WORLD ECONOMIC FORUM

World Economic Forum on

Latin America

Building a Stronger
Latin America in the Global Economy

São Paulo, 5-6 April 2006

INSIGHTS
 Contents
This publication is also available in electronic form on the World Economic Forum’s
website at the following address:

World Economic Forum on Latin America Web report:

http://www.weforum.org/summitreports/latinamerica2006 (HTML)

The electronic version of this report allows access to a richer level of content from the
meeting including weblogs, photographs and session summaries. Preface 3

The report is also available as a PDF:

http://www.weforum.org/pdf/SummitReports/latinamerica2006.pdf
Foreword 4
Other specific information on the World Economic Forum on Latin America, São Paulo,
5-6 April 2006 can be found at the following links:

http://www.weforum.org/latinamerica The Creative Imperative in Latin America 7

http://www.weforum.org/latinamerica/programme

http://www.weforum.org/latinamerica/indepth
Managing Global and Regional Risks 8
http://www.weforum.org/latinamerica/partners

http://www.weforum.org/latinamerica/competitiveness
Improving Latin America’s Competitiveness 10

Continuing with the Integration Agenda 12

Re-evaluating the Investment Framework 14

The views expressed in this publication do not

necessarily reflect those of the World Economic
Priorities for Action in Latin America 16
Forum.

Acknowledgements 18
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1
World Economic Forum on Latin America
 Preface

In an election year in many countries across the region, the World Economic Forum on
Latin America provided a platform, at a critical moment, for leaders to discuss the
challenges and the opportunities facing the region in the years to come. Representing 24
countries, 300 participants from business, government, academia, media and civil society
gathered in São Paulo on 5-6 April 2006 to reflect on Building a Stronger Latin America in
the Global Economy. Special attention was placed on how Latin America could achieve
sustained and equitable growth.

Based on Forum tools brought to the meeting (Global Risks, Global Competitiveness,
Global Scenarios), concrete recommendations emerged from the gathering. Consensus
was reached on Regional Risks, Competitiveness Challenges, and Priorities for Action in
Latin America. The results are incorporated in this publication. In the closing plenary,
participants voted to focus over the next years on education – specifically teacher training
and improving the quality of schools – and on using public-private partnerships to invest
in infrastructure in rural areas, underdeveloped regions and urban slums.

The Forum would like to once again take this opportunity to thank the Co-Chairs of the
World Economic Forum on Latin America in São Paulo, who provided valuable insight
and support for the programme. They were:
Jorge Gerdau Johannpeter, President and Chief Executive Officer, Gerdau, Brazil
Luis A. Moreno, President, Inter-American Development Bank, Washington DC

We now look forward to building a new partnership with the region. This will provide you
and us at the World Economic Forum with essential guidelines to continue to engage
with the region in specific initiatives and address the relevant issues in our forthcoming
Annual Meeting in Davos as well as in our next World Economic Forum on Latin America
roundtable during 2007.

