Saturday, November 12, 2005

FTAA : What it is next ?

FTAA : What is next ?

The latest summit for the Americas (34 countries),held last Saturday (November 5th),in Mar del Plata ,Argentina has created the impression of a failure in the process to move along the Free Trade Agreement for the Americas,(FTAA) .Given the nature of negotiations, I believe ,that any preliminary light evaluation may be an oversimplification of the matter whether it does not consider some specific facts which are now on the bargaining table.-
a.- When the Free Trade zone for the Americas started out the process to be a concrete project, labelled as “The Initiative for the Americas” at the beginning of the nineties , the three key points which it was based on ,were: Trade, Finance ,and debt. At that time, the Latin America economies were struggling to recover from a deep recession and “The lost decade” concept, reflected the harsh reality of those countries eager to follow new ways to get back on the track of economic growth, after the collapse of the import substitutions model. Then, it was not rare that, the “Washington consensus” based reform program,(as a follow up for the “Initiative for the Americas”) was applied by the Latin America economies ,because it also meant an answer to both the uncertainties and confusions of that time . To boost economic growth , it was necessary to reduces the state role in the economy, promoting privatization of public enterprises, reducing regulations and let the markets to do their job of allocation of resources with a strong private sector as the engine of prosperity.
b.- The focus on debt of “The Initiative for the Americas”, is key to understand its initial success .It helped to alleviate it trough the “Plan Brady” and the swap operations for debtors countries. In this scenario, it was announced in 1994 the commitment to a comprehensive and balanced FTAA .At the end of that decade the balanced for Latin America economies was positive ;average growth was 3.5%,poverty decreased from 41% to 37%,inflation decreased from an average of 500 % (annual rate ) to 7% in 2001,and foreign investment soared from MU$$9000 to MU$$ 70.000 in the year 2000.The unsolved problems though ,were inequalities and corruption.-
c.- Since then (1994),the situation has changed completely .There are new social, economics , and political realities .Populism is on the rise, political and social distress has been a critical variable in some countries, and polls show that people does not believe in democracy as much as it is expected. On the other hand, Latin American economies have improved theirs bargaining power.. After all, there is also the chance of moving toward a Free Trade Accord with the European Union. For instance, Chile already has such accord in the highest premium category.-
What are the implications of this scenario for the FTAA?. This means the product (FTAA) should be adapted to the new conditions. Free Trade is key to economic growth, poverty reduction and prosperity. However, it requires reciprocity. Latin America countries are not among the most favored by globalization, precisely because much of its economic potential face artificial restrictions. At the same time, it is clear that old solutions, based on the active role of the State in the economy, has not been successful for those purposes. The question then is: What kind of FTAA? : Light FTAA?, Plurilateral FTAA? .a premium category FTAA ?. Although it is possible to make additional progress with the countries actually on the negotiations process for Free trade accord, it is unfeasible that some of this options will be applied to a broader scale, without taking into account the new focus Latin American economies are demanding from their counterpart..-

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