Introduction

This paper reviews: (a) the importance of e-capability to future export performance in Latin America and the Caribbean and (b) constraints to the development of e-capability in the region and the role expected to be played by the IDB in overcoming those constraints.

Trade Liberalization and Economic Reforms

Trade liberalization is a keystone of economic reforms underway in Latin America and the Caribbean. Starting during the eighties, in a context of market-oriented economic reforms, tariffs were significantly lowered down and non-trade barriers were eliminated throughout the region. The unilateral process of trade liberalization was re-enforced by the formation of a second generation wave of integration blocs such as the North American Free Trade Agreement (NAFTA) made up by Canada, Mexico and the United States, and the Southern Common Market (MERCOSUR) made up by Argentina, Bolivia, Brazil, Chile, Paraguay and Uruguay. Thus, as a result of unilateral trade liberalization and economic integration, trade flows in the region soared during the nineties with exports increasing to $295 billion in 1998 from $124 billion in 1990 -- an annual average growth rate of 11.4 %; the increase in imports was even greater, reaching $342 billion in 1998 from $104 billion in 1990 – an annual average growth rate of 16%¹. The economic recession of 1999 slowed down trade flows considerably, except for the case of Mexico that took advantage of the US economic boom (Mexico relies in the US market for 80% of its total exports]. The extent of the 1999 recession is illustrated by Mercosur in which exports fell by 8.6% in relation to 1998, while imports fell at an even faster rate i.e., 16.4%. For the current year, 2000, preliminary data is showing trade flows returning to pre-crisis growth rates.

Export Performance: Key to Sustainable Growth

The economic recession of last year showed that trade is one of the weakest points of the economic reform program; as imports increased faster than exports, growing trade deficits became dependent on external savings that started to dry up after the Asian and Russian crises of 1998. As the countries in the region are poised for resumed growth, sustainability of the external sector becomes a fundamental issue for all countries in the region, including Mexico the best performer, so far. In this respect, e-commerce and the ‘new economy’ can play a major role in improving trade performance in the next few years. However, as any region in the developing world, Latin America has the opportunity to take advantage of the new technology but it will require major improvement in key areas, particularly telecommunication infrastructure, legal framework and the educational system.

Expected Growth of E-Commerce and Internet Use: 1999-2003

In the last five years, Latin America and the Caribbean became one of the fastest markets for Internet use and electronic commerce in the developing world. As depicted on tables I, II and III, the number of internet users are expected to increase to 19 million in 2003 from 4 million in 1999 while B2B are expected to reach $13 billion in 2003 from less than $600 million in 1999. Brazil with 53% of Internet users and 88% of online-based sales is by far the largest market, followed by Mexico (6%) and Argentina (2%). Growth in per capita income, improvement in educational computer-literacy, cost reduction and modernization/de-regulation of telecommunication systems explain the expected rapid growth of internet users and e-commerce in the next few years.

Constraints for E-Capability Development

Despite the optimistic prospects for Internet users and e-commerce, there are major challenges facing development of an effective e-capability in the region, among them infrastructure. Overall, only 12 of every 100 Latin Americans have phone lines, as compared to 66 of every 100 residents of the United States. A recent study² concluded that IT and telecommunications infrastructure, between countries as well as between regions within a country, vary from nonexistent to rudimentary to adequate to relatively well-advance in some major cities. Latin America has no major Internet backbone, no major interconnection points, and few Internet access points. The low average annual income renders PCs and some other advanced communications technologies beyond the reach of much of Latin America’s population.

An internal IDB report stated³ that to bring L.A region into the information age can be derived from the volume of resources being invested in information age technologies in the developed nations. A review of the OECD countries show that in the last ten years these countries have invested between two and a half and three percent of GDP in information age investments. If this investment trend in extrapolated to the countries of the region, the results show of that to reach a level of one and half percent of GDP, the region should invest US$ 18 billion a year. To reach the US level, the figure increase to US$ 30 billion.

