Enrique Garcia - President, CAF - Development Bank of Latin America HARDtalk

food. Those are the headlines. It is now

This is Latin America's decade. So says the leader of one of the

country's contributing to its impressive economic boom. But as

the world slows, can grit be sustained? The region's politicians

are divided. Enrique Garcia has been juggling the demands of

protectionists and free-marketeers for 20 years. A veteran president

of Latin America's Development Bank says that times have never been so

good. But which side will he come down on to make the good times

Enrique Garcia, welcome to HARDtalk. You are one of the longest serving

figures on the continent. You used to think of Latin America as it is

really does hang around for the long time. You have been there for

more than 20 years. You are entering restaurant decade. What

has changed? It is a great pleasure to be here. I do think Latin

America has changed a lot. When I started this job, I was head of the

Minister of economic cabinet of Bolivia. Latin America was

different. In those days, we had to face the impact of macro-economic

decline. Most countries were facing high deficits, debt issues,

hyperinflation. Financial crisis in their systems. All of these things

were in the late 80s. What happened was in the late 80s and 90s, Latin

America, country by country, took a very courageous actions to take

care of their problems. That is one of the factors that has influenced

what has been happening in the last 20 years. Do you share the view of

the Colombian President when he says that this is Latin America's

decade? I share the view that this has been the best years in Mac --

macro-economic terms. But we have to be careful. As I said before,

the reason we are doing well is because of a good policy framework

that has been managed by most countries in the region. Most

countries? When you are talking about a region, you cannot say

every country, but most countries. There are different opinions on

outlooks and developing politics. He said that times have never been

as good for South America as they have been now. Will that last, or

is the picture beginning to change? Let me go back, the second factor

in this positive trend in Latin America is China. Because of the

dynamic growth, we have had a tremendous trade effect. If you put

together a good policies on the one hand and the commodity boom, those

are the factors. But can this last? The answer is, it depends. It all

depends on what might and American leaders do in this exceptional

period. That is a very interesting area, what the leaders do. We will

come on to that. But let us look at some of the evidence that perhaps

these good times are, if not stopping, at least slowing down. We

saw factory output in Chile down 10% in a period of five months. We

saw a trade surplus of 490 million turning into a deficit of 843

million. The finance minister says him that he thinks because of

slowing exports and demand in the rest of the world, his country will

see its growth at about 4.8%. That picture is replicated in plenty of

other countries. It begins to paint a picture that the region is

suffering from lack of investment from the outside. You have a

problem with Europe and United States over the years. It is

difficult to be immune to that. But the region in general has been good.

The gross rate has been lower than it has been in the past few years.

Maybe 4%. Last year the average was about 3%. The impact of Brazil has

been crucial. Brazil had a bad here last year. A 1% growth. Peru had

10%. Panama over 6%. Several countries are doing well. Now, the

future. Unless we move from a more dynamic transformation that takes

away the region from the high dependence on commodities, unless

we do that, probably the cycles could last two years, three years,

ten years. But cycles are cycles. We need to take advantage of these

good macro-economic platforms to mix and structural reforms. --

makes some. Educational institutions, things like that.

Regional growth of about 4%. That is not good enough. Let me tell you

a thing. 6% growth is what we need in the region to match developed

countries. I absolutely. A howl will you deal with that? We made a

study on Latin America in 2040. If Latin America was to catch up, at

the same time to do it in a sustainable manner we can solve

poverty and inequality. But we cannot be satisfied with gross

rates below 6%. To do that to me to do many things. You need more

investment. You cannot just invest 20% of GDP. You need to invest at

least 27%. You need to improve productivity. You have to have

policies that will make growth not only dependent on commodities but

having a productive transformation. This is very difficult. It depends

on your investors. On a country like China. You have taught in

recent interviews about a sand approach to the Investment of

countries like China. What you mean about that? China has been a

positive thing for Latin America because it has permitted us to

defend ourselves from the crisis. At the same time, we have to have a

more symbiotic relationship. They have a resource based activity set.

