Remarks
Jose W. Fernandez
Assistant Secretary, Bureau of Economic, Energy and Business Affairs
Remarks at AACCLA Luncheon
Miami, Florida
February 3, 2011


As Prepared for Delivery

Good afternoon –it’s a pleasure to be able to join such a diverse audience - whose interest in the U.S. - Latin America relationship span the business, policy, academic, and personal spectrums. I want to thank the Chamber for the opportunity to speak today.

It’s been a unique honor to serve the President Obama and Secretary Clinton as the Assistant Secretary of State for Economic Affairs, particularly in a time of such global economic change. Before I came to the State Department, I spent quite a bit of time in Latin America, primarily negotiating financings with governments, private companies, state owned businesses and everything in between. This gave me firsthand insight into the social and economic challenges in the region. And since I’ve taken office, that experience has served me well as I continue to work on these issues in government as part of our broader agenda in the region.

And with an outlook framed by these professional experiences and my own personal history and connection to Latin America which I will speak to later, I can say that we are indeed at a unique point in time of our relationship with Latin America, or as President Obama and Secretary Clinton, have called it, “a moment of opportunity”.

Evolution of the Relationship since the Alliance for Progress

To be sure, this moment isn’t defined by one event or one set of circumstances. Instead it’s a product of the knowledge and perspective we’ve gained in the nearly 50 years since President Kennedy laid out a vision of economic cooperation in the Western Hemisphere that was “united by history and experience and by our determination to advance the values of American civilization”.

I mention the Alliance for Progress not to debate its successes or shortcomings, nor to revisit historic controversies.

Instead, it’s an opportunity to reflect on the dynamic development of the Latin American economies and political institutions of the last 50 years, take stock of the changed landscape, note the progress made, the lessons learned and acknowledge the challenges that still remain, while endeavoring to do better.

In taking stock of this changed landscape between the Americas, we need only look to the over half-trillion dollars in traded merchandise each year, the U.S. remaining largest foreign investor in the region, oil imports from Latin America exceeding those from the Middle East, and the significant migration to North America from Latin America to see that our economic and social ties are closer than ever.

While some aspects our relationship are marked by more interconnection, this progress has also led to a diversity of national interests and ambitions throughout Latin America. Nations considered developing only a few generations ago, now take center stage in international forums like the G-20, they help lead dialogues on global challenges like the financial crisis and climate change, while others have developed strategic partnerships beyond the Western Hemisphere. Subsequently our interests and perspectives do not always align.

But despite all of these changes, traditional challenges linked to economic inequality, energy insecurity, weak civil institutions continue to persist throughout the Americas.

Our ability to effectively meet those challenges is the moment of opportunity I spoke to. While our continued strong partnership holds enormous potential for progress and cooperation, it requires an acknowledgement that old framework of patron and client, marked by rigid and uniform Pan-American policies which defined our relationship for so long, is not compatible with the reality of modern Latin America.

The President seized this moment and has outlined a vision of this cooperation in his first major visit to Latin America in which he stated that there was “no senior partner and junior partner in our relations; there is simply engagement based on mutual respect and common interests and shared values.”

Critically important in this vision of partnership is the acknowledgment that while United States can be an indispensible partner in meeting these national and regional challenges, we cannot solve them on our own. We want and require fully engaged partners to help identify the areas of cooperation where partnership will yield meaningful progress.

Models of Partnership and Economic Cooperation

It is this model of partnership, in particular economic cooperation that I would like to speak to today because I believe that the most pressing challenges we seek to address, whether it’s addressing income inequality, energy security, or civil reforms that enable governments to better meet the needs of its citizens, are rooted in fundamentally economic matters.

In most instances, the scopes of these challenges require partnerships with the private sector to cultivate vibrant and open environments in emerging economies that enable trade, investment, and entrepreneurship.

To be clear, this is not simply a blind faith in the power of the free markets. Instead, this focus is really about identifying every convergence point where commercial and public interests meet.

We see this convergence of profit and purpose with several initiatives and concepts we are promoting in the spirit of partnership and cooperation laid out by the President.

  • FIRST, our innovative initiative to harness remittances for development needs,
  • SECOND; our emphasis on women’s entrepreneurship in Peru, and
  • THIRD, I want to speak to the need to promote anti-corruption and transparency measures as a way to boost domestic revenues for development

BRIDGE

The (Building Remittance Investment for Development, Growth and Entrepreneurship) or BRIDGE initiative is an example this new model of partnership between governments, multi-lateral institutions and the private sector to address a very public challenge, the lack of capital to meet the vast investment needs in critical growth sectors like infrastructure.

These investments are especially critical in emerging economies. Their trade and economic growth opportunities will be wasted if their aging ports cannot support increased traffic or cargo or if outdated electricity plants and ancient transmission grids can’t power new factories and put lights in classrooms.

But too often, governments cannot commit the resources necessary for adequate infrastructure improvement while private institutions have a hard time accessing the affordable, long-term capital they need to support these larger projects.

BRIDGE attempts to address this financing problem by focusing on maximizing the impact of one of the largest and significant sources of foreign exchange in emerging economies: migrant remittances.

Consider this: Latin American workers in the U.S. send home over $60 billion in remittances each year, a figure that dwarfs foreign assistance. In BRIDGE’s pilot countries-- Honduras and El Salvador -- remittances account for nearly a fifth of GDP.

But the true economic benefit of remittances is blunted with over 85% going to meet vital, yet short-term living expenses like food and shelter, with little being used to secure future economic growth. It’s used for immediate consumption, rather than put to work building the economy.

