Autor: Leani García
There's no denying it; whether it's share of trade or percent of foreign direct investment (FDI) in the hemisphere, the U.S.' economic presence has decreased. Even when the U.S. didn't slip a place in terms of a trade partner, its overall share of countries' imports or exports declined across the board, while other countries' increased -especially China's.
Tracking commerce flows and foreign direct investment (1995-2011) Click HERE
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Viernes 14 de Junio de 2013
Autor: Lauren Villagran
In the geographic heart of Mexico City, the borough of Benito Juarez offers a vision for Mexico’s middle class future.
When low-cost mass merchandiser Comercial Mexicana opened its first upscale grocery, City Market, it did so on a corner in the Colonia Del Valle neighborhood in Benito Juarez. Shoppers crowd the aisles of polished organic produce, pay $30 for Scottish smoked salmon, and sip cappuccinos at an in-house café.
Benito Juarez doesn’t contain the capital’s richest neighborhoods, where mansions hide behind enormous walls. But it doesn’t contain the poorest barrios, either. It’s solidly middle class. And the rest of the country may be headed in that direction, too, albeit slowly.
This week, national statistics agency INEGI released a new study showing that Mexico’s middle class grew 4 percent between 2000 and 2010 to 39 percent of the population, or 44 million people.
INEGI’s definition of the middle class weights spending above earnings, in part because people have greater incentive to underreport the latter, the report said. INEGI looked at 17 variables, including how much people spent on dining out, personal care, and credit cards, among other things.
This is the picture INEGI paints of Mexico’s middle class: Three quarters live in cities. At least one member of the typically four-member household holds a job in the formal sector, and the head of household has at least some high school education. The children attend public school and have a computer at home.
Mexico City’s Benito Juarez borough has the city’s highest level of schooling by far, with more than 74 percent of residents claiming some time spent studying in high school, technical school, or college, according to 2005 INEGI data. In fact, neighborhoods like Colonia del Valle are packed with schools. The borough has the highest average per capita income and the most homes with a computer in Mexico City.
“For a long time, seeing Mexico as poor has been a pretext for not doing what should be done [for development] and an argument for sustaining the impossibility of development,” wrote Luis de la Calle, author of Mexico: A Middle Class Society, Poor No More, Developed Not Yet, in an Op-Ed in the capital’s El Universal newspaper.
But it’s also true that most of Mexico still doesn’t look much like the Benito Juarez borough. Some 59 percent of Mexicans reside in the lower class, according to the INEGI report. This largest group of people are not necessarily impoverished, the report says, but their position is precarious. They could be one pink slip or illness away from poverty; an economic downturn or high inflation could hit them especially hard.
Just 1.7 percent of Mexicans qualify as upper class.
The agency notes in its report that measuring the middle class is a “complex discussion.” It remains a hotly debated topic in Mexico and across Latin America, where the spread between the richest and poorest remains abysmal but where the ranks of the middle are swelling, especially in places like Brazil, Chile, and Peru.
Mr. De la Calle argues that perceiving Mexico as middle class allows for the visualization of a development that could come from within these households.
“The investment of households in their own future” – a central characteristic of the middle class, he wrote – “is indispensable for the construction of a modern country, which is now possible.”
Disponible en: www.csmonitor.com
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Last month, Venezuela elected a president on the recommendation of Hugo Chavez. But as the problems the country faces loom larger, President Nicolas Maduro is finding his predecessor’s one-man show a difficult act to follow.
It was inevitable that whoever succeeded Hugo Chavez risked being seen as “egg without salt,” a popular Venezuelan expression used to describe those lacking charisma. So to a country more inclined to be accepting of economic and social troubles, as long as there’s some juicy political scandal to be discussed, there’s nothing quite so damning as being as a huevo sin sal, a label Maduro is rapidly acquiring.
The signs were there even as the election results were being announced. The huge double-digit polling lead Maduro enjoyed over his rival, Henrique Capriles, at the start of the campaign was whittled down to a mere 1.5 percent margin of victory come election day — a sorry contrast to the 11 percent victory margin Chavez had scored over Capriles five months earlier.
“No matter what you thought of Chavez, at least he kept Venezuela entertained,” says Marianna Hernandez. Hernandez never voted for Hugo Chavez, who died in March following his two-year battle with cancer, but nevertheless laughs along with a smartphone app that replays a selection of the politician’s more comedic outbursts.
“Just listen to this one,” she enthuses, tapping a speech bubble on her phone’s screen.
“I am a-studying English because I want to see the Condoleezza!” Hugo Chavez’s lyrical drawl, comedic even in his non-native tongue, rasps out from her phone’s speaker. Marianna giggles along with the assembled crowd to the recording, a sound bite from Chavez’s weekly Aló Presidente television show.
“Because, she does not a-speak a-Spanish, so I must to a-speak English with her,” it continues.
Marianna shakes her head fondly as the recording ends. “It’ll be a long time before we see anything like Hugo Chavez again,” she laments.
