WASHINGTON, D.C. -- A new World Bank study, "Securing Our Future in a Global Economy," says Latin American and Caribbean governments can best help ease the impact of economic shocks by helping families invest in education and health, to prevent hard times from eroding human capital.

The study finds that social spending in Latin America -- including programs targeting the poor -- has grown dramatically since the 1980s. But governments have tended to raise and reduce social expenditures in concert with the boom-bust cycle. When government support for schools and health care for the poor is most desperately-needed, it typically faces the toughest cuts. And during a boom, when incomes rise -- as fast among the poor as among middle and upper classes -- social spending rises more than proportionately, reaching its apex when it is least needed.

"Governments need to moderate these gyrations, keeping spending under control in good times to build the creditworthiness and reserves they will need to finance schools and health care in bad times," said David de Ferranti, the World Bank's Vice President for Latin America and the Caribbean.

The report, which is the Bank's major annual study on Latin America and the Caribbean, also says sound domestic macroeconomic policies, strong financial institutions and income support programs are key to strengthening the strategies employed by households to cope with recessions.

Produced by a team of economists led by de Ferranti and Guillermo Perry, Chief Economist for Latin America and the Caribbean, the study suggests complementary approaches to insure and protect people's incomes and consumption against the risks of volatile global markets.

Securing Our Future in a Global Economy, whose co-authors also include Indermit S. Gill, Luis Serven, Francisco H.G. Ferreira, Nadeem Llahi, William F. Maloney and Martin Rama, finds that economic volatility has not increased in Latin America and Caribbean in the 1990s. But it notes that the region's economies remain more volatile, especially with respect to terms of trade and capital flows, than those of all industrialized countries and East Asia. This is partly because many Latin and Caribbean countries depend heavily on commodity exports such as oil, minerals, coffee and food, whose prices fluctuate widely. More importantly, weak financial institutions and slender ties to developed financial markets have been important factors too, leaving countries vulnerable to sudden swings of sentiment among foreign investors.

"The challenge is to smooth out booms and busts, and help the poor meet day-to-day needs during economic downturns," said Guillermo Perry. "Our study finds that low-income households use rational strategies to cope with recession. Contrary to widespread belief, poor families do not pull their children out of school as soon as economic crisis strikes. They try to maintain consumption of vital goods and services. But when a recession is deep or prolonged, families risk running out of assets and sacrificing both basic consumption and their children's education."

The Bank's study suggests that individuals and governments can take three types of actions to reduce risks, or ease the impact of economic shocks. They can "self-protect", that is, adopt measures to reduce the likelihood of a downturn; "self-insure", or save in good times to cover vital expenses in bad times; and they can invest in "market-type insurance", that is, use collective schemes that pool risks, such as unemployment insurance, to protect against sudden loss of income.

"The more of these options there are, the better -- for individuals and governments," Perry said. "Government income support strategies, such as public works and unemployment insurance programs, should complement individual strategies to deal with risk, and make them more effective."

For individuals, "self-protection" includes, for example, investing in education and skills training to reduce the likelihood of being laid off, and increase probability of finding other work if a layoff occurs. In the case of governments, self-protection refers to sound fiscal and monetary policy, as well as prudent debt management, and financial sector regulation that reduces the risk of financial crisis.

"Self-insurance" for individuals refers to savings and diversified investments to provide income for essential consumption in the event of job or income loss. For governments, it refers to setting aside budgets in good times earmarked to, support social spending, including safety nets and public works programs for the poor during recessions.

"Market-type insurance" for both individuals and governments, is similar to self-insurance, but differs in that involves pooling of risk among large numbers of people. Users of market-type insurance must also actually pay a market-determined price for it, rather than assume an imputed cost as in the case of self-insurance schemes.

KINGSTON/NAIROBI -- The flora and fauna of the wider-Caribbean area are now protected by an international treaty, the Protocol concerning Specially Protected Areas and Wildlife (SPAW). The United Nations Environment Program (UNEP) announced in a June 20 press release that the treaty is entering into force.

