World Economic Forum on Latin America

Securing a Place in an Uncertain Economic Landscape

Cancún, Mexico 15-16 April 2008

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Contents

Page 3
Preface

Page 4
Summary: Securing a Place in an Uncertain Economic Landscape

Page 9
Global Trends and Economic Shifts

Page 13
Asia and Latin America

Page 17
Merging Business and the Environment

Page 20
Growth through Critical Investments

Page 24
Enhancing Innovation in Business and Social Issues

Page 28
Acknowledgements

1 | World Economic Forum on Latin America

2 | World Economic Forum on Latin America
Preface
Emilio Lozoya Austin
Head of Latin America, Global Leadership Fellow
The World Economic Forum on Latin America this
year took place as the world focused with perplexity
and concern on the global financial turbulence and its
potential risks and serious implications for the world
economy. This unique gathering also took place as the
region closed a five-year cycle of economic growth of
over 5% per annum, income per capita growth of over
3% per annum, international reserves of over US$ 450
billion, poverty rates reduced from 44% to 35%, and
FDI inflows having reached US$ 95 billion in 2007.
While the region’s economy has performed well, the
enormous social challenges it is confronting demand
continued efforts to make growth more inclusive.
The 500 leaders from business, government and civil
society from over 40 countries turned the World
Economic Forum on Latin America into an exceedingly
relevant gathering. Together this unique
multistakeholder group evaluated the trends and
changes in the global economy, in the political arena,
in trade relations between Asia and Latin America as
well as developments affecting investment to stimulate
regional growth and the search for innovation in
business and social affairs.
The agenda included a regional overview of business
and political strategies in five spheres: geopolitics;
competitiveness; energy security; growth with income
distribution; and innovation related to security, climate
change and the preservation of biodiversity.
The programme aimed to support regional leaders in
their efforts to share perceptions and seek common
solutions to the multiple challenges. These include
promoting the modern face of Latin America and
emphasizing the best of its creative culture,
entrepreneurs and economic performance, as well as
its achievements in the realm of social issues and in
the preservation of its natural riches.
The diverse mix of participants set an agenda for
2008 to respond to the financial turmoil, design
proactive strategies to ensure economic sustainability
and make the decade to begin in 2010 more
promising for the region. With the presence of eight
heads of state or government, over 40 ministers,
secretaries, governors and heads of international
organizations, and hundreds of CEOs, the meeting
concluded with a shared optimism about the recent
macroeconomic achievements and the prospects for
a growing middle class, but also stressed the need for
urgent action on long overdue aspects, including the
need for quality education, for more and better
infrastructure, for regional trade, energy and
infrastructure integration, for higher saving and
investment rates, and the urgency of further structural
reforms on the institutional front to allow higher
productivity growth and therefore more inclusive
economic growth rates.
3 | World Economic Forum on Latin America
Summary: Securing a Place in an Uncertain
Economic Landscape
“This meeting will help all of us make a
much better Latin America and build a
Latin America that looks to the future
with optimism.”
Felipe Calderón, President of Mexico
More than 500 business, government and civil society
leaders from over 40 countries gathered in the
glistening resort of Cancún on Mexico’s Yucatán
Peninsula for the World Economic Forum on Latin
America. While the focus was “Securing a Place in an
Uncertain Economic Landscape”, the topmost issue
on everybody’s mind was how the US downturn and
the slowdown in the global economy would affect the
region. For all the uncertainty in the markets,
participants took comfort in knowing that Latin
America’s economic performance in recent years has
been its best in decades, mirroring the strength in the
global economy.
In facing the current slump, said José Sergio Gabrielli
de Azevedo, President and Chief Executive Officer,
Petroleo Brasileiro, or Petrobras, and a Co-Chair of
the meeting, “taking a regional perspective is very
important because we have special questions and
4 | World Economic Forum on Latin America
“There is now reconciliation between
government and business. It’s not
anymore ‘economy versus society’; it’s
not ‘left versus right’. It’s ‘forward or
backwards’.”
Klaus Schwab, Founder and Executive Chairman, World
Economic Forum
solutions in Latin America and this is one place where
we can exchange ideas and develop good
perspectives for the future.” President Felipe Calderón
of Mexico concluded that the World Economic Forum
on Latin America had given the continent “the
opportunity to see how much we share and how it is
possible to overcome our differences”. He added:
“This meeting will help all of us make a much better
Latin America and build a Latin America that looks to
the future with optimism.”
The optimism was certainly palpable but it was mixed
with appropriate caution, especially with the prospect
of high food and oil prices continuing in the short
term. Central American and Caribbean leaders issued
a dramatic warning about this “perfect storm” in one
plenary session. “The cautious optimism,” concluded
Klaus Schwab, Founder and Executive Chairman of
the World Economic Forum, “shows the resilience
 Which is the most important initiative to make the decade beginning in 2010
more promising for Latin American countries?

1. Education: Construct a quality education system

46.90%
2. Infrastructure and Investments: Boost infrastructure integration and promote intraregional trade
12.50%
3. Security: Reform the criminal justice system to enforce the rule of law and fight crime
10.90%
4. Economic Growth: Deal with the US recession
9.40%
5. Economic Security: Promote access to sanitation, housing, banking and employment
9.40%
6. Energy Security: Meet the growing demand for energy
6.30%
7. Natural Resources: Use water and other natural resources responsibly
3.10%

which has been achieved in Latin America’s
economic, political and social development.” There is
now, Schwab believed, “reconciliation between
government and business. It’s not anymore ‘economy
versus society’; it’s not ‘left versus right’. It’s ‘forward
or backwards’.”
At the World Economic Forum on Latin America, the
focus was definitely forward. In a vote in the closing
plenary session, participants identified education,
specifically the need to construct values and skills-
driven education systems, as the top priority for Latin
America to achieve sustainable development and lay
the foundation for a promising decade starting in
2010. (See the chart for full results.)
The Cancún meeting was organized under five sub-
themes: “Global Trends and Economic Shifts”, “Asia
and Latin America”, “Merging Business and the
Environment”, “Growth through Critical Investments”
and “Enhancing Innovation in Business and Social
Issues”.
Global Trends and Economic Shifts
As the pressures of globalization have pushed regions
and sub-regions around the world to deepen
integration, and the global economic centre of gravity
has been shifting to Asia, the question is whether
Latin America will ride the wave or fall behind. Can the
region find its identity?
• Latin America’s recent economic performance has
been its best in decades. But political differences
appear to have limited efforts to deepen integration.
• While the region’s relationship with the US used to
be paramount, strains have emerged due to
America’s post-9/11 policies and the ambivalence of
many American politicians to the Bush
administration’s pro-free trade agenda. Some Latin
countries, notably Brazil and Chile, have now forged
strong ties with Asia, especially China.
• Latin American countries are beginning to feel the
benefits of opening up to the global market. Central
American nations, in particular, have realized the
advantage of pooling resources and populations to
create a larger, more competitive combined market.
• Testing times lie ahead. In addition to the global
economic slowdown and the downturn in the US,
Latin American countries are facing a “perfect
storm” of high food and oil prices that could weaken
their economies and threaten social stability (see
Figure 1).
• The key is for Latin American nations to work
together as a region but also for each country to
determine what restructuring and reforms it must
implement.