“No one knows what they’ve got until they lose it,” said Belkis Brito, the managing director of socialist television channel Guatopo TV, which she and her team run from the chavista stronghold of Santa Teresa del Tuy, an industrial conurbation on the outskirts of Caracas.
A member of one of the more radical factions of chavismo, Belkis works hard to propagate the ideologies of her comandante. From her radical perspective, she has little faith in President Maduro’s commitment to the Bolivarian Revolution.
“We voted for him because he spoke passionately about the revolution,” she said in an interview in the television studio, overlooking the asbestos roofs of the surrounding slum. “But Maduro is not continuing the fight with the speed that we need. We want to see concrete action.”
President Maduro is not only feeling pressure from the chavistas who mourn his predecessor, he is also facing an opposition party that refuses to accept his victory in last month’s elections. Citing over 3,000 counts of electoral fraud, the party’s allegations range from multiple-voting in chavista-strong areas to polling booth intimidation. Such claims have been lent momentum by the U.S. government’s refusal to legitimize Maduro’s leadership on similar grounds.
“He’s fighting a battle on two fronts,” said Mark Jones, professor of political science at Rice University in Texas, “with an opposition that denies his legitimacy as president and with the chavistas who supported him only because Chavez told them to.”
The crisis created by the opposition’s refusal to legitimize the newly elected president has been magnified by a schism within the government itself. With the opposition barred from participating in congress until Maduro is recognized, decisions are being made by the shadowy “political-military command” fronted by Diosdado Cabello, the congress president and military-backed political powerhouse currently embroiled in a corruption scandal. Ultimately, the power wielded by Cabello within the government could turn into the most serious threat to Maduro.
Polarizing the country further than ever, the opposition’s position manifested a brawl in the National Congress and Capriles himself has been threatened with jail for his submission to the supreme court that Maduro’s victory be annulled.
Yet while the politicians bicker, Venezuela is suffering. The annual inflation rate is nearing 30 percent, the country’s annual homicides exceed those of the United States and Europe’s combined, and the chronic shortages of basic goods are causing supermarket waiting times of up to three hours.
“There’s no sugar, flour, oil, or toilet paper,” said Ricardo Mota, a 34-year-old publicist waiting in a Caracas store to buy four bags of rice, the maximum permitted due to short supply. “We’re forced to stock up on these things because we don’t know when there will be more.”
“It’s the government’s fault,” he added. “The socialists have been fighting so hard to stay in power that they’ve ignored the needs of the people.”
Many observers doubt Maduro’s ability to handle these problems. The new president’s public confidence and political influence have suffered following a difficult post-election period for the socialists.
“Maduro looks like someone who just barely scraped a win after Chavez left him a 15 percentage point lead,” says David Smilde, professor of sociology at the University of Georgia. “His lack of popularity gives him less power within the government, and therefore less mandate to be an effective president.”
Maduro has been left with no one but himself to blame for the country’s worsening situation. The political strategy of passing the buck to the preceding government is unavailable to a politician who campaigned primarily on extolling the virtues of his predecessor.
“Right from the beginning there was the danger that whoever had to follow Chavez would become the scapegoat for the problems he left behind”, says Professor Smilde, “and it’s going to make Maduro go down in history as the man who couldn’t keep up Chavez’s legacy”.
“Chavez’s charisma and popularity allowed him to get away with far more in terms of policy shortcomings,” says Professor Jones. “Maduro gets none of that benefit because he lacks the built-up goodwill that Chavez enjoyed.”
“Maduro isn’t being cut any slack”, he says, “he’s being forced to be one hundred percent accountable for the failings under Chavez. This would be difficult for anyone, but it’s especially tough for a president who is seen as illegitimate.”
Others see little reason to lose faith in Venezuelan socialism simply due to the loss of its posterboy. “Everyone says Chavez was popular because of his charisma,” says Mark Weisbrot of the Center for Economic and Policy Research in Washington, D.C., “but he won 15 elections because he delivered on his promises.”
“The government needs to stabilize the exchange rate, bring down inflation and handle the shortages,” the co-director of the independent think tank continued, “the situation is very fixable. The economy isn’t a question of charisma, it’s a question of policy.”
As Venezuela takes stock following the loss of Hugo Chavez, the country is looking to the man charged with carrying the torch of the firebrand leader’s legacy. But lacking the show-stealing, crowd-pulling, blame-dodging charisma that Hugo Chavez exuded, the irony is that having won the election, Maduro must now win the country’s confidence if he is to lead his nation forward.
“We don’t need jokes, or songs, or dancing politicians,” said Enzo Bogatí, a 40-year-old communications technician speaking from an opposition heartland in the district of Altamira in Caracas, “we’ve had fourteen years of that and look where it got us”.
“What Venezuela needs is sound policy and responsible government,” he added, “that’s something we haven’t seen in a long time.”
