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Promoting growth throughout the Americas

Remarks by Kenneth W. Dam
Deputy Secretary
U.S. Department of the Treasury
 Miami Herald's Sixth Annual Conference on the Americas

Miami Florida
. October 15, 2002

As we gather this morning, one-third of the people of Latin America live on less than two dollars a day. Major economies in the region face severe economic, political, and security challenges.

We have a lot of work to do to realize President Bush's vision of an American hemisphere where each and every human being has the opportunity to realize his or her full potential.

I am here today to tell you about the concrete actions that President Bush and his economic team are taking to promote growth throughout the Americas and realize that vision.

Economic Growth in the United States 

The single most important thing the United States Government can do to promote growth throughout the hemisphere is to ensure that the U.S. economy grows at its full potential. That's because our economies are tied together.

You can see this especially in Florida. In 2001, Florida's international merchandise trade reached nearly $71 billion. That's 15% of Florida's gross state product. Florida is the nation's third largest exporter of high-tech products, many of which are exported to Latin America. Over 1,100 foreign firms are located in Florida. In 1999 - the last year for which figures are available – Florida attracted over $36 billion in foreign investment. That foreign investment created more than 286,000 jobs.

Because our economies are tied together, economic growth in the United States is important for the hemisphere as a whole. And it is clear that the U.S. economy is now growing again, thanks to decisive leadership by President Bush.

We cut taxes at exactly the right time, providing important stimulus to the economy just as it was emerging from the economic slowdown we inherited.

Our trade agenda is once again energized. Securing passage of Trade Promotion Authority from Congress for the first time in nearly a decade enabled us to renew the Andean Trade Preferences Act and Hill help us conclude a Free Trade Agreement with Chile, a Free Trade Area of the Americas, and a successful round of negotiations in the WTO.

After the exposure of a few, but startling, corporate accounting scandals, President Bush acted decisively to restore investor confidence in our stock market.

After our citizens were attacked and our economy threatened, President Bush led an international coalition to fight terrorism and protect our people and our economies.

The President's strong leadership is paying off. We have now completed a fourth consecutive quarter of growth. We believe that in the quarter just ended the U.S. economy probably grew at least three percent. We expect that growth to continue next quarter. Five consecutive quarters of growth is good. Three percent growth is good, but not good enough.

President Bush and his economic team will not be satisfied until every American who wants a job has one.

Economic Growth in the Americas

Strong policy leadership is paying off elsewhere in the Hemisphere. El Salvador, which has implemented key structural reforms to strengthen public banks, improve financial supervision, and further expand the role of the private sector, is expected to grow by 3% this year.

Chile, which ranks among the most open, competitive and economically stable countries in the region, also is likely to grow by 3%.

Many countries, however, are not growing at their full potential. I'd like to talk about some of the economies in the region facing particular challenges.

Argentina

As we all know, Argentina has faced extreme economic hardship over the last year. This Administration has backed four extensions this year on payments to the IMF (totaling $4.9 billion).

There is reason to be encouraged about Argentina, as recent reports indicate that parts of Argentina's economy have stabilized and that conditions there may have bottomed out.

As Secretary O'Neill has said, we want Argentina to succeed. We are prepared to support additional international financial assistance as soon as a sustainable economic program is developed. The IMF and the Argentine Government have been working towards an agreement, and we hope that an agreement may be reached soon.

Brazil

We supported the August decision to provide an expanded IMF lending package to Brazil because of confidence in the current policy mix and the firm belief that the short-term liquidity pressures facing Brazil can be alleviated through continuity of such policies. To ensure that the large majority of IMF resources are provided only if sound policies are observed, the program "backloads" the funds. That is, Brazil will get the majority of the IMF loan only if it adheres to sound policies such as maintaining fiscal prudence and taking concrete steps to reform major impediments to growth such as the current tax code. Commitments by the two major Presidential candidates reaffirming support for the program have helped reduce the uncertainty going forward.

Colombia

Colombia faces difficult economic conditions and security concerns.

But President Uribe has a strong agenda, appropriately focused on economic reforms to stimulate growth and create stability. We support these efforts. They deserve the support of the internacional community.

Uruguay

The United States also supported a $3.8 billion official sector package for Uruguay, and drew on the U.S. Exchange Stabilization Fund to provide a short-term bilateral bridge loan until IMF financing was put in place. The Government of Uruguay's strategy to address its difficulties - particularly in the banking sector - and its commitment to implement that strategy convinced the official community to support

the package. The results are encouraging. We have since seen increased stability in the financial system and continued strong performance by the Uruguayan authorities. Uruguay still faces a difficult regional economic environment, but its leaders have shown a commitment to necessary reforms and long-term economic goals. Uruguay merits international support.

With economic uncertainty in the region, our assistance in helping meet sustainable economic objectives is more important than ever.

Our top priority for the countries of the Hemisphere is to generate growth and raise productivity through macroeconomic stability, open markets and private sector initiatives. Sustained economic growth raises living standards and reinforces political and social stability.

The key to sustained economic growth is increasing productivity.

We know that productivity growth is hampered if a country's most critical asset - its people - is unable to take advantage of technological progress. The higher income countries of the Western Hemisphere region have demonstrated their capacity to compete at the most sophisticated technological level. This is especially true in places where people have good access to education and are therefore capable of leveraging this technology. Chile and Uruguay have been particularly successful in this regard.

Nor can you ignore the fact that if people's basic needs for food, shelter and clean water are not met, growth is severely curtailed.

That is why Secretary O'Neill has made access to clean water a development priority.