5 | World Economic Forum on Latin America

From left to right: Jaime Morales Carazo, Vice-President of Nicaragua; Elias Antonio Saca, President of El Salvador; Patrick Manning, Prime
Minister of Trinidad and Tobago; Susan L. Segal, President and Chief Executive Officer, Council of the Americas, USA; Manuel Zelaya Rosales,
President of Honduras; Álvaro Colom Caballeros, President of Guatemala; Eduardo Sojo Garza-Aldape, Secretary of the Economy of Mexico

Figure 1: Commodity Price Rises Asia and Latin America

While metals and oil have risen sharply since 2003,
agricultural prices have shown a more recent rise
China and India have become global economic forces
450
at the same time that Mexico and Brazil have
400
themselves appeared on the radar screens of
Real commodity prices** (100=Jan 2003)

Copper
350
corporate strategists and investors. Some Latin
300

Iron Ore
American countries such as Brazil and Chile have
250
already developed strong trading links with Asia.
200 Oil*

150
100
50
Jan 03
* West Texas Intermediate crude oil
** Prices in constant US$, base month January 2008
Source: IMF
“This is a perfect storm. We were on
the right path but how long can we
withstand the situation? We have to
feed our people and commodities are
becoming scarce.”
Elias Antonio Saca, President of El Salvador
Wheat
Maize (corn)
• Confronted by the challenges of food and energy
Soybeans
security and rising inflation, China is a natural
Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 trading partner for the resource-rich countries of
Latin America.
• Some economies, notably Brazil, Chile and
Colombia, have focused on deepening relations with
Asia. Lingering unease with embracing Asia remains
in nations such as Mexico, which competes more
directly with China. Latin America is still a relatively
closed region.
• Latin America should avoid depending too heavily
on commodities trade with the resource-hungry
economies in Asia. That said, China’s strong growth
could help the region weather the current global
slowdown and a recession in the US.
• The challenge for Latin American economies is to
use the rise of China and India as catalysts for
change and restructuring to put themselves in a
better competitive position in the global economy.
There is no room for complacency.

6 | World Economic Forum on Latin America

F
M
 Making the Most of Rising Commodity Prices
Central American leaders warned that the impact of climbing
food and oil prices could undo the recent gains their
economies have made. “This is a perfect storm,” said Elias
Antonio Saca, President of El Salvador. “How long can we
withstand the situation? We have to feed our people and
commodities are becoming scarce. This scandalous storm
might become a hurricane that could upset not only our
economies but also the stability of our countries.”
At the same time, these hikes in commodity prices have
created some short-term wins in the region. The trade
balance is substantially positive, but inflation could tip the
balance and push lower-income households further into
poverty. This situation poses a conundrum: Latin American
countries, rich in natural resources, should be benefiting from
price increases, but should governments be tackling the
issue of potentially crippling inflation?
“Taking a regional perspective is very
important because we have special
questions and solutions in Latin
America and this is one place where
we can exchange ideas and develop
good perspectives for the future.”
José Sergio Gabrielli de Azevedo, President and Chief
Executive Officer, Petroleo Brasileiro Petrobras, Brazil; Co-Chair
of the World Economic Forum on Latin America
From left to right: Jaime Morales Carazo, Vice-President of Nicaragua; Elias Antonio Saca, President of El Salvador; Patrick Manning, Prime
Minister of Trinidad and Tobago; Susan L. Segal, President and Chief Executive Officer, Council of the Americas, USA; Manuel Zelaya Rosales,
“The situation of rising commodity prices is really a mixed
bag for Latin America,” said Luis Andrade, Director,
McKinsey & Company, Colombia. “The trend seems to be
positive overall, but threats are looming, particularly on the
inflation side.”
Price controls “will not work”, according to Felipe Larraín
Bascuñán, Professor of Economics, Catholic University of
Chile. “An important public policy issue is how to help small
farmers take advantage of price rises,” he said. Governments
should invest in new technology, training and financial
incentives. It is time to rethink the productivity agenda,
concluded John C. Compton, Chief Executive Officer,
PepsiCo Americas Foods, PepsiCo, USA. “We are looking at
transformational changes in our production and plan to
become net zero users of commodities such as energy,
water and electricity,” he said. “We used to talk about reuse
and recycle, now we are talking about replenishing. We want
to put these inputs back into the environment.”
Merging Business and the Environment
Latin America is at the forefront of many of the global
debates over environmental issues such as climate
change, alternative fuels, deforestation and the impact
of urbanization. It is natural that businesses in the
region should now be addressing these concerns.
• “Environmental sustainability” is regarded as a
mainstream prerequisite for successful infrastructure
development. Even the war on the drug trade has a
“green” edge, as the rainforests are threatened by
encroaching coca producers.
• The biofuels debate is heating up, as food prices
mount. Once touted as a clean-energy panacea,
these renewables are now criticized for their use of
large amounts of water and land that might
otherwise go to growing more food staples.
• Brazil is leading the way in developing a new
generation of biofuels that may be more
environmentally sound.
• With oil prices set to remain high, the demand for
biofuels will increase, spurring a diversification of
sources and the development of better products.
Biofuels will not become a substitute for petroleum.
7 | World Economic Forum on Latin America
Growth through Critical Investments
Latin America needs to deploy its capital resources
more wisely. To do so will require measures to
increase transparency and openness in labour and
financial markets. The aim of such structural reforms
would be to increase the productivity of the region’s
economies.
• Business, government and civil society leaders
again stressed the importance of better education,
identifying the need for values and skills-driven
education systems as the top priority for the region.
This means encouraging students to take more
practical courses such as the hard sciences and to
improve the quality of teaching.
• The dysfunctional effects of the informal sector on
the larger economy must be addressed. These
extend beyond the loss of tax revenues and the
unfair advantages to firms that do not play by the
rules. Workers in the informal sector retire to a life of
hardship. In light of these problems, there are
opportunities for financial institutions to provide new
services such as microfinancing to small
enterprises.
• The absence of working capital and high taxes
account for a significant proportion of failures
among small and medium-sized enterprises,
suggesting that governments should examine tax
regimes to enhance the viability of SMEs and limit
informal-sector growth.
• Regulatory reform is essential in many Latin
American economies to enhance the access of
SMEs to needed capital, to create more
transparency and competition, and to allow for more
competition in inefficient or low-productivity sectors.
8 | World Economic Forum on Latin America
• Infrastructure development will require enormous
outlays of capital. The needs are such that public-
private partnerships are essential to raise sufficient
capital. Attracting private investment, however, will
require reforms including measures to ensure a level
playing field and a stable regulatory environment.
Enhancing Innovation in Business and
Social Issues
Instead of struggling to come up with new concepts
or fresh ideas for addressing the region’s economic
insecurity, Latin America should focus on
implementing on a larger scale some of the many
solutions that are leading to real changes at the local
and national levels.
• The good news that has buoyed confidence in Latin
America is part of a continuum dating back
decades, running through a dramatic transition from
a continent of corrupt military dictatorships to a
vibrant region where democracy reigns and free
trade is the norm.
• There are harsh realities. Political unrest is growing
in many countries. In some cases, there has been a
backlash against opening markets and free trade.
• Support for social entrepreneurship could become
an important way to promote the free market while
at the same time addressing poverty. Microfinancing
could also bolster efforts to address widening
income gaps. But better regulation, supervision and
monitoring of the sector are required.
• To combat the problem of criminal gangs in some
communities, innovative solutions such as work
programmes have proven effective.
Global Trends and Economic Shifts

