SUBJECT: US RELATIONS WITH BRAZIL, ARGENTINA AND URUGUAY

MODERATOR: MIGUEL DIAZ

8:45 A.M. (EDT), THURSDAY, JULY 18, 2002

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MR. REICH: It's always good to come back to CSIS -- (audio break) -- relationship with CSIS since then. So I'm always happy to come back. But I also know that CSIS likes the intellectual exchange, the intellectual combat that I prefer, rather than just a formal presentation.

I have a formal presentation which I will share with you, but since the topic of this seminar, breakfast, is the Southern Cone, what I'd like to do is leave most of that for the question-and-answer period. There's a couple of reasons.

There's a bureaucratic reason, and that is that if I tried to include a lot of stuff on the Southern Cone in the speech, I would have had to have it cleared, which means that I wouldn't have gotten here in time.

(Laughter.)

And secondly, it probably would not have reflected my opinions. The nice thing about Q&A is that I'll say whatever I want, and then later on I have to explain. "Why did you say that?" "Oh, well, gee, you know, it was just a spur-of-the-moment answer to a question." So there's a method in the madness.

Anyway, I'm happy to be here. And CSIS really is a catalyst for foreign policy thought and debate in this town, and I think it adds a good deal to the intellectual vigor of this city.

Before I get to the Southern Cone, I would like to share with you a little bit about where we are in Latin America and where I think we ought to be headed -- be headed. Those are two words. (Laughter.) And then I'll deal with my impression of Argentina, Brazil, Uruguay. Obviously, having spent two days in each, I'm an instant expert. I know almost as much as Ambassador Fernandez Faingold, who is here.

But, anyway, while on this trip and other trips to the region, I've encountered a perception which I think needs to be addressed, that the United States is not sufficiently engaged with our partners in the

hemisphere. In my view, this perception is not only untrue, it is impossible and it would be completely undesirable.

My message is that the United States is engaged in Latin America perforce of our historical circumstances and by design. First, we are bound together by shared values. There is now a consensus in the Americas in favor of democratic government. This consensus began to emerge more than 20 years ago.

In the late '70s, only about a quarter of the people of Latin America enjoyed some form of democratic government. Today all the nations are democracies except Cuba. We are becoming a community of states based on this common belief, as was codified in the Inter- American Democratic Charter that establishes democratic government as the birthright of all citizens of this hemisphere.

And as you all know, by coincidence, that charter was signed in Lima, Peru on September 11th of last year, just as the attack on the United States was taking place. And Secretary Powell stayed in Lima for another hour after being called back so that he could personally sign the democratic charter and illustrate the commitment of the United States to constitutional rule and democracy in this hemisphere.

Our shared values are derived from a common history. The history of the Americas is a history of the progress of freedom. We struggled for independence here in the new world. We established democratic governments here to secure our rights and allow us to explore the opportunities that this vast and plentiful hemisphere has to offer. No other region has made such progress and yet has so much potential.

History tells us that natural and political geography dictate patterns of trade. Neighbors of like mind are most likely to be our best trading partners. The U.S. sells more to Latin America and the Caribbean than to the European Union. Trade with our NAFTA partners is greater than our trade with the EU and Japan combined. We sell more to the Southern Cone, to Mercosur, than to China. You don't hear that very often in debates about trade with China.

Latin America and the Caribbean comprise our fastest-growing export market. These commercial relationships bind the prosperity of the United States with the prosperity of this hemisphere. President Bush has said that he believes that the 21st century will be known as the century of the Americas.

Having been the governor of a border state, the president sees the nations of this hemisphere as partners and neighbors. He has been very personally engaged in the affairs of the region. He believes that emergence of democratic states in the Americas and the prospects for the growth of hemispheric trade and development make this a defining moment.

The United States is engaged with Latin America, necessarily and happily so. We share values, history and geography. During the Cold War, American statesmen used to say of Europe and NATO, "We are there and we are committed." One might say of the United States and Latin America today, "We are here and we are committed." The president believes in the future of the Americas, and our policy reflects his confidence and his vision.

We have challenges. This is a very exciting time in the history of the Western Hemisphere. Miguel was telling me earlier -- he said, "Where did that saying come from, 'May you live in interesting times?'" And Ambassador Terry Todman correctly said, "It's an old Chinese curse." (Laughter.)

Well, we're living in interesting times. But there are also many opportunities. There are many challenges. While we're optimistic, we're not naive. The enormous progress we have made in the past century, in the past 20 years that I mentioned, has not severed the region from its past.

The ideas of freedom and equality are being put into the practice of democracy and markets throughout the hemisphere. But this historic evolution is not without difficulties or opposition. These are nations that are still struggling with the legacy of poverty, statism and authoritarianism.

