Investment opportunity in Latin America

The rapid expansion of international business is the result of trade and investment
enhancing policies of governments, developments in telecommunication and
transportation technologies, and, more importantly, market expansion strategies of firms
from both developed and developing economies. The growth in international trade and
foreign direct investments (FD) has changed the structure of cross-border value-
creating activities (Levy, 1995) and reconfigured the locations of production- and
marketing-specific activities and advantages.

Latin America stands as a center of strategic importance today because it offers
investors and corporate multinationals prospects for long-term growth. n 2008, inward
foreign direct investment (FD) in Latin America and the Caribbean rose to a new record
high despite slowing with respect to the previous year, and the region's outward foreign
direct investment (OFD) reached its second highest level ever. Considering the
economic and financial turmoil of the times, these results are surprisingly positive, but
caution needs to be exercised in their interpretation. Many of the investments carried
out in 2008 reflected the inertia effects of pre-crisis market trends, and capital flows in
2009 are in fact expected to fail.

There is no one-size-fits-all description of Latin America. Each country has its own
striking idiosyncrasies. Nonetheless, there are strong threads of commonality woven
throughout the length and breadth of the region. As connecting fibers of a single,
coherent historical and cultural tapestry, those tightly intertwined strands hold Latin
America together as a shared human experience. As common denominators, these
traits are essential knowledge for doing business anywhere in Latin America.




!rofiIe of Major countries of Latin America
Argentina
The challenge facing the next government that takes office in December 2007 will be to
bring about a smooth transition from the strong rebound after the deep recession in
2001-02 to more sustainable rates of GDP growth. The current government has
restructured and reduced its external debt, but public debt, at 64% of GDP (excluding
another 10% of GDP in "holdouts that the government currently does not recognise),
remains large as a share of national income. Following the early repayment of MF debt
in January 2006, the government regained full autonomy in policymaking. Political
considerations will preclude rapid progress in reforming institutions and restoring the
confidence of investors. n contrast with the market-oriented policies of the 1990s, the
state will play a more active role in the economy. The renegotiation of public utilities
contracts and dealing with energy shortages will move to the centre-stage of
policymaking. The government is expected to continue to impose distortionary taxes
and will seek to channel available resources into infrastructure without jeopardizing its
target of budgetary surpluses. However, this will only go some of the way to relieving
the structural bottlenecks which impede Argentina's prospects.

raziI
Policy improvements over the past decade have placed Brazil on a path of sustainable,
albeit moderate, growth. An inflation-targeting regime has helped to bring inflation closer
towards OECD levels, exchange-rate volatility has been reduced, real incomes are
expanding and interest rates are declining (although they remain high). A large
domestic market, natural resource wealth and a welcoming attitude to foreign
investment have attracted foreign firms across a wide array of sectors. However, the
current president, Luis ncio Lula da Silva, of the left-wing Partido dos Trabalhadores
(PT), who began his second four-year term in January 2007, seems unlikely to
capitalise on his government's strong starting position to put forward any ambitious
structural reforms. Brazil's overall business environment remains impaired by weak
political effectiveness, which hampers efforts to reform a complex and burdensome tax
system, improve regulation, tackle crime and address deficiencies in the labour market
and bottlenecks in the physical infrastructure. These shortcomings will continue to
restrict investment expansion, constraining GDP growth to below the government's
target of 5% real growth per year.


iIe
Chile began a process of structural reform in 1974, some 15 years earlier than the rest
of Latin America and most other developing countries. There is strong consensus
among the governing elite on the desirability of maintaining a liberal market economy
and pursuing prudent fiscal and monetary policies. Differences in economic policy tend
to be a matter of degree rather than substance. Reforms already under way will further
enhance the attractiveness of the business environment over the next few years by
promoting a more transparent judicial system, cutting red tape, opening the capital
markets and liberalizing the financial sector further. Diversification of exports since the
1980s, particularly into agriculture, viniculture and fisheries, has reduced the country's
dependence on copper, although copper still accounted for 56% of export earnings in
2006. Chile's network of free-trade agreements, particularly those with the US, the EU
and China, and a forthcoming deal with Japan, give Chile privileged access to the
world's richest and largest markets. Such access, combined with low country risk and
continued investment in human capital and physical infrastructure, will ensure that Chile
remains the most attractive business location in Latin America.