From left to right: Moisés Naím, Editor-in-Chief, Foreign Policy Magazine, USA; Rafael Fernández de Castro,
Academic Dean, Autonomous Technological Institute of Mexico (ITAM), Mexico; Thomas A. Shannon, Assistant
Secretary, Bureau of Western Hemisphere Affairs, US Department of State, USA; José Miguel Insulza, Secretary-
General, Organization of American States (OAS), Washington DC; Fernando Araújo Perdomo, Minister of Foreign
Affairs of Colombia; Jim Kolbe, Senior Adviser, McLarty Associates, USA

As global trends of regional integration and market Figure 1: Growth in Latin American Trade
opening intensify and the economic centre of gravity
Intra-regional trade growing faster than trade with the US
shifts with increasing pace to the dynamic emerging
450
economies of Asia, the question is whether Latin
America is riding the wave or falling behind. In one 400
Latin America trade (100=2002)

China*
session, Colombia’s Minister of Trade, Industry and 350

Tourism Luis Guillermo Plata, a World Economic 300

Forum Young Global Leader, noted that the Andean

250
Pact and the European Community were launched at Latin America
200
about the same time. Today, he observed, the Andean Total
US
Community of Nations, as the South American trade 150

bloc is now known, is a weak alliance, while the 100

2002 2003 2004 2005 2006
European Union has common passports and a * includes trade with Hong Kong and Macao

common currency used by a majority of its members. Source: IMF Direction of Trade Statistics

Recalling that Latin America has been described as a

“lost continent”, Plata asked participants: “What can
we do so potential trading partners and investors can
find us again?”
It may be worrisome that the issue of Latin America’s
regional identity remains so vexing in this age of
globalization, even though Latin American economies
are more in sync than they have ever been, despite
political differences. “The last four years have been the
best [economically] since 1492,” quipped Moisés
Naím, Editor-in-Chief of Foreign Policy Magazine.
Intraregional trade has grown (and in 2006 accounted
for 20% of all trade; see Figure 1), yet, intraregional
friction has risen. “We are looking at blocs in Latin
America in a way we never did before,” he said.
“There are deep divisions. This will define a lot of what
will happen” in the run-up to the next decade.
Historically, of course, the determining geopolitical
relationship for the region has been with the United
States. But some of America’s post-9/11 policies and
the ambivalence of many US legislators towards the
Bush administration’s strong support for free trade
and free-trade agreements with countries in the region
have created strains even though, as Peter Hakim,
President of Inter-American Dialogue, observed, “the
substantive [Bush] agenda has been pretty good” for
Latin America. Washington, acknowledged Thomas A.
Shannon Jr, Assistant Secretary of the Bureau of
Western Hemisphere Affairs in the US State
Department, has had to attend to the damage to its
standing in the region. “Because of democratization,
the opening of markets and globalization,” he

9 | World Economic Forum on Latin America

“The situation of Latin America to deal
with what’s happening with the world
economy has never been stronger.”
Alejandro Baillères, Chief Executive Officer, Grupo Nacional
Provincial, Mexico; Co-Chair of the World Economic Forum on
Latin America
reckoned, “Latin American countries have options they
didn’t have before. We are not the only ones around.
This is a competitive environment.”
Indeed, as Brazil and Chile have certainly shown, the
emergence of China and India have served up
enormous opportunities for Latin America across the
Pacific and could lead to a surge in investment from
Asia into the continent. This new partnership could
help them weather this period of global economic
stress as the US looks set to dip into recession. That
some Latin American economies have to some extent
“decoupled” from the US is an indication that the
region may have reached a new level of maturity in its
development. As Carmen Gisela Vergara, Minister of
Commerce and Industry of Panama, explained, some
countries such as her own are only beginning to see
the value of opening up to the global market. Despite
misgivings within the local business community,
Panama signed a number of agreements in an effort
to boost job creation and investment. Last year, the
economy grew by more than 11%.
10 | World Economic Forum on Latin America
“If I am asked to give advice [on trade
and immigration] to the next [US]
president, I will say to stick with the
Bush agenda.”
Peter Hakim, President, Inter-American Dialogue, USA
“The situation of Latin America to deal with what’s
happening with the world economy has never been
stronger,” said Alejandro Baillères, Chief Executive
Officer of Grupo Nacional Provincial of Mexico and a
Co-Chair of the World Economic Forum on Latin
America (see Figure 2). “This is a good opportunity to
showcase Latin America,” agreed fellow Co-Chair
William R. Rhodes, Chairman, President and Chief
Executive Officer, Citibank NA, Citi, USA. “Obviously,
Latin America is not as dependent on the US
economy as it used to be, say, a decade ago.”
There was certainly fresh confidence on display in the
session that brought together top leaders of Central
America. “Twenty years ago, Central America was at
war,” said Elias Antonio Saca, the President of El
Salvador. “Now much has changed. Central America
acts as a bloc. We have set ideologies aside and we
are agreeing on issues such as a customs union. We
are gradually implementing the European Community
model. It took Europe 50 years to do it. We are
implementing it quite quickly.” Added Jaime Morales
Carazo, Vice-President of Nicaragua, who pointed out
that he had been a leader of the Contra forces in his
country but agreed to join the administration of President of Honduras: “The world economy is being
Sandinista leader Daniel Ortega Saavedra: “We now tested and is at risk. International organizations need
favour dialogue and agreement rather than to develop urgent measures. We are not asking for
intransigence and exclusion. We are freeing ourselves donations but short-term lines of credit for food and
from our dependence on the past.” alternative, renewable and clean energy. Either
globalization is a trick – or it is an opportunity.”
Figure 2: Latin America's Economic Volatility

Region has shifted from low economic growth and high volatility, to high growth and low volatility

6%

Latin America GDP growth

4
Percentage points

Standard deviation*

0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007F 2008F

* Standard deviation of GDP growth rates for 18 Latin American countries

Source: IMF (2007)

Refreshingly, the Central American leaders were

candid about the storm clouds they now see on the
horizon – the double threat of climbing food and oil “Obviously, Latin America is not as
prices. “This is a perfect storm,” warned Saca. “We’re dependent on the US economy as it
on the right path but how long can we withstand the used to be, say, a decade ago.”
situation? We have to feed our people and
commodities are becoming scarce. This scandalous William R. Rhodes, Chairman, President and Chief Executive
storm might become a hurricane that could upset not Officer, Citibank NA, Citi, USA; Co-Chair of the World Economic
only our economies but also the stability of our Forum on Latin America
countries.” Added Manuel Zelaya Rosales, the

11 | World Economic Forum on Latin America

From left to right: Antonio Bonchristiano, Co-Chief Executive Officer, GP Investimentos, Brazil; Daniel S. Och, Chairman and Chief Executive
Officer, Och-Ziff Capital Management Group, USA; Hutham S. Olayan, President and Chief Executive Officer, Olayan America Corporation, USA;
Felipe Larraín Bascuñán, Professor of Economics, Catholic University of Chile; William R. Rhodes, Chairman, President and Chief Executive
Officer, Citibank NA, Citi, USA, and Co-Chair of the World Economic Forum on Latin America

That is the question that confronts all of Latin America

today as its economies gaze into that globalization
mirror and decide whether to go through the looking-
glass and take a plunge into what looks to be a
promising pool of opportunities but could result in
being something far less inviting. Consider Mexican
President Felipe Calderón’s predicament as he
assesses how to navigate his country through the
downturn in its NAFTA partner to the north. “Our
correlation with the US economy can turn from being
a great advantage to becoming a great disadvantage,”
he accepted. “When the US catches a cold, Mexico
“Because of democratization, the
gets pneumonia. My role as president now is to figure
out what we will get when the US catches opening of markets and globalization,
pneumonia.” Latin American countries have options
they didn’t have before. We are not the
The next several months of economic volatility will
only ones around. This is a competitive
likely be tough for Mexico and the rest of Latin
America, but it is critical for the region not to get lost environment.”
once again but to look forward together, and for each
country to decide what it must do to readjust, Thomas A. Shannon Jr, Assistant Secretary, Bureau of
restructure and renew itself so that the next decade is Western Hemisphere Affairs, US Department of State, USA
a promising one. Concluded Calderón: “The key is for
Latin America to decide how to speed up growth and
to grow with harmony and fairness.”