I am confident that the forces of democracy, however, and freedom are on the right side of history. But there have been and will be setbacks. The leadership of the United States is critical to overcoming these obstacles to progress.

The Bush administration's agenda for our hemisphere has four goals:

To strengthen security, promote democracy, encourage responsible governance and stimulate development.

It is often said that security is the first function of a state.

Since September 11th, no issue has captured the attention of the public as security.

The attacks on that day were brutal reminders to all of us of the danger that evil men pose to open and democratic society, the value of our way of life, and the necessity of our leadership in the world.

We were very hearkened by the expressions of sympathy and condolences offered by the people throughout the Americas. Led by Brazil, our friends in the OAS invoked the clause in the Rio treaty recognizing the attack on the United States as an attack on all. We are deeply grateful for the support of our neighbors in the war against terror.

Our first war of the 21st century is peculiar to our time. Our enemy is a lethal combination of transnational criminal networks and terror organizations. Today many challenges to our values and our interests arise from such combinations, even here in our hemisphere. Terrorist organizations are operating in Peru and the tri-border region of Argentina, Paraguay and Brazil.

In Colombia, narcotics traffickers and terrorists are waging a vicious campaign of political violence that kills 3,000 people every year. Colombia can defeat the terrorists, but it needs help from its friends to do it. They need training, arms, equipment and intelligence to implement a successful military strategy.

The United States has a national interest in the success of democracy in Colombia and the region. Our values and the future of our hemisphere are at stake. As President Bush said, quote, "Our first commitment is to democracy and political freedom. Freedom -- the freedom to vote, speak, worship and own -- is the great idea of our time and of all times," unquote.

Terror is not the only threat to democracy and freedom in the region, nevertheless. Democracy ultimately rests on the confidence of the people it serves. It is the responsibility of leaders, not merely political leaders but all civic leaders, to maintain the trust of the public. Corruption in the leadership class, motivated by greed for money and for power, is poison to democracy and inimical to freedom.

In Latin America, there are countries that are suffering leadership crises. I do not say that corruption is unique to Latin America. In my view, moral failings are evenly distributed throughout the human population. One only has to examine the front page of the Wall Street Journal to find evidence of corruption in the United States.

It is incumbent upon leaders to create an environment in which the darker side of human nature is held in check and incentives are provided for good behavior. Absent those restraints and incentives, corruption may run rampant. As Alan Greenspan observed in his testimony before Congress only two days ago, the corruption in the corporate boardroom resulted from a failure of checks on corporate leaders and frenzied capital markets that offered perverse incentives to express greed.

Some have suggested that the democratic and free-market model has failed in certain Latin American states. That is a misinterpretation of events. The model has no more failed in Latin America than in North America, Europe or Asia. The failures that have occurred are the result of the imperfect and incomplete implementation of democracy and markets.

The challenge in Latin America is for the leadership class to overcome the legacy of poverty and statist governments and eliminate the perverse incentives that the remaining elements of the old regime still offer.

On my visit to Argentina -- and I'm not singling out Argentina here; it's just that it was my most recent visit -- I expressed our sincere desire for economic recovery. Argentina has been a stalwart ally of the United States and a champion of democracy in many international fora. We stand ready to aid Argentina directly and through international institutions.

But it is incumbent on Argentines to put forward a sustainable economic program. I am sure they will do so. Despite their real suffering, the Argentines remain committed to democracy. That commitment is evidence of their faith in themselves and their confidence in their country's future.

Democracy is always a work in progress. It requires the constant effort of leaders and citizens to make sure that its institutions are honest and work as they were intended. That is its great strength and weakness.

There is no perfect democracy, as there are no perfect people. But democracy is endlessly perfectible. The challenge is to work continuously toward that end.

To help meet that challenge, the Bush administration has undertaken to provide incentives for good governance with a new approach to foreign aid. President Bush announced the Millennium Challenge Account initiative last March in Monterrey, Mexico.

We will increase our core development assistance by over 50 percent over the next three years, $5 billion added to the $10 billion already existing, resulting in a $5 billion annual increase over current levels by Fiscal Year 2006 and beyond. These monies will be directed to those countries that govern justly and honestly, uphold the rule of law, fight corruption, invest in their people, and promote economic freedom.

This is a change from our traditional posture. We are not just going to provide aid to countries based on their per capita incomes and their very real needs. We're going to provide aid to countries to help them get out of the poverty by promoting social, economic and political reforms. Governments that protect human rights, that fight corruption, that institute the right economic policies, are the ones that will receive U.S. aid. If they don't, they won't.

Democracy is more than an election. It is a civic culture. Public integrity, equality before the law, respect for individual rights, economic opportunity and healthy political institutions are essential to freedom. In the absence of any of these, the people suffer and lose confidence. The practice of liberal government and market economics is the surest way to a truly civil society.

