ISSUES AND TRENDS AFFECTING U.S. BUSINESS IN LATIN AMERICA AND THE CARIBBEAN AN ADDRESS TO THE EXECUTIVE COMMITTEE AND TRUSTEES OF THE INTERNATIONAL CENTER OF FLORIDA BY ROBERT M. GATES DEPUTY DIRECTOR OF CENTRAL INTELLIGENCE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89G00720R000600770001-0
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 16
• Document Creation Date: December 22, 2016
• Document Release Date: August 10, 2011
• Sequence Number: 1
• Publication Date: December 11, 1986
• Content Type: MISC

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Issues and Trends Affecting U.S. Business
in Latin America and the Caribbean
An Address to the Executive Committee and Trustees
of the International Center of Florida
by Robert M. Gates
Deputy Director of Central Intelligence
December 11, 1986
It is a pleasure to be here today. I am grateful to the
International Center for this chance to share some thoughts
with you on some of the salient political, economic and
security issues and trends affecting the business climate in
Latin America and the Caribbean,
The picture I am about to sketch for you will have both
positive and negative elements, for I see both enduring
challenges as well as emerging opportunities for US firms
operating or investing in the region. I'll begin by ticking
off some of the factors that will continue to make doing
business in Latin America difficult,
First, there will be a continuing threat to U.S, commercial
interests in Latin America from terrorist groups, many of them
supported and abetted by the Soviets, Cubans, Nicaraguans or
Libyans. It will probably come as no surprise to many of you
to learn that our statistics show more acts of violence --
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bombings, kidnapping and the like -- against US business
personnel and facilities in Latin America last year than in any
other part of the world, the Middle East included. Colombia
headed the list of dangerous places followed by Chile, Peru,
and Bolivia. On the other hand, there were no such terrorist
attacks in Argentina -- the highest risk country for US
business in the early 1970s -- or in El Salvador, and a sharp
fall off in incidents in Honduras, While the threat in
individual countries will vary over time, I believe that,
beyond from the human costs, the dollar value of protecting US
personnel and commercial facilities will remain high.
Second, the security problems caused by the activities of
insurgent groups or by political unrest will continue to hamper
US business operations and discourage new initiatives, Peru,
Colombia and El Salvador are examples of countries where
attacks by well-armed revolutionaries on the rural
infrastructure and their actual control of some territory cause
major problems for US companies involved in agricultural sector
enterprises or engaged in the extraction of oil and mining of
other mineral resources. The trend toward closer and symbiotic
cooperation between insurgent groups and narcotics traffickers
in South America has particularly worrisome implications for
the maintenance of security in outlying areas. Periodic
episodes of turmoil in countries with chronic instability
problems -- Haiti is a case in point here -- will also create
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labor problems for US businesses, and otherwise complicate
their operations, Again, despite the progress that has been
made in containing guerrilla activities in places like El
Salvador and Guatemala and the general decrease in the sort of
popular unrest that marked the region in the past, the root
causes of insurgency and the sporadic leftist-backed political
violence that continues to occur in the Caribbean and in South
America will be difficult to eliminate.
A large part of the problem comes from outside forces: the
support the Soviets and their Cuban and Nicaraguan allies
provide to the insurgent and radical political groups -- as
well as the terrorists -- in the region. Soviet and Cuban
backing for the Sandinista regime and its efforts to promote
revolution in Central America are just the most publicized part
of the picture, The Nicaraguan-provided arms used in the
bloody terrorist attack last year on Colombia's Palace of
Justice, the Soviet bloc weapons found in the massive arms
caches in Chile this summer, and the steady stream of leftists
traveling to Havana all fit together into a mosaic of
Soviet-inspired subversive activities. The fact that Moscow
and its friends continue to make trouble of this sort while
pushing simultaneously for expanded state-to-state contacts --
witness Foreign Minister Shevardnadze's recent visit to Mexico
and Gorbachev's planned trip to the region next year -- makes
plain the Soviet capacity for duplicity. Add to this the
recent efforts of Libyan leader Qadhafi to aid and abet radical
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groups in the Caribbean and you get a flavor for why working to
overcome these security and instability problems will remain a
long term proposition for the affected governments,
Another set of difficulties for Americans doing business in
Latin America flows from the sway that political nationalism
continues to have over economic decision-making, At the most
fundamental level, the statist approach to economic development
in some countries has given bloated and inefficient
government-owned enterprises a virtual monopoly of key sectors,
foreclosing opportunities for US business, In Mexico, for
example, the control state-owned companies have over sectors
such as energy, food distribution and steel production limits
opportunities for US or Mexican private firms to get involved
in these activities. In other countries, domestic private
investment will continue to be permitted, but foreign
investment excluded, in sectors selected for special
protection. In many countries, foreign investment will remain
limited to 49 percent of company equity.