oIombia
n an effort to restore the fragile authority of the state, the president, lvaro Uribe, who
began his second four-year term in office in August 2006, has taken a hard line against
the country's guerrilla groups. This strategy has reaped rewards, with levels of violence
falling to their lowest point in decades. Nevertheless, the security climate remains
fragile, limiting Colombia's attractiveness to foreign investors. Right-wing paramilitary
forces were fully demobilised in 2006, but long-term benefits will hinge on whether the
legal framework for demobilisation succeeds in permanently dismantling organisational
structures. Economic policy is likely to remain orthodox during the remainder of Mr
Uribe's second term, which will improve the macroeconomic environment, as well the
climate for foreign investment. However, challenges remain: the government faces
rising inflationary pressures arising from strong domestic demand, as well as still-high
levels of public debt. n spite of reforms to the tax and transfer systems, fiscal inflexibility
remains a key weakness. An active liability management strategy has improved the
maturity profile of the country's external debt and reduced exposure to currency
volatility, but Colombia's liquidity ratios remain high.


Mexico
Continued commitment to orthodox fiscal and monetary policy will help to consolidate
policy credibility and ensure macroeconomic stability. However, a number of
weaknesses in Mexico's policy environment are likely to persist. The tax system is
convoluted and characterised by evasion; labour market regulations are complex and
inflexible; and private enterprise is hindered by a weak competition policy and political
resistance to the liberalisation of some sectors, including energy. Structural reform in
these areas would help to tackle the poor levels of competitiveness, address a looming
crisis at the state-owned oil company, Pemex, secure long-term fiscal sustainability and
raise GDP growth rates. Reform has, however, been hampered for several years by
Congress, which is dominated by the opposition. Felipe Calderon, who began a six-year
term as president in December 2006, is proving markedly more successful than his
predecessor in obtaining legislative backing, and there is renewed optimism about the
chances for passage of structural reforms. However, the more politically sensitive
reforms are likely to be watered down substantially. Consequently progress will only be
gradual, and FD inflows will remain below potential.


'enezueIa
Despite its oil riches, Venezuela will remain one of least attractive investment locations
among emerging-market economies. The operating environment has long been a
challenge for investors because of weak institutions and persistent cycles of boom and
bust. However, conditions have deteriorated in recent years as a result of political
conflict and the erosion of the legal framework for investors, and the political and policy
environment is set to weaken further under the current president, Hugo Chvez. The
politicisation of already weak institutions will impair mechanisms to contain corruption
and entrench chronic bureaucratic inefficiency. Price and exchange controls will
complicate business operations and create economic distortions. Promotion of a state-
led model of development will hit private enterprise and competition. Although not
officially restricted, foreign investment will be limited by the growing risk of expropriation
of private assets as the government undertakes a programme of nationalisation of
"strategic sectors. Even where FD remains welcome, terms for businesses will be
increasingly onerous, given growing competition from the state and an emerging
emphasis on links with investors from "friendly countries.



!$% ANALY$I$
!oIiticaI factors
Prior to the 1990s, executives in Latin America spent an inordinate amount of time,
energy, and cash maneuvering within the political system. The combination of stifling
bureaucracy, corrupt officials, and state-owned enterprises that monopolized key areas
of the economy made it essential to focus daily management attention on complying
with, circumventing, undermining, or swaying an unworkable structure of regulations,
laws, and enforcement procedures. The demands of surviving in a political jungle left
few managerial reserves available for production concerns. And because it was a
seller's market, customer-centered marketing was an alien concept. ndeed, the primary
functions of marketing departments involved little more than taking orders from credit-
qualified customer accounts, then dealing with the ensuing headaches of product
availability and delivery.
As the protected economies of Latin America's import-substitution era gave way to more
open, consumer-driven economies in the 1990s, the prerequisite for business survival
shifted from having political power to having market power. For example, top-notch
management and information technology turned Cementos Mexicanos into a model of
productivity for the industry by allowing it to manage almost all of its internal operations
online. t reduced the size of its fleet of delivery trucks by using satellite systems to
dispatch them to job sites, its buyers placed orders and tracked deliveries on the Net,
and its managers had real-time information on inventories, finances, and sales.
Beginning from a modest base in 1985, professional management had driven it to
become the worlds most profitable and third-largest cement producer by 2000.
conomic factors
n Latin America, the general trend toward increasing regionalization. n 1970, intra-
regional trade was only 11 percent, but increased to 17 percent in 1980 and then to 20
percent in 1994, and then declined to 15 percent in 2006. nter-regional trade, however,
showed mixed results. Exports to North America increased from 19 percent in 1970 to
21 percent in 2006; and to Asia from 8 percent in 1970 to 18 percent in 2006. However,
exports to Western Europe declined significantly from 48 percent in 1970 to 21 percent
in 2006.