Furthermore, scholarly studies demonstrate that there is a strong dynamic relationship between good governance and economic success. Uruguay, a country with a tradition of good governance, enjoys the most equitable income distribution in Latin America and public confidence in its leadership. Chile, ranked as the top country in Latin America for fighting corruption and other indicators of good governance, has benefited from the fastest economic growth over the past decade in this hemisphere.

Our ultimate goal is an American community of democratic states prospering together. The Free Trade Area of the Americas would create the largest free market in the world, stretching from Canada to Chile. We aim to include every one of the 800 million people in the Western Hemisphere. We intend to complete negotiations by January 2005 and fully implement the agreement by the end of that year. We're sticking to our plan.

The FTAA will give a powerful impetus to investment, innovation, efficiency and growth in Latin America, as NAFTA did in Mexico and Canada.

More than half of the three and a half million new jobs created in Mexico since 1995 are connected to trade.

World Bank studies have documented that developing countries which trade freely grow their GDP and reduce poverty faster than developing countries that do not -- faster even than the developed countries such as the United States.

Since 1995, when Mexico entered NAFTA, when NAFTA went into effect, Mexico has gone from number 36 in the world in exports to number eight, in seven years. And they're poised to become number five very soon if they continue at the same rate, in just seven years. That is a remarkable achievement.

By 2005, the Americas will be a $13 trillion market. Even with a very small increase in growth, just 1 percent, this would produce a tremendous amount of new income -- say, $130 billion for every percentage. Latin America would benefit disproportionately from that new income.

Opening the hemisphere to free trade will provide political benefits as well. Mexico's entrance into NAFTA heralded unprecedented political modernization. The prospect of increasing capital investment is an enormous incentive for freedom -- sorry, for reform. Capital goes where it is welcomed and where it will be protected from political risk. The competition for capital demands respect for individual rights and the rule of law. FTAA can be a transformational force in Latin America.

I'd like to share some of the anecdotes from my trip to the Southern Cone. Our ambassador to Brasilia, Donna Hrinak, had been posted in Brazil before. In fact, she had a child born in Sao Paulo. She said that there's a sense of confidence in Brazil today that was not present when she was last posted there 15 years ago.

That confidence was well-expressed by Foreign Minister Lafer in a recent editorial. He eloquently argued that Brazil had nothing to fear from trade negotiations with the United States and everything to gain. The principal export of Brazil today, if I'm not mistaken -- and there are colleagues here from USTR and others who will correct me -- is airplanes.

And we're their largest market. Believe me, if there's one country that has nothing to fear from entering and competing in the world market, it is Brazil.

In Argentina, I believe the problem, frankly, in Argentina is a crisis of confidence not unlike that which we encountered in this country in the 1930s. I repeated publicly in some of my press and other appearances in Buenos Aires the phrase of President Franklin Roosevelt that the only thing we have to fear is fear itself, because I do believe that the Argentines have lost confidence in the political and economic model.

Once they regain that confidence -- and we're beginning to see a little light at the end of the tunnel -- I believe that Argentina has all of the natural and human resources to recover.

Uruguay is a country that has been buffeted by the economic misfortunes of its two very large neighbors. I believe 50 percent of Uruguay's exports used to go to Argentina. And with Argentina's collapse, economic collapse, which is unprecedented, Uruguay has suffered, not only in terms of exports, but also tourism is a major industry in Uruguay.

The Argentines this last summer, the southern hemisphere summer, did not come to Punta del Este and other places in Uruguay as they did. They're suffering on a number of levels in Uruguay. But they do have the political structures and the commitment to democracy that I think will help them overcome the temporary financial crisis.

We're also helping, by the way. We're helping Uruguay. We're helping Argentina bilaterally, multilaterally. The United States has supported, for example, the loan that Uruguay received from the International Monetary Fund, which was significant and helped to stabilize the markets. The president exempted Argentina from the steel tariff that he imposed earlier in the year on a number of countries, as he exempted Mexico and Canada, because Mexico and Canada are part of a free trade agreement with the United States, and as trading partners they deserve special treatment. Well, so does a good friend and ally like Argentina, even though it is not yet a member of a free trade agreement, but precisely because they are going through these difficult problems. But we do believe that the United States does not have the resources by itself to help all of the countries of the region in view of the magnitude of the problem. So we have urged all of the countries to work with the international financial institutions to develop their own economic plans that we can support.

I think the future of the hemisphere -- I am actually confident in the future of the Southern Cone, and I would look forward to the question-and-answer period. I know this is probably a funny time to say that, but I think we are reaching, if we haven't already reached the bottom of the trough on the economic downturn, and are prepared for a recovery of the economies of the Southern Cone. There could still be a little bit of some more turbulence, but I sense that the confidence that Donna Hrinak said is present in Brazil is going to extend to the south -- and to the north, as we have other problems with other countries in the region as well -- and now we need it to extend also to the west, and the countries will come out.