The SPAW Protocol becomes international law almost ten years after it was adopted in 1990 by the Cartagena Convention for the Protection and Development of the Marine Environment in the Wider Caribbean Region. Fifteen countries initially signed the agreement. The treaty becomes law now after ratification by nine member states.

"The health and the beauty of this natural world is crucial to the region's efforts to generate income, whether through the production of primary goods or increasingly through the tourism sector," said Klaus Toepfer, executive director of UNEP. "I am convinced that the entry into force of the Protocol will lead to enhanced conservation and sustainable management of this region's precious resources, but clearly all countries in the region must come on board for it to be truly effective."

The Caribbean region is economically dependent upon its coastal and ocean resources, which have been threatened due to overuse and destruction. The treaty focuses on protecting and managing these natural resources.

The region protected by the SPAW Protocol includes the Gulf of Mexico, the Caribbean Sea, and the neighboring waters of the Atlantic Ocean. It extends from Florida and the Bahamas west to Mexico, south to Colombia, Venezuela and Suriname, and through the Eastern Caribbean.

WASHINGTON, D.C. -- With inflation in Latin America under control for the first time in decades and investment capital pouring into that region's technology sector, the time is ripe for continuing serious reforms, but the hemisphere is now plagued by a stultifying complacency. This was the overall sense of participants at a high-level conference at the Council on Foreign Relations May 18-19.

Most participants felt that complacency of Latin America's leaders about economic reforms was all the more serious because democracy itself is once again under threat in the region. The challenge to democracy is particularly great in Peru, Venezuela and Colombia.

Without vigorous political support for the next phase of reforms, participants warned, Latin America's economies would be susceptible to renewed global financial instability.

Participants generally agreed that while there was a constructive role for the United States to play in Latin America's reform efforts, it was primarily a matter for the countries of the region themselves to handle. Moreover, U.S. involvement would be useful only if it is sensitive and sustained over time.

The timeliness of the conference's theme, "Latin America: Sustaining Economic and Political Reform," was reinforced by the news of Alejandro Toledo's withdrawal from Peru's presidential election, a failed coup attempt in Paraguay, and renewed jitters in Latin American markets as a result of developments on Wall Street.

The conference, hosted by the nonpartisan Council on Foreign Relations, convened 200 Latin and U.S. leaders from the business, investment, policy, academic, and NGO communities to grapple with the fundamental choices that must be made by Latin American countries -- and the United States -- if progress in the hemisphere is to be maintained.

Speakers included Chile's President Ricardo Lagos, former Treasury Secretary Robert Rubin, Mexico's Energy Minister Luis Tellez Kuenzler, and William McDonough, President and CEO of the Federal Reserve Bank of New York.

Cesar Gaviria, Secretary General of the Organization of American States, and Thomas F. "Mack" McLarty, Vice Chairman, Kissinger McLarty Associates, and formerly President Clinton's Special Envoy to the Americas, served as Conference co-chairs. Key findings and recommendations:

-- The region remains vulnerable to external financial shocks; pervasive income disparity and poverty threaten long-term stability and growth;

-- Limited access to primary education is compromising the region's competitiveness in an increasingly knowledge-based global economy;

-- NAFTA was generally viewed as a success, but participants were concerned that political leaders in both the U.S. and Latin America had failed to make a clear connection between trade and the benefits of development.

-- Many conference participants believed that over the past ten years, Latin America's trade and borrowing had become substantially more diversified, and that despite the risk of instability in global markets, this resulted in greater flexibility and a hedge against external shocks.

-- Former Treasury Secretary Robert Rubin said it is imperative to seize the opportunity to reinforce reforms. Sooner or later, Latin America "will be tested again by adverse circumstances in the global economy," including a downturn in the U.S. markets, he cautioned, and he urged vigorous perseverance. Garnering political support was an absolutely essential part of the process. "If you don't get the politics right, you will never have the opportunity to put the economics into effect."