Peter Torreele Sylvie Naville

Managing Director Associate Director,
Latin America

3
World Economic Forum on Latin America
 Foreword – Building a Stronger Latin
America in the Global Economy
“When our region raises its
head and negotiates on
equal terms with rich
countries without arrogance
but with humility and
perseverance, we will
achieve more than when we
were just crying out and
weeping. We are ready to
do that now.”
Luiz Inacio Lula da Silva
President of Brazil
What was immediately palpable when participants
gathered in São Paulo for the World Economic
Forum on Latin America was the fresh confidence
evident in the region, particularly in Brazil, a country
that has overcome macroeconomic trauma and
volatile politics to emerge motivated and self-
assured in its stability and growth prospects. In
more than two dozen sessions and private
meetings, business, government and civil society
leaders from Latin America and around the world
reviewed the state of the region and frankly
discussed both its advantages and shortcomings.
The highlight of the event was the spirited address
by Luiz Inacio Lula da Silva, President of Brazil, who
gave an upbeat assessment of the region and his
country as they face the challenge of “Building a
Stronger Latin America in the Global Economy”, the
meeting’s theme. In a session that lasted nearly two
hours and included a question-and-answer period,
Lula neatly covered each of the meeting’s four sub-
themes, key challenges facing the region:
“Managing the Impact of Global and Regional
Risks”, “Improving Competitiveness”, “Continuing
the Integration Agenda” and “Re-evaluating the
Investment Framework”.
At the end of the meeting, participants identified
education and infrastructure as the most pressing of
the priorities for Latin America. These are the key
messages that emerged from the two days of
interactive deliberations:
4 5
Foreword – Building a Stronger Latin
America in the Global Economy
“It is obvious that there “The lack of infrastructure
are people who benefit and investment is really the
from the lack of reforms, bottleneck to global
who make a lot of competitiveness.”
money and have a lot of
power because of this Luis A. Moreno
situation that hurts the President, Inter-American
great majority.” Development Bank, Washington
DC; Co-Chair, World Economic
Moisés Naím Forum on Latin America
Editor-in-Chief, Foreign
Policy Magazine, USA
Managing Global and Regional Risks Improving Latin America’s Competitiveness
Economic inequality and social marginalization are While Latin America lags other emerging markets
the greatest risks facing Latin America. These two including East Asia, China, India and Eastern
problems are hindering the region from improving its Europe in competitiveness rankings, most
competitiveness. countries in the region are making progress in
their efforts to catch up.
• Latin American countries should look inward and
assess their own advantages and shortcomings if • Macroeconomic stability is now widely
they are to achieve greater competitiveness and regarded in the region as a political imperative.
sustainable growth.
• To boost competitiveness, the region needs to
• Education is the compelling solution to income focus on improving logistics, reducing
disparity and social inequity. bureaucracy and eliminating trade barriers.
• Government and business should not ignore the • Public-private partnerships could help marshal
opportunity that exists in mobilizing the region’s the resources necessary to invest in necessary
poor, both as a source of labour and a potential infrastructure development.
market.
• Investment in education is essential,
• Political will over vested interests is essential to particularly in better training and compensation
implementing meaningful reforms. for teachers.
• Latin American countries should also aim to
exploit their comparative advantages and
“We don’t want to take from the rich to give to the poor established niches such as biofuels and
to make everybody poor; we want everybody to be renewable energy.
prosperous.”
Ricardo B. Salinas Pliego
Chairman, Grupo Salinas, Mexico
“We need to improve in terms of automation, information
technology and the quality of our labour force.”
José C. Grubisich Filho
Chief Executive Officer, Braskem, Brazil
World Economic Forum on Latin America World Economic Forum on Latin America
“The world needs a very
clear sign that [the Doha
Round] will end in
success. But the level of
ambition is very low
nowadays. The clock is
ticking and we just don’t
move. The US and EU
are just playing poker.”
Manuel A. González Sanz
Minister of Foreign Trade of
Costa Rica
Continuing with the Integration Agenda
It is essential for Latin America to deepen
integration if it is to be more globally competitive.
• The region must pursue efforts to improve
infrastructure links, increase intra-regional trade
and boost cooperation in strategic sectors
such as energy and tourism.
• In trade development, emphasis should
continue to be made on multilateral and
regional initiatives. But with those efforts
stalled, bilaterals may be the best alternative.
• Infrastructure development, particularly through
public-private partnerships, is crucial for
regional integration.
• The energy sector, particularly non-petroleum
products and biofuels, could play a leading
role in enhancing regional integration.
• The region should not let political differences
derail integration.
“What we see today is an explosion of bilaterals. This is
bad for the world, but this is unfortunately the way the
Americas are going.”
Marcos S. Jank
President, Institute for International Trade Negotiations (ICONE), Brazil
 Foreword – Building a Stronger Latin
America in the Global Economy
“Latin America is in the
process of normalizing; it is
what many people have
been working for, and the
financial system is part of
that.”
John Williamson
Senior Fellow, The Institute for
International Economics, USA
Re-evaluating the Investment Framework
To remedy the region’s poor performance in
attracting foreign direct investment compared to
other emerging markets, Latin America should
tackle major competitiveness shortcomings such as
doubts about political stability, investor ignorance
and deficiencies in the financial sector.
• Latin America’s attractiveness to investors has
been hampered by poor regulation and lingering
perceptions that the region is politically unstable.
• Governments should combat ignorance about the
region with greater transparency and better
governance.
• Bottlenecks need to be unblocked. In particular,
deficiencies in the financial sector, including the
difficulty small and medium size enterprises have
in accessing capital, must be addressed.
6 7
“We cannot afford to come
up with economic equations
