Nexus 2015: Central America Can Become the Region’s “Next Great Success Story”

Francisco Palmieri, the Deputy Assistant Secretary for the Caribbean and Central America at the U.S. State Department, explained the evolving nature of US-LatAm relations at Nexus 2015, noting the both the region and U.S. foreign policy are changing.

“Inequality in Latin America is narrowing faster than in any other region in the world,” said keynote speaker Francisco Palmieri.

Spurred into action by the humanitarian crisis that drove 65,000 unaccompanied minors to the U.S. border last summer, the Barack Obama administration is working with its regional counterparts to make Central America the next great success story in the western hemisphere. Enhancing security, education, infrastructure and economic prosperity will create a wealth of business opportunities and enable the region to fulfill its potential and achieve the same level of success that Colombia has done in recent years. That was the central message of the keynote address that Francisco Palmieri, the Deputy Assistant Secretary for the Caribbean and Central America at the U.S. State Department, delivered at Nexus 2015, the premier executive-level event for the thriving nearshore IT and BPO marketplace, in New York City on Thursday.

An annual industry event organized by Nearshore Americas, Nexus brought together 175 attendees from 14 countries, including a record-breaking 35 guest speakers and an array of senior IT, BPO and finance decision makers, at the Alexandria Center in Midtown Manhattan. Palmieri kick-started this year’s event with an insightful keynote address that explored the biggest opportunities and the challenges facing the northern region of Latin America and the Caribbean.

“We are at a historic moment in the Americas,” Palmieri told the audience. “Change is underway in the region and in U.S. foreign policy. There are opportunities for American businesses which understand that this hemisphere is where you have partners who share your vision and your values.” Trade is crucial to the prosperity of the entire region, he said, noting that the western hemisphere accounts for 40% of all U.S. exports and over US$1.9 trillion in U.S. goods and services a year. The United States and Mexico alone exchange $500 billion in goods and services every year, Palmieri stated, while the Dominican Republic-Central America Free Trade Agreement has also seen trade almost double from $35 billion when it was enacted in 2005 to $60 billion in 2014.

New business opportunities are arising in tandem with the expansion of the region’s middle class. Poverty has fallen by 16% across the region in the last decade, and “though the gap between the rich and poor is still far too wide, it is narrowing in Latin America faster than in any other region of the world,” Palmieri noted. In a bid to encourage trade and employment growth, earlier this month President Obama launched the Young Leaders of the Americas Initiative, which will “help young entrepreneurs and civil society leaders across the entire region access the training and the resources and connections they need to start new ventures, including the small businesses that create over half the jobs in the region,” Palmieri said.

“The opportunities for the private sector are enormous, both in terms of reaching consumers and in terms of creating skilled and adaptable workforce in the hemisphere,” he added. However, greater development is needed in order for the region to fulfill its potential. “In spite of the region’s abundant resources, over 31 million people in the hemisphere still lack access to electricity. Power generation in Latin America and the Caribbean will need to double by 2030 to meet growing demand, and, the region will need over $700 billion in power sector investments,” Palmieri said.

Enhancing Regional Security

Palmieri has garnered a wealth of first-hand experience in the region throughout his 25-year career, having served in the Dominican Republic, El Salvador, Honduras and Venezuela, and overseen over $800 million in International Law Enforcement and Narcotics programs in Mexico and Colombia. Throughout his speech he repeatedly emphasized the importance of security in the region, and how this impacts economic prosperity. He also acknowledged the United States’ shared responsibility for meeting security challenges in the region.

“Through the Merida Initiative, the Caribbean Basin Security Initiative, and the Central America Regional Security Initiative, we have been helping our neighbors counter organized crime and international drug trafficking organizations. And we have made progress. But more needs to be done to address security threats, especially in Central America,” Palmieri said.

“The humanitarian crisis we witnessed last year when more than 65,000 unaccompanied children arrived at our southern border proved that we need to do more – much more – to address the underlying social and economic causes fueling insecurity and desperation in Central America,” he added. “From a foreign policy perspective, this crisis was a warning sign that serious and long-standing challenges in Central America are worsening. And it became clear that if we don’t address those challenges, waves of undocumented migrants will continue to come.”