To summarize, the main challenges to increase e-capability in the next few years can be stated into four categories⁴:

Challenges relating to infrastructure development

• Developing physical telecommunications infrastructure.
• Providing universal access at reasonable cost to a reliable telecommunications infrastructure in all countries of the Hemisphere.
• Achieving the interconnection and interoperability of all telecommunications networks and services.

Challenges relating to the development of an appropriate legal framework

• Adapting national juridical and regulatory systems with a view to examining whether electronic commerce issues are covered by existing laws and regulations, or whether there is a need to introduce changes in order to accommodate the validity of electronic transmissions and transactions.
• Generating a context of public policies that maximize the benefits of electronic commerce without compromising the legitimate objectives of public policy.
• Developing approaches for recognition and certification of electronic signatures, taking into account the level of technological development and the different legal systems of the FTAA countries.
• Protecting intellectual property through guaranteeing protection of copyright and trademarks in the electronic environment.
• Understanding the tax implications of the new information technologies and offering the same tax treatment for electronic commerce as for conventional commercial activities; designing technological solutions that facilitate tax administration and compliance with tax obligations.
• Ensuring the validity and enforcement of electronic contracts and providing consumers and firms with effective means for determining jurisdiction and having recourse to dispute settlement.

Challenges relating to building trust for consumers and businesses

• Developing and establishing an atmosphere of confidence for the user of electronic commerce that will not allow discrimination as between electronic and traditional trading methods.
• Establishing reliable, secure, and accessible electronic payment systems.
• Protecting user privacy in electronic commerce operations, without generating unnecessary barriers to trade.
• Ensuring an adequate protection of the consumer against practices such as deceptive advertising, fraud, unlawful content, etc. and guaranteeing the same degree of consumer protection for commercial operations through the Internet as for those by conventional means.
• Fostering coordination between businesses in an effort to efficiently integrate productive chains through the use of electronic commerce.

Challenges relating to the development of skills and awareness

• Supporting and encouraging the development of human resources, including through the training of information technology professionals, with appropriate information technology skills.
• Supporting small- and medium-sized enterprises in adopting new technologies to reduce the cost of access to electronic commerce that will enable them to achieve greater efficiency and competitiveness in the global marketplace.
• Stimulating the use of electronic commerce between private individuals and firms based on use by governments.
• Increasing efficiency and transparency in the civil services and in the supply of public goods and services by use of the Internet.
• Increasing efficiency in the acquisition of goods and services by public entities.

The Role of the IDB on E-capability

As a first step to face the e-capability challenge in its area of operation, the IDB has created, in 1998, an Information Technology Unit. The general objectives and activities of that unit can be found at web page: http://www.iadb.org/iduscripts. Even though the bank is not yet actively involved in the use of e-capability to promote trade and export promotion, there is a growing consensus that it should be in the near future. Thus, if the bank becomes active, it will use loans and technical cooperation to promote and support the use of e-commerce on active promotional policy i.e., promote exports, imports and technological change. The following objectives would be pursued:

• Development of trade infrastructure through financing of public investment; co-financing with the private sector and studies for de-regulation, privatization and regulation of private infrastructure services with small countries receiving special treatment for these kind of activities.
• Support in financing institutional funds for marketing, technical and sales missions, missions to study available e-capability technology, to facilitate joint ventures with foreign companies, and to expand or create marketing companies, especially those related with the exports of small and medium enterprises.
• Research financing for technological adaptation,
• New technology financing of export organizations, including e-capability development.
• Education financing in human resources to the requirements of the new export technology, particularly the use of e-technology.

Finally, the 2000 ITC Executive Forum will, certainly, yield new ideas on the use of e-capability to promote trade and export promotion in developing countries. Thus, the IDB –as well as other regional development banks – have the opportunity to take advantage of those new ideas and to incorporate them within their own trade development strategy.

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