NEW YORK – Let me posit a radical idea: The most critical threat facing the United States now and for the foreseeable future is not a rising China, a reckless North Korea, a nuclear Iran, modern terrorism, or climate change. Although all of these constitute potential or actual threats, the biggest challenges facing the US are its burgeoning debt, crumbling infrastructure, second-rate primary and secondary schools, outdated immigration system, and slow economic growth – in short, the domestic foundations of American power.
Readers in other countries may be tempted to react to this judgment with a dose of schadenfreude, finding more than a little satisfaction in America’s difficulties. Such a response should not be surprising. The US and those representing it have been guilty of hubris (the US may often be the indispensable nation, but it would be better if others pointed this out), and examples of inconsistency between America’s practices and its principles understandably provoke charges of hypocrisy. When America does not adhere to the principles that it preaches to others, it breeds resentment.
But, like most temptations, the urge to gloat at America’s imperfections and struggles ought to be resisted. People around the globe should be careful what they wish for. America’s failure to deal with its internal challenges would come at a steep price. Indeed, the rest of the world’s stake in American success is nearly as large as that of the US itself.
Part of the reason is economic. The US economy still accounts for about one-quarter of global output. If US growth accelerates, America’s capacity to consume other countries’ goods and services will increase, thereby boosting growth around the world. At a time when Europe is drifting and Asia is slowing, only the US (or, more broadly, North America) has the potential to drive global economic recovery.
The US remains a unique source of innovation. Most of the world’s citizens communicate with mobile devices based on technology developed in Silicon Valley; likewise, the Internet was made in America. More recently, new technologies developed in the US greatly increase the ability to extract oil and natural gas from underground formations. This technology is now making its way around the globe, allowing other societies to increase their energy production and decrease both their reliance on costly imports and their carbon emissions.
The US is also an invaluable source of ideas. Its world-class universities educate a significant percentage of future world leaders. More fundamentally, the US has long been a leading example of what market economies and democratic politics can accomplish. People and governments around the world are far more likely to become more open if the American model is perceived to be succeeding.
Finally, the world faces many serious challenges, ranging from the need to halt the spread of weapons of mass destruction, fight climate change, and maintain a functioning world economic order that promotes trade and investment to regulating practices in cyberspace, improving global health, and preventing armed conflicts. These problems will not simply go away or sort themselves out.
While Adam Smith’s “invisible hand” may ensure the success of free markets, it is powerless in the world of geopolitics. Order requires the visible hand of leadership to formulate and realize global responses to global challenges.
Don’t get me wrong: None of this is meant to suggest that the US can deal effectively with the world’s problems on its own. Unilateralism rarely works. It is not just that the US lacks the means; the very nature of contemporary global problems suggests that only collective responses stand a good chance of succeeding.
But multilateralism is much easier to advocate than to design and implement. Right now there is only one candidate for this role: the US. No other country has the necessary combination of capability and outlook.
This brings me back to the argument that the US must put its house in order – economically, physically, socially, and politically – if it is to have the resources needed to promote order in the world. Everyone should hope that it does: The alternative to a world led by the US is not a world led by China, Europe, Russia, Japan, India, or any other country, but rather a world that is not led at all. Such a world would almost certainly be characterized by chronic crisis and conflict. That would be bad not just for Americans, but for the vast majority of the planet’s inhabitants.
Lunes 18 de Marzo de 2013
Autor: Sibylla Brodzinsky
While most developed nations struggle to weather financial storms, Latin America has been riding out the choppy economic waters thanks in large part to a wave of high commodity prices and active monetary policies.
But in a report released Sunday, the Inter-American Development Bank (IADB) is warning that the region faces weaker economic growth in the next five years as commodity process drop and governments face higher fiscal deficits.
The IADB’s top economists forecast annual growth for Latin America and the Caribbean over the next five years to be 3.9 percent, almost a full percentage point lower than the 4.8 percent growth seen in the five years before the 2007 global recession.
“Bonanzas are not eternal,” said IADB President Luis Alberto Moreno at the bank’s annual meeting in Panama.
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“Lower commodity prices imply a drop in the terms of trade for most countries in the region and, therefore, a negative shock to income,” the report said.
The rate of growth for investment is also projected to fall from 10 percent to just 5 percent annually, according to the report. Lower investment will make it harder for countries to tackle one of the main obstacles to economic growth – poor infrastructure – which could mean there's an additional risk that "growth would be lower than indicated in these projections.”
Many of the countries in the region relied on expansionary monetary policies, such as increasing the money supply or targeting interest rates, to spur growth during the worldwide economic downturn. But the IADB suggests that governments tighten fiscal policy in order to give themselves more wiggle room in a downturn.
“It is not a question of using fiscal and monetary policies today to counter a negative shock and bring growth in the region up to its potential,” José Juan Ruiz, the IADB’s chief economist said.
“We need to find measures to increase our potential rate of growth.”