We are looking for confident partners with which to build a better future. We believe they are there. I look forward, for example, to Brazil and the United States, assuming the co-chairmanship of the Free Trade Area of the Americas negotiations in November. Brazil and the U.S. will be the co-chairs. Working together with our partners in the region, I believe we can fulfill the promise and potential of the Americas. By the way, I don't want to leave out Paraguay. It's part of the Southern Cone. I did not have

an opportunity on this trip to visit Paraguay. I did call the foreign minister ahead of time to explain that because of time limitations I would visit Paraguay on a very near-term trip to the region. As you know, Paraguay has been having also economic and political problems. The government has our political support. The government has lifted the state of exception. They did not establish a state of emergency because of some of the riots that were taking place in the last few days. So we are confident that they will overcome this particular short-term crisis. But they have the same -- a lot of the same systemic economic problems as the rest of the region. But we are not ignoring Paraguay by any means.

Let me stop there. I appreciate your attention, and I'd be happy to take any questions that you might have. Thank you.

MR. DIAZ: Thank you. We've got about 40 minutes of question and answers. I'd ask that you identify yourself when making the questions. We'll start with Paolo.

Q Mr. Secretary, Paolo Sotero from O Estado de Sao Paolo, Brazil.

Majority Leader Armey of the House of Representatives conveyed yesterday his pessimism about the approval of TPA, answering a question about the possibility of the TPA bill being conferenced out of Congress before the August recess, as President Bush asked for. He said, "I don't believe in miracles like that since the tooth fairy" -- or something to that sort.

Assuming that his pessimism is well found, and we know that it's not conferenced out now -- it will become increasingly difficult as the elections here approach -- how do you see the challenge of trade integration in the case that the Congress continues to refuse giving President Bush fast-track authority?

MR. REICH: Well, I do believe in miracles -- and the tooth fairy is not a miracle, it's a myth. There are differences. (Laughter.) So I -- obviously Majority Leader Armey knows the situation on Capitol Hill better than I do. But I work for the president, and the president insists that we need to have this negotiating tool, the TPA, as soon as possible. We should have had it by now, and especially when you go on a trip such as the one that I just went to, and people look -- you see people look to the United States for the leadership that we should exert and that is very much in our interests to exert. And you come back and realize that some parts of our Congress or some members of our Congress are still engaged in utilizing very important foreign policy instruments, such as TPA, for frankly very partisan or parochial political interests, it is very frustrating.

I -- you know, this country used to take pride in the fact that politics stopped at the waters edge, and I think we need to go back to that principle. We need trade promotion authority. We need a Free Trade Area of the Americas. It is in our national interests. Even if we weren't interested in Latin America for political, or strategic or security reasons, which we are -- we couldn't ignore Latin America for commercial reasons. As I mentioned in my speech, they're some of our biggest trading partners -- literally hundreds of thousands, if not millions, of American jobs depend on our trade with Latin America. And it is in our interests to help them develop. If we are worried about immigration, for example, or if we are worried about the problems that poverty brings with it -- such as narcotrafficking and terrorism and unstable governments -- we have to have trade. And what the executive branch needs is the negotiating authority to be able to conclude treaties with other countries that are not subject to congressional modification. They are subject to congressional, as it should be, but on an up-and-down vote. And that's the only thing that TPA does.

It's the old fast track. It just removes the ability of the Congress, or any one member of Congress, to put a number of amendments on a bill, and thereby destroy a process of negotiations that may have taken years. We're negotiating a free trade area, a free trade agreement with Chile, where we have made a lot of progress -- are very close I think to having one. But we have to have that TPA to have it approved by the Congress.

We are beginning negotiations or conversations with Central American countries towards a free trade area for Central America, which is also very much in our interests. We have hundreds of thousands of immigrants from Central America who have come here looking for jobs, because their countries have been hit not only by the traditional problems they have faced, but by hurricanes and earthquakes and problems that have affected them. In El Salvador I understand 25 percent of the housing stock was damaged by the earthquakes that they had. Hurricane Mitch destroyed not only entire villages but agricultural production in Honduras and Nicaragua. And that was followed by a drought.

I mean, I think the only thing they haven't had in Central America is locusts, and I always knock on wood when I say that, because you know the next thing you know you see this massive wave or whatever -- however locusts travel, I don't -- I've never seen a movement of locusts personally --(laughter) -- except in the movies. But we do need -- we do need the TPA.

I know that my voice doesn't carry quite as loudly as that of the president's and others', but I really urge the Congress to try to deal with that. And I know there's very few days left before the August recess. But if they don't for some reason, then certainly we have to have it in September.