12 | World Economic Forum on Latin America

Asia and Latin America
“If China keeps on growing, Latin
America will do well.”
Ricardo Hausmann, Director, Center for International
Development, and Professor of the Practice of Economic
Development, John F. Kennedy School of Government, Harvard
University, USA
The discussion of Latin America’s relations with Asia
focused on the implications of China and India’s rise at
the same time that Mexico and Brazil have themselves
entered into the consciousness of investors and
corporate global strategists. Attention was also paid to
the success some countries, notably Brazil, Chile and
Colombia, have had in forging strong trading links
across the Pacific. Yet the talk was still mainly
armchair analysis about tremendous opportunities that
must be grasped rather than about inspiring success
stories and exciting initiatives already under way.
“Latin America and India have about a fourth of the
world’s population, but only about 2% of its
commerce,” Humberto Ribeiro, Executive Vice-
President, Politec, Brazil, remarked. Added Rodolfo
Alborelli, Managing Director, Head, LAR, and Chief
Executive Officer of Standard Chartered Bank in
Argentina: “What’s needed now is a learning process
on both sides.”
“China’s insertion in the global
economy is an undisputed reality for
academics, business people and
policy-makers today. Latin America
should benefit from this wake-up call,
seizing the financing opportunity
brought about by China’s rise.”
Javier Santiso, Director and Chief Development Economist,
Organisation for Economic Co-operation and Development
(OECD), Paris
But learning has to come by doing. The presence of
senior Chinese business leaders in Cancún, including
Guo Shuqing, Chairman of China Construction Bank,
the second largest state-owned Chinese commercial
bank, and a Co-Chair of the World Economic Forum
on Latin America, was evidence of China’s
commitment to deepen ties. China’s FDI in Latin
America is currently about US$ 20 billion but could
increase to US$ 110 billion in ten years, said Yang
Kaisheng, Vice-Chairman of the Industrial and
Commercial Bank of China (ICBC), the largest state
commercial bank, in one session. “We are here
because of Latin America’s economic development
and social progress,” Guo said at a press conference.
With the Chinese economy expanding rapidly to the
13 | World Economic Forum on Latin America
point of overheating and China looking to invest more to expand it to include certain service sectors by early
abroad to provide an outlet for excess liquidity, Latin next year. Santiago launched a preferential trade pact
America is a natural partner for the Chinese as they with India in 2006 and proposed turning that into an
address the mounting challenges of food and energy FTA during the recent visit of Indian President Pratibha
security and rising inflation, he explained. Patil to Chile (see Figure 2). These are encouraging
signs that some Latin American political and business
leaders want closer commercial connections with
Figure 1: Exports to China Asia.

Latin America's exports of fuels and mining products

to China up nearly tenfold in six years

$35
China's imports from Latin America (US$, billions)

Manufactures
30
CAGR: 28%

25 Agricultural
products
20 CAGR: 24%

15 Fuels and
mining products
10 CAGR: 46%

0
2000 2001 2002 2003 2004 2005 2006

Source: WTO

For now, Asia-Latin America relations remain based on

exports from West to East of raw materials, “We are here because of Latin
manufactured products heading in the other direction America’s economic development and
(see Figure 1). Brazil is one country that has taken
social progress.”
pole position in the race to connect with the Chinese
market, establishing what Beijing’s leaders call a
“strategic partnership” in trade on a heavy flow of iron Guo Shuqing, Chairman, China Construction Bank, People's
ore and soybeans to China. Chile and China signed a Republic of China; Co-Chair of the World Economic Forum on
free-trade agreement (FTA) in 2005, agreeing in April Latin America

14 | World Economic Forum on Latin America

The Latin America Question
More than 200,000 people around the world joined the
discussions at the World Economic Forum on Latin America
through video debates hosted on YouTube. Viewers sent in
their responses to the Latin America Question: “What key
action do you think countries, companies or individuals
should take to make Latin America a better place in 2008?”
The presidents of Guatemala, Costa Rica and the Prime
Minister of Trinidad and Tobago were among 70 participants
who also added their voice to the open dialogue about the
future of the region. “The interaction via YouTube’s video
platform offered us a unique possibility to open our debates
to a global audience,” said Emilio Lozoya Austin, Head of
Latin America and Global Leadership Fellow at the World
Economic Forum.
But there remains lingering unease. Mexico, for
example, tends to view China’s rise with concern, as
investment is lured away from manufacturing plants
just south of the US border. Yet Chinese automakers
are eyeing opportunities to make cars in Mexico for
export to the US and other markets. Ironically, as Guo
pointed out, “Mexico is relatively open but many of the
other countries [in Latin America] are not.” He
observed that the region seemed to be relatively more
globalized before the 20th Century than it is now.
“Latin America was very globalized and changed
China’s economy,” he reckoned.
There is of course another concern on Latin American
minds as they weigh the implications of closer ties
with Asia, particularly China. It would perhaps be too
easy to fall into a tempting dependency relationship,
with the continent’s resource-rich economies relying
heavily on trading raw materials to feed the hungry
Chinese giant. China needs to keep growing at a high
rate to maintain social stability and create necessary
jobs. “If China keeps on growing, Latin America will do
well,” said Ricardo Hausmann, Director of the Center
for International Development and Professor of the
Practice of Economic Development at Harvard
University’s John F. Kennedy School of Government.
The best videos submitted to the site were screened in the
closing session of the World Economic Forum on Latin
America. Watch answers to the Latin America Question in
English (http://youtube.com/latinquestion), Spanish
(http://mx.youtube.com/preguntalatina) and Portuguese
(http://br.youtube.com/questaolatina). Watch plenary
sessions on the Forum’s channel on YouTube at
http://youtube.com/worldeconomicforum
The Latin America Question builds on the Davos Question
launched for the World Economic Forum Annual Meeting
2008 in Davos, which has been watched by over 8 million
people on YouTube.
Figure 2: Exports to India
Chile now accounts for nearly one-third of Latin American exports to India
$7,000
India imports from Latin America (US$, millions)
6,000
5,000
Other
4,000 Mexico
3,000
Chile
2,000
Argentina
1,000
Brazil
0
2003 2004 2005 2006
Source: Government of India, Ministry of Commerce & Industry, Department of Commerce
But the slowdown in the US and the global economy
could pose risks. Some Latin American countries,
such as Chile whose exports match China’s import
requirements, will perform well in the short term, while
those whose exports compete with China’s, such as
Mexico, may run into some trouble, Hausmann
warned. Huang Haizhou, Managing Director of China
International Capital Corporation (Hong Kong),
wondered “whether Chinese demand will be enough
to support commodity prices” and keep Latin
American economies buoyant during this global
economic slump.
15 | World Economic Forum on Latin America
From left to right: Wang Jinzhen, Vice-Chairman, China Council for the Promotion of International Trade (CCPIT), People's
Republic of China; Juan Quirós, Vice-President, Fiesp, Brazil; Daniel Servitje, Chief Executive Officer, Grupo Bimbo,
Mexico; Daniel J. Brutto, President, UPS International, UPS, USA

The critical question, however, is not whether China’s

high demand for commodities keeps Latin America’s
economies humming. The key issue is how Latin
American economies each come to terms with China’s
long-term economic rise. The stress of the global
economic slowdown could prove a catalytic test. The
hard times may prompt those economies that are
more challenged by China’s emergence to pursue
valuable and necessary restructuring, putting them in
a better position in the long run to compete with
neighbours who may weather the storm but could
lapse into complacency as a consequence.