Such measures to foster economic growth should include structural reforms, which the report says will vary from country to country according to particular needs. However, in general, the report suggests a focus on reforming labor markets to formalize the work of 56 percent of the Latin American workforce that functions outside the formal economy. Another suggested focus is on the region's “deficient infrastructure,” which is a “constraint on economic growth,” the report said.
Disponible en: www.csmonitor.com
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Sábado 9 de Febrero de 2013
Autor: Paul Hay
According to the Energy Policy and Sector Analysis in the Caribbean (2010 – 2011), the “Caribbean islands have the potential to lead the world to a new energy future.”
Research on this paper was the cumulative effort of the Department of Sustainable Development, in the Organization of American States (OAS), National Renewable Energy Laboratory, and the Renewable and Appropriate Energy Laboratory, of the University of California (Berkeley).
It assessed the Bahamas and nine Eastern Caribbean Islands, namely: Antigua and Barbuda, Dominica, Grenada, St Lucia, St Kitts and Nevis, St Vincent and the Grenadines; and made note of the availability of extensive solar and wind resources and geothermal potential in several of the Eastern Caribbean islands.
However, it also recognized that use of fossil fuels would remain significant over the long term because all islands were signatories to the PetroCaribe Accord, under which Venezuela supplies oil to them on concessionary terms.
Winston Hay, author of Energy Cost and Our Economic Future: Can Jamaica Reduce Electricity Costs? in the Mona Business School (MSB) Business Review, Nov/Dec 2011, states that the limitation of most renewable energy sources is their inability to consistently generate electricity on a 24-hour basis.
He indicates that the real benefit of renewable energy is in its use of indigenous energy sources and promotion of a cleaner environment, but cautions that it is currently unlikely to result in lower electricity rates. In other words, renewable energy generated under the prevailing state-of-the-art technology is unlikely to reduce our electricity bills below the current electricity rates, without energy conservation. More specifically, Mr Hay states that “Solar Energy is unlikely to become economic for grid supplies in the near future, despite the intensive research being undertaken internationally.”
Grid-connection is the most economic use of solar energy. It feeds electricity into the electric grid, which requires a licence, and must allow for the grid to provide electricity in the night, when there is no sunlight. Use of solar energy in the Caribbean should not be discouraged.
Rather, our effort at energy conservation cannot wane, but must intensify. Solar energy provides a means of import substitution, whereby valuable foreign exchange can be saved by use of this indigenous source and, coupled with energy conservation, dependence on the use of fossil fuels will be reduced. Our balance of payment accounts should improve; our foreign debt and liability reduce under the PetroCaribe Accord to finance purchase of the fossil fuels;, and the environment in our tourism-dependent economies can be protected.
The former paper seems to corroborate that use of solar energy will not reduce the electricity rates. It indicates that a peak of only 174 kW of solar power was generated in the 927 MW of peak energy demand experienced in the target islands in 2010, but there was potential for use of 205 MW of solar electric energy.
The 2010 electricity rates varied from a low of 21 US cents/kWh in St. Kitts and Nevis to 46 US cents/kWh in Dominica, with the mean being 33 US cents/kWh: which is also the mid-range value for the Caribbean at large, based on a 2011 survey by the Caribbean Electric Utility Service Corporation (CARILEC).
Local rates for solar energy were unavailable, so the researchers made reference to rates of the Pacific Islands: where electricity generated from grid-connected solar photovoltaic (PV) panels costs between 35 – 70 US cents/kWh, from large-scale solar PV with battery storage 75 US cents/kWh, and from off-grid solar PV between US$1.50 – US$2.50/kWh.
So, only grid-connected solar PV (which cannot provide electricity at night), could provide electricity at a rate equivalent to the mean rate stated above; and electricity bills would not fall at those rates.
On the Web site of the Petroleum Corporation of Jamaica (PCJ), a page titled “Solar Power in Jamaica” states that the amount of direct solar radiation received by the island is equivalent to five-times the annual energy requirement, but only 1 percent of that requirement is actually provided by solar energy.
The Jamaican government recently invited proposals for the connection of 115 MW of renewable generating capacity to the national grid on a build, own, operate basis. The acceptable rate specified for solar energy was 26.73 US cents, compared to 40 US cents currently being charged for public electricity supply in Jamaica.
Roger Chang, president of the Jamaica Solar Energy Association (JSEA), in commenting on the process, stated that the rate was reasonable and there was interest, but many investors, including the members of his association, had not placed bids because the conditions were not attractive enough.
This observation is particularly relevant to local investors who lack experience in financing and installing systems of that scale. Whether there will be any successful bids for solar energy is left to be seen, and how their rates will compare to the new LNG plants that are to be installed is another matter.
Typical diesel/oil plants in the islands studied have thermal efficiencies ranging from 30 – 40 percent, but some Jamaican plants are over 30-years old and have thermal efficiencies of 28%. But, the new LNG plants are expected to be significantly more efficient. Also, peak use of electricity occurs at night in Jamaica, so if grid-connected solar PV installations provided most of the 12.5 percent of renewable energy sources planned for 2015 the electricity rates would still not be significantly reduced.