Beyond direct controls on investment, some Latin American
countries are likely to continue to respond to domestic
political pressure with tactics that discourage foreign
business, for example:
-- Political pressure to inflate employment and raise
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Endemic overvalued exchange rates, causing foreign
exchange shortages and bottlenecks and hampering the
ability of companies to conduct international financial
transactions on a timely basis.
In some countries, continuing bribery and corruption
can get in the way of legitimate new investors seeking
to compete within an established business community.
Aside from the problems attendant on economic nationalism,
US businesses will be challenged by the economic hard times
that confront most of the region. These hard times both
reflect and contribute to the region's continuing external debt
crisis. Although the record is very uneven, Latin governments
generally have done well in coping with debt and related
problems. Initially, they had no choice but to adjust their
economies through stabilization programs involving the
reduction of chronic budget deficits, the liberalization of
prices, devaluations and wage freezes.
Through such efforts debt default has been avoided but at a
high cost. Almost without exception, the annual growth of the
Latin American economies has stagnated, Consumer price
inflation throughout the region rose from 85 percent in 1981 to
316 percent in 1985. Living standards have slipped and per
capita income is still below the levels recorded in the late
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1970s for nearly all countries in the region, Moreover,
spending on education, healthcare, and new infrastructure has
been cut back throughout the region which will impede efforts
to expand productivity and support economic diversification and
export promotion,
Nor have world economic conditions been propitious for
Latin American recovery. Despite the salutory effects of
declining world interest rates and the steady growth posted by
the US economy, slumping commodity prices -- notably oil -- the
collapse of intraregional trade and the unwillingness of Europe
and Japan to stimulate vigorous growth have held back the
growth in Latin American exports. Debt servicing requirements
remain high -- interest payments alone claimed 35 percent of
Latin export earnings in 1985 -- causing a heavy outflow of
capital to meet their foreign obligations. On top of this,
billions in private Latin capital left the region last year to
end up in US and Western banks and real estate -- the so-called
capital flight problem,
But now I want to get on with the good news. I hope in
fact that my listing of some of the region's problems will
impress you, as it has me, with the positive factors that have
emerged,
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I would begin the good news by asserting that the
psychology of the region is changing and that the change shows
signs of being dramatic, The old feelings of dependence and
inferiority are receding, being overtaken by a can-do, must-do
spirit.
Among the more visible indicators of a new mindset is the
turn to democracy, Cycles of military repression and open
politics have occurred before in the region, but the current
move into competitive electoral systems has many distinctive
features. The scope is unprecedented. Latin America is more
democratic today than at any point in history. Only five
authoritarian regimes remain -- Cuba, Nicaragua, Suriname,
Chile, and Paraguay -- representing a minuscule portion of the
region's population. Long-lived regimes have given way to this
democratic wave -- a generation of military rule in Brazil has
ended and after two generations of Duvaliers in Haiti, that
impoverished nation may begin a new era. For the first time,
normal, elected presidential successions have occurred in such
countries as: Honduras, Ecuador, Peru, and Bolivia. Democracy
may be "taking" this time,
Also notable are the quality and seriousness of the new
leadership. One can hardly fail to be impressed by the
boldness of President Sarney, thrust into office unexpectedly
when the President-elect died before assuming it. We see
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growth and flexibility in Bolivia's Paz, who espoused statist
policies during the Revolution but who now, in a new era, is
moving toward free-market prescriptions. We can only admire
the leadership of President Alfonsin, who remains highly
popular despite Argentina's hard times. The region boasts
leaders who retained their optimism in the worst of times, such
as Guatemala's President Cerezo, who survived numerous
assassination attempts when he opposed military rule, or
President Duarte of El Salvador, who bears the scars of
torture. These are men of courage and vision, a truly new
-political generation, Most are centrists, interested in and
receptive to better relations with the United States,
Their views of the United States are sophisticated; many of
these leaders have spent enough time living in our country or
studying it to know us well, They are not viewing us through
throwback stereoscopes that show a colossus of the north. They
are men of vision who want to advance their nations and are
willing to do business to achieve their goals,
The citizenries of these countries have shown courage and
resiliency as well. The route to democracy was hard; in many
places, it was brutal. I think we have reason to hope that
once won, freedom will not be given up by these populations,
who are also increasingly sophisticated and willing to work for
their goals, We can see this in the relative discipline that
labor has shown. Despite hard economic times, labor has been
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more willing than in the past to give scope to national
leaders. And in many places, austerity plans governments have
been forced to adopt have meant real tough times for the
people. On other domestic fronts, we see creative new ideas
arising to deal with national problems -- many new twists on
economic policy, ways civilians are handling sensitive issues
such as retribution for past military crimes, Alfonsin's plan
to break Argentine fixation on Buenos Aires by moving the
capital south, We see high energy being channeled in positive
directions,
The energy of democratization is also producing a new
cooperative urge among the countries, The new leaders have
much in common and because of the struggle each has been
through, they tend to respect each other. This provides a new
basis for bilateral and multilateral effort. It shows up in
various spheres: economic collaboration, including talk of a
common market among Brazil, Argentina and Uruguay; nuclear and
other scientific interchanges between Argentina and Brazil;
some movement toward unified anti-narcotics programs; and
increasing cultural exchange, The nations in the region are
more and more willing to learn from each other and to pool
resources against stubborn problems.