As Daniel Servitje, Chief Executive Officer of Grupo

Bimbo of Mexico, pointed out, the challenge for Latin
American countries is to get into the “fast lane” to Asia
as Chile and Colombia have managed to do.
Governments should raise awareness of the
opportunities that China and India hold and not dwell
on perceived threats. The rise of China and India, as
well as the other Asian economies, should make Latin
American economies want to become better and
more competitive and not to take cover. “We are used
to looking at the national league, not the World Cup,”
Servitje concluded. But now “we must overcome our
complacency.”

16 | World Economic Forum on Latin America

Merging Business and the Environment
“Biofuels are not going to be a
substitute for petroleum – not at the
amount that would be needed in the
next 50 years.”
José Sergio Gabrielli de Azevedo, President and Chief
Executive Officer, Petroleo Brasileiro Petrobras, Brazil; Co-Chair
of the World Economic Forum on Latin America
Latin America finds itself at the forefront of many of
the global debates over environmental issues like
climate change, alternative energy, deforestation and
the multiple challenges facing megacities. Once limited
to the dichotomy of development vs conservation, the
discussion is becoming more complex, subtle and
sophisticated. With advances in greenhouse gas
(GHG) emission reductions, carbon credits, biofuels,
ecotourism and certification of origin, to name a few
examples, business people are beginning to devise
ways to make money from green products and
practices. And many ecologists are beginning to
accept and even advocate market-based solutions to
environmental problems. Regarding climate change
initiatives towards a robust post-2012 regime,
according to participants' votes, business would most
like to be involved in: a) cutting direct GHG emissions;
b) investing in R&D on future technologies; c) raising
awareness among employees and consumers; and d)
looking to build political support for stronger efforts.
“Looking ahead to 2030, according to
IADB data, aggregate energy demand
in Latin America will increase by 75%
and electricity generation capacity will
need to increase by 144%. Are we
going to be able to meet this
challenge?”
José Miguel Insulza, Secretary-General, Organization of
American States (OAS), Washington DC
At this World Economic Forum on Latin America, the
newfound mainstream status of the environment was
evident in the way it popped up in places that would
have seemed odd just a few years ago. Until recently,
any debate over infrastructure development would
have either ignored the environment or lambasted
greens as obstructionists. In Cancún, “environmental
sustainability” became a consensus choice as a
prerequisite for successful infrastructure development.
The war on drugs also received a green makeover.
The rain forest is threatened, not only by the illegal
logging, but also by the depredations of coca
producers, said Alvaro Uribe Velez, President of
Colombia. As a result, the nation’s efforts to halt the
drug trade have an environmental as well as a social
facet, he said.
17 | World Economic Forum on Latin America
Nowhere were the more nuanced deliberations more States, Mexico, Central America and other parts of
apparent than in the session on biofuels. Once touted the Americas (see Figure 1). Technological barriers are
as a clean and renewable panacea, then derided as a lower than generally recognized, said Luiz Fernando
villain, stealing tortillas from the poor and land from the Furlan, Chairman of the Board, GALF Empreendimentos,
rainforests, biofuels received a level-headed hearing at Brazil. Brazilian gasoline refineries use ethanol as an
the meeting. The discussion delved into complexities additive in the nation’s petrol, to the tune of 22%, and
like water usage – suggesting that consideration be even imported cars run well. Brazilian-made cars have
given to whether biomass crops need large amounts flex-fuel engines which allow them to use 100%
of water, whether natural rainfall is sufficient in places ethanol as fuel.
chosen for cultivation and, if irrigation is needed, in an
analysis of the energy expended in pumping. As the so-called first generation of fuels struggles to
attain a critical mass of distribution, second generation
fuels are already being developed. They include butanol,
Figure 1: World’s Largest Biofuels Producers
which has a higher energy density than ethanol and
Brazil and Colombia both among the world's top-10 producers of biodiesel and fuel ethanol does not absorb water, thus reducing corrosion on car
engines. Another promising branch of new research can
Brazil
be found in cellulose enzyme technology that produces
France
Italy
ethanol or butanol from bagasse, the heavy pulp left
China Spain

India
over after sugar has been extracted from cane.
Other
Colombia

Canada Douglas Albrecht, President, Celulosa Argentina,

Germany
US predicted that oil prices will remain high, which will
further boost the demand for biofuels. But José Sergio
Share of top-10 countries' biofuels* production, 2006
Gabrielli de Azevedo, President and Chief Executive
Officer, Petroleo Brasileiro Petrobras, Brazil, a Co-
* Includes biodiesel and fuel ethanol
Chair of the World Economic Forum on Latin America,
Source: "Renewables 2007: Global Status Report", Ren21
urged caution in the short term. “Biofuels are not
going to be a substitute for petroleum – not at the
With a programme dating to the 1970s and nearly amount that would be needed in the next 50 years,” he
ideal conditions in terms of climate and land said. “But they will play a more important role. There will
availability, Brazil became the world leader for the first be a diversification of sources. There are limitations
generation of biofuels, using ethanol refined from now. The second and third generation technologies
sugar. Colombia was another early adopter, and will be important, but the third generation technology
similar incentives are being implemented in the United probably won’t come in less than five years.”