We have been waiting for a long time. As much as I would like to see it implemented or passed before August, the August recess -- I guess we'll take it in September if Mr. Armey is correct.

Q (Off mike) -- from Media International. Going to Argentina, you mentioned that what their main problem is a crisis of confidence, and you mentioned SDR. Who would you say might be the Argentine politician most likely to have the skills to meet that challenge and to restore confidence, which may have nothing to do with technical economic skills and more to do with sort of mystique and charisma? It does look increasingly like former President Menem may wind up being the next president. He has said that he would immediately adopt the dollar as the currency, since there is really no faith in the peso, and it would take years to get it back. Is the U.S., for all his faults, prepared to work with him? And how would you see the situation, if perhaps you see it differently?

MR. REICH: Obviously I can't answer your question. (Laughter.) It's a good question. It's a good question. (Laughter.) You know, we don't have a candidate. And at every stop -- not Uruguay, because they're not having an election right now -- but certainly in Brazil and Argentina I was asked that question numerous times. And you know my answer, as we say in the State Department, had the added advantage of being true, and that is that we don't have a candidate. We believe that the people of Argentina and Brazil and other countries -- democratic countries -- have not only the right but the capacity to choose their leaders.

I went a little further, however. They asked me, Well, what kind of a person would you like to see? And so since we are speaking hypothetically, what I explained -- and this is nothing revolutionary or any departure from I think traditional bipartisan U.S. foreign policy -- we would like to see leaders who really believe in democracy, in political and economic democracy that give -- that rule justly as the president said in his speech in Mexico on the Millennium Challenge Account -- that invest in their people, that rule honestly, that are good friends with the United States -- who would like to have good relations with the United States -- and are good friends with their neighbors, that don't interfere in the internal affairs of their neighbors, and don't destabilize the region. Democracies, by the way, are like that. We prefer democracies, because democracies by and large don't start wars. They worry about their internal problems. They are concerned about the growth of their economies and the well- being of their people, and are usually not training terrorists to go into neighboring countries.

There are a number of qualifications that we would in an ideal world like to see in the leadership of our neighbors in this neighborhood we live in. But I am certainly not going to get into helping to select the next president of any country.

Q What about dollarization?

MR. REICH: What about what?

Q He asked about dollarization?

MR. REICH: That's something, frankly, that once again the next government or the current government -- the government of Argentina will have to decide. That's part of -- we hope that's part of a plan. Once again, this is why the U.S. has insisted that Argentina negotiate -- include negotiations with the IMF, because it shouldn't just be an individual part of an economic plan. There should be a comprehensive plan that involves or that attacks all of the systemic flaws in the system, and not just monetary policy. There's an awful lot of things that have to be corrected in a country that is suffering, as the Argentines themselves have told me, an unprecedented economic crisis.

Yes?

Q Chris Hanstey with AFX News. Secretary Reich, could you put Treasury Secretary O'Neill's trip to the region in the context of the lengths that you were talking about? And is it a sign that perhaps Argentina has made sufficient progress in its talks with the international financial institutions to warrant near term U.S.- supported financial assistance?

MR. REICH: Well, I think it's a sin that I came back relatively unscathed. No, I see it as a very positive development that Secretary O'Neill is going, and it's one more indication of the interest and concern on the part of the Bush administration in the economic health of this region. He is the top financial Cabinet official in the United States, and I know that they are looking forward to the visit. They see it -- it so happened that we were able to announce it just on my last afternoon in Buenos Aires, and the response was very positive. At the same time, let's not forget that we are not miracle makers. We can contribute, we can help.

That's what I think the secretary of the Treasury is going to do.

Interestingly, he is not just going to talk to the governments and to financial and economic officials; he wants to see -- he has said that he wants to go and see how the Brazilians and the Argentines and others live, and he wants to go see health centers and educational centers. And I think that's very important, because we shouldn't just deal at the macroeconomic level when we look at countries. We should see how the system is working.

And as I -- once again, as I said in my remarks, we don't want to leave any one of these 800 million people behind. I realize that this is a very ambitious undertaken, and it probably will not be accomplished in our lifetime. But we can contribute to the progress that has been made in the past. I think Secretary O'Neill's visit will be very positive, even if he goes by himself without any rock stars. (Laughter.) Especially if he goes by himself without any rock stars. I correct my remarks.

Q Hi, Melinda Muniz from Eli Lilly and Company. I was wondering --you mentioned the FTA, and has there been any mention in the negotiations of intellectual property rights or was there any mention in your visits to Brazil and Argentina about intellectual property rights, especially as regards pharmaceuticals?

MR. REICH: Yes. I mean, I wouldn't say it was one of the centerpieces, but it's definitely part -- usually a part of our dialogue with developing countries. And since it has been one of the irritants in our trade relationships, it was discussed, and I believe we are making progress.