without looking at the social
side. Unless we invest in the
social side, we will not be
politically positioned to
tackle economic problems.”
Jorge Gerdau Johannpeter
President and Chief Executive
Officer, Gerdau, Brazil;
Co-Chair of the World Economic
Forum on Latin America
• Businesses in the region should play an active role
in diversifying the economy and attacking such
competitiveness shortcomings as poor education
and low R&D investment.
• In devising their strategies and business models,
investors should take into account the region’s
social context – the need for growth with equity.
“We are progressing fast in Brazil. In very short time, we
will be investment grade. It will be very important to
reduce the cost of capital to have more liquidity. When the
cost of capital becomes reasonable, Brazilian companies
should boom”
David Feffer
President, Suzano Holding, Brazil
World Economic Forum on Latin America
The Creative Imperative in
Latin America
During the World Economic Forum on Latin
America, government, business and civic society
leaders considered how the region can achieve
and sustain high economic growth with equitable
income distribution. This continued discussions
held at the World Economic Forum Annual
Meeting 2006 in Davos. Throughout the
consultation process, the focus has been on
discerning the “creative imperative” in
approaching the challenge of building a stronger
Latin America in the global economy.
Participants in Davos, São Paulo and around the
world have worked to come up with innovative
solutions and approaches and to set priorities for
action that would constitute an agenda for Latin
America to enhance its global competitiveness.
Some of these proposals were included in a list
of ten recommendations for social and economic
change that were issued in a communiqué at the
closing session of the World Economic Forum on
Latin America. After reviewing them, participants
voted to focus over the next year on education –
specifically teacher training and improving the
quality of schools – and on employing public-
private partnerships to invest in much needed
infrastructure in rural areas, underdeveloped
regions and urban slums.
World Economic Forum on Latin America
The following is a selection of creative
approaches that participants discussed in
São Paulo:
• Education: Train and properly compensate
teachers to raise the quality of schools. Do
not simply extend the mandatory school
year.
• Infrastructure and Investment: Employ
public-private partnerships to channel
investment into urgently needed
infrastructure.
• Business Model: Deepen the effective
reach of existing regional business models
by finding ways to tap the human resources
and consumer potential of the poor.
• Social Equity: Develop safety net
programmes that are fiscally sustainable,
while promoting other progressive policies
including efficient tax collection, universal
social security and home ownership
financing schemes.
• China: Turn China’s emergence from
challenge to opportunity by taking
advantage of China’s low-cost environment
through business process outsourcing and
its need for natural resources, which Latin
America possesses in abundance.
• Financial Services: Provide innovative
products such as securitized instruments
(mortgages, real estate investment trusts,
debt) that help small and medium-sized
companies access funding by bringing
down the cost of capital and increasing
liquidity.
• Trade: Ensure that bilateral agreements go
beyond commitments made at the
multilateral level, while maintaining focus on
multilateral and regional initiatives.
• Competitiveness: Fight investor ignorance
with increased transparency and better
governance by using such tools as
competitiveness assessments and region-
wide and cross-regional benchmarking.
 Managing Global and Regional Risks
Update 2006: Global Economy
The twin curses of economic inequality and social
marginalization loom as the greatest risks facing
Latin America. “Business can no longer survive in a
failed society,” said Ivan F. Zurita, Chief Executive
Officer, Nestlé Brasil, Brazil.
Compared to global rankings, corruption and
organized crime also rank higher as risks in Latin
America than elsewhere. In turn, China is more
often classified as an opportunity than a threat,
except to Mexican industry, and concern over
international terrorism is downplayed.
Using the Gini Index of inequality in the distribution
of income and consumption, a World Bank study
found that at the end of the 20th century Latin
America and the Caribbean measured nearly 10
points greater inequality than Asia and 17.5 points
than OECD countries. Another study by the Inter-
American Development Bank found that extreme
poverty worsened in many Latin American countries
during the early years of the current decade. This
stands in contrast to strides made in China and
India to lift over 100 million people out of extreme
poverty.
The risk posed by inequality and exclusion “is
nothing new,” observed Moisés Naím, Editor-in-
Chief, Foreign Policy Magazine, USA. “But now it
has more political potency and a greater economic
effect.” Noted David Rothkopf, President and Chief
Executive Officer, Garten Rothkopf, USA: “The
consequences of inequality can be recast as
disenfranchisement, political polarization and,
8
perhaps most sensitively, as a class culture.”
Managing Global and Regional Risks
Closing Plenary on “Priorities for Action”: Co-Chair Jorge Gerdau Johannpeter, World Econommic Forum Managing Director Ged Davis and Co-Chair
Luis A. Moreno
While cooperation from the global community is In spite of that well-placed political will, the task been done.” He noted one key reason: “It is
certainly welcome, Latin Americans are prepared to won’t be easy. “It is not uncommon to come up obvious that there are people who benefit from
tackle their own problems. “The problem with South with answers like education, institution building, the lack of reforms, who make a lot of money
America is that we have looked to the United States reducing corruption and fighting inequality,” said and have a lot of power because of this situation
and Europe and admired their wealth, and we have Naím. “It is all true, and it has all been said that hurts the great majority.”
looked to China and admired its growth, but we before. But over the last 20 years not much has
haven’t thought about what we should be doing
ourselves,” said Luiz Inacio Lula da Silva, President
of Brazil. “It is like someone who envies his
neighbour’s new television set instead of trying to
Top ten risks affecting the region
figure out how to buy his own TV.”
very high
Programmes like Brazil’s Bolsa Familia, Mexico’s
Oportunidades and Colombia’s Familias en Acción
are credited with beginning to weave a safety net