I have noticed a regional effort to implement renewable energy options, but the effort to effect energy conservation seems to have been left to the CARICOM Regional Organization for Standards and Quality (CROQ), which for the last decade has sought to establish regional building standards, based on the International Building Code.
It is a misconception that use of renewable energy, and solar energy in this instance, will allow us to continue disregarding energy efficiency and conservation. Compliance with modern energy codes, for instance, permit energy usage to be reduced by as much as 30 percent without use of renewable energy.
Energy efficiency and conservation will also reduce the need for increased generating capacity allowing reduction of the costs associated with supply and installation of power plants. As was stated earlier, use of renewable energy is unlikely to reduce our electricity bills below the current rates, but foreign exchange can be saved by use of an indigenous energy source, such as solar energy, and coupled with energy conservation, dependence on the use of fossil fuels can be reduced.
Disponible en: www.caribjournal.com
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By Marcelo Ballvé
25 May, 2012
Too often, political and economic analysts summarily lump Bolivia together with the rest of South America’s leftist governments.
That has not been a comfortable category to be in over the past decade, and recent developments on the continent -- such as Argentina’s nationalization of Spanish oil company YPF in April and Venezuela’s January announcement that it would withdraw from the World Bank-hosted International Center for Settlement of Investment Disputes, a key arbitration forum -- have only further rattled investors and governments. Even moderate Brazil has recently raised eyebrows with its tough treatment of multinational oil companies.
But President Evo Morales’ Bolivia is a special case, and a somewhat paradoxical one. The Morales administration follows a mercurial foreign policy and has nationalized strategic assets, including natural gas fields and utilities. And yet, at the same time, it manages Bolivia’s economy and public accounts prudently -- even conservatively.
Morales’ strategy is a curious blend of ideology and pragmatism, and it takes some disentangling to understand the motivations behind it.
On the economic policy side, there is a plan for an international bond issue of up to $500 million sometime this year. It would be a historic event, the Andean country’s first fundraising of this sort since the 1920s, according to the Economist Intelligence Unit.
Back then, Bolivian bonds financed a railway. This time, Bolivia is seeking not so much a capital injection -- the amount is relatively modest, and Bolivia can marshal plenty of investments with its own resources -- as an introduction to the international capital markets. As it courts potential investors and works with major U.S. investment banks, Bolivia will have a unique chance to be judged on its economic merits.
“That is precisely what we want,” said Bolivian Economy and Public Finance Minister Luis Alberto Arce Catacora in a phone interview with World Politics Review from La Paz. As the bond issue is promoted, he explained, international investors will have to assess the state of Bolivia’s economy.
Catacora believes investors will find much to like, starting with Bolivia’s strong economic growth. In 2009, a dismal year for most economies due to the global financial crisis, Bolivia had the highest growth rate in South America at 3.4 percent. For 2012, the IMF forecasts 5 percent GDP growth, higher than projections for Brazil or Mexico.
Another welcome piece of news came May 18 when Standard & Poor’s, the ratings agency, upgraded Bolivia’s creditworthiness a notch due to strong GDP growth, low debt and prudent fiscal and monetary policies. That means Bolivia’s credit is now rated higher than oil-rich Venezuela’s and neighboring Argentina’s. Though Bolivia’s rating, at BB-, is still well below the investment-grade status of Brazil and Uruguay, it means an international bond issue is hardly a hare-brained scheme.
Yet despite this effort at an image-makeover via the debt markets, observers point out that Bolivia still has many bridges to mend internationally.
“Yes, Bolivia has a policy mix that is much more moderate than it sounds,” said Edward Luttwak, senior associate at the Washington-based Center for Strategic and International Studies. Yet Bolivia’s economic moderation is “overlaid by a more strident foreign policy,” he cautioned. Examples include close ties to Iran, testy relations with Israel and a stormy relationship with Washington, highlighted by the expulsion of the U.S. ambassador in 2008.
Overall, Bolivia seems to be following a regional trend toward diversification of trade and diplomatic links and a downgrading of once-dominant bilateral ties with the U.S.. When asked which countries or regions Bolivia looks to as it seeks to strengthen economic relationships, Catacora did not mention Europe or the United States, although the latter remains Bolivia’s second-largest export partner. Instead, he emphasized the role of Latin America -- almost half of Bolivia’s exports go to Brazil, whose economic influence is increasingly felt in Bolivia -- but also Asian nations, including China.
“Asian nations are now in our sights,” said Catacora. “As long as there are complementarities, in the sense that they are willing to share technology in exchange for our natural resources, Bolivia of course will regard these countries very positively.”
Bolivia’s strategic importance rests mostly on its natural resources. It already ranks among the world’s top 20 natural gas exporters and has zinc, tin, gold and silver mines, as well as what are believed to be the planet’s largest lithium reserves.
