I would like to thank the Ministers of Trade for having invited me to share some thoughts about the Free Trade Area of the Americas (FTAA) and express my gratitude to the Government of Argentina for the hospitality it has shown us. I would also like to commend Argentina for the leadership it has provided as the Chair of the FTAA during this past year and a half.
The FTAA negotiations have proceeded at a steady pace. Considerable progress has been made during the stage that is now drawing to a close, and the objectives you set out eighteen months ago are being achieved. As a result, we now have a preliminary draft of the chapters to be included in the FTAA agreement. This is the evidence of the 34 Governments' commitment to this hemispheric process. A complex negotiation process still lies before us, however, a process designed to ensure a balanced agreement that will take due account of the widely differing levels of development and sizes of the economies of our hemisphere.
The advances achieved thus far are especially significant in the light of the legacy of the past decade in Latin America and the Caribbean, which -as discussed in a recent ECLAC study- is a combination of light and shadow, of major achievements and of tasks yet to be completed. One of the region's main accomplishments has been the expansion of Latin American and Caribbean exports. At an annual real growth rate of nearly 9%, exports not only rose more swiftly than at any other time in our region's history, but also outpaced the growth of world trade. Major strides have also been made in export diversification. This is especially true in some of our countries, where manufactures now represent a larger share of total exports.
In addition to playing a new and dynamic role in world trade, the Latin American and Caribbean countries have regained access to external financing, which in turn has paved the way for further inroads in such areas as macroeconomic management, the reduction of inflation and a partial recovery of economic growth. The pace of growth has, however, been disappointing; in fact, it has been significantly slower than the rates achieved by our region in the three decades leading up to the debt crisis.
The importance of these advances notwithstanding, major weaknesses persist. One of these is the region's extreme vulnerability to the volatility of external finance. With the exception of foreign direct investment and official credits, external financing has tended to experience sharp cyclical swings. Access to private capital markets, which have largely been beyond the reach of the relatively less developed countries, has not always been obtained on suitable terms with respect to maturities and costs, particularly during times of crisis.
As a result, the Latin American and Caribbean countries' economic growth has come to be determined by the strength and quality of their insertion into the global economy. The vulnerability of Latin American and Caribbean trade to international financial crises -as a consequence of both the contraction of their economies and exchange-rate fluctuations- has become all too apparent.
Intraregional trade, in particular, has been dealt a number of severe blows which have hampered the progress of subregional integration agreements. Flows within South America have been the hardest hit of all, plummeting by 26% within Mercosur and by 30% within the Andean Community between 1997 and 1999. With the partial reactivation seen in the region's economies in 2000, however, this process is starting to be reversed, with a growth rate for intraregional trade at around 20% for the year.
The downturn in intraregional trade has been accompanied by a proliferation of sectoral trade disputes at the bilateral level which have dimmed the prospects for progress in the consolidation of subregional processes. The impacts of financial volatility on the growth of trade and the advancement of integration schemes thus demonstrate how costly that vulnerability is. Clearly, then, the reduction of this vulnerability constitutes one of the major challenges to be met if the integration of the Americas is to move forward on a sustained basis.
This demonstrates just how important it is in terms of the advancement of intraregional and intra-hemispheric trade for us to design national macroeconomic policies of a more preventive nature. These policies must be based on a broader definition of macroeconomic stability which, in addition to controlling inflation, entails a reduction in the volatility of growth.
It also indicates the importance of improving the macroeconomic coordination of subregional processes and fostering the development of regional financial mechanisms of our own so that we can smooth out the effects of international financial cycles. As proposed at the Latin American and Caribbean Regional Consultation on Financing for Development held in Bogotá last November, it is essential that these national and regional efforts should be accompanied by determined steps to strengthen the international financial system's ability to forestall and to manage crises.
Strengthening the region's export capacity is another crucial factor in helping to diminish external vulnerability. In order to accomplish this, we must take steps to create a stronger export culture and develop effective instruments for promoting new types of exports, especially in the case of small and medium-sized enterprises.
It is important to remember, however, that export capacity will translate into greater economic growth if and only if we are able to increase both domestic value added and technological and knowledge content. In order to do so, we must support innovation, including technological innovation and promotion of new firms and production activities, and foster inter-firm complementarities in order to develop the systemic competitiveness that today's globalized world demands.
These are some of the tasks that await us as we move towards the consolidation of regional and hemispheric integration. Within this context, the subregional integration processes now under way are one of the cornerstones for the construction of the FTAA, as noted by the leaders gathered at the Summit of the Americas in 1994. As we have seen, the tensions generated despite the complexity of concurrent negotiations, subregional processes and the FTAA reinforce one another. The fact that the construction of the FTAA has contributed to the definition of common negotiating positions within the various subregional agreements serves to illustrate this.
It is important to realize that the chances of linking the FTAA with subregional integration schemes will depend upon the latter's ability to consolidate and expand upon the progress they have made. The ultimate goal of the four partial customs unions that now exist in the region is to form common markets. In addition to the liberalization of merchandise trade and the establishment of a common external tariff, this will require the development of complementary disciplines. Making headway in these areas, as well as the possibility of delving into new economic, social and political issues, is no easy task, but it is a necessary one if they are to ensure their survival and complementarity with the FTAA.
The thoughts that I have shared with you here serve to underscore the formidable challenges that the region must meet in order to take full advantage of the benefits and opportunities offered by free trade in the hemisphere. The greatest challenge of them all, however, will be to ensure that hemispheric trade will contribute to the achievement of more rapid and sustained economic growth so that we can overcome the poverty and inequity that plague our region.
Honourable Ministers, allow me to assure you once again that ECLAC, as a member of the Tripartite Committee, stands ready to continue supporting the construction of the FTAA and working alongside you in this great hemispheric undertaking.