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IDB meeting opens with cautious optimism over economic recovery in Latin America and the Caribbean

LIMA, Peru -The Annual Meeting of the Board of Governors of the Inter-American Development Bank began today on a note of cautious optimism over prospects for economic recovery in Latin America and the Caribbean that was nevertheless tempered by concern over political volatility and social demands that are posing challenges to the region's democracies.

The Peruvian and Latin American officials addressing the meeting's inaugural session said that the region's economy could grow about 4 percent in 2004, after five years of weak performance.

This recovery, they said, has been largely the product of external factors, such as growth in the industrialized economies and China, increases in prices for Latin America's export commodities, and low international interest rates.

The speakers warned that these favorable conditions will not last forever, and called on the region's governments to prepare their countries for the impact of inevitable economic adjustments in industrialized nations.

They also expressed concerns over the political turbulence affecting some Latin American countries, a reflection of popular discontent over the performance of their democratic governments and the results of economic reforms.

In his speech, IDB President Enrique V. Iglesias advised Latin American and Caribbean countries to use this favorable period to consolidate the reforms that have worked well, correct those that have fallen short and press ahead with pending reforms in order to increase economic efficiency and ensure a more equitable distribution of its benefits.

"Externally driven improvements in an economy are rarely long-lived, as the region's experience and world history can attest," Iglesias said. "Sooner or later we can expect to see adjustments."

The IDB president also urged the Bank's borrowing countries to manage this recovery period prudently, controlling public sector deficits, avoiding the formation of credit "bubbles" in their financial systems, using current low interest rates to improve their external debt profiles, and creating a better business climate.

Peruvian President Alejandro Toledo linked the public disaffection in some countries with the fact that good economic results have not immediately translated into better living standards. "The benefits of economic growth are not trickling down," he said. "Macroeconomic indicators are good, but pockets are empty."

Nevertheless, said Toledo, his government is committed to maintaining a steady course. Peru's experience with populism in recent decades is "an example of what we must not do," he said.

In the view of Iglesias, Latin America's democracies need political parties that can reach a basic consensus to move forward with the reforms needed to achieve sustained economic growth that will translate into tangible social dividends.

Regarding social issues, the region must modernize labor laws to spur job creation; improve the efficiency of spending in social services; promote social inclusion of marginalized groups, such as indigenous people and Afro-Latinos, and foment citizen participation in political decision-making.

A key goal must be to prevent public policies from being "captured" by interest groups seeking to benefit disproportionately from the benefits of reforms, he added.

Peruvian Economy and Finance Minister Pedro Pablo Kuczynski, who was elected chairman of the IDB Board of Governors, said that sustained and predictable economic recovery is an indispensable precondition to reduce poverty.

Kuczynski - who previously coordinated a study on the IDB's, the Inter-American Investment Corporation's and the Multilateral Development Fund's support to the private sector - called for more attention to two priority areas for economic growth and employment in the region: small and medium-size businesses and physical infrastructure.

He also applauded the interest of Asian countries such as China and South Korea in joining the IDB, saying that Asia is becoming an increasingly important partner for this region's economies.

Also speaking at the inaugural session were Organization of American States Secretary General César Gaviria and the executive secretary of the Economic Commission for Latin America and the Caribbean, José Luis Machinea.

The 45th Annual Meeting of the IDB's Board of Governors is held jointly with the 19th Annual Meeting of governors of the IIC, the IDB affiliate that supports the development of small and medium-size firms in the region through equity investments and loans

The boards of governors, the highest policy-making bodies of these institutions, include finance ministers, presidents of central banks and other senior officials of the 46 IDB member countries. Members include the 26 borrowing countries in Latin America and the Caribbean.

The Lima meeting has attracted a record attendance of more than 7,000 persons. The 2005 meeting will be held on the Japanese island of Okinawa.

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