Another positive trend in Latin America is the change in
attitudes toward capitalism and the free market system. This
change is part of the broad shift in the world intellectual
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climate which is moving away from viewing statism as the
panacea for economic and social ills. Latin American
intellectuals are not in the forefront of this sea change but
they have not missed the fact that state-owned firms are being
privatized from Bangladesh to Malaysia, from Turkey to
Tanzania, Polling data -- though limited -- indicates that
privitization is generally popular with the people and that the
private sector is being seen with increasing respect.
Why did this come about? There are many reasons, but I
would like to emphasize two which I believe are both very
important and largely unrecognized. First, there is the
influence of hard times. It is significant that the turn
towards capitalism came just as much of the world was suffering
recession. In most Latin American and other Third World
countries there is a basic stratum of free enterprise "penny
capitalism" that is submerged in times of prosperity and comes
to the forefront in times of hardship. This stratum -- which
includes what economists call the underground economy --
constitutes the family background of almost all Third World
urbanites, except the highest political and commercial elites,
Small merchants, market women, shoeshine boys, cab drivers,
free-lance artisans, self-taught carpenters and plumbers, these
are the people who keep on working when factories are closing
and bureaucratics are losing their jobs. These people, from
their own experience, have an intuitive understanding of the
interconnections between hard work, saving, and getting along,
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When times are good, they are quite willing to take whatever
"magical" benefits the freespending state has to give. When
times are bad, however, they are realistic enough to know why.
Second, there is what I call the shadow of the twenty-first
century. The twentieth century -- ushered in by revolutions in
Russia, China, Mexico, Turkey, Persia, and elsewhere -- was the
age of social revolution. Even though these revolutions were
not always successful, no one doubted their importance, Today,
revolution is becoming intellectually old hat, as far from
present day reality as the theological disputes of the Middle
Ages. What does Lenin have to do with microchips? Or Mao's
Red Book with the rise of Japan? The feeling is that the
twenty-first century is almost here -- and whatever it turns
out to be, it will not be another Soviet-style revolution;
Sometimes I think we have the Russians themselves to thank
for the declining popularity of statism. They have brought
hundreds of thousands of Latin Americans and others to the
Soviet Union for visits or for study. While some are
brainwashed or coopted, others look around and they don't like
what they see, They see a society that, for all its military
power, is grinding to a halt. They see a rigid class structure
in which the elite live very well indeed while the masses go to
the end of the line. They see racism and shoddy goods and
crime and corruption and cynicism, They see a society where
consumers spend twenty billion man-hours annually just standing
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in line; Speaking of the hard-currency stores that exist
everywhere in the Soviet Union, one Latin American commented,
"What kind of world power is it that won't even accept its own
currency in its own stores?"
At another level US business should be encouraged by the
cooperative and positive approach Latin America's new
democratic leaders have taken in their struggle to resolve
economic problems. While recognizing that their
administrations have to deliver economic improvements to
consolidate fragile civlian rule,-they have generally eschewed
resorting to radical policies, such as debt moratoriums, or a
return to Peronist-style populist economic excesses. Instead,
these leaders have opted for more pragmatic and practical
solutions aimed at restoring growth, President Alfonsin in
Argentina in 1985 and President Sarney in Brazil this year, for
example, have launched bold economic programs to arrest
hyperinflation that was causing economic chaos and political
discontent. In both cases, inflation was arrested and the
return of price stability has led to strong economic growth in
Brazil -- at a projected 8 percent, the strongest performance
in the world -- and in Argentina which grew by 3 percent during
the first half.
