The collapse of global trade, murky protectionism, and the crisis:

3. Keeping borders open: why is it important
for Latin America and the Caribbean and
what can the region do about it?
Luis Alberto Moreno
President of the Inter-American Development Bank
The last time the world was engulfed by a crisis as severe as we are living now, Latin
America and the Caribbean (LAC hereafter) virtually closed its door to the world
economy. It was not alone in doing that – the knee jerk reaction of most countries
after the 1929 crash was to resort to outright protectionism. Yet, whereas most the
world was on its way to re-embrace trade right after World War II, it would take LAC
more than half a century to significantly open its borders and shed all the misconceptions
about trade. This long delay has proved to be rather costly in lost growth
opportunities and the region's decision on how to react to the current downturn
should be evaluated against this background.
Having history as guide
Whereas turning its back on trade did not prevent some of the largest countries in the
region from posting high rates of growth, it soon became clear that this strategy was
not sustainable and a long decade of stagnation ensued. LAC fell badly behind other
developing regions, particularly East Asia nations, which were quick to see the growth
benefits of trade.
The region's rapprochement with the world economy has not been easy. The concerted
effort to bring trade back to LAC's growth agenda has often given ground to
the misconception that bringing tariffs down is enough. Free trade is no substitute for
strong institutions, sound fiscal and monetary policies, robust investment in education
and, above all, pure and simple hard work. Likewise, there are a number of other
complementary actions governments should purse to boost the benefits of trade,
ranging from investment in infrastructure, to trade facilitation and to trade adjustment
programs.
Learning the lessons
We are learning these lessons the hard way, as we move, but there is little doubt that
the region has made good progress on all these fronts and has good results to show.
LAC today can claim that it has the most open economy in the developing world. All
countries have embraced an ambitious agenda of free trade agreements and have also
liberalized unilaterally and multilaterally under the WTO. The growth benefits,
which were somehow slow to come, have become unmistakable in the last decade.
Since 2003, the region's GDP has been growing at annual average of 5%, driven by a
17% annual growth of its exports.
As good as it has been in the last years, there is little doubt LAC's growth will suf-
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