Ecuador: Going the Socialist Route? via CIPE Development Blog
On September 28, the Ecuadoran public voted overwhelmingly in favor of adopting a new constitution that had been swiftly drafted by the Constitutional Assembly and finalized by the government of President Rafael Correa. Little analysis has been applied to this 150-page document. What will this mean for the rule of law in Ecuador?
What is understood about the provisions of the new constitution is worrisome; the lack of understanding in Ecuador about how the constitution will be interpreted is of even greater concern. A number of the constitution’s provisions could present challenges to the rule of law and the future of private investment in Ecuador, including:
- Expanded executive control over the judicial and legislative branches of government, as well as the central bank.
- Respect for...
Oil is no substitute for productive economy via CIPE Development Blog
Out of the oil-exporting countries that have benefited greatly from the record high prices over the last few years, Venezuela is among the leaders of spending its new-found riches rapidly and in a politically motivated way. The Christian Science Monitor reports,
With crude reaching $145 a barrel this year, [President Chávez] has been able to pour billions into social programs at home and lavish the rest abroad, sending subsidized oil from Nicaragua to New York – including up to 100,000 barrels of oil per day to Cuba, discounted by as much as 40 percent – and making pledges to invest in infrastructure, refineries, and agricultural programs everywhere in between.
But with the price of oil 55 percent less than its peak in July, continuing this largess may no longer be feasible,...
A tale of two Chinas via CIPE Development Blog
If you remove China from global poverty statistics, increasing poverty somewhere nearly wipes out decreases everywhere else. Since 1981 China on average has moved 20 million people per year past the dollar a day benchmark. A few economists have documented the process for this progress in great detail, which can be crudely summarized as a near instantaneous decentralization of economic control under Deng Xiaoping in the late 1970s followed by a decade of cultivating and reaping the benefits from the greater presence of market forces in the economy.
It is easy to assume that China’s ascension to the upper echelon of global economies is due solely to Deng-era reforms, but something else entirely may have taken root beneath the skyscrapers of Shanghai and other fast-rising cities in the...
A risk we can all afford via CIPE Development Blog
These days, the wealthy might want to learn a thing or two from the poor. Mexico’s CompartamosBanco is a microfinance institution that raised eyebrows in April 2007 when it shed its nonprofit mantle and became a publicly traded entity. Since then, its stock price has not been able to avoid a hit from the global financial crisis; but when it comes to determining its true value, Compartamos might have a distinct advantage.
Microfinance, especially lending to microentrepreneurs with no collateral, is labour-intensive and costly—in Compartamos’s case, around $152 a year per client, with an average loan of $450. By charging an interest rate that generates a profit, the bank can grow fast and provide many more “micro-entrepreneurs” with the finance they need, even at interest...
What’s Going On in Bolivia? via CIPE Development Blog
I’ve seen plenty of ‘propaganda’ movies about the destructive nature of democratic market economies. But here is an alternative - an interesting movie about the destructive nature of democratic and market reversals based on what’s been taking place in Bolivia over the past couple of years. If you have 10 minutes to spare, check it out.
You need to a flashplayer enabled browser to view this YouTube......
Venezuela’s Illiberal Advance via CIPE Development Blog
Chances that Venezuela starts functioning as a liberal democracy are unfortunately low. The executive and those who advocate for a Bolivarian revolution constantly threaten the rule of law, impartial justice, free elections and freedom of association, among other fundamental attributes of a liberal democracy.
Last week’s events in the country show further consolidation of an electoral authoritarian regime. First, Hugo Chávez signed 26 laws that will not go through the National Assembly, Venezuela’s Congress. The president had the authority to draft and sign laws thanks to special powers granted by Congress earlier in 2007. The president’s legislative powers, according to congressman Mario Isea, aim at “improving people’s conditions”. The new laws,...
A Private Sector Vision for Paraguay via CIPE Development Blog
Several months ago, Paraguay embarked on an historic change of power to elect Fernando Lugo to become president of the country. The election marked the end of 60 years of rule by the Colorado Party and renewed the hopes of the Paraguayan people that real change might bring them the jobs and prosperity that they had hoped to gain from their democratic transition.
This week, another historic event occurred in Paraguay when the largest gathering of business leaders ever seen in the country came together to create a private sector vision for Paraguay’s future. Over 600 business leaders met in Asunción as well as the leaders of over 55 business associations to debate key reform topics and reach consensus on the most important points. This vision will soon be consolidated and published and...