n Latin America, there was significant volatility. ntra-regional FD increased from 8
percent in 1990 to 72 percent in 1997, but declined to 30 percent in 2000 and then
declined further to 6 percent in 2004. The outflow to North America saw a significant
increase, from 27 percent in 1990 to 77 percent in 2004. FD to Western Europe
declined from 66 percent in 1990 to 15 percent in 2004. Asia played a marginal role in
receiving FD from Latin America.

Latin America has not escaped the global economic crisis, but it has stood up to it with a
new resilience. Every country in the region has suffered the effects of the downturn and
overall gross domestic product is expected to shrink 3.6% in 2009. However, it is
already apparent that Latin America is rebounding from the shock more rapidly than the
majority of developed economies. Most importantly, it is doing so without compromising
its significant progress towards its long-term development goals. The rate of recovery is
expected to be substantial in 2010, even if short of the typical growth rates of over 5%
that characterized the bonanza of 2004-08. The duration of the global recession will be
only one factor in determining future growth rates and at least as important for each
country will be its capacity to stimulate its economy through sustainable policy efforts. n
many countries, moreover, changing patterns of international migration and remittances
will also affect the depth of the crisis and the menu of available policy options.
The need to direct spending towards the more vulnerable members of society is
paramount during a downturn. The GDP forecast of 2009 and 2010 combined with well-
accepted measures of the link between poverty and growth suggest that poverty could
increase by close to seven percentage points by the end of 2010. This translates into
almost 39 million people newly falling below national poverty lines and would almost
entirely reverse the progress made during the five years before the crisis. Poverty
reduction, of course, does not come only from growth but also from effective social
policies broadly construed. Unfortunately, those countries that have made significant
redistributive gains notably Argentina now lack the resources necessary to maintain
the policies behind these gains. Here again, the priority must be to limit the damage
caused by the global recession without compromising long-term sustainability.
Although progress towards reducing poverty in Latin America is good the number of
people living in poverty fell from 48.3% in 1990 to 39.8% in 2006 - 4 out of 10 men,
women and children still live below minimum living standards and 88 million live in
extreme poverty (ECLA 2005). The Latin American region has made important progress
towards achieving the MDGs by 2015. However, according to the UN, the region is not
likely to achieve the goals for extreme poverty reduction (MDG 1) and for the reduction
of maternal mortality (MDG 5) - economic growth is needed to accelerate progress on
all poverty-related goals. Growth in Latin America is predicted to be between 0.3% and
1.1% this year compared to a 5.3% average since 2004. The nter-American
Development Bank estimates that will mean an extra 13 million people in poverty, living
on less than two dollars a day. Latin America has the most unequal income distribution
in the world, and high rates of extreme poverty exist. The richest tenth among Latin
Americans earns 48% of total income in the region, while the poorest tenth earns just
1.6% (World Bank study 'Breaking with History' 2003). Nicaragua is the poorest country
in Latin America, followed by Bolivia (where 60% of the population is classified poor, of
which two-thirds are of indigenous origin). f Latin America had a more normal
distribution of income there would be half the number of poor people there. Substantial
pockets of the region's population, and particularly indigenous groups, have limited
access to health care, poor educational outcomes, poor working conditions, and lack
political representation.
$ociaI and cuIturaI factors
Culture is both the paintbrush and the armor of the mind. t colors the way we view the
world, and it protects us from those who are unlike us and could do us harm. The
worldview shared by members of one culture is never arbitrarily different from another.
Rather, it reflects the many forks in the path of human experience, where each has
taken a different turn to set its own course. The central ways in which business cultures
of Latin America and the United States have diverged can be traced to seven pivotal
turning points that are identified by seven guideposts: power inequality, structure need,
social orientation, universalism particularism, communication, time and space, and
formality.