under the poorest of the poor. Beyond social
programmes, “Education, education, education,” as US twin deficit Organized crime Regulation Income China’s rise
high
Ricardo Young Silva, President, Ethos Institute, inequalities
Regional political instability
Brazil, put it, is high on the agenda. Oil price
Environmental degradation
At least some answers to questions about long-
term sustainable growth and increased global
Natural disasters Climate change
medium
competitiveness may lie precisely in the human
resources that are now wasted by poverty and
exclusion. “We cannot afford to come up with
economic equations without looking at the social
> Severity
side,” said Jorge Gerdau Johannpeter, President
and Chief Executive Officer, Gerdau, Brazil, and Co-
low
Chair of the World Economic Forum on Latin
low medium high very high
America. Said President Lula: “People in Latin
> Likelihood
America used to say there was a paradox, that you
had to grow first to invest in social programmes Geopolitical Societal Environmental Economic
later. We believe that spending money on the poor
is an investment.”
9
World Economic Forum on Latin America World Economic Forum on Latin America
 Improving Latin America’s
Competitiveness
Most Latin American countries have made great
strides to improve their competitiveness. They have
quelled hyper-inflation, restructured and paid down
debilitating foreign debts, and privatized sundry
state-owned firms. Import tariffs have been slashed,
exports are up and nearly every country is more
integrated into the global economy than it was a
decade or two ago. Some governments have
embarked on regulatory reforms designed to
unleash the creative energy and job creation
capacity of small businesses.
“I am impressed by the acceptance across the
region of macroeconomic stability as a political
imperative,” said Anoop Singh, Director, Western
Hemisphere Department, International Monetary
Fund (IMF). No longer, he added, are such policies
imposed from abroad. “This is an amazingly
important development,” he said.
Figure 1: Regional comparators for goods market efficiency
A. Good markets: distorsions,
competition and size
Source: World Economic Forum, Global Competitiveness Report 2005-2006
Figure 2: Regional comparators for labor market efficiency
B. Labor markets: flexibility and
efficiency
Source: World Economic Forum, Global Competitiveness Report 2005-2006
10
Yet, seen from a global perspective, the region’s
progress pales by comparison. On the World
Economic Forum’s Global Competitiveness Index
(see Figures 1 & 2), the Latin American country
average lags behind scores for China, India, Eastern
Europe and the East Asian NICs (Hong Kong,
Singapore and Taiwan) . In 1980 Latin America
boasted more extensive networks of productive
infrastructure like roads, electricity and
telecommunications than the countries of East Asia.
Since then the Asian “tigers” scampered ahead and
now lead by a factor of three to two, according to a
World Bank report. A child entering school today in
Argentina or Brazil can expect to complete 16 years
of study, according to a UNESCO study, but the
quality of education leaves much to be desired; a
32-country study by the OECD measuring 15-year-
olds’ abilities in math, science and their native
language ranked Brazil and Mexico well behind the
global average.
Rather than lament lost opportunities, many Latin
American policy-makers are looking on the bright
side. “There is good news on two fronts,” said Luiz
Fernando Furlan, Minister of Development, Industry
and Trade of Brazil. “First, Brazil’s competitiveness is
growing. There are signs of that in foreign trade,
which is up by 20% a year over the last three years.
And second, there is room to improve our
competitiveness in terms of improving logistics,
reducing bureaucracy and eliminating domestic
barriers.”
Many countries are banking on public-private
partnerships (PPPs) to boost infrastructure
development. In Brazil the new legislation for PPPs
includes a guarantee fund to calm the skittish
nerves of private investors who might otherwise be
wary of joining forces with the government. “Without
investment in infrastructure, we’ll remain spectators
for the next 100 years,” said Luiz Inácio Lula da
Silva, President of Brazil.
Education has become a mantra for many Latin
American reformers, but guaranteeing high quality
instruction for the poor majority is proving more
difficult than building classrooms and tracking down
truants. Training for teachers and higher salaries to
recruit better candidates into the profession
World Economic Forum on Latin America
Improving Latin America’s
Competitiveness
South African Minister of Trade and Industry Mandisi Mpahlwa and Brazilian Minister of Development, Industry and Trade Luiz Fernando Furlan in
discussion during the session “Competing in the Global Economy”
represent two elements of the solution to the
equality equation. “We don’t need one great
business executive; we need hundreds of great
executives. We don’t need a few good
engineers; we need thousands of good
engineers,” said President Lula.
One road to success is to further specialize in
areas where the region already enjoys a
competitive advantage. Latin America and
especially Brazil are well positioned to become
global leaders in biofuels and renewable energy,
and the United States and other countries are
keen to explore partnerships in the region to
develop them.
Furlan has met with officials from California,
Japan, South Africa and elsewhere to discuss
initiatives in the biofuel realm. New investments
in the cultivation and refining of sugarcane,
Brazil’s raw material for ethanol production, are
booming. Meanwhile Argentina is offering
incentives for biofuel development from
soybeans, said Martín P. Redrado, President of
the Central Bank of Argentina.
World Economic Forum on Latin America
“There is a very serious energy agenda that we
can work on together,” observed E. Anthony
Wayne, US Assistant Secretary of State for
Economic and Business Affairs. “We are
embarking on a programme to diversify our
energy sources and change the mix, and Brazil
is a leader in ethanol production.”
A potential outgrowth of efforts in biofuel could
be a broader expansion in biotechnology. “There
are only three countries in the world that have
decoded the genome of a living organism, and
Brazil is one of them,” said Furlan. “And we are
rich in biodiversity.”
“Over the years, the price paid to producers for ethanol
has dropped from US$ 100 a barrel to US$ 30 a barrel
without subsidies. It has become competitive with
gasoline.”
Jose Goldemberg
Secretary for the Environment,
Government of the State of São Paulo, Brazil
11
 Continuing with the Integration Continuing with the Integration
Agenda Agenda