Entrepreneurial spirit alive and well in Cuba via CIPE Development Blog
Although Raúl Castro promises to remain faithful to the ideals of the revolution after de facto succession of his brother Fidel, he has publicly acknowledged that Cuba’s socialism does not work. For one, the collectivist system created through farm land expropriations is crumbling in the face of the global food crisis. In order to increase production, the government is turning to market approaches: it shifted control of farms from Havana to local councils and granted private farmers the right to till plots of up to 99 acres of unused government land.
While the economic transformation may just be getting started on the farms, it’s well under way in the cities where entrepreneurs – inhibited by the lack of legal opportunities to conduct business – fuel the growth of the informal...
Same old dance via CIPE Development Blog
In yet another poorly choreographed move, Venezuelan President Hugo Chavez strikes again. This time around, he has opened negotiations with Spain’s Banco Santander to nationalize the Bank of Venezuela, as part of his plan for “21st Century Socialism.”
Venezuela’s GINI coefficient is .48, and an estimated 37.9 percent of Venezuelans live below the national poverty line. Given Venezuela’s natural resource base and other assets, those numbers could be lower. Up until the 1980s debt crises, those numbers were lower across Latin America; however, such conditions were based on the unsustainable practices of Import-substitution Industrialization (ISI), when the nationalized firms dominated the formal economy.
Gabriel Garcia Marquez brilliantly captured, in One...
Is Bolivia Becoming a Failed State? via CIPE Development Blog
The last few days in La Paz have been replete with demonstrations. Members of the Bolivian Workers Central (COB) have been blasting dynamite and taking over government ministries to force the government to pass a new pensions law that favors them. More demonstrations are scheduled in the coming days and the COB is threatening a “punishment vote” against President Morales in the upcoming revocatory referendum scheduled for August 10. These demonstrations are being repeated in cities around the country. Other groups are also demonstrating. For example, a union of handicapped citizens has blocked entry to an oil refinery causing gasoline shortages. They are also seeking government pension payments.
Meanwhile, the revocatory referendum is causing increasing political division between...
Just pawns in their game? via CIPE Development Blog
From 1997 to 2004, this particular country’s economy grew an average 6.8 percent, and it has accelerated since then, while its real GDP per capita has almost tripled since 1990, now estimated at $2,300 - two figures that, if you’ve studied growth economics, indicate it is still in transition and far below the global speed limit based on technological change. You might care more about the fact that 15 percent of this country’s population lived below the World Bank’s dollar-a-day line in 1993, and by 2002 it was only two percent. You might also care about how this growth was achieved while maintaining a GINI coefficent of .37 - far more equitable than America’s .45, China’s .47, or Brazil’s .57. Or do you care about infant mortality - which was...
Poor, Informal, Global via CIPE Development Blog
A widely cited report from the International Labor Organization (2002) estimates that 70 percent of workers in developing economies operate in the informal sector. Throughout the 1990s the sector generated a majority of jobs across Latin America, a story with which CIPE is very familiar. A new story in Good Magazine renews the vivid, dynamic informal economy that emerged from the “shadows” thanks to Hernando de Soto and others. It’s a story set in Paraguay’s Ciudad del Este, but recurring around the world:
A fat Lebanese man emerges from a room behind the cash register holding an AK-47 as though it were a full cup of coffee.
“Four fifty,” he says, sucking on a toothpick. “American. And if you want help getting it across the border, that can be arranged.”...
The Spirit of Democracy via CIPE Development Blog
A few weeks ago at the World Movement for Democracy, Larry Diamond, author of the Spirit of Democracy, sat down with our executive director John Sullivan to talk about his new book and “the struggle to build free societies around the world.” You can watch the interview on CIPE’s YouTube channel.
In part 1, Diamond talks about the meaning of democracy and whether it is for everyone or if it has cultural and other limitations. Is it for everyone? A hint - Diamond thinks that democracy is possible in China within a generation.
You need to a flashplayer enabled browser to view this YouTube video
In part 2, the discussion goes into the current state of democracy in Africa, including the recent crisis in Kenya and the ongoing conflict in Zimbabwe.
You need to a...
Cuba Solidarity Day via CIPE Development Blog
Thinking about supporting Cuba’s quest for democracy, economic freedoms, and human rights? Well, you can do so on May 21st - the official Cuba Solidarity Day! Visit the website for examples of programs you can conduct in support of Cuba’s democracy on this day. Even more details are available in this factsheet.