What we would like to see is more investment in other areas. You told

the Financial Times just a few months ago that the Chinese

investment sections where they have a competitive advantage, they are

present in many sectors, is the best way to be pursued by Latin

America as a good partner. Everybody is happy. They are

investing in oil and things like that. Not sufficiently in areas

that are more related to the internal economy. Why should a

country like China want to invest in that way? All it will do is

create a new competitor. No. That is the trick. Look at Latin America

as a market. Latin America is a huge market. If you combine open

economies for more open trade, you have Investment for it technology

things. Four Chinese investment, you have a Latin American market.

Many countries that have free trade agreements with United States, that

is another market. I go to China quite a lot. You go there are now

more than you do perhaps previously? In the past two years I

went perhaps more times to Beijing then to New York. Why? There is

more potential. In the discussions with the Chinese, this issue is

well understood. We have to work on that. What is good for China is

good for Latin America is good for the world. Still not an even

relationship. 60% of Chinese relationship -- investment in

Brazil. Where about the other countries? Brazil is an attractive

market. That is the reason. But you should not rely exclusively on

Chinese investment. What is important for Latin America is to

be positive about the importance of foreign investment. Foreign

investment, not only because of the funds and resources, but as one of

the issues in Latin America is the savings ratio. Latin America says

approximately 20% of GDP. If you want to invest 27%, that is a 7%

gap. So Latin America has to invest in itself. You have a 7% gap

between what to save internally and two minutes. A but it has got to

come from Latin America, because countries like China are now

struggling. They are thinking twice about some of these investments.

$13 billion trade surplus in 2011. That drops to �19.4 billion --

�19.4 billion. When China sneezes, Latin America catches a cold. You

cannot depend on money from the outside to sustain economic growth.

Definitely. Leaders get this. You have to raise your savings. If you

compare the savings of Latin America with Europe and the US, it

is OK. If you compare it to Asia, it is a terrible. It is impossible

to raise it from 20 to 30%. You have to have additional funding

coming from the outside world. What are the main forms of internal --

external financing? The main one is investing in products. Not only

because of the resources, but because of the markets. Is it a

problem that whatever the economic arguments to be making at the Bank

to deal with the fact that China pushes 10% of its investment in

infrastructure but Latin America does less than 3%, having to invest

some of your projects itself through the bank that the politics

Rafael Correa says Ecuador is no longer for sale. What do you say

when you hear a thing like that? their politics much more than I do.

Right now, we have a political campaign. Elections next week.

Obviously he is a good economist and he knows very well that we need

external change. We are the main force of multilateral funding.

is not just Rafael Correa. In Venezuela, which is where your bank

is based, we have the government rating PepsiCo and confiscating

8,000 tonnes of sugar, denouncing hoarders and speculators. We have

Argentina accused by the IMF of fiddling its inflation statistics.

Some of the Government's in your region are very sceptical about the

benefits coming from countries. How do you deal with that? You have to

look at the region. 35 countries. Occasionally, it happens here in

Europe and in other parts of the world that there are problems. But

you have to be pragmatic. At the end of the day in a globalised

world economy, you have to build in a realistic way. It is important to

have a combination of government action in the market on the one

hand, internal savings and external savings on the other. Of course,

some countries for nationalistic reasons consider that certain areas

should not be in the hands of the private sector. We respect that.

But the important condition is that they manage these industries in a

professional way. Does Latin American need free trade? Of course

you have to be very careful about trade issues. One of the mistakes

that occurs is a those who deal with economic policy in general,

monitoring fiscal policy, they just do that. Those who deal with train

talk about trade. You have to talk about all those things. Trade is

very important. When you go to Beijing and you are there making

the case for investment in Latin America and they turn around and

say, that is very interesting but Argentina has just seized control

of an oil company, has imposed restriction on imports, Brazil has

raised import duties on 100 different products including

anything from steel to part of milk. Your message is one thing but the

message they get from countries they want to invest in is very

different. No. You should go country-by-country. But they cannot

invest on that basis. It is not the other -- let us look the other way

round. Is there a symmetry in trade relations in the world? Do you

think Europe provides free trade absolutely Crescent --? Doesn't

Europe subsidise agricultural problems? This is why we have not

seen the long vaunted free trade deal between the EU and Latin

America? The big issue in the world is precisely to manage issues of

treat and monetary policies. Of course it would be the best deal of

the world to have more open economies but in a so much that way.