But despite openness to foreign investment in its natural resource sector, Bolivia’s government has been adamant about exercising control and ensuring its take. This is accomplished through increasingly powerful state-owned enterprises, which administer resources and collect revenue. At year-end in 2011, the government estimated the combined assets of these companies at $6 billion. And ongoing nationalizations mean this constellation of state-owned businesses continues to grow. Just this month, the government nationalized a transmission grid owned by Spain’s Red Eléctrica Group.
Catacora argues that these nationalizations should not negatively impact Bolivia’s image. From the start, Bolivia has nationalized only assets that were once public enterprises but that were privatized by past governments adhering to a neoliberal model. It has also indemnified dispossessed companies, if not always with amounts investors consider fair.
Moreover, any foreign investment initiated and funded by private capital is “absolutely guaranteed.” That is why, Catacora added, even with all the nationalizations over the years, foreign direct investment has continued to flow to Bolivia, and its credit ratings have improved.
Bolivia’s multifaceted policies are aimed at placating Morales’ political base among the poor indigenous majority, while simultaneously maintaining a stable natural resource-based economy, said Jeffery Webber, lecturer in the School of Politics and International Relations at Queen Mary, University of London. Once this dual aim is understood, the apparent contradictions disappear.
“Marginal nationalizations . . . are introduced parallel to concerted efforts to assure international investors that the Bolivian environment remains . . . secure and profitable,” he said.
When appraising Bolivia, it is misleading to consider only foreign policy and political rhetoric. Morales’ state-led economic policy may go against market orthodoxy, but it has so far racked up respectable results.
Marcelo Ballvé is a freelance writer and a former AP reporter in the Brazil and Caribbean bureaus. He is based in New York.
Photo: Bolivian President Evo Morales (photo by Joel Alvarez, licensed under the Creative Commons Attribution 3.0 Unported license).
Disponible en: http://www.worldpoliticsreview.com
The economy has slowed, but there are still opportunities around
May 19th 2012
FOR Brazil’s government recent weeks have brought some long-awaited victories. The overvalued currency has weakened to two reais to the dollar, from its peak of 1.54 last July. At 9% the Central Bank’s policy interest rate is near to historic lows and should fall further after President Dilma Rousseff’s brave decision to cut returns on government-backed savings accounts, which had previously acted as a floor. Both developments were welcomed by manufacturers, who have been labouring under a turbocharged currency and sky-high interest rates for years. Neither, though, was enough to reverse a recent shift in mood against Brazil.
Investors were initially sceptical about Brazil’s inclusion in the BRICs, the acronym devised in 2001 by Jim O’Neill of Goldman Sachs to group Brazil, Russia, India and China. But macroeconomic stability, falling income inequality and the global commodity boom ensured Brazil’s steady, politically harmonious growth. Strong banks and domestic demand made for a speedy rebound from the 2008 credit crunch. In 2010 Brazil’s economy grew by 7.5% to become the world’s seventh-largest. Brazilians, made vigilant by a history of hyperinflation and debt default, finally relaxed and accepted the applause.
It did not last long. During 2011 Brazil grew just 2.7%. That sat ill with membership of the high-growth BRICs: Russia, India and China managed between 4.3% and 9%. Foreign investors and those who advise them are reporting a new, less starry-eyed approach. “The days of Brazil being given a free pass are over,” says Ivan de Souza of Booz & Company, a consultancy. Some go further: in an article in Foreign Affairs magazine called “Bearish on Brazil”, Ruchir Sharma of Morgan Stanley argues that the country rose with commodity prices and will fall again when they do.
A reassessment of Brazil’s recent performance is overdue. Between 2000 and 2010 Brazil’s terms of trade improved by around 25%; in the past five years private-sector credit doubled. Such tailwinds cannot continue to blow—and even with them Brazil has grown on average by only 4.2% a year since 2006. Only productivity gains, and more savings and investment, can provide fresh puff. Those are nowhere to be seen: IPEA, a government-funded think-tank, puts annual productivity growth for the past decade at a paltry 0.9%, much of it from gains in agriculture. Investment is only around 19% of GDP. Add soaring labour costs and a still-strong currency, and many analysts are lowering their sights for potential annual growth to about 3.5%.
Lower interest rates could give a fresh boost to credit. But not a big one: consumers are already overstretched. Serasa Experian, a credit analyst, says that demand for loans between January and April was nearly 8% lower than during the same period in 2011. Defaults are rising and banks are tightening their terms. Loans that are more than 90 days overdue are now 8% of the total. Itaú and Bradesco, two big banks, saw their share prices fall recently when they upped their provisions against bad loans. Banco Votorantim, which has lent heavily against cars in recent years, has posted three quarterly losses and is rumoured to be a take-over target.
Irritations that were overlooked with growth at 4.5% are likely to resurface when it is nearer to 3%. Taxes are hideously complicated, and take around 36% of GDP, a far higher number than in other middle-income countries. Guido Mantega, the finance minister, points out that the government has cut some taxes, and that tax collection is rising because more businesses are formalising their activities. But Raphael de Cunto of Pinheiro Neto, a São Paulo law firm, argues that the government’s ability to collect taxes has run far ahead of any effort to streamline them, increasing the burden on businesses.