A number of other countries have also made clear their
intention to seek foreign participation in future economic
reconstruction, Although it is true that such initiatives are
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in their infancy in the region, the change in emphasis is
heartening,
An appropriate question to ask here is what can US business
do to capitalize on these positive trends and I'll take the
liberty of suggesting some answers. My short answer is that US
business can do a lot to help in Latin America and can make a
profit while doing so. One of the keys, in my view, is the
application of technology as well as capital. A detailed look
needs to be taken at the whole range of technology available in
the United States and the West in general and an attempt made
to match these technologies with unutilized resources in Latin
America. The range of technologies and applications truly is
enormous.
I'll use Ecuador to illustrate what I mean, Despite being
one of the poorer nations in Latin America, Ecuador has a
wealth of under-utilized resources that could be developed with
US technology and financing, Let's take, for example, wind
power, The country's geography and prevailing winds are ideal
for wind-power generation of electricity, This technology has
the potential to produce some ten percent of Ecuador's needs,
thereby freeing an additional 200,000 barrels of oil a year for
export, And the United States is the world leader in wind
technology.
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Or take integrated marine shrimp production. Only about
one-fourth of Ecuador's 160,000 acres of ponds used for growing
shrimp are stocked with shrimp larvae. If a commercial
hatchery capable of producing 8-12 million larvae per month
were set up to offset the shortfall in naturally produced
larvae, Ecuador could once again become a major shrimp
exporter, Moreover, such a project would largely free the
country from the spasmodic havoc caused by the El Nino weather
pattern. The benefits to economic -- and even political --
stability could be very important.
Another example would be the production and packaging of
high-value processed vegetables. Of Ecuador's cultivatable
land, only forty percent is currently being used. Much of this
land would be ideal for production of asparagus, artichokes,
broccoli, mushrooms, palm hearts, and tomatoes. With US
technology -- blast freezers and the like -- and managerial and
marketing assistance, this produce could be frozen or processed
into paste, pulp, or concentrates for exports.
I could go on citing examples. Natural gas -- Ecuador has
perhaps one of the largest deposits in Latin America -- or
tourism -- Ecuador's Galapagos Islands are truly unique as a
tourist destination -- come to mind. And there is animal feed
production, dairy farming, tissue culture, gold mining,
agrichemicals, hydroelectric power, forestry products,
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processed tropical spices, cut flowers, beef cattle,
polymetallic ores. The list is extensive.
Although not all Latin American countries have as
hospitable an investment climate as does Ecuador under the
Febres-Cordero government, most do have wide ranges of
underexploited resources and, as I indicated earlier,
increasingly pro-capitalist attitudes, It would be easy to
duplicate Ecuador's list of resources and matching technologies
in nations such as Costa Rica, Colombia, Uruguay, and Jamaica.
Among the big three of Latin America -- Brazil, Mexico, and
Argentina -- it is not so much a question of locating
underutilized resources as of stimulating efficient,
privately-owned heavy industry.
These examples of where US business can make a difference
serve to underscore the basic point I want to leave with you,
There are many aspects of the Latin environment that make it a
difficult place for US firms to operate and this will remain
the case, But I hope you will agree with me that there are a
number of encouraging trends in the region. From a policy
standpoint, nurturing effective, popularly supported political
systems in Latin America capable of dealing with local social,
economic and security problems and amenable to cooperating with
the US regionally and globally is a cherished goal. This goal
is more achievable today than in the past, But the new
civilian governments as well as the established ones need all
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the help they can get in grappling with the host of problems
that confront them. Renewed US investment in the region
coupled with the application of technology and the infusion of
entrepreneurial and management know-how is vital, Active US
business involvement can lead to a self-reinforcing cycle of
economic improvement and political and social stability -- all
feeding back again to economic advancement and a fertile
business climate,
Can anyone doubt that the resources and creativity to help
achieve this goal exist? But getting on with the job will
require action by US and other Western political, business and
Community leaders such as you. Western businessmen need to
become more aware of the changing attitudes and greater
receptivity in Latin America toward entrepreneurship and
venture capitalism. We need to become more aggressive in
searching out opportunities and, yet, a little more willing to
take risks -- risks which both the stakes and potential
pay-offs more than justify.
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