Plummet of The Americas; These countries cannot compete in basic manufacturing with East Asia, or in high technology with the United States and Europe.

Byline: Jeffrey E. Garten (Garten is the Juan Trippe professor at the Yale School of Management. (He can be reached at jeffrey.garten@yale.edu.))

As leaders of Latin America and the Caribbean gather this week for the fourth Summit of the Americas, big-bang reform is probably the last thing on their minds. Mexico's Vicente Fox is a lame duck. Argentina's Nestor Kirchner is turning to economic nationalism and Venezuela's Hugo Chavez to destructive populism. Brazil's Luiz Inacio Lula da Silva is enveloped in scandal. Political dramas in Ecuador, Bolivia and Peru are turning into farces. Too bad, because these countries are in serious trouble.

Instead of focusing on the urgent need for dramatic social and economic reform, leaders at the summit likely will be thinking about the 19 major elections taking place in the next 18 months. They will also be taking credit, no doubt, for buoyant economic conditions, even though so much of the real credit goes to forces beyond their control--low interest rates, near-record flows of capital into emerging markets and soaring demand from China for commodities such as oil, copper, meat products and soybeans.

If they were really honest with themselves, the summiteers would acknowledge that they've lost their way. Mired in theorizing about this or that model, they don't seem to have the practical capacity to focus on the hard realities. Their countries cannot compete in basic manufacturing with the developing nations of East Asia and Eastern Europe, or in high technology with the United States, the European Union, Japan, or even South Korea. This leaves them dependent on exporting food and other raw materials, and hostage to the cyclical swing of commodity prices, just as they have been for centuries.

If global interest rates tighten, as seems likely, the region's high external debt service will come under increasing pressure. If the dollar declines, under the pressure of widening U.S. deficits, Latin American currencies will rise, undermining their export competitiveness. If China's import boom continues to level off, high commodity prices will subside. Though last year Latin America's GNP grew nearly 5 percent, its fastest rate in 25 years, many experts say it needs to grow 6 to 10 percent in order for prosperity to spread as widely as it has in Asia today.

It's not enough for the region to do well by its own standards, since it is in a race with other emerging-market economies for capital, technology and talent. In the 1990s, productivity grew at a 0.7 percent rate in Latin ...