In fact -- I don't want to speak for USTR, but if I am not mistaken, deputy USTR, Peter Allgeier, was in Buenos Aires only a couple of months ago, and announced that the U.S. was restoring -- and, Sue, please correct me if I'm -- was restoring about half of the GSP exports, no?

REICH'S STAFF: Yes, if people are interested -- (inaudible) -- Ambassador Allgeier in the context of the discussions, there was an agreement with Argentina to resolve eight of the issues that had been part of our complaint in the WTO, not that of confidentiality, which should be of interest to Eli Lilly. And as a consequence of that, the United States agreed to consider on the merits Argentina's request for GSP benefits when GSP is restored. And in fact we are working to that end. And we are also monitoring Argentina's commitment to implement the parts of the agreement that would address the patent issues. So I hope that answers that. I'm sorry -- thank you, Ambassador --

MR. REICH: No, that's exactly what I was going to say. (Laughter.)

Q (Off mike.) Mr. Secretary, David Rogus. Legitimately, trade and economics dominate the agenda with the Southern Cone. But I am wondering if in your preparations for your trip, and now that you have returned, if you have any views that you would like to share with us on the traditional security relationship, especially within the military sphere.

MR. REICH: Yes. And in fact I met with the minister of defense of Argentina, I met with the minister of national security in Brazil -- as part of our ongoing -- and, in Uruguay also with the minister of interior, who has responsibility for, as you know in most Latin American countries interior has responsibility for domestic security and intelligence -- because it is a very important part of the whole of what we are trying to do. As I said earlier, that's why I mentioned the four elements of our policy, and I started out with security.

If you don't have security, you're not going to have economic development, because people are not going to invest. The domestic entrepreneur and financier is not going to have confidence enough to put money into his or her country, and that means that the foreign investor is not going to have confidence. And that's one of the things that I -- that I've always emphasized, this is not new -- and I tell people, you want foreign investment, get your domestic entrepreneur to invest first and then you will see all kinds of foreign investment coming in. Foreign investment does not -- does not lead domestic investment by and large, it's usually the other way around, because the people who live in those countries know the conditions, and if they have confidence in those conditions, they will invest.

Our security conversations with all the countries in the region have certainly increased and improved since September 11th, because we realized, once again, to use President Bush's own description that we live in this neighborhood, that if a house in this neighborhood is not safe, the other houses aren't safe, whether it be that they're subject to burglary or fire, or whatever it may be. In the national level, you know, we have -- we have terrorism, as I mentioned, a couple of examples, we have narco-traffickers, we have organized crime, and we have the other problems that are taken advantage of by demagogues or by terrorists, revolutionaries, whatever you might want to call them.

So, we are increasing our security cooperation with the countries of the region, and I think it's appropriate, as we discuss, for example, economic development, that we take into consideration the security health of these countries we're trying to help. We've increased, for example, military -- military cooperation with several countries. We are supporting American companies when they sell military equipment to the region. And I know that this -- in some circles in this town, this is not very popular, but believe me, I've been in the military -- I was in the U.S. Army, stationed in Panama -- and I know that you establish the kind -- I mean, not only -- not only at that level, you know, the very high level of a first lieutenant, but at other levels, that the relationship that develops between the U.S. and these -- and other countries when they use U.S. equipment, or when they come here to our command and general staff schools, or when we have exchanges, or we have a large military presence by and large -- I mean, it could be 10, 20, 30 people in a country -- most of the time it's not much, much bigger than that. I think when I was ambassador to Venezuela, we had, I think, a total of 55 American military officers and NCOs at Venezuelan military schools in different locations. And that has helped. Even today, we have communication with officers who, some of which are active duty, some are retired, that understand our system, that understand that we are -- that we don't have any unhealthy desires towards them, quite the contrary, that we don't covet their national territory. We want them to be strong, independent, prosperous.

And so, we very much support the military relationship, the security relationship. We're working, of course, on anti-terrorism, and -- I can't get ahead of some of the things that we'll probably be announcing, but we'll be announcing some additional cooperative -- cooperative programs with the region along these lines.

MR. DIAZ: Let me take advantage of the chair and ask you -- to sneak in a question. Since your presentation was broader than the Southern Cone, let me also ask you a question about Venezuela. Last week that had a march that fortunately didn't turn out to be violent. (Inaudible) I was just wondering you thoughts as to what are -- what is the outlook for Venezuela, and possibly what will the U.S. could play to resolve that situation?

MR. REICH: Did everybody hear the question? The question was about Nicaragua. (Laughter.) We want to help President Bogdanos.