18 | World Economic Forum on Latin America


Solving the Energy Puzzle
Tapping the full potential of Mexico’s oil and gas resources
hinges on overhauling the controls governing their extraction.
A controversial energy reform bill presented by President
Felipe Calderón to parliament is a big step in this direction.
The proposals aim to give Mexico’s state-owned oil
company, Pemex, greater freedom in operating, budgetary
and investment decisions, as well as greater freedom to
work with third parties. Without reform, the state monopoly is
constrained to operate alone and Mexico may well forgo
considerable economic opportunities and face declining oil
production.
Mexico lags behind other oil-producing countries like Norway
and Brazil that have reformed their upstream sector, progress
Pemex and Calderón could draw from in the process of
defining Mexico’s “winning” model. “Without privatizing
Pemex, the reform grants it access to state-of-the-art
technology and complementary investment to multiply its
execution capacity, as other national oil companies have
already done,” Calderón warned.
Stimulating cross-learnings was high on the agenda of
several private and public energy sessions at the World
Economic Forum on Latin America. Participants expanded
their discussion to look at the role of innovation to help solve
ENERGY VISION
UPDATE 2008
Solving the Energy
Puzzle through
Innovation
World Economic Forum
in partnership with
Cambridge Energy Research Associates
the growing energy dilemma facing the world: how to deliver
secure, affordable, low carbon energy to a global population
that is expected to grow from 6.4 billion today to more than
8 billion by 2030.
The World Economic Forum’s report, Solving the Energy
Puzzle through Innovation, which addresses this question
head on, formed the basis of the discussion.
High energy prices combined with concerns about energy
security and climate change are stimulating the most
widespread drive for innovation the energy sector has ever
seen. Investment in renewable energy and energy efficiency
exceeded US$ 110 billion in 2007. However impressive the
investment in clean technology may be, it is only a fraction of
annual investments in energy. Therein lies both a tremendous
challenge and a tremendous market opportunity. Innovative
companies will capitalize on these opportunities. How many
of them will come from Latin America?
19 | World Economic Forum on Latin America
Growth through Critical Investments
“This is an opportunity to exchange
ideas with interested people from Latin
America and all over the world to see
how we can help the region to develop.
We see a lot of potential for people to
come and invest and get good returns.”
José Antonio Fernández Carbajal, Chairman and Chief
Executive Officer, FEMSA, Mexico; Co-Chair of the World
Economic Forum on Latin America
With a few exceptions, notably infrastructure, Latin
America doesn’t need to throw more money at its
problems. Instead it needs to free up sources of
capital and invest more wisely. In addition to the now
perennial call for better education at the World
Economic Forum on Latin America, participants
advocated reforms designed to increase transparency
and openness in labour and financial markets. They
defended tax and regulatory changes to decrease the
incentives for small and medium sized enterprises
(SMEs) to take refuge in the informal sector –
legendary for its low productivity.
“What do we need to compete with China?” was the
rhetorical question posed by Alejandro Baillères, Chief
Executive Officer, Grupo Nacional Provincial, Mexico, a
Co-Chair of the World Economic Forum on Latin
America. His answer: “Productivity. And that will only
come with structural reforms.”
20 | World Economic Forum on Latin America
“What do we need to compete with
China? Productivity. And that will only
come with structural reforms.”
Alejandro Baillères, Chief Executive Officer, Grupo Nacional
Provincial, Mexico; Co-Chair of the World Economic Forum on
Latin America
Such mundane proposals run counter to the
predominate “big idea” syndrome in the region,
according to which messianic leaders have historically
taken it upon themselves to pursue populist and
ideologically-loaded solutions with enormous negative
consequences on some of the nations and their
people. Against that backdrop, a healthy dose of
political realism is refreshing. “It isn’t a question of
what would be the ideal reform for Petroleos
Mexicanos [Pemex] or labour legislation, but what
would be the next possible step that you can
realistically take,” pointed out Baillères.
For starters, the business, government and civil
society leaders in Cancún repeated the now
commonplace mantra of better education, which trails
OECD countries for instance (see Figure 1). “It is the
number one issue,” said Oscar Arias Sánchez,
President of Costa Rica, noting the low proportion of
teenagers who go on to university. “If we don’t
educate people, it will be very difficult to have
progress.” He added: “The quality and amount of
education we have does not allow us to escape from
the feudalism where a lot of Latin Americans still live.”
 Figure 1: Educational Performance
Latin America trails behind OECD countries in math and reading skills
600
Assessment of 15-year-olds' performance, 2006
500
400
300
Argentina
Source: OECD (2007)
The once generic discussion of education seemed
more focused this time around. There was consensus
on the need to build a “values and skills-driven
educational system”. In practical terms, this translated
into specific calls to encourage university students to
take more practical courses and for public schools to
reward good teaching. The lack of students majoring
in the hard sciences hinders economic growth in
Mexico, said Julio A. de Quesada, President, Consejo
Ejecutivo de Empresas Globales (CEEG), Mexico. He
added: “We have too many bankers and lawyers and
not enough engineers.” (See Figure 2.) Baillères cited
merit pay for teachers as a potentially achievable goal
that would help improve the quality of education.
Building Cities
Participants explored the complex challenges facing
the growing urban areas in the region, which include
three of the world’s megacities: Buenos Aires, Mexico
City and São Paulo. They broke into six working
groups to develop recommendations for mechanisms
and initiatives that promote urban development reform
and environmentally, socially and economically
Mathematics
Reading
sustainable patterns of settlement:
Colombia Brazil Mexico Uruguay Chile OECD
• Establish an institutional technical body independent
average
of elected political officials that has the authority and
resources to create long-term plans (10 years and
more) and policies for urban development
• Establish strong legislative frameworks, which are
key to guide and monitor public and private sector
collaboration and investment in urban projects
• Develop public policies that modify per capita
consumption of water and other resources through
market mechanisms with the aim to educate citizens
as to the importance of conservation efforts
• Maintain essential networks and services. Such
maintenance requires coordination and cooperation
among all federal, state and city authorities
• Explore new and creative ways to slow immigration to
the urban areas. This will inevitably require significant
investment in and attention to rural populations
• Explore the feasibility of establishing small-scale
networks or “cells” of citizens in city neighbourhoods
that would take on the responsibility of maintaining
water, transportation, recycling and energy systems
using alternative, sustainable methods where possible
• Instil civic values and an understanding of
sustainability and the lifestyle changes it may require
through public education and especially the use of
the media
21 | World Economic Forum on Latin America
 Figure 2: Engineering Graduates Figure 3: Old-age Dependency Ratios in Largest Latin American Countries

Latin America produces more engineers than the United States Burden of ageing populations to be greatest in Chile and Mexico

40%

Number of engineering graduates, 2004 (thousands)

400

Old-age dependency ratio (population over

35

65 as percentage of people age 15-64)

300 30

25

200 20

15

100 10
Mexico
Rest of 5

1950
2008
2050
Latin
America
0
0
China European Latin South United
Peru Venezuela Colombia Argentina Brazil Mexico Chile
Union America Korea States

Note: Latin America includes 15 nations in South and Central America for which data are available, most recent year

Source: NSF Science and Engineering Indicators 2008 Source: United Nations (2007)

Several sessions touched on the deleterious effects of A study conducted of his bank’s clients revealed that
the informal sector on the larger economy, and they two factors – the absence of working capital and high
extend far beyond the oft-decried loss of tax revenues taxes – account for 40% of SME failures, reported
and unfair competition for firms that play by the rules. Ricardo Villela Marino, Chief Executive Officer, Itaú
For instance, the working poor often do not enjoy Latin America, Brazil. Microfinancing is designed to
pension benefits because they either work for enterprises help address the first problem, but entrepreneurs are
that pay no tax or benefits or work for legal companies often ineligible for any bank loans because they take
but negotiate not to pay pension contributions, said their firms into the informal sector to evade the tax
Pamela Cox, Vice-President, Latin America and the burden. “Governments should lower taxes on SMEs to
Caribbean, World Bank, Washington DC. This translates reduce the incentive for those companies to go into
not only into personal hardship when people retire, but informality,” said Villela Marino. Joaquim Levy,
reduces the consumer base among seniors. Chile and Secretary of Finance, State of Rio de Janeiro, Brazil,
Mexico are forecast to carry the largest burden of argued that state officials can reduce informality by
ageing populations in the region (see Figure 3). simplifying tax systems. Simplification can jump start a
Informality also inhibits the growing efforts by virtuous cycle to bring more working poor into the
dedicated banks and divisions of larger financial pension system and boost tax revenues.
institutions to provide microfinancing to small companies.
Regulatory reform of the capital markets could also
help SMEs access much needed cash, offered Manuel
J. Balbontin, Founder and President, Compass Group,
USA. “Capital market reforms are not rocket science,”
he noted. “What we need are different mechanisms so
that we can build a highway between the large pools
of capital in the region and SMEs.”