1. Power Inequality
Called power distance by Hofstede, power inequality reflects the degree to which less
powerful individuals in a society accept that power is distributed unequally. Cultures
ranking high in power inequality tend to concentrate decision making at the top. Hence,
managers from countries that rank high on power inequality tend to seek decision-
making approval from superiors more often and on more issues than do managers from
lower ranking countries. That approval-seeking process delays progress on key
decisions that must be taken within the short timeframe of a business trip or a
production timetable. Those delays frequently frustrate executives from the United
States, where power attitudes are lower.

n the United States, managers are seen as problem solvers. n Latin America,
managers are seen as experts. n the United States, a good manager refers an
employee to an informed authority when the employee's task involves resolving a
problem outside the manager's own expertise. n a traditional
Latin American firm, a manager behaving in the same way is deemed incompetent.
Similarly, the readiness of U.S. managers to roll up their sleeves and get their hands
dirty to resolve an immediate problem on the factory floor is admired by their superiors,
peers, and subordinates. n the traditional Latin American work setting, the same
behavior might harm the manager's career. His superiors may question the social
pedigree of anyone so ready to dirty his hands. Peers may fear his example, alarmed
that his behavior could set a bad precedent. Subordinates might lose respect for
someone whose low self-esteem would dispose him to engage in such a menial task. n
traditional Latin organizations, especially, one shows respect for authority by, for
example, addressing people formally and observing differences in status.
2. Structure Need
Hofstede referred to this cultural variable as uncertainty avoidance. t describes the
degree to which ambiguity, unknown situations, or unclear rules create discomfort in
individuals. People from cultures with high structure need tend to be uneasy if
discussions posted on a meeting agenda move into new territory or in unforeseen
directions. t is common for them to resist innovative or ''outside-of-the-box'' solutions,
or trying to run when they believe that walking will also get them where they want to go.

Despite their high need for structure, Latin Americans are entrepreneurial. However,
their risk-taking ventures have to meet a higher expected rate of return than similar
projects would in the United States. The typical U.S. risk taker's attitude of ''nothing
ventured, nothing gained'' is reversed in Latin America. Latins' attitude toward new
ventures is ''nothing gained, nothing ventured.'' The region's relatively high levels of
economic and political risk tend to make Latins unwilling to commit resources to a new
project until much of the uncertainty has been squeezed out, perhaps through
leveraging personal contacts or making well-placed bribes.
n Latin America, where high structure need coincides with high power inequality, lines
of communication tend to run vertically instead of horizontally. Each subordinate will
jealously guard sensitive information from coworkers, sharing it only with the patron
(sponsor) to whom he owes his job. The weak horizontal information flow can make
traditional Latin organizations slow to respond to market changes or competitive threats.

3. Social Orientation
One extreme of this dimension is individualism, defined by the degree to which a culture
promotes the role of the individual over that of the group. ts opposite is collectivism, in
which individual interests are subordinate to the welfare of the group.

Latin American attitudes on individualism vary widely among groups belonging to the
same organization. One study surveyed attitudes toward individualism and equality
among 2,192 managers and workers in 20 Venezuelan organizations. t found that
workers were much more collectivistic and tolerant of unequal power than were
managers.

Because collectivism assigns individuals to in-group or out-group membership, affinity
circles are a key force in shaping how business is done in Latin America. Latin social
relationships are like concentric circles, with an individual's nuclear and extended
families occupying the two centermost circles. Moving outward, subsequent circles
include more distant relatives, close friends, schoolmates, teammates in sports, and,
eventually, everyone to whom the individual feels a degree of obligation or trust. All
others lying outside the individual's affinity system are untrustworthy strangers to whom
one feels no moral obligation. That detached attitude often leads to nepotism, tax
evasion, littering, environmental neglect, and reluctance to cooperate to achieve a
common goal. t also helps explain the passiveness that some Latins display to the
grinding poverty that surrounds them, and by extension, the region's weakly developed
tradition of public charity.

Social orientation affects how salespeople are assigned to territories. n the high-
individualism United States, it is not unusual to reassign salespeople to work in a
different sales territory. Because customer loyalties are to the product and the company,
the appearance of a new salesperson will not disturb the client-vendor relationship. A
different outcome may occur in a group-oriented Latin culture, where the constant
nurturing of trust between buyer and seller is critical to keeping customers' loyal. n
Latin America, investor runs the risk of losing key accounts if they regularly rotate
salespeople.

4. Universalism-Particularism

Closely related to Anglos' high sense of individualism is the belief that rules come first,
loyalty to friends second. Anglos place great trust in the rule of law to get what they feel
they deserve. Group-oriented Latins put relationships first, the rule book second.
Subordinating impersonal rules to personal loyalties is called particularism. ts opposite
is universalism, the belief that the same set of standards should be applied uniformly to
everyone.