The question was about Venezuela and what can the -- what's going on and can the United States do? We're still very -- we're very concerned about the continued polarization of opinion in Venezuela. We were encouraged, frankly, when President Chavez came back to Miraflores Palace on the morning of the 14th and gave a speech on national TV, where he said that he had made a lot of mistakes, that he apologized for those mistakes. He reached out to his political opponents, said there was need for national reconciliation, and that he was going to set up a dialogue, a process of dialogue with the elements of civil society to try to find a solution to this crisis that had led to massive demonstrations on the street, deaths of possibly as many as 80 people, the removal of the president from his office, the return of the president to his office.

A couple of things, in answer to the question -- first, Chavez, President Chavez is the democratically elected president of Venezuela. He is the legitimate president of Venezuela. The United States does not support coups. We did not support that coup, despite what you might have read, and we don't support coups anywhere. We support constitutional processes.

At the same time, governments have a greater responsibility in carrying out the law and enforcing the constitution than individuals because governments have more power. So, it's incumbent upon the government of Venezuela to reach out to the population. We haven't seen that that has taken place since April 14th, since President Chavez came back to Miraflores Palace. There's been a lot of rhetoric on both sides, and we have urged both the government and the opposition to lower the rhetoric and to try to find common ground, sit down and talk.

President Jimmy Carter was there last week. He spoke to a number of groups and individuals. I don't think he accomplished quite what he wanted to accomplish, but I don't think he's giving up either.

We have urged that the Organization of American States be called by the government of Venezuela, under this Inter-American Democratic Charter, to help them facilitate this dialogue. And that's perfectly legitimate. It is not any kind of an invasion of Venezuelan sovereignty any more than the two consecutive OAS resolutions of April 14 and 18, which supported the constitutional government of Venezuela or any kind of an infringement upon Venezuelan sovereignty -- I think quite the contrary. The OAS is the right organization to be involved. Venezuela is a part of it. Venezuela, in fact, supported, as did the United States, those resolutions, as well as a subsequent declaration in Barbados on the 2nd or 3rd of June at the OAS general assembly, which Secretary Powell attended, and I attended, and the Venezuelan foreign minister attended. We had good conversations. But we don't see the rhetoric supported by action, yet.

We're encouraged, as I said, by some of the progress made by former President Carter and by others, but it will take, I think, a recognition on the part of the Venezuelan government that they have, as I said, a greater responsibility than we have seen today. But we remaining very worried about the situation there.

MR. DIAZ: Does anybody have a question about Nicaragua, by any chance? (Laughter.) Ana? Oh, yes, you're waiting for a microphone.

Q: I'm Ana Baron from Clarin, Argentina. Before President Bush came to power, there were a lot of Republicans criticizing very strongly the IMF because of it's behavior on the Asian crisis. But now it seems that all the answers come to the IMF, mainly in the case of Argentina where the crisis is, that first we have to make a sustainable program accepted by the IMF in order to receive some help. I was wondering if there is any kind of dialogue between State Department and IMF, Treasury and IMF because it is also said that the Argentinian crisis is not only economic and financial; it's also political -- there us a crisis of confidence, as you say. So, I was wondering if there is any kind of relationship between State Department and the different agencies and the IMF.

MR. REICH: Well, the U.S. agency, of course, the department that handles the day-to-day relationship with the IMF is the Treasury Department and they are in constant communication. We in turn deal with Treasury. The State Department does have economics capabilities and economics experts, and we have an undersecretary for economic affairs, and a bureau of economic and business affairs, but as far as dealing with the international financial institutions, that's Treasury's responsibility. And I know that in the case of Argentina, there are very close communications.

And I think that some of my Republican colleagues probably still criticize the IMF for a lot of reasons, but in the case of Argentina, the kind of solution that I think will lead to a lasting correction of the -- of the underlying problems in Argentina can best be resolved at this stage by some form of an agreement with the IMF. I don't think this is necessarily an endorsement of IMF for all of the ills of all of the countries of the world, but in this particular case, those people who knew a lot more about it than I do have decided that that's the best next step.

Q Can I follow-up on that question?

MR. DIAZ: Sure. I wish you wouldn't, but go ahead. (Laughter.)

Q (Inaudible) -- on that same topic. You mentioned, earlier that the United States is prepared to help Argentina directly and indirectly.

Assuming Argentina does finalize and agreement with the IMF, what then would the United States be prepared to do? Are you talking about bilateral aid, or just moral support, public expressions of, you know, support, are -- I mean, is there some sort of bilateral aid or other trade assistance that the United States is prepared to offer?