BRIDGE is focused on replicating the success of financial institutions in Mexico, Brazil and Peru who have utilized their remittance flows to access lower-cost and longer-term capital. In fact, banks in those countries and in others like them have raised over $15 billion in capital secured by the remittance flows. The concept is similar to what our banks do with the money we deposit in our accounts: They use it to make loans and raise capital, but it’s always there for you to take out if you need it.

The BRIDGE partnership brings the resources of the State Department, the U.S. Agency for International Development (USAID), the Overseas Private Investment Corporation (OPIC), and the Inter-American Development Bank (IDB) to bear on these opportunities, in close collaboration with the host governments and private banks in those countries.

Our hope is that if this model works in Central America, we can scale up the BRIDGE approach and apply it in other parts of the Americas and the world.

Pathways Access Initiative - Peru

Another fertile area for cooperation is in promoting new economic opportunities rooted in the most American of values; entrepreneurship.

Under the Pathways to Prosperity initiative, we’re focusing on helping women-owned businesses reach larger markets by linking them with the reach of large companies in need of product diversification. But we aren’t just opening the doors for them. We are first teaching them the critical skills they will need to run a successful business and be competitive in the global marketplace. And we graduate these business owners with a certification that’s as good as any good housekeeping seal of approval. Wal-Mart, who I believe is represented here today, recognized the mutual benefit of this program and has been an early and critical partner in getting this program off the ground. By identifying the needs of the corporations and linking them to qualified suppliers, especially the women entrepreneurs who drive much of the economic growth and business innovation in the region, we hope to create a self-sustaining mechanism for expanding trade and exports and another great framework of the partnership and collaboration between governments and businesses large and small.

Anti-Corruption and Transparency

Which brings me to the last area where we are starting to focus our labor. Despite the dynamic economic and political progress throughout Latin America, a legacy challenge in many countries has been integrating the economic elites into the formal revenue system. In other words, too many rich people aren’t paying their taxes resulting in untold billions of lost revenue. Last year in Quito, Secretary Clinton stated:

“We cannot mince words on this. Levels of tax evasion are unacceptably high, more than 50 percent in some Latin American economies.”

To be clear, I don’t think it’s simply a matter or greed or indifference. Many tax systems are ineffective and inefficient in much of the hemisphere. People won’t pay their taxes if they see clouded budget processes coupled with corruption and inefficiencies that drain revenue away from public investment and services. Enabling governments to apply several basic but fundamental reforms could be an effective way to reverse this trend and ensure a sustainable source of revenue that can meet development needs.

Those reforms include: a) improving budget transparency, b) combating corruption and c) mobilizing revenue for development investment. The Economic Bureau I lead at State has been working on this ‘three legged stool’ for some time, and we’re looking at new ways to scale and integrate this work so that it can be taken up by governments and institutions badly in need of reform.

But you might be asking, do all these technical concepts fit together and what does it all mean in concrete terms? The best proof of this concept may be in Latin America itself.

Just several years ago, Medellin, Colombia was transformed under then-Mayor Sergio Farjado from the murder capital of the world into a safe, economically vibrant metropolis through several important reforms. Fajardo raised taxes, but first engendered the trust of the local business elite by opening up the city’s accounting books to the public. They then saw that their taxes were reinvested in high visibility development projects, including new infrastructure, social services, and schools. Success bred success and more people participated in the tax system so that Medellin had the resources to make the public sector investments which led to the transformation. At the time, Mayor Fajardo stated simply:

“We have improved transparency in the city’s finances, so more people are paying their taxes. When businesses trust that we are not stealing, and they know that we are going to use their money effectively, they pay.”

And Medellin is not alone. Peru has increased tax revenues to spend more on social programs and public works roads and schools and Brazil has one of the highest tax-to-GDP ratios in the world today. We can make significant progress in encouraging these reforms with the right partnerships, and I hope that these examples will be become common throughout Latin America.

Conclusion

These are but a few of the ways we are working every day to maximize the convergence points of commercial and public developmental interests – between profit and purpose. While the scope of these innovatives on their own is limited, they are indeed scalable, but more importantly they are clear examples that of what real partnership can achieve.

However, before I conclude, I would be remiss if I came to Miami and only spoke about policy without touching on what truly calls me to this work. For me these aren’t just simple initiatives sets of policy prescriptions, but a real way to truly engage a region that has been a part of every stage of my life. A few years ago I went back to Cuba with my father to see our hometown, Cienfuegos. It was a wonderful trip, just the two of us, to see where he had been born, and revisit where I had played as a child before coming over at the age of 11. And everywhere I saw children playing in the streets, some shirtless and shoeless, not fully aware of the enormous obstacles they will face as they grow up. And it became as clear as ever to me that for the grace of God and the courage of my parents, I could have been one of them.

As I travel around the world and see children dart around the cars to beg for a scrap of food, or farmers who cannot till their fields, I say I've seen this for too long. While there is much to celebrate about the Latin America’s economic development in recent years, these problems were there when I started working in the region 30 years ago. And too many of these problems are still here today. Too many of us in this audience have fled our countries of birth or have loved ones in the region who wish they were in our shoes right now. There is no question that we have to do better. We've got to use all the resources available to us, and work with the belief that this is not a zero-sum game, that if we can use our strengths to accelerate development in the region, we will also help ourselves as a nation.

The items I’ve mentioned today demonstrate that the models of partnership we aspire to, require participation from all elements of society and challenges all of us here today as government, business, community and thought leaders, to develop and nurture these opportunities every day.

As always, I welcome your thoughts and ideas on how we can do better, to build security and prosperity that touches every part of the Americas, from Miami and Minnesota to Monterrey and Montevideo.

Thank you.

[This is a mobile copy of "A Moment of Opportunity" in the Americas]