Governments can best foster growth by creating an attractive investment climate of economic and financial stability. Sound monetary policies, coupled with a stable exchange rate, disciplined fiscal policies and sustainable debt levels inspire confidence in financial markets and encourage capital investment. Economic openness and competition spur the exchange of technology and ideas. Investing in health and education allows individuals to take advantage of new opportunities. Transparency within the public and private sectors, and enforcement of the rule of law are critical to business-led growth.

These policies generate a sound investment climate, which paves the way for private sector led growth.

President Bush is committed to supporting the poorest countries, and helping them climb out of debt. In July, World Bank donor countries agreed to deliver a significant portion of International Development Association resources -- 18-21% -- in the form of grants rather than loans. Grants avoid burdening needy countries with necessary debt and will therefore be targeted towards HIV/AIDS programs, natural disaster reconstruction, and those countries that are debt vulnerable, facing post-conflict situations, or extremely poor.

We also believe in helping countries that help themselves. In March, President Bush announced a new Compact for Development. The fundamental belief behind this compact is mutual accountability – a hard link between aid and policy performance. A key component of the Compact is the Millennium Challenge Account. This account increases aid to the poorest well-performing countries over the next three years

to $5 billion in 2006, which is roughly a 50% add-on to our current core assistance. This is new money that will supplement existing programs, not displace them. We will continue, in addition, a core assistance budget of $10-11 billion to provide development and humanitarian assistance to a broader group of countries.

The Role of the Private Sector

Furthermore, we know that growth ultimately comes from investing in people and encouraging entrepreneurship in the private sector. Governments do not have all the answers.

Countries, businesses and individuals must work together to identify the areas where progress is needed.

A good example of how we countries, businesses and individuals can work together is the Partnership for Prosperity, launched by President Bush and President Fox in September of 2001. The Partnership brings the public and private sectors of both countries together to improve access to capital, share best practices and technical expertise, build capacity for future growth, and link institutions with shared goals.

Through a series of conferences, round-table discussions, and technical missions, the Partnership has identified over 30 specific projects to build out these themes.

Leadership for many of the projects resides completely in the hands of the private sector. To cite just one example, private sector experts in housing finance are working closely with Mexican authorities to help deepen the primary and secondary mortgage markets in Mexico. This will make it easier and cheaper for Mexicans to buy new homes, and also making it possible for Mexicans to take full advantage of the investment they already have in existing housing stock.

The Partnership for Prosperity also includes several projects designed to lower the cost of remittances. Remittances are important not just to the Mexican economy, but to many economies in Latin American and the Caribbean. According to the Inter-American Development Bank, in 2001, people living in the United States sent $23 billion of hard-earned wages home to family and friends in Latin America and the Caribbean.

At least one study shows that children whose families receive remittances stay in school longer than children of families who do not receive remittances.

But you don't need academic research to see that remittances make a difference. $23 billion is a lot of money put directly in the hands of people who need it most to spend as they see fit.

Remittances are not free, however. It costs money to send money. A recent McKinsey article reports that the cost can be as much as 20%. An immigrant sending $250 home, therefore, can pay up to $50 in fees and exchange rate conversion costs. Reducing these fees by 50% can have a real world impact for people who depend on the remittances.

Accordingly, a key component of the Partnership for Prosperity is to reduce the cost of sending money from the United States to Mexico. Much of this work will immediately benefit other countries in Latin America as well. Other aspects of the work can be replicated elsewhere if they are successful in Mexico. The United States' Executive Director of the Inter-American Development Bank, José Fourquet, coordinates the United States' efforts concerning this aspect of the Partnership for Prosperity.

We seek to reduce the cost of remittances in three ways.

First, we work to encourage competition and innovation. Increasingly, we see banks and credit unions offering competitive remittance products and we applaud them. Since President Bush and President Fox launched the Partnership for Prosperity, we have seen Citibank, Bank of America, Wells Fargo, and others launch new, low-priced ways to send money to Mexico.

Also, we try to protect competition and innovation from over-regulation. We have taken care, for example, to implement terrorist financing regulations such as customer identification requirements so as to allow financial services companies to continue providing services to immigrants and to offer additional options for sending money.

Second, we work to increase financial education. Competition brings additional options. But options don't matter if people don't know about them. To increase financial literacy, Secretary O'Neill established the Treasury's first Office of Financial Education, headed by Deputy Assistant Secretary Judy Chapa. The Treasurer of the United States, Rosario Marin, also works tirelessly to promote financial literacy. Through our First Accounts pilot program, we provided funds to financial institutions and community based organizations that provide education and services to people who do not have bank accounts. To take just one example, Treasury has provided over $1.8 million in grants from both First Accounts and our Community Development Financial Institutions Fund to the Latino Community Credit Union in North Carolina, which has one of the United States' fastest growing Latino communities.

Third, we are working to improve the systems through which remittances are made.

The Federal Reserve Bank is working with Mexico to allow money to be transferred through the Automated Clearing House system - a system we use here in the United States. When completed next year, this project will reduce the cost of sending money to Mexico to $1 or less per transfer. We are working with financial institutions to ensure that those cost savings are passed on to consumers. If successful, this project can be replicated elsewhere in Latin America.

As we reduce the costs, we increase the amount of money that gets home, increasing the amount of money available to finance the purchase of consumer durables, the construction and improvement of homes, and the expansion of small businesses. With more than $23 billion dollars in remittances flowing to Latin America and the Caribbean each year, these projects can make result in hundreds of millions more finding their way to those economies.

Conclusion

In promoting these policies, we must remind ourselves that there is no "quick fix" for economic growth. Good results require a patient and sustained commitment over a long period. I look forwarding to working with you as we promote growth throughout the Americas and create the opportunity for every citizen of the Americas to realize his or her full potential. Thank you.

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