“In an ideal world, we would go multilateral, but that

world does not exist. Bilaterals, however, should be
WTO plus.”
Manuel A. González Sanz
Minister of Foreign Trade of Costa Rica
Deeper integration of Latin America is essential for
global competitiveness, particularly in the face of
greater cooperation among countries in other
regions and the rise of China and India. Yet the
immediate outlook for closer relations among Latin
American economies is poor. While intra-regional
commerce has mushroomed, the Free Trade Area of
the Americas (FTAA) and a Mercosur-EU
arrangement have stalled at a time when progress is
imperative, given the World Trade Organization’s
flagging Doha Round. And while recently across the
region, democracy has spread, macroeconomic
stability has increased, the investment climate has
improved and confidence has palpably risen, this
celebrated convergence of favourable factors has
not translated into significant practical integration.
negotiated faster than multilateral deals but can
result in a messy jumble of inconsistent
commitments. The best agreements are typically
forged among the bigger economies, leaving small
ones disadvantaged. “In an ideal world, we would
go multilateral, but that world does not exist,”
Manuel A. González Sanz, Minister of Foreign Trade
of Costa Rica, conceded. “Bilaterals, however,
should be WTO plus.”
With infrastructure, the main impediment is the lack
of private sector participation due to risk. Funding
requirements are so high that governments alone
cannot provide the necessary capital to remedy
Latin America’s infrastructure deficit. But according
to the World Bank, the value of infrastructure
projects with private investment fell from a record
US$ 71 billion in 1998 to US$ 16 billion in 2003.
As in other developing regions, besides traditional
concession schemes such as the build-operate-and
transfer (BOT) arrangement, an increasingly popular
solution is the public-private partnership (PPP)
which allows for risk to be shared between
government and private actors. Brazil has been
at the forefront of PPP deployment in Latin
America, with legal frameworks for such
partnerships in place in some dozen states and
at the federal level. Risk management becomes
even more difficult with cross-border
infrastructure investment. For this reason, Latin
American countries have to negotiate regional
agreements along the lines of Europe’s Energy
Charter Treaty in which over 50 nations
participate.
The energy sector may play a leading role in
enhancing regional integration. Brazil this year
joins the ranks of the half dozen Latin American
countries that are net exporters of petroleum,
allowing the region to cooperate more in
developing energy markets and alternative fuels.
A planned US$ 25 billion gas pipeline network
will link natural gas reserves in Venezuela with
Brazil, Argentina, Bolivia, Paraguay and Uruguay.
This “project of the century,” as Lula dubbed it,
could be a major catalyst for cross-border
cooperation and regional cohesion.
Politics, however, could get in the way. Many
participants warned of a growing political divide.
“The hemisphere has split between countries
that want greater participation in the global
economy and those that reject the global
environment,” warned Eric Farnsworth, Vice-
President, Council of the Americas, USA. Others
observed that the wave of populism emerging in
some countries threatens regional harmony. “We
are in a dangerous situation,” cautioned Boris
Fausto, Historian and Professor, Political
Science, University of São Paulo, Brazil.
Despite such risks, the logic of deeper regional
integration remains compelling and the pressures
to pursue it are building rapidly, the stakes rising
every day. Indeed, Latin America cannot afford to
talk for another century. It must act now.

