Thank you very much. I would like to thank Dr. Infante for inviting me here and also reference some of the fine work that LawCasa does, both here and elsewhere in the hemisphere.
First let me say I am not a lawyer; I am a diplomatic practitioner, although I have probably had more experience defending myself in my own home with my lawyer wife than many of you have had in the courtroom.
I wanted to focus on the legal regimes and statutory regimes, particularly as they relate to investment and investment practices overseas. But, before I do that, I do not want to paint a dark picture of the hemisphere, because it is quite the contrary. You heard today that there are some very exciting things happening in the hemisphere, and indeed there are.
Not only do we have unanimity of views about what needs to be done, but there is a very concrete plan of action that exists within the Summit of the Americas process. I think you heard about that process earlier today. It runs the gamut of business facilitation, to civil society, to counter narcotics, transnational crime, corruption, et cetera, to real specific concrete action plans with dates and resources behind them. We are talking in the neighborhood of about $8.5 billion just on the educational initiatives related to the Summit process alone over the next five years; so there are some real bucks behind it.
Within the context of the OAS, you have seen a number of initiatives on transparency in government, government procurement and the anti-corruption convention, which is the first of its kind. There are a lot of initiatives underway now with respect to transparency in military budgets, confidence building measures between militaries at large. It is an exciting time to be focused on the hemisphere.
We do not always get the newsprint that other bureaus in the State Department do on issues related to ethnic cleansing in Kosovo, the Middle East peace process and that sort of thing, but I do have to tell you without the slightest bit of hyperbole that there is a quiet revolution going on in Latin America today in all of the most positive ways.
It is a principal axiom that, as the fall-out from the Asian crisis spreads, the danger to Latin American economies increases. To avoid the contagion and prevent the possibility of deflation and recession, or inflation and currency collapse, it is critical that resources continue to move from developed countries to emerging economies. This is largely a question of investor confidence.
The Institute of International Finance, with 300 member financial institutions, is predicting that the net private capital flows to 29 emerging markets, including, but not limited to Latin America, will fall to about $160 billion this year. That is a third less than the level of 1997 and barely half that of 1996.
It is a simple equation. Emerging markets in Latin America need capital inflow. That requires investor confidence, and that means investors must be willing to believe that their capital will not only be productively employed, but, above all, secure.
The most basic elements of a modern market economy are founded on the rule of law. This includes property rights, the sanctity and enforceability of contracts, and equitable enforcement of regulations, without which, fundamental economic institutions could not function. Investors will not risk large amounts of capital in countries where regulations are opaque; where enforcement is arbitrary, or where corruption is endemic.
Reforms to date have brought economic liberalization, fiscal reform and democratic institution building throughout most of the nations of Latin America. All of these are vitally important, but despite the impressive progress, many Latin American nations are still struggling with poorly performing institutions and lack of respect for the rule of law among the general population.
For a nation to take full advantage of free trade, economic liberalization and democratic structures, its citizens must have confidence in its political and juridical institutions as well. …