You cannot ask all of the developing countries to be open and

to have... When you see a country like Brazil seeing its growth rate

slowed 2.9 % in 2012, is there any connection in your mind between

that and its trade policies? -- 0.9%. Of course. Brazil is almost a

Continent it is so large. Medium- size and small countries cannot be

protectionist if they want to survive in the future. That is a

clear picture. And that is happening in the Pacific Rim. We

have Chile, Colombia, Peru, Mexico. This new the Civic Alliance?

why? Because all of them have something in common. So they need

to wake up to it? They should wake up but it is not that easy because

we have to address issues of imbalances between economies. But

let me put it this way. Trade is one element but you have to go one

step further. You have to be competitive. You have to be

productive. In order to sell in an open market, you have to have the

products that will be competitive. Could it be that leaders like

Rafael Correa error in Ecuador, Cristina Kirchner, Hugo Chavez, I'm

really just reflecting the feeling of many people that free trade will

not deliver for them and it is better to take the money from

tariffs and spend it on social welfare? In Ecuador, the population

in poverty since 2000 has dropped dramatically because of the money

from protectionism. I return to what I said before. Let us not try

to talk about Latin America. By the same token, if you go to Peru, if

you go to Chile, several other countries, they are working in a

different spectrum. One export business seems to be depressingly

resilient and that his narcotics. How is it that responding to that

challenge? That is one of the serious issues that affects many

countries in Latin America. But it is very important that several

governments have taken a very strong position on that and today,

in fact, thanks to the discussions at the summit of the Americans --

summit of the Americas, President Santos put that issue on the table.

They did not resolve that issue but right now, they are under the

umbrella of the O E s and we are supporting that. They are making

very serious recommendations to see how to deal with that. It is not an

easy task but there are some extraordinary statistics. The UN

estimates the annual profit of the cocaine industry is $85 billion.

That is six times what Coca-Cola makes. Of course. One of the

messages that I want to leave here is that we have to have symmetry in

the relationship. There is a government responsibility on that.

It is obvious that farmers in Peru and Bolivia, if they have to grow

coca and make 100 times more money than Machell Cox, he will do that.

You are saying to change demand. the chain of production... People

intervened. And then where can you sell the cocaine? Cell in the US,

Europe. Curb demand. What about the debate in Latin America over issues

like regulation? Is it popular to regulate the drugs trade? In a

similar way to how people regularly to alcohol? That is one issue that

is being discussed. There are two positions. What is yours. I believe

you have to be careful. The policies of the past were not

working well. Colombia did a great job in fighting that but then the

drug traffickers were to Peru and Bolivia and the market in the

United States, that is also important. Curve the demand first?

You have to work in an integrated fashion. We are looking forward to

these recommendations. Indeed. But if the US cannot demand, if the

efforts were made more effective to reduce demand in the US and Europe,

although demand in Latin America has also been growing. Such are the

prices of economic growth and a growing middle class. But if you

did that, can you conceive of a situation of the decriminalisation

of drugs instead of governments worrying about stopping trucks.

Instead of arguing about drugs, they can actually make some money

off it. Take the drug money and spend it on social welfare and

benefits? No. The is like Robin Hood. There are ethical principles

involved. You have got to be very careful. We do this with alcohol.

Yes but it is not the same. There are limits. This is a very

complicated issue and it has economic, political, social and

ethical dimensions. I will advocate a balance on those issues. In my

opinion, the ethical factors are at very crucial. Not just about

economics? Not economics. Ethical values are very important in life.