Take infrastructure. Last year, the World Bank

reported that the rate of infrastructure spending in
Latin America had been halved since the 1980s,
falling to 2% of GDP, compared with 4%-6% in East
Asian middle-income countries and inadequate
regional supply chains raised export costs by 15%
to 34%. The Bank called on countries in the region
to triple spending on infrastructure to make up for
years of under-investment and poor maintenance.
“If we don’t have the bridges, highways, railroad
and energy facilities, we will just keep talking for
another century about the need for integration and it
won’t happen,” said Brazilian President Luiz Inacio
Lula da Silva.

The priority therefore is to accelerate efforts to

improve infrastructure quality and links, boost intra-
regional trade and promote cooperation in such
areas as energy, tourism and investment.

On the trade front, countries are discovering each

other. “We were manic about the US buying from
us,” President Lula explained. “But we forgot that
our neighbours could also buy from us.” With
regional efforts stymied and the Doha Round in Plenary Session on “Competing in the Global Economy”: E. Anthony Wayne, US Assistant Secretary of State for Economic and Business Affairs; Henrique de
trouble, Latin American countries are focusing on Campos Meirelles, Governor of the Central Bank of Brazil; Martín P. Redrado, President of the Central Bank of Argentina; Alan P. Larson, Senior Strategic Adviser
bilateral accords, which can go further and be and Director, World Economic Forum; Senior Adviser, Covington and Burling, USA; Mandisi Mpahlwa, Minister of Trade and Industry of South Africa; Luiz
Fernando Furlan, Minister of Development, Industry and Trade of Brazil

12 13
World Economic Forum on Latin America World Economic Forum on Latin America
 Re-evaluating the Investment Re-evaluating the Investment
Framework Framework