Latin American particularism can be traced to an age-old characteristic of human
behavior in Spain. There, according to Spanish philosopher Jose Ortega Y Gasset, the
feeling of particularism found its origin within the individual himself, expressed in the
notion that each man is his own political party. t is a tendency that Cervantes
immortalized in the epic work Don Quijote de la Mancha, and one that makes it
admirably common for Latins to appreciate the normality of a moment in which a
humble youth may recite his own poetry as he shines shoes at a bench on the plaza.
Particularism permits outsiders to practice nonthreatening idiosyncracies but refuses to
grant them social equality.


Here are some lessons that can be learned about doing business in a particularist
culture:

1. As a source of competitive advantage, core competencies can count less than close
customer relations.
2. Unless investor's situation is exceptional, they should avoid the Anglo penchant for
going it alone. There is simply no way to overstate the value of locally well-connected,
reliable associates who know the ropes.
3. The habit of Universalist executives to depend on intricately written contracts to
define the rules of a business relationship is at odds with the loosely written, short
agreements and personal trust that particularist Latins use to bind an agreement. Latins
may regard a lengthy, tightly written contract, especially one that includes penalty
clauses, as an indicator that in-group trust is missing. Thus, they will feel little personal
obligation to adhere to the terms of the agreement.

5. Communication

Communication is a contact sport in Latin America. Hearty abrazos (embraces) between
men; kissing on the cheek (not between men); standing closely together; pats on the
back; tugs and squeezes on the arm; two-arm and shakes; energetically expressive
arm, hand, and facial gestures; and dancing body movements are standard fare in the
warm personal encounters practiced among Latin Americans.

High-context Latins use a deductive communication process that low context Anglos,
accustomed to building ideas inductively, find frustratingly bewildering. The inductive
communicator moves from specific issues to the general framework, building the
structure of the discourse piece-by-piece and premise-by-premise from the ground up
until the edifice enclosing the deal's elements is complete. When an inductively precise
Anglo engages a deductively open-ended Latin who is attempting to build the structure
of the transaction from the roof downward, it is not surprising that the patience of both
parties will be tested. As a result, the intended deal may never come together in the
middle.

6. Time and Space

The Anglo belief that time is money decrees that no time should be wasted in getting
down to business. n contrast, the Latin believes that the essence of a successful life is
to learn to enjoy the passage of time. Applying this broad view to business, the Latin
sees time as a means to judge whether a potential business colleague may be trusted
and whether an enduring, warm personal relationship can be developed. Whereas time
is the master of Anglos, it is the servant of Latins.

The contrasting ideas that Anglos and Latins have about personal space extend to their
living spaces. Anglos like to spread out, have homes with individually expressive,
attractive exteriors, and gaze upon picket-fenced lawns. n contrast, the ideal Latin
house is built around an open patio with a carved-stone fountain and exuberant tropical
foliage. ts high-arched walls, adorned with tasteful murals and tropical-wood accents,
define the sanctuary of the foremost in-groupthe family. But the other sides of those
same walls are rude and unpainted ramparts, built right out to the street. Their barred
windows, rugged doors, and glass-shard parapets are not a perimeter defense against
an uncertain world of passersby to whom, as out-group strangers, trust nor is aesthetic
debt due.

7. Formality

Latin America's historic ties to European elitism and continued separation by class lead
Latin Americans to stress social customs and business protocol. Their emphasis on
hierarchy accents formality in personal interactions. t is an attitude that contrasts with
that of more casual U.S. executives, who, having a weaker sense of social tradition,
prefer to dispense with ceremony and place today's profit ahead of yesterday's custom.

%ecnoIogicaI factors

Since 2000, Governments in Latin America and the Caribbean have stated their
commitment and worked towards the development of regional observatories to track the
impact of CTs (information and communications technology) on the economy, based on
statistical data of the nformation Society, issuing basic indicators. n this sense,
OSLAC was assigned the mission of building indicators and monitoring the situation of
eLAC 2007, the regional Plan on nformation Society for Latin America and the
Caribbean. The plan consists of 30 subject areas with 70 short-term activities, which
contribute to the long-term implementation of the WSS Global Action Plan, enshrined
within the Millennium Development Goals.