Many sessions highlighted the need for regulatory

changes aimed at creating more transparency and
competition. Roberto Teixeira da Costa, Member of
the Board, Sul America, Brazil, noted that although
Brazil is a regional leader in many aspects of capital
markets, the country shares at least one important
challenge with its neighbours – unpredictability.
“Unpredictability is the name of the game in Latin
America,” he said. “We have been working towards
“While current levels of annual more transparency, which is important for domestic and
investment in [Latin America and foreign investors. Most important is good governance.”
Caribbean] infrastructure are around
In host country Mexico, the most notable deregulation
2.5% of GDP, it is estimated that the
proposal on the table is President Felipe Calderón’s
region needs to invest 4-6% of GDP for proposed liberalization of the public monopoly in the
the next 20 years to achieve demand petroleum sector. Eduardo Sojo Garza-Aldape,
growth and maintain existing services.” Secretary of the Economy of Mexico, outlined a less
controversial but no less ambitious effort the
Luis A. Moreno, President, Inter-American Development Bank, administration is pursuing in partnership with the
Washington DC Organisation for Economic Co-operation and

22 | World Economic Forum on Latin America

“You need the participation of the state Figure 4: Latin America's Competitiveness in Logistics
but it is a strategic role so that all can Only Argentina is among the world's 50 top countries in terms of
the ease and affordability of arranging international shipments

benefit from the market.” 125

124
113
100
Country rank on international
shipments (of 150 countries)

Eduardo Sojo Garza-Aldape, Secretary of the Economy of 94

Mexico 75
75
82
74
63 66
50 52 53 54
49
43

Development that will analyse the Mexican economy 25

26 28

sector by sector to define policies to improve

0
competitiveness and productivity. Already the
Argentina

Mexico

Colombia
Poland

Peru
China

Philippines

Venezuela

Brazil

Nicaragua
Malaysia

Paraguay
Russia
Czech Republic

Costa Rica

government has made piecemeal but significant

changes in port regulations and the liquid natural gas
market, he pointed out. “The country has moved Source: "Connecting to compete: Trade logistics in the global economy", World Bank (2007)

forward with reforms, but one aspect has been

overlooked – microeconomic reforms,” he said.
“These would mean moves to create more
competition and deregulation.”
Most of the above-mentioned proposals can be
implemented without significant outlays of public or
private money. The exception to that rule is
infrastructure development (see Figure 4). For many
observers, infrastructure is the lifeblood of
competitiveness. The problem of crumbling and
insufficient infrastructure has been at the top of all
regional business agendas for several years.
Governments have taken note and started devoting
significant efforts to boost private investment and are
pledging more public funds. However, Latin America
represents only about 3% of global infrastructure
demand. This means investment has started to
increase, but not at the rate needed to close the gap
between needs and investment.
Participants discussed the potential for public-private
partnerships and what is needed to attract private
investment for infrastructure development. Ideas
included: (1) using Mexico’s ambitious infrastructure
programme, and its expertise in crafting concession
agreements, as a model; (2) creating social legitimacy
for infrastructure development by avoiding collateral
damage, reducing cost overruns, accepting the need
for transparency and insisting on environmental
sustainability; (3) encouraging governments to provide
stable regulatory environments for investors; and (4)
pushing companies to practise corporate social
responsibility, for instance by adhering to labour laws
and using local suppliers when feasible.

23 | World Economic Forum on Latin America

Enhancing Innovation in Business
and Social Issues
“If there is a lack of security, people
don’t invest. We have decided to get rid
of terrorism, this scourge of 40 years –
and we have to do it.”
Alvaro Uribe Velez, President of Colombia
Latin America doesn’t need a Next Big Thing but
rather should focus on replicating, supporting and
implementing all the little ideas that have been
percolating to make real changes on the local and
national levels. “For the first time we may have access
to solutions for most of our problems of economic
insecurity,” said Martin Burt, Founder and Chief
Executive Officer, Fundación Paraguaya, and a Social
Entrepreneur.
Burt’s comment reflected the sense of optimism that
pervaded the World Economic Forum on Latin
America. This optimism engendered confidence that
the region can finally address some of its long-
standing and deeply rooted problems. Participants
addressed a broad range of issues related to
economic inclusion, income distribution and social
welfare, and several key themes emerged: (1) the
profit motive is part of the solution rather than part of
the problem; (2) companies, governments and civil
society organizations must work together; (3)
institution building is key, both at the macro
24 | World Economic Forum on Latin America
“If we don’t educate people, it will be
very difficult to have progress. The
quality and amount of education we
have does not allow us to escape from
the feudalism where a lot of Latin
Americans still live.”
Oscar Arias Sánchez, President of Costa Rica
society/government level and the micro level within
firms; and (4) the chronic problem of bad quality
education must be tackled.
The upbeat nature of the meeting stemmed partly
from the near euphoria over the region’s recent
macroeconomic performance, which has been about
as good as it has ever been since the dawn of
systematic statistical analysis. Paul Rice, President
and Chief Executive Officer, TransFair, USA, a Social
Entrepreneur, reminded participants that today’s good
news is part of a continuum dating back decades: 30
years ago, brutal and corrupt military dictatorships
lorded over much of the region, armed conflict was
commonplace and politicians customarily meddled in
markets. Today the landscape has improved
considerably, he noted. Throughout most of the
region, democracy reigns and press freedom has
been established, free trade is the norm, civil society is
stronger, the middle class is bigger and environmental
consciousness has taken hold.
Yet amid all that good news lie some harsh realities. “The world economy is being tested
Political unrest, involving sometimes violent street and is at risk. We are not asking for
protests, is growing in many countries. Murder rates
donations but short-term lines of credit
are higher than other parts of the world (see Figure 1).
It is surprising, noted Moisés Naím, Editor-in-Chief, for food and energy. Either
Foreign Policy Magazine, USA, “how good the globalization is a trick – or it is an
economy has been in Latin America and how bad the opportunity.”
politics have been. If the politics have been bad when
the economy has been good, it is interesting to imagine Manuel Zelaya Rosales, President of Honduras
– if you think there will be a slowdown – what the
politics will be like when the economy is bad.” Added
Rice, “We have a lot to celebrate, but the trickle down Rather than reverting to the old and what he called
approach does not work,” as social problems and ineffective approaches of aid and government
poverty stubbornly refuse to go away. He commented, intervention, Rice suggested support of social
“there has been a backlash against free trade, the rise entrepreneurs as the standard bearer for a new-style
of so-called socialism and increasing social unrest. I anti-poverty campaign. “Social entrepreneurship exists
suggest that time is short. Many of the advances of in every community,” he said. “There is a lack of
the last 20-30 years could be reversed.” critical ingredients but not a lack of will.” Key elements
of the approach would include: (1) improved access to
Figure 1: Homicide Rates
markets, including those for value-added products
and niche markets like organic foodstuffs; (2) better
Murder rates in many Latin American countries high compared to other parts of the world
access to capital for small and medium enterprises
US 6
Philippines 8
that have progressed beyond the micro-financing
Thailand 8 stage; and (3) increased capacity building services,
Uganda 9
Latvia 9
including helping small firms develop organizational
Sri Lanka 10 and managerial skills and create value-added
Mexico 13
Kazakhstan 17
products.
Russia 20
Guatemala 26
El Salvador 32 Microfinancing is of course still useful for
Venezuela 33
entrepreneurs at early levels of development. And in
Jamaica 34
South Africa 48 Latin America it is shedding an image as a novel form
0 10 20 30 40 50
Murders per 100,000 population (most recent year)
of assistance to become a service offered by
dedicated banks and divisions of larger financial
Source: CTS
institutions. Microfinance institutions not only provide