“Investment is function of confidence. Investors have to be

able to see what lies ahead. Our countries, however, are
perceived as politically unstable.”
Rosario Cordoba
Director, Revista Dinero, Colombia
In the area of investment, the priorities for Latin
America are clear. First, the region must find ways
to boost foreign direct investment (FDI), which has
lagged other regions. Second, the continent must
diversify the business and investment opportunities
it offers beyond natural resources and commodities,
particularly in light of the emergence of China as
both a market opportunity and a formidable
competitor. Third, Latin America should tackle
bottlenecks that hinder its ability to raise and sustain
high growth with equitable income distribution.
These include: a skills deficit, the lack of
infrastructure, the immaturity of the region’s capital
markets, regulatory unpredictability, the tax burden,
high interest rates, and lingering perceptions that
Latin America is politically unstable.
While Latin America has benefited from the spread
of democracy, perceptions of instability are
exacerbated by anxieties about growing populist
movements in some countries. The large number of
presidential elections this year has stoked worries
further. “The problem of political risk in Latin
America today is much more about stable political
coalitions and quality of governments,” said José
Miguel Insulza, Secretary-General, Organization of
American States (OAS), Washington DC
That is perhaps the biggest challenge that Latin
American countries hoping to boost FDI have to
face. While Chile, Brazil and Mexico have managed
to differentiate themselves from the pack, most
other countries have failed to avoid the tar brush of
poor governance. The region must combat
ignorance about Latin America and the tendency of
many investors to take a simplistic approach.
Greater transparency and better governance are the
most obvious ways to achieve this.
Each country individually, and the region
collectively, should use competitiveness
assessments to address specific shortcomings.
There are many bottlenecks that have to be
tackled. In financial services, for example, small
and medium size enterprises need better access
to capital. This would require a range of reforms
to bring down the cost of capital and enhance
liquidity including changes in the tax regime,
adjustments to collateral and bankruptcy rules,
better prudential regulation, the establishment of
credit bureaus and the launching of innovative
risk mitigation instruments. The region should
work together to develop a capital markets hub.
“If you are able to have one single financial
centre for Latin America, then liquidity will be
much greater and companies won’t migrate to
raise capital,” explained Guillermo de la Dehesa,
Vice-Chairman, Goldman Sachs Europe, Spain.
Finally, businesses in the region have an active
role to play. They can enhance the investment
climate by investing more in R&D, partnering the
government in education and healthcare
programmes aimed at boosting competitiveness,
and developing new sectors that leverage Latin
America’s comparative advantages. For example,
the region can take a leading role in Spanish-
and Portuguese-language outsourcing and IT
services.
Businesses should also be encouraged to
incorporate the social context in their investment
strategies. This means combining the need to
grow with social responsibility, according to Ivan
F. Zurita, Chief Executive Officer of Nestlé Brasil.
Nearly three-quarters of their consumers in Brazil
are in the lower middle class or low income
brackets. To reach these customers, Nestlé set
up sales and distribution networks in slum areas.
This is the sort of business model innovation that
investors must adopt to make inroads in today’s
Latin America.

According to the United Nations, in 2004, US$ 67.5

billion in FDI flowed into Latin America and the
Caribbean – mainly to Brazil, Mexico and Chile. This
was a rise of 44% over the year before, but only
accounted for 29% of total investments going to
developing economies, only slightly greater than
China’s share (26%). This was significantly lower
than the level at which the region used to enjoy in
the 1990s.

The fall in attractiveness mainly concerns factors

ranging from poorer infrastructure quality and
investment to problems with the management of
public finances. Additionally, unpredictable politics,
arbitrary regulations and slow bureaucracies
aggravate the situation. “Investment in the region is
insufficient and very low because countries, with the
exception of Chile, have poor regulation,” Rosario
Cordoba, Director, Revista Dinero, Colombia,
explained. “Investment is a function of confidence.
Investors have to be able to see what lies ahead.
Our countries, however, are perceived as politically
unstable.”

Opening Plenary on “Risks and Opportunities for Regional Development”: Peter Torreele, Managing Director, World Economic Forum; Ricardo B. Salinas
Pliego, Chairman, Grupo Salinas, Mexico; Claudio Lembo, Governor of the State of São Paulo, Brazil; José Miguel Insulza, Secretary-General, Organization
of American States (OAS), Washington DC; Jorge Gerdau Johannpeter, President and Chief Executive Officer, Gerdau, Brazil; Gilberto Kassab, Mayor of
São Paulo, Brazil; Guillermo Perry Rubio, Chief Economist, Latin American and Caribbean Region, World Bank, Washington DC