But how do you address the deep-rooted problems of poverty and insecurity and the lack of opportunities that drive this migration? First, you must recognize the key problems. Palmieri observed that businesses in Guatemala and Honduras are “choked by high energy costs, cumbersome bureaucracy and inadequate infrastructure.” Meanwhile, governments struggle to provide adequate services “because their rates of domestic revenue collection are among the lowest in the world.” If current trends persist, he added, “six million young people entering the Central American workforce over the next decade will be unable to find jobs.”

The Alliance for Prosperity

The Obama administration has met with the presidents of Guatemala, Honduras and El Salvador over the last year to create the Alliance for Prosperity, a regional initiative to “improve the business climate, create economic opportunity, invest more in education, infrastructure and energy, increase domestic revenue, strengthen judicial institutions, and tackle corruption,” Palmieri said. This alliance is already paying dividends, he added, with murder rates falling in Honduras and Guatemala, while “El Salvador has passed an investment stability law… launched an anti-extortion task force, increased tax revenue by more than 20%, and Guatemala has entered into an agreement with Mexico to develop a natural gas pipeline that will reduce the cost of power in Central America.”

President Obama has requested $1 billion from next year’s fiscal budget to support the Alliance for Prosperity. Over $400 million of those funds will go to programs to promote economic growth and prosperity in Central America, Palmieri explained: “Our prosperity agenda envisions Central America as an integrated regional market of 43 million people that creates linkages and economies of scale so that local businesses can become more competitive and the region can be more attractive to international investors. To realize that vision, we will support programs to enhance trade facilitation and promote transport and customs and border integration.”

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The Obama administration believes these measures will not only stabilize the region but also create enormous opportunities for investment. Foreign investors will also begin to witness improvements in personal security and the rule of law, as Obama’s budget request includes $300 million “to improve citizen security, promote police and justice sector reform, and confront organized crime,” Palmieri said, plus another $250 million  to strengthen democratic and judicial institutions. “As Vice President Joe Biden has said, ‘There’s no reason why Central America cannot become the next great success story in the western hemisphere,’” Palmieri affirmed.  

But governments cannot do all the work. The private sector has an important role to play in creating employment opportunities and economic prosperity in the region, Palmieri emphasized. Fortunately, businesses are already recognizing the region’s great potential, he added, noting that “$2.4 billion in foreign direct investment flowed into Guatemala, Honduras, and El Salvador last year.”

While admitting that the U.S. strategy for turning things around in Central America is “ambitious,” Palmieri expressed confidence that it will succeed and pointed to the progress that Colombia has made as evidence of that. “Colombia was once among the most dangerous places on Earth. With U.S. assistance, Colombia strengthened its institutions, made its government more transparent and accountable, increased taxes, and fought corruption in its courts and police force,” Palmieri said. “Today, Colombia boasts one of the most robust economies in all of Latin America, and has advanced farther than ever before towards ending its internal conflict. Plan Colombia worked and our plan in Central America will too.”

U.S.-Cuban Relations

Ever since President Obama announced plans to normalize relations with Cuba last December, relations with the communist island have dominated coverage of U.S. foreign policy in the region. The shift in policy toward Cuba is “a game changer for how the United States is being viewed in the region,” Palmieri said – one that has “recast our approach to the hemisphere, looking to the future instead of to the past.”

“The president’s new policies have eased restrictions on travel, expanded authorized commerce, and set the stage for increased flow of information to, from, and within Cuba,” he explained. “The new policies raised limits on remittances, opened travel in all authorized categories to increase people-to-people contact, and now allow Americans to support the Cuban people through projects related to entrepreneurial training, microcredit, and development, among others. The regulatory changes announced in January by the Treasury and Commerce departments will increase the financial resources to support the Cuban people and the emerging Cuban private sector, and will enable U.S. companies to expand telecommunications and internet access within Cuba.”

These historic changes present a broad array of business opportunities. Palmieri noted that New York Governor Andrew Cuomo recently led a trade mission to Cuba, enabling New York executives to explore economic opportunities on the island. But before outsourcing operations will be feasible, Cuba will need improved IT infrastructure. With this in mind, Palmieri revealed that last month, Ambassador Daniel Sepulveda, the U.S. Coordinator for Communications and Information Policy, led a delegation to Cuba to explore telecommunications and Internet issues. “While the U.S. government is not going to be building Cuba’s upgraded telecommunications infrastructure, we want to make sure that U.S. information and communications technology firms can bid on projects in and open and transparent manner,” Palmieri said.

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