-- There is a risk that the "new economy" would reinforce the divide between the richer Latin countries like Argentina, Brazil and Mexico and the poorer countries such as Paraguay, Ecuador and Peru.

-- Strong political leadership, credibility of government, and quality of democracy are essential preconditions for success;

-- Serious problems have accompanied the region's remarkable and rapid transition to democratic styles of government. Some saw these as natural growing pains, others argued that current trends toward authoritarian populism in several Andean countries will take years and much economic prosperity to roll back.

-- Ineffective government and corruption are the single largest impediments to economic development. Transparency, privatization, and good law enforcement are top priorities.

-- With important contested presidential elections soon to occur in Peru and Mexico, concern was expressed about destabilizing potential for upsets in each contest, but Mexican Secretary of Energy, Luis Tellez argued that both on the economic and political fronts Mexico was well prepared and its democratic institutions strong enough to sustain surprises. Co-Chair Mack McLarty summarizing the conference findings said that anything less than a transparent free and fair election in Peru would be "a serious, serious mistake, and a setback for democracy in the region."

-- Although support for democracy remains high in Latin America, many remained disconnected from the political process.

-- Some participants warned that a three-way split was developing in the Hemisphere with a north centered zone focused on NAFTA with Central America and the Caribbean, a southern cone region centered on Mercosur, both of which had successful reform processes and stable democracies in place, contrasting strongly with the third intermediary region, largely bounded by the Andes from Venezuela to Peru with increasing political instability and populist and in some case militarized governments facing severe governability problems as a result of domestic, ethnic and indigenous conflicts.

-- Participants agreed that periodic U.S. involvement in the region is not working. It's not enough for U.S. officials to give a speech one month and attend a conference six months later. The United States must engage in Latin America on a continuing basis and with sensitivity toward what Latin American leaders think the U.S. can do that would be helpful in furthering reforms. This is especially true when it comes to the complex process of political and economic reforms.

-- Participants identified a number of issues that have traditionally been viewed as domestic policy concerns but now belong on the foreign policy agenda: drug policy, immigration, human rights, environment, capital markets, and technology.

The conference sponsor was Deutsche Bank AG, and conference contributors were Banco Mercantil C.A., S.A.C.A., Continental Airlines, Inc., J.P. Morgan, Merrill Lynch & Co., Inc., Schlumberger Foundation, Inc., Violy, Byorum & Partners LLC, with additional support from Banco Santander Central Hispano.

A more detailed summary of the conference, including rapporteurs' digests of all sessions and complete transcripts of key sessions will be available shortly on the Council's website, <http://www.cfr.org>.

Progress on reconstruction and transformation reviewed WASHINGTON, D.C. -- U.S. delegates to a meeting of the Consultative Group for the Reconstruction and Transformation of Nicaragua have reaffirmed the United States' commitment to Nicaragua as it recovers from the damage caused by Hurricane Mitch in late 1998, and strives to modernize its economy and public institutions.

"Through our direct bilateral assistance program, our support for debt relief and our continuing efforts to facilitate expanded trade, we will continue to assist Nicaragua as it endeavors to consolidate democracy and achieve higher levels of economic growth," Carl Leonard, acting assistant administrator of the Bureau for Latin America and the Caribbean at the U.S. Agency for International Development (USAID), said at the close of the May 23-24 meeting in Washington.

The U.S. delegation also outlined areas of particular concern, including the need to protect Nicaragua's poorest from future natural disasters, to ensure greater transparency in the country's public institutions, to resolve outstanding property disputes, to further decentralize the government and bring the decision-making process closer to the people, and to invest more heavily in health and education as part of a poverty-reduction strategy.