This plan is structured around five critic areas identified by the countries in the region:
access and digital inclusion, knowledge and capacity building, public efficiency and
transparency, policy instruments and enabling environment. The activities within
eLAC are aimed at reaching three main objectives:
1) Fostering regional projects to reinforce initiatives and cooperation, to help develop
common synergies.
(2) Promoting strategies to help getting measurable results in specific areas through the
implementation of indicators on the development and progress of the information
society.
(3) Deepening knowledge to better understand critical areas to support the definition,
implementation and evaluation of policies.

The plan shows a significant progress throughout the region in the development of the
information society: out of the 27 areas surveyed, 15 show progress, or even strong
progress, whereas 12 remain with moderate or low progress levels. The major
progresses count among the two first areas: access and digital inclusion, and
knowledge and capacity building, while public efficiency and policy instruments show
less improvement.

Open access can be considered a transversal variable with a direct effect on a number
of activities described in the table, especially in the two first areas, as explained below:

/ucation an/ research networks: Cooperacion Latino Americana de Redes
Avanzadas (CLARA) is a research network which connects 16 countries in Latin
America, including universities and research centers, to encourage regional cooperation
in scientific and educational activities (www.redclara.net/). The necessary infrastructure
for building a network of institutional open access repositories could be provided by
CLARA, since it includes the countries selected for this survey.

Science an/ technology: Most Latin America countries have a very low investment rate
in research and development, being in average around 0.5 per cent of their gross
domestic product (GDP), except for Brazil, first place in the region, with 1 per cent, but
very far from those of developed countries. As Rossini states (Rossini, 2007): "open
access represents the best method for the flow, interchange and production of scientific
knowledge that access to knowledge is crucial for innovation and innovation is crucial
for development.

learning: The main objective of e-learning is the creation and fostering of digital
educational contents. The building of electronic theses databases in Brazil (Biblioteca
Digital de Tesis) (http://bdtd.ibict.br/bdtd/) and Chile (Cybertesis) (www.cybertesis.net/),
since the late 1990s, has led to significant progress in the field of e-learning. Higher
education institutions rely heavily on this type of materials that enables researchers and
students to keep to date with cutting-edge scientific advances.

health: Virtual libraries can take advantage of CTs through greater connectivity with
their partners in the region and worldwide. n addition to that, it is often not recognized
that international medical and environmental research programmes may be
inappropriate for developing countries, due to the lack of knowledge of research
generated in them, where the major health problems exist. A search for "malaria on the
Bioline nternational web site illustrates the volume of relevant research available from
the developing world (Chan and Costa, 2004).


uture prospects of Latin America

Most of the internal and external factors that will affect Latin America in the future are
positive. As a result, though the region will continue to face great challenges in the
social arena, it is likely to maintain political stability, sustain sound economic
development and uphold multilateral foreign diplomacy.

New development model

Countries like Venezuela, Bolivia and Ecuador under the leadership of the left-wing
presidents, Hugo Chvez, Evo Morales and Rafael Corea, have put forward the notion
of 21st century socialism. Development model under this label is greatly different from
the neoliberal model pursued by Latin America in the 1990s. Three major characteristics
of the new model can be summarized as the following. (1) Based on economic
nationalism, the state maintains a dominant position over the economic life. n the three
countries, i.e., Venezuela, Bolivia and Ecuador, the economic backbone is oil and gas,
and the leaders believe that they welcome foreign capital but it should not make
extravagant profits. (2) More efforts need to be made to improve the well-beings of the
poor. t is believed that the objective of economic development is to reduce poverty and
raise the living standards of the vulnerable masses. Towards this end, the three
governments have been attempting to take advantage of the oil windfall to increase
social expenditures. (3) Presidential power has been enormously strengthened so that
the presidents can order such measures as re-writing the constitution and promulgating
decrees.

Continued political stability
The reasons why most Latin American countries can maintain overall political stability
are manifold. First of all, mechanism of Latin America's party politics has been
improved so that there is a whole set of fair, transparent and free "rules of the game
guiding competition among the parties. Second, the military has been highly
professionalized over the years and its desire to intervene in politics is becoming weak
and weak. Even when the country is caught in a crisis, the military tends to stay away
from politics and acts as a political "stabilizer. Third, in a globalized world, political
democracy is proceeding smoothly in other regions and this external factor has been
quite positive in promoting Latin American democracy. Finally, for its own sake, the
U.S. does not wish to see unrest in its backyard of Latin America.