25 | World Economic Forum on Latin America

loans to the poor, but they offer savings accounts to
customers that regular banks won’t touch. The
minimum deposit at Mexico’s Banco Azteca, part of
the Grupo Salinas, is five dollars, thus providing a
reasonable and more secure opportunity for people
who would otherwise stuff cash under the mattress,
said Ricardo B. Salinas Pliego, Chairman, Grupo
Salinas, Mexico. Many banks also give their
customers debit cards, thus further integrating them
into the mainstream of society.
As the segment grows, regulators are beginning to
examine its practices – especially the interest rates it
charges, which are far higher than those levied by
traditional banks for conventional customers. Given
the idiosyncratic nature of its business and cost
structure, micro-bankers argue that regulators should
treat them differently from traditional institutions. “It
isn’t apples and oranges,” said Salinas. “It is apples
and pineapples, way more different.” Added
Christopher Rodrigues, Executive Chairman,
International Personal Finance, United Kingdom: “Bad
regulation should be avoided at all cost. But we
defend supervision. Good supervision drives bad
practices out of the market.” When critics raise ethical
questions about higher interest rates for the poor,
noted Carlos Danel, Co-Chief Executive Officer, Banco
Compartamos, Mexico, a Young Global Leader, “The
question they are really raising is not about interest
rates but whether it is ethical to profit from the poor.
26 | World Economic Forum on Latin America
To me it sounds like discrimination. It is the same kind
of exclusion and discriminatory practices that have
kept people in poverty.”
Other innovative best practices received an airing in
Cancún. For instance, the CEO of a large rum distillery
in one of the most violent states in Venezuela
recounted his company’s experience with gangs
which continually assaulted employees in
neighbouring communities. His company devised an
“admittedly risky programme” of providing work to
violent gang members. To their surprise, scores of
gang members presented themselves for training and
work. The company eventually brokered a peace
between rival gangs and, in a relatively short time, the
crime rate in the county dropped 90%. “We all know
the importance of family but we didn’t understand the
fact that gangs are families, providing the identity,
sense of belonging and discipline when society fails to
provide these needs.”
Education: The Cornerstone of Latin America’s Future
Business, government and civil society leaders identified
the need to construct values and skills-driven education
systems as the top priority for Latin America to achieve
sustainable development. “It is the number one issue,”
said Oscar Arias Sánchez, the President of Costa Rica,
noting the low proportion of teenagers who go on to
university. “If we don’t educate people, it will be very
difficult to have progress.”
The “entry level skills gap” in education was a topic of
in-depth discussion in Cancún. Educators, labour leaders
and government ministers are struggling with the huge
– and widening – gap between the need for technicians
and engineers and the availability of suitable new
graduates. Demographics are working against bridging
this gap: engineers are ageing and retiring while students
are choosing more “glamorous” careers such as law.
From the business perspective, the “perfect engineer”
must understand local and international standards and
codes, be equipped with hands-on experience,
understand the balance between the commercial
realities of the private sector and the public good, as well
as have a well-rounded education in the softer subjects.
From the academic perspective, business must become
creatively involved if institutions are to turn out graduates
with suitable entry-level skills. Participants debated
whether today’s shortcomings stem from the basic
education system, and agreed that a lack of learning
skills is pervasive across the region. Employees’ capacity
to learn and to solve problems is key if companies –
and Latin America – are to boost competitiveness.
In a vote, participants identified the most important
initiatives to be implemented in the next 20 months to
bridge this gap and make the next decade more
promising for academic institutions:
• Complement technical skills with problem solving and
attitude skills as subjects – 35%
• Encourage the joint design of curriculum planning by
academia and business – 20%
• Design partnerships with companies for on-the-job
training as part of the curriculum – 20%
• Brand new schools to attract top students – 10%
• Partner with major corporations to bridge the skills
gap – 10%
• Support faculty/teachers spending time in
companies – 5%
The most important initiatives to be implemented in the
next 20 months to make the next decade more
promising for business include:
• Become more involved in basic education to promote
the quality of education – 31.8%
• Compensate in order to motivate professionals and
book job satisfaction at the workplace – 18.2%
• Motivate executives to spend more time in
academia – 18.2%
• Develop training programmes as a means to reduce
costs on human resources turnover – 13.6%
• Encourage meritocracy through initiatives – 9.1%
• Make engineering more glamorous for young
professionals – 4.6%
• Encourage recent engineering graduate students’
repatriation – 4.6%
27 | World Economic Forum on Latin America
Acknowledgements

The World Economic Forum wishes to recognize the support of the following companies as Partners or
Supporters for the World Economic Forum on Latin America:

Strategic Partners

Alcoa
ArcelorMittal
Audi
Bombardier
The Boston Consulting Group
BT
CA
Cisco Systems
DuPont
Goldman Sachs
Infosys Technologies
Kudelski Group
Manpower
Merck & Co.
Merrill Lynch
PepsiCo
PricewaterhouseCoopers
Renault-Nissan
UPS
Volkswagen
WPP
Zurich Financial Services

Regional Partners

Banco Hipotecario
Cambridge Energy Research Associates (CERA)

Meeting Supporters

FEMSA
Iberia Group

The World Economic Forum wishes to thank the Government of Mexico for serving as host country
to the third World Economic Forum on Latin America, and in particular ProMexico, the Mexican
agency for export and foreign investment promotion.

The World Economic Forum also thanks Canal Once, Mexico, in collaboration with ProMexico, the
host broadcasters of this event, and The Coca-Cola Company for providing beverages.

28 | World Economic Forum on Latin America

29 | World Economic Forum on Latin America
Contributors

Emilio Lozoya Austin is Head of Latin America and a Global Leadership Fellow at the World
Economic Forum. The World Economic Forum on Latin America was under his direct
responsibility.

Julio Estrada is Associate Director, Latin America. Jacques Marcovitch is Professor, University of
São Paulo, Brazil, and Senior Adviser at the World Economic Forum. Paula Verholen is Senior
Community Relations Manager, Latin America. Antonio Human is Community Relations
Manager, Latin and North America. Rosanna Mastrogiacomo is Senior Event Manager, and was
the meeting Coordinator.

Report Writers
Alejandro Reyes
William Hinchberger
Samantha Tonkin, Senior Media Manager at the World Economic Forum, worked with them to
produce this report.

Editing and Production

Kamal Kimaoui, Associate Director, Production and Design
Fabienne Stassen Fleming, Senior Editor

Photographer
Sergio Ochoa

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. Session summaries are available on
our website at: www.weforum.org/latinamerica2008/summaries

The World Economic Forum would like to recognize the support of PricewaterhouseCoopers in
compiling data and statistics for this report.

30 | World Economic Forum on Latin America

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:

www.weforum.org/pdf/summitreports/latinamerica2008 (HTML)

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

The report is also available as a PDF:

www.weforum.org/pdf/summitreports/latinamerica2008.pdf

Other specific information on the World Economic Forum on Latin America in Cancún, Mexico,
on 15 and 16 April 2008, can be found at the following links:

www.weforum.org/latinamerica2008
www.weforum.org/latinamerica2008/programme
www.weforum.org/latinamerica2008/partners
www.weforum.org/latinamerica2008/summaries
www.weforum.org/latinamerica2008/regionalupdate
www.weforum.org/latinamerica2008/private
www.weforum.org/latinamerica2008/essays
www.weforum.org/latinamericaprivate/knowledgeconcierge2008
www.pbase.com/forumweb/latin_america_2008
www.youtube.com/latinquestion

31 | 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)