April 15, 2009 / 8:05 PM / in 9 years

Latin America urged against protectionism

* Lula says protectionism only brings short-term relief

* World Bank official says protectionism “not a good idea”

* Some regional countries have raised trade barriers

By Stuart Grudgings

RIO DE JANEIRO, April 15 (Reuters) - Latin American leaders and executives urged governments in the region on Wednesday to stop erecting trade barriers, saying the financial crisis was a chance to tackle problems that have long hindered the region’s competitiveness.

Brazilian President Luiz Inacio Lula da Silva, hosting the Latin America World Economic Forum in Rio de Janeiro, said protectionist moves by some countries would only deliver short-term relief from the economic downturn.

“Protectionism is like a drug, which offers immediate relief but then puts its victim in a prolonged depression,” Lula, a strong proponent of renewing world trade talks, said in a speech opening the two-day meeting of business leaders.

The global financial crisis has slammed the brakes on five years of buoyant economic growth in the region, knocking demand for commodities from oil to copper, pushing economies into recession, and driving millions of people into poverty.

In a region with a long history of populism, leaders are feeling pressure to shield their economies as trade flows plunge and jobs are lost. Ecuador has sharply increased tariffs on imports, Mexico has raised duties on a long list of American imports, and Argentina tested Brazil’s patience by imposing extra import restrictions.

Mexico expects its economy to contract 2.8 percent this year, while fellow regional giant Brazil last month slashed its 2009 growth forecast to 1.2 percent from 3.2 percent.

U.S bank Morgan Stanley said in a report last month that the region would contract at least 4.3 percent this year, its worst showing since 1983.

But unlike in previous crises that have hit the region, stronger government finances have enabled governments to respond with “counter-cyclical” policies such as lower interest rates and fiscal stimulus packages.

“Independently of ideology, every single government should focus on counter-cyclical measures,” said Ricardo Villela Marino, chief executive of Brazilian bank Itau.

CHANCE FOR REFORMS

“Also countries should focus on trade with their neighbors. There’s scope for new initiatives in Latin America, particularly in inter-regional trade.”

Despite five years of strong growth, the region still suffers from poor infrastructure and low education standards that economists say hinders its long-term potential.

“Maybe this crisis was the only way of making the needed reforms,” said Marcelo Bahia Odebrecht, the executive president of major Brazilian construction firm Odebrecht.

“Latin America was at a velocity we couldn’t sustain. There is a lack of everything -- engineers, capable people, products,” he said.

Pamela Cox, the World Bank’s vice president for Latin America and the Caribbean, said countries should use their fiscal responses to the crisis to strengthen social safety nets and tackle long-standing inefficiencies.

Poor education, a lack of infrastructure, and subsidies that favor the rich are areas that could be improved if governments targeted them in their fiscal responses, she said.

“The quality of education is very poor in the region. It’s a competitive issue, it’s a poverty and equity issue, so pay attention to investment in people and not just in roads,” she said.

Cox also voiced concern at recent protectionist steps, although she said she saw no “wholesale” rise in such barriers in the region.

“We are telling people this is not a good idea,” she said.

“If you look back to the experience of the depression in the 1930s, it’s clear that these beggar-thy-neighbor policies ended up in lower growth and a longer period of recession for the world.” (Additional reporting by Elzio Barreto and Daniela Machado; editing by Mohammad Zargham)

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