Development of science and technology
More and more Latin American countries have realized the importance of reinforcing
international competitiveness through the promotion of science and technology. The
joint statement, for instance, issued by Brazilian President Luiz ncio Lula da Silva and
British Prime Minister Tony Blair during Lula's state visit to London in March 2006,
declared that "We acknowledge the fundamental role of science, technology and
innovation in shaping sustainable development, eradicating poverty, promoting social
inclusion and improving quality of life. n his opening remarks at the conference on
"U.S.-Mexico Collaborative: Partnering for Technological Advancement in New York in
September 2003, Mexican President Vicente Fox said, "The center of economic growth
for Mexico, and our interest as a government, is focused on nformation Technology.
Our goal is to have a minimum of 1% of Mexico's Gross National Product (GNP)
invested back into T. n Argentina, according to a government announcement released
in November 2007, the combined Ministry of Education, Science and Technology would
be separated into two, i.e., Ministry of Education, and Ministry of Science, Technology
and Productive nnovation. Formation of the new ministry in charge of science and
technology would attach more importance to R&D. n 2007, investment in Argentina's
R&D stood at 0.65% of GDP, and by 2010 the share will climb to 1.0%. The new
ministry would continue the government's current science plan for 2004-2010.

Social cohesion

The notion of social cohesion was put forward by ECLAC in 2006. Since then, this
notion has been accepted by most of the Latin American governments. According to
ECLAC, social cohesion can help ease the serious social problems in Latin America. n
order to consolidate social cohesion, ECLAC suggested three types of policies: (1) To
generate more employment. Employment is the most important link between economic
development and social progress because it is the main source of household income
about 80% of the total in Latin America). (2) To promote education. Education is
essential for reducing poverty, since it prepares people to exercise citizenship, protects
the most socially vulnerable groups and promotes greater equity in access to
opportunities for well-being. (3) To reinforce social protection. Social protection can give
all citizens the access they need to services that reduce their vulnerability and improve
their quality of life. t can also reduce the risks such as unemployment,
underemployment, sickness and the loss or drastic curtailment of income in old age.
Latin America has become increasingly aware of the need to strengthen social
cohesion. This issue was the theme of the bero-America Summit in Chile in November
2007. At the summit Latin American government leaders reached a consensus that
sustainable economic development must be based on social cohesion and policies
should be made to ensure that every citizen can enjoy his fundamental right to have
access to medical care, education, housing, pension and other social benefits. ndeed,
no country in the world is free from social problems. The only difference lies in the
varied degrees of the severity of the problems. Latin America will not be able to
eliminate all the social problems, but this does not mean that they can be left untackled.
t is encouraging to note that, since the end of the 1990s, governments of Venezuela,
Brazil, Chile and Mexico, among others, have designed several measures to deal with
these problems. t is recognized that the anti-poverty program in Venezuela and the
"zero-hunger plan in Brazil have accomplished remarkable achievements. f Latin
American countries can take advantage of the good economic situation and rising fiscal
revenues in recent years by continuing to assist the vulnerable groups and make more
investments in the social area, its social problems can be effectively reduced.

External conditions
On the whole, Latin America is faced with quite favorable external conditions. First of
all, despite the sub-prime crisis, the long-term prospects of the U.S. economy are
promising. Second, while it is not easy to predict how speculation affects the movement
of the prices for primary products in the world market, analysis of the supply and
demand conditions can prove that long-term price rise for these products will not be
diverted. Finally, having recognized the importance of improving the investment
environment, strengthening institutional building and developing infrastructures, Latin
American countries will be in a better position to attract more foreign capital.

Opportunities of globalization
Since the 1990s, Latin American countries have adjusted their development models to
take the good opportunities from globalization. As a matter of fact, they have benefited
greatly from market opening and inflow of foreign capital. For instance, faced with
increased foreign competition after cutting tariff barriers, Latin American enterprises
were forced to pay more attention to raising productivity so as to upgrade their
international competitiveness. At the same time, as globalization has made it possible
for international capital to move swiftly across borders and in larger volumes, Latin
America remains a hot spot for foreign investment. Large inflow of external resources
has enabled them to increase investment and finance current account deficit. Finally,
rapid movement of goods across borders has offered Latin America a chance to
increase international trade. As a result, its exports grew from US$237 billion in 1995 to
US$577 billion in 2005.