For some, political intervention has supplanted an overvalued currency as the biggest risk in Brazil. Petrobras, a state-controlled oil giant, and Vale, the world’s biggest iron-ore producer, are now being run more to suit government aims than in minority shareholders’ interests, says Joseph Harper of Explorador Capital Management, a fund manager. Such concerns have weighed on both firms’ share prices. Explorador is gradually reducing its Brazil exposure in favour of Peru, Colombia, Chile, Panama and Mexico, where it sees similar opportunities at lower prices, and with less political risk.
Such worries have been amplified by Argentina’s expropriation last month of YPF, a Spanish-controlled oil firm. Though in private ministers are keen to stress that Brazil respects property rights, they are unwilling to irritate an important trading partner or jeopardise Petrobras’s Argentine interests by criticising their neighbour publicly. That is risky: Brazil is indeed different from Argentina, but outsiders may not realise that. The governments of both Colombia and Mexico openly distanced themselves from Argentina’s move.
The threat by a prosecutor to impose huge fines on Chevron, an American oil firm, and jail its executives after a small leak off the coast of Rio de Janeiro earlier this year raises concerns about the treatment of foreigners. Lawyers say that some clients are now asking whether a misstep in Brazil means risking having one’s passport confiscated, as happened to several Chevron executives. The answer is almost certainly not; that the question is even asked is an unnecessary own goal.
A little less Brazil-mania could be salutary. No country has yet been able to abolish business cycles, and some caution now might prevent exuberance from becoming irrational. Even better, it might persuade the government to remove some of the barriers that hold Brazil back. But although overall growth is likely to be modest for some years, there are still plenty of opportunities, particularly in agribusiness and mining, and in catering for growing demand for education, health-care and the like. The new mood, says Mr Harper, is “selectively bullish on Brazil”.
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Argentina's economy has been coasting on its past successes. Don't be fooled.
Photo by: Foreign Policy
When Argentina defaulted on its sovereign debt in 2002, few predicted that the country would soon bounce back -- much less rank as one of the fastest-growing emerging economies over the next decade. Yet, aided by aggressive fiscal and monetary stimulus, Argentina has enjoyed an Asian-style 7.6 percent average annual growth rate since 2003, with commensurate gains in employment and declines in poverty. Indeed, Argentina's success in thumbing its nose at foreign creditors has emboldened some observers to suggest that Greece and the other debt-ridden eurozone economies try default as an alternative to the harsh austerity prescribed by the IMF and the European Union.
It seems that Argentina managed to turn "Washington consensus" policy on its head and get away with it. Or maybe not: A closer look at Argentina's post-crisis economy suggests the boom is living on borrowed time, that the chickens will soon come home to roost.
The model for Argentina's post-crisis boom was the Perónist policies of the 1940s and 50s. Corporatist Perónism accommodated the interests of business, labor, and the poor through collective bargaining managed by the state. Resources were skimmed from the country's highly productive agricultural sector to cover the cost of wages and profits in excess of competitive levels.
But Perónism promised more than it could possibly deliver. Expansionary macroeconomic policies led to ever-rising inflation, stagnant productivity, and battles among highly organized interest groups that spurred popular unrest and increasingly repressive government reactions. Argentina was left with anemic public services, crumbling infrastructure, profitless industries, and paralyzing union demands for wage increases unsupported by productivity gains.
Juan Perón was overthrown by a military junta in 1955. Yet the legacy of Perónism survived, its peculiar mix of corporatism, populism, and nationalism rising and ebbing across the tumultuous 1980s and 1990s. Argentina was especially hard hit by policy experiments designed to curb inflation that left the economy uncompetitive in global markets, burdened by a huge external debt and committed to an overvalued exchange rate pegged to the dollar. Its economic troubles culminated in a financial crisis in 2001-02, with the collapse of the fixed exchange rate and a sharp recession accompanied by fierce unemployment and a wave of bankruptcies.
The economic policies of the post-crisis administration of Néstor Kirchner (2003-2007) appear to have initially taken into account the hard lessons of unsustainable policies. While Perónist in spirit (and optics), Kirchner's economics initially amounted to a pragmatic response to the massive income redistribution precipitated by the financial crisis and subsequent recession. On the one hand, the crisis wiped out household savings, increased unemployment to twenty-four percent, and impoverished large segments of the middle class. On the other, the depreciation of the currency made exporters (and domestic industries vying for market share with importers) more competitive and greatly reduced the burden of their debts denominated in pesos.
Kirchner suspended payments on the country's sovereign debt, relieving the government budget of massive ongoing obligations. He also echoed Perónist tradition by favoring domestic industry through policies that maintained the now-grossly-undervalued peso exchange rate, by plowing huge sums into expanded social programs and by imposing price controls on key sectors (such as energy) to suppress inflationary pressures.
