, almost half of the region's population, out of poverty.

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