Regarding debt relief, the United States last August "informally agreed" that Nicaragua should qualify under the Heavily Indebted Poor Countries (HIPC) initiative, "but noted that first Nicaragua needed to make progress in certain key areas, including developing a poverty reduction strategy paper," Leonard said.

"We are very encouraged by the presentations this morning, which indicated the progress being made in developing that strategy in a participatory manner," he added.

WASHINGTON, D.C. -- South America is recovering from an economic recession that affected the region during the last several years, says a new report by the Organization for Economic Cooperation and Development (OECD).

The 29-nation body, which includes the United States, said in its semi-annual report, "Economic Outlook," that the recovery started in late 1999 and is "gaining momentum."

OECD said that with the exception of Argentina and Ecuador, South American countries are recovering strongly. Fiscal adjustment undertaken in many of the countries and a renewed focus on labor market and other structural reforms have contributed to a significant improvement in market sentiment towards the region, said OECD.

Output is projected to recover in 2000, led by export growth in the first half of the year and by domestic demand in the second half, and could accelerate in 2001. OECD said growth in 2000 is likely to be moderate (around 2.5 percent), due to the need for continued fiscal tightening in most countries and to international upward pressures on interest rates.

The largest risk for South America, OECD said, would be a negative reaction of international capital markets to monetary tightening in the United States, possibly combined with a weakening of the U.S. economy.

The situation in Argentina, one of the region's largest economies, remains "fragile," said OECD. Industrial activity is showing some signs of recovery, although it is confined at this stage to export-oriented sectors and to the automobile sector.

However, OECD said domestic demand in Argentina is still sluggish, with retail sales falling in the first two months of the year, and business and consumer confidence remain weak. The rise in fuel prices puts some upward pressure on prices in an otherwise deflationary situation. OECD said the trade deficit is narrowing, helped by high oil prices and strong wheat exports together with sluggish imports.

Meanwhile, the financial crisis in Ecuador is still "unresolved," OECD said, with uncertainty high regarding the viability of the country's dollarization plan.

OECD said that in Brazil, the economy is expected to grow by over 3 percent in 2000, underpinned by both domestic and external factors. Rising employment, recovering real incomes and some easing of monetary conditions should stimulate private consumption in the second half of the year. Both private consumption and investment are projected to support a 4 percent growth of the gross domestic product (GDP) in 2001, OECD said.

In a separate section on Mexico, OECD said that country's GDP accelerated from the second half of 1999, driven by strong net exports to the United States and a pick-up in private domestic demand. GDP growth is likely to reach between 4.5 percent and 5 percent this year and next, OECD predicted.

Real wages in Mexico were said to have risen "markedly," but continuing high productivity gains in manufacturing have kept unit labor costs in check. OECD said manufacturing exports have remained "buoyant" and the current account deficit narrowed to just below 3 percent of GDP in 1999. With the peso broadly stable against the dollar from March 1999, the effective exchange rate has appreciated, which has contributed to the decline of consumer price inflation -- to less than 10 percent by April 2000.

However, OECD warned that Mexico's economy could be hurt, given the uncertainties of that country's July presidential election and projected higher interest-rate trends in the United States. A marked slowing of the U.S. economy could have "negative spillover effects" in Mexico, OECD said.

Meanwhile, in Canada, OECD said economic expansion has remained strong and broadly based, bolstered by buoyant U.S. demand, rising world commodity prices and improved consumer confidence associated with substantial job creation. Overall, the Canadian economy now appears to be operating at, or slightly above, full capacity, OECD said.

As for the United States, OECD said the economy is now in its fourth year of growth above 4 percent, although a slowing is projected in the second half of 2000.

The Paris-based OECD, founded in 1961, describes itself as bringing together 29 countries sharing the principles of the "market economy, pluralist democracy, and respect for human rights." The original 20 members of the OECD were located in Western Europe and North America. Joining next were Japan, Australia, New Zealand, and Finland. More recently, Mexico, the Czech Republic, Hungary, Poland and South Korea have joined.