14 15
World Economic Forum on Latin America World Economic Forum on Latin America
 Priorities for Action in Latin America
The aim of the Priorities for Action* is to consolidate
options and propose solutions to the regional
challenges.
Latin America’s leaders recognize the need to renew
and reinforce their commitment to improve the state
of their region and the world. To compete globally,
countries should pool their strengths to achieve the
scale necessary to build better infrastructure,
deepen regional agreements and strengthen
regional institutions and governance.
During the World Economic Forum on Latin
America, participants were asked to address the
following question: How can we achieve equitable
distribution of income with economic growth?
Figures below refer to participants’ responses on
social and economic priorities for action and
represent percentages of the total audience at the
Closing Plenary.
Together with the ideas collected prior to the
roundtable the following priorities for action were
identified:
Social Priorities for Action
1. Equal Access: Promote active social policies in
favour of low income households, reconciled
with macroeconomic stability, sound fiscal
policies and efficient tax collection. An important
role should be to enhance access by low income
families to basic healthcare, good quality
education from pre-school level and universal
social security.
16
2. Safety Net: Increase demand actions through
vouchers and/or conditional cash transfers such
as the Oportunidades (Mexico), the Bolsa Familia
(Brazil) or the Familias en Acción (Colombia).
3. Housing: Enhance access to housing through
schemes that support demand, which
complements the purchasing power of low
income households. Banks and governments
should promote the use of mortgage insurance
and find ways to extend the tenure of
mortgages.
4. Education: More emphasis and resources
should be put on the training of teachers and
quality education than in extending mandatory
periods of education for children. Educators
should be appropriately compensated.
Resources should be employed to improve
school system management at all levels.
5. Employment: Increase the supply of skilled
labour so that the high value-added sectors of
the economy can grow and improve income
distribution, while ensuring long-term growth.
Enhance the efficiency of the labour market,
while protecting the rights and well-being of the
employee.
World Economic Forum on Latin America
Priorities for Action in Latin America
Economic Priorities for Action
1. Institutional Reform and Innovation: Set
up a public-private agency to concentrate
national efforts on attracting investors and
promoting innovation. Offer tax credits for
R&D spending in the private sector.
2. Tax Reform: Increase the tax base, simplify
the fiscal system and reduce tax evasion by
investing in information systems. Institutions
need to be strengthened to ensure that these
funds are invested efficiently and to minimize
the possibilities of corruption and political
manipulation.
3. Infrastructure and Investment: Public-
private partnerships (PPPs) and similar
concessions should be set up to focus on
building necessary infrastructure over the
long term, particularly in rural areas, regions
that are underdeveloped and urban slums.
Governments should implement appropriate
regulation and increase capital expenditure.
World Economic Forum on Latin America
4. Financial Services: Improve access of small
enterprises and producers to financial
services (“bancarización”, credit, insurance).
This would require better creditor rights,
credit bureaus, prudential regulation and
innovation in financial products. Promote risk
mitigation instruments to help SMEs access
long-term financing in local currencies.
5. International Trade: Actively engage in
negotiations to promote fair trade of
manufactured and non-manufactured
products.
Each country should focus, through stable
political coalitions and quality of its government,
on unblocking the constraints that are impeding
it from achieving equitable income distribution
and sustained growth.
*The Priorities for Action in Latin America were
presented to participants on 6 April 2006 in the
Closing Plenary of the World Economic Forum
for Latin America in São Paulo. Co-Chairs and
participants voted on the base of their
willingness to engage in the implementation of
such priorities.
17
 Acknowledgements

The World Economic Forum would like to thank its Partners for their valuable support of the
World Economic Forum on Latin America, São Paulo, 5-6 April 2006:

Strategic Partners
Audi
HP
KPMG
Kudelski Group
Merck & Co.
Nestlé
New York Stock Exchange
PepsiCo
Zurich Financial Services

Regional Partners
Banco Hipotecario SA
Grupo Salinas

Official Carrier
Iberia

The World Economic Forum would also like to thank the Government of São Paulo and Apex-
Brasil for their support and TV Cultura as host broadcaster.

18
World Economic Forum on Latin America
 Contributors

Peter Torreele is Managing Director of the World Economic Forum. Sylvie Naville is Associate Director, Latin
America. Emilio Lozoya is a Global Leadership Fellow and Manager, Latin America. Jacques Marcovitch is
Professor at the University of São Paulo and Senior Adviser to the World Economic Forum. Chantal Adamson is
Senior Event Manager.

Vidhi Tambiah is Associate Director, Global Agenda, at the World Economic Forum. He worked with William
Hinchberger and Alejandro Reyes to produce this report.

The World Economic Forum would like to express its appreciation to the summary writers for their work at the
World Economic Forum on Latin America in São Paulo. Session summaries are available at:
www.weforum.org/

Alicia Bartlett, Icon Design

Associate Director, Editing: Nancy Tranchet

Design and Layout: Kamal Kimaoui, Associate Director, Production and Design

Photographs: Julio Vilela

20
World Economic Forum on Latin America
The World Economic Forum is an independent
international organization committed to improving
the state of the world by engaging leaders in
partnerships to shape global, regional and
industry agendas.

Incorporated as a foundation in 1971, and based

in Geneva, Switzerland, the World Economic
Forum is impartial and not-for-profit; it is tied to
no political, partisan or national interests.
(www.weforum.org)