Jerusalem, 9 April 1995
INTER-AMERICAN DEVELOPMENT BANK
(COMMUNICATED BY GPO ECONOMICS DESK)
From 2-6 April 1995, the Bank of Israel hosted over 2,500 foreign guests,
including 45 Ministers, Central Bank Governors, and Heads of State, at the
Inter-American Development Bank and the Inter-American Investment
Corporations' annual meeting in Jerusalem. Topics discussed in addition to
official IADB and IIC official business, included recent developments in
agribusiness, international capital flows, private sector financing of
infrastructure projects, economics of Middle East Peace, emerging markets,
economic crises in Mexico, Brazil, and Argentina, economic developments in
Israel, and the integration of Latin America into the global economy.
Israel, as a non-regional member, provides 0.16% of the IADB's budget,
which enables Israeli firms to participate in IADB projects and tenders.
According to the Bank of Israel, 15 Israeli concerns have been awarded
projects worth $62 million during the past six years. In 1995, the Inter-
American Development Bank is expected to fund approximately 3,500 projects
worth a total of $3 billion.
In a keynote address, Prime Minister Yitzhak Rabin told delegates that
with he collapse of Soviet-style communism and other upheavals in the
international system, one of the weapons which could replace military
confrontation is the economic weapon and therefore that, "the fate of the
post-Cold War era will be decided by bankers, economists, and
businessmen." The Prime Minister called on the international economic
community to assist the Middle East peace process, warning that, "if not,
we will not achieve peace." Rabin said these leaders should seek to use
economic tools as leverage for economic and social progress, applying the
example of the Inter-American Development Bank. Rabin told the delegates
that due to the unique opportunities presented to Israel, his Government
had come to look differently at the Middle East and had come to the
decision, "to give peace a chance and take calculated risks for peace."
"Patience is needed to overcome the conflict...and this is only the
beginning of trying to fill the statements with content," Rabin stressed.
Central Bank Governor Jacob Frenkel in his first speech as Chairman of the
Board of Governors of he IADB (the host country's Central Bank Governor is
chosen to lead the IADB Board of Governors), told the audience that this
conference was the largest economic conference ever held in Israel; the
fact that it was held in Jerusalem symbolizes the importance of the
changes occurring in the Middle East. Frenkel reviewed Israel's economy,
noting that open trade was a key to growth, as was the influx of more than
500,000 new immigrants. He noted that the slowdown in the world's economy
that lasted from 1990-93 is over, and that there are now grounds for
optimism, in particular, about Israel's export industries. Though
inflation is still a battle, said Frenkel, a multi-year approach to
macro-economic factors such as inflation, trade liberalization, and
capital market reforms has set Israel's economy in the proper growth
pattern.
The major topic of discussion during the conference was the recent, and
ongoing financial and economic crises in Latin America which were
initially caused by the devaluation of the Mexican Peso and the resulting
"Tequila Effect" in which most of the other Latin American countries were
also sent into financial crises. The following comments were made during a
seminar on International Capital Flows: Prospects and Policy Issues.
* Lawrence Summers, Under Secretary for International Affairs, Department
of the Treasury, United States, told the conference that countries needed
to be more conservative in their fiscal and monetary policies on capital
flows and called for stronger regulatory measures. Summers said that
analysts should view capital inflows as temporary, and capital outflows as
permanent features of a country's macro-economic situation, rather than
the opposite, as is generally the case. Summers noted that short term
debt, now the norm in Latin America, should be replaced as much as
possible by long term debt, in order to help the Latin American economies
recover from the current crisis.
* Enrique Inglesias, President of the IADB, speculated whether the
conditions which created the Mexican situation massive outflow of
foreign capital in a short period coupled with a large amount of internal
short term credit loans could occur in other emerging markets.
* Michael Bruno, Chief Economist of the World Bank and former Bank of
Israel Governor, compared the structure of investments in Latin America
and in South East Asia. He pointed out that direct foreign investment in
Latin America went primarily into pre-existing sources, generally via
privatization, while in South East Asia, direct foreign investments went
into new industrial or infrastructure projects. According to Bruno,
structural reforms in South East Asia have increased investment faster
than investment in Latin America.
* Guillermo Perry Rubio, Minister of Finance and Public Credit, Colombia,
called on the Latin American countries to encourage more personal saving.
He said that as a result of the crises, capital flows to the region will
be reduced, causing a slowdown in macro-economic developments.
* Domingo Cavallo, Minister of Finance, Economy, and Public Works,
Argentina, said that the Argentine experience showed that Latin American
Governments need to generate confidence and create better regulations, and
increase transparency. He called for the elimination of indexation towards
which Argentina has taken steps, which structurally, has benefitted the
economy.