MR. REICH: Yes, all of the above. And I think the president -- President Bush has said it. In fact, my colleague, Aldolfo Franco was here from AID -- I don't know if he's still here, but the assistant administrator of AID for Latin America and the Caribbean -- AID sent a commission to Argentina recently to see what we could do to help Argentina on a bilateral basis, what more we can do. But, the U.S. -- I don't want to go into detail, because I may be getting into things that, since, of course, your question is hypothetical, you say assuming that Argentina reaches the agreement, what will the United States be prepared to do? We are prepared to assist on a number of levels. We are very interested in the rapid and lasting recovery of Argentina, and we will do whatever is within in our power, and reasonable, and constructive to achieve that.

Q (Inaudible) --

MR. DIAZ: I think -- let's take two more questions. The one here, and -- (inaudible).

Q Otto, on Brazil.

MR. DIAZ: Excuse me -- who are you, George? (Laughter.)

Q I forgot. George Gedda of AP. Do you believe Brazil's commitment to a hemisphere-wide trade agreement will be strong regardless of who wins the presidential elections in October?

MR. REICH: Uh -- that's -- (laughter) -- I think that Brazil realizes, as a -- as a major economic power in the world, that its future is best guaranteed by an expansion, a continuation and expansion of the kind of industrial diversity, for example, that I -- that I was talking about earlier. I mean, if you ask most people in the United States, what is Brazil's principal export, they're probably tell you coffee, but it's very sophisticated aircraft. And I think that that's indicative, as I said, of their -- their capacity. I -- I actually think that the answer to your question is yes.

I think that we can't get too bogged down on political campaign rhetoric. I mean, even in this country, sometimes politicians say things in campaigns that somehow they find unable to do later on -- I'm sure, you know, against their wishes. Let's face it, people change. Sometimes people have to change a position based on the circumstances that they encounter when they come to power. I'm not predicting anything. I'm just saying -- you asked me a question -- you asked me a hypothetical question, what would happen if, and I'm giving you a hypothetical answer.

I think the answer is that the Brazil -- the Brazilian -- the Brazilians, most Brazilians realize that they're better off working towards a free trade area, for example, like they joined with Mercosur, which was working until these problems arose, then they are not doing so. And I think that, once again, Foreign Minister Lafer's excellent article recently illustrates that. I mean, people say, "Oh, Brazil is against a free trade agreement," and yet here is the foreign minister explaining eloquently why Brazil should participate in this -- in this process.

And this is the way the world is going. The countries that have benefited the most from economic development are the ones that have participated in the world economy. Look at Korea. A few years ago, Korea was in the midst of a depression. People were losing jobs by the tens of thousands, and Korea has turned around, in large part because they frankly took advantage of the devaluated currency. They allowed enormous amounts of foreign investment. I mean, you will recall that a lot of foreign banks and companies were buying Korean industries because they were basically healthy, they just had a liquidity problem. And now Korea is competing with the United States on things like cars. Ten or 15 years ago, who ever heard of a Hyundai, or a Daewoo, or a Kia, or those. You know, there's Korean microwaves and appliances, and a lot of other things in American stores. I think that's another example that countries like Brazil are aware of.

And I'm -- I'm not really concerned. And, in fact, as I said, we are looking forward to co-chairing the FTAA process with Brazil beginning this fall.

MR. DIAZ: Last question.

Q: (Inaudible.)

MR. DIAZ (?): Oh, that's too bad. It's about Nicaragua?

Q No.

Q: My name is Horico (sp) Reale (sp). I'm an international consultant in Washington, D.C.. You have rightly pointed out, Secretary Reich, that the United States and Brazil will co-chair the FTAA starting on November 1.

There is, however, another movement going on in South America. It's a process of free trade area between the (can ?), which is composed of Colombia, Venezuela, Ecuador, and Peru, and Mercosur, which is Argentina, Paraguay and Brazil. This movement from substantial now becomes quite major and the Brazil is pushing the movement quite strongly. And I wonder if you had heard anything about it while you were in the Southern Cone, and what your thoughts are about it. Thank you.

MR. REICH: You know, we're interested in a free trade area of the Americas. And the way we get to that may be by different means. I was asked, for example, if we preferred bilateral negotiations. A number of countries in the region have asked for bilateral negotiations with the United States, whereas others are participating -- let's just say for example, Chile is negotiating a bilateral treaty -- others are doing it on a regional basis, such as the Central American countries. I don't -- USTR, frankly, is the one that should answer the question. But I think from a political standpoint, I think we're pragmatic. I mean, we don't care how we get there, as long as the result is a free, fair market where everybody will benefit and with the least amount of obstacle and barriers to trade. I don't think we should read too much into the creation or the position of sub-regional trading groups.

If some of these groups manage to lower barriers among themselves and have a common external barrier, I mean, it would be easier to negotiate with them than with a number of individual countries.

So, I'm not sure I understood the question properly, but I gave you the answer that I thought [would put me] out of the fix. (Laughter.)

MR. DIAZ: Thank you, Otto, for your honest responses. (Applause.)

MR. REICH: Thank you very much.