On their face, these policies hardly seemed sustainable. But in a stroke of luck, his programs coincided with the start of a global commodity boom that provided the government with windfall revenues from export taxes. As a result, Argentina was able to clear its debts to the IMF in 2005 (well ahead of schedule), freeing Kirchner from the IMF's calls for fiscal prudence and its demands for a shift to more market-oriented policies.
A key element in Kirchner's post-crisis recovery strategy was the preservation of the aforementioned undervalued exchange rate. Toward this end, the government once again pegged the Argentine peso to the dollar -- though this time at an exchange rate that effectively protected domestic industry from foreign competition. The government maintained this rate by intervening in the foreign exchange market, even though the high prices of Argentina's key commodity exports suggested that a market-driven strengthening of the peso was needed to fight inflation. Indeed, the exchange-rate peg was complemented by domestic monetary policies that fed the fires of inflation.
On other fronts, Perónist populism ruled the day. The government went to war with commodity exporters, protecting the purchasing power of Kirchner's constituents in an inflationary environment by restricting food exports and imposing price controls.
When Kirchner decided not to run for reelection and handed the presidency to his wife, Cristina Fernández de Kirchner, in 2007, many hoped that she would begin liberalizing the economy. But that has not happened. And in what amounts to Perónist déjà vu, the failure to allow both currency and product markets to adjust to supply and demand is now exacting a toll on both Argentina's productivity and it competitiveness in international markets.
The economic consequences are nowhere more apparent than with energy. Argentina has abundant deposits of natural gas: the country appeared on the verge of becoming a major exporter in the early-2000s. But price controls have reduced the profitability of investment in the sector to such an extent that domestic shortages are now forcing Argentina to import natural gas. Ironically, this has made it necessary for the government to subsidize imported gas, even as it refuses to allow natural gas producers to charge for the full cost of production. Recent estimates place the sheer waste associated Argentina's energy policy at about $8 billion, or close to two percent of GDP.
The government's tilt toward its urban industrial constituents has also taken a toll on farm output. Argentina has a clear comparative advantage in agriculture: the country's vast fertile plains potentially make it an export powerhouse to rival the American Midwest. Yet early in Cristina Kirchner's rule, farmers went on strike to protest the government's efforts to skim the cream from the commodity boom by increasing taxes on exported wheat, soy, and meat.
Under Ms. Kirchner, the total tax on agricultural exports has risen to 75 percent, effectively curtailing new investment into the sector. Instead, investment is instead flowing into uncompetitive sectors favored by Perónist politicians and bureaucrats.
The most bizarre example is the government's import-substitution program in frigid Tierra del Fuego. In 2009, Ms. Kirchner sought to create jobs in this desolate region isolated from markets by distance and geography by encouraging production of consumer electronics -- that's right, TVs and smartphones. To this end, she doubled the value-added tax on imported electronics (which largely come from Asia), a move she later backed up with restrictive import-licensing requirements. She also lowered the already-minimal taxes paid by electronics companies (notably, Samsung) that assemble products in the region. The baksheesh, including exemptions from the income tax, value-added tax and taxes on imported parts, have cost the Argentine treasury about $1.3 billion -- more than $100,000 for each of the 10,000 jobs that have been created.
Argentina now faces the double whammy of a slowing global economy and productivity-sapping domestic economic distortions. The deteriorating balance of international payments is stimulating speculation about a new peso devaluation, while the country's increased levels of protectionism are generating threats of retaliation from its regional trade partners.
Less tangible, but more ominous, there has been a decline in the quality of governance across the decade. Argentina has seen a marked deterioration in the World Bank's measure of government effectiveness and the rule of law, even as the government's increased reach has produced a significant drop in most dimensions of economic freedom.
Argentina's post-crisis model is thus coming unraveled, and the economy appears on course for another reality check. As in past run-ups to disaster, Argentine wealth is fleeing the country despite the government's tightening of capital controls. A new financial crisis could be especially devastating because the country's differences with foreign debt holders (other than official lenders like the IMF) are still unresolved, effectively freezing it out of global capital markets.
Plainly, this unsustainable economic model holds little promise for debt-strapped eurozone countries seeking a fresh start. However, Argentina's initial post-crisis successes do offer some insight into the applicability of the Washington Consensus approach. IMF-type stabilization programs that focus on austerity are extremely expensive in terms of lost output and falling living standards. By contrast, aggressive Argentine-style stimulus in the wake of a large devaluation could offer an attractive, short-run solution.
Note that emphasis. It is imperative to make the transition from a demand-oriented strategy to one focused on expanding production for external markets as soon as recovery is well underway. In Argentina, the lingering power of Peronist interest groups has led Argentina to miss this transition window -- although recent moves to reverse subsidies suggests that the government is beginning to realize the seriousness of the country's economic plight. One can only hope that this realization has not come too late.