Countries and civil society groups worldwide have an opportunity to join Cuban democracy leaders and non-governmental organizations in commemorating May 21 as of a “Day of Solidarity with the Cuban People”. Democracy leaders and non-governmental organizations plan to demonstrate their support for human rights on the island during mid-May when Cubans across the island traditionally commemorate Cuban patriots who have suffered at the hands of the regime for the...
Solutions that Don’t Work via CIPE Development Blog
Venezuela is not unique. The problems its facing, including rising prices of basic food supplies and other goods, are similar for many others. Solutions to these problems, however, are the ones that failed time and time before.
Trying to figure out how to stop supply shortages, the government is now nationalizing cement industry to make sure that cement is kept in the country and not exported. ( Many other countries are putting export controls in place and reducing import barriers to increase the domestic supply of grains and other foodstuffs, but not all of them go as far as nationalizing industries).
Chavez is also increasing taxes on foreign oil companies. But are citizens happy with the moves? Well, as recent polls show, the approval ratings of Chavez have dropped from...
The people versus Cristina in Argentina via CIPE Development Blog
This week has to have been a dramatic shock to the government of Cristina Fernandez in Argentina. First, there were fifteen days of strikes against the draconian export tax she has levied on producers of agricultural products and other goods. The draconian new tax would take a bite of up to 45% of the earnings of exporters, who would also still be subject to other local government taxes. The result has been nationwide road blockages of trucks carry goods to market by Argentina’s famous “piqueteros.” This week the result has been goods like meat disappearing from grocery store shelves and pictures of milk being poured by producers down sewers.
On Tuesday, broader public support in solidarity with producers led to demonstrations in the streets of Buenos Aires and other...
panem et circenses via CIPE Development Blog
“Bread and circus” is a derisive term often used for actions designed to distract a discontented populace from focusing on the policies or situations created by their leaders. In some places, however, bread and circus could actually be a welcome improvement. Failed states, dysfunctional ‘democracies’, and imploding autocracies — Somalia, Haiti, and Zimbabwe are prime examples– are failing to provide the bread, and the politics have become the circus. Far from creating a distraction, it is wreaking unfathomable damage on the people and their country and calling attention to the leaders’ incompetence or malfeasance.
So much so, that in Haiti there’s even rising nostalgia for the Duvaliers (see NYT article). The Duvalier dictatorship, handed...
Is Paraguay Waking Up? via CIPE Development Blog
The upcoming presidential elections on April 20 in Paraguay present what may come to be viewed as a turning point in Paraguayan democracy. Paraguay was a latecomer to the club of democracies in the region, having only just established it with the adoption of their 1992 constitution. Before and since that day, the national political process has been dominated by the Colorado Party and its more than five decade lock on presidential politics.
That may now be changing. The current frontrunner in the polls is Fernando Lugo, a former bishop whose party platform expresses the populist politics reminiscent of Hugo Chávez of Venezuela, Evo Morales of Bolivia and Rafael Correa of Ecuador. Other contenders are former General Lino Oviedo who formally tried to oust a democratically elected...
Olympic Dreams Deserted? via CIPE Development Blog
Cuban sports officials woke on Wednesday morning to discover that five members of the Cuban Under-23 national soccer team had abandoned their team in the middle of a pre-Olympic tournament in Tampa, Florida. By Wednesday night, two more team members had defected. This was quite a turn of events for the Cubans, which had a 1-1 draw against the United States on Tuesday night. Down seven men, Cuba now faces an even more challenging path in reaching the Olympic Games, the epitome of international cooperation.
A spokesman for U.S. Customs and Border Protection said the players will likely be granted political protection under the United States’ “wet foot, dry foot” policy that allows Cubans who reach U.S. soil to obtain asylum. If the players do in fact defect from their country, Cuban...
More Access to Technology in Cuba? via CIPE Development Blog
In the 1990s, the Cuban government banned sales of many consumer electronic goods. Several years ago, it also banned sales of computers and key computer-related goods to consumers, allowing only limited exceptions for certain individuals.
The computer departments of the retail stores were divided into two zones: a well-stocked area for government buyers, and a smaller area where the public could buy diskettes, CDs and other such items.
The moves, it seems were reasoned by the mere fact that electronic goods were consuming too much electricity - electricity the country couldn’t provide to all. Somehow, however, I doubt that the party leaders had any problems in obtaining these goods all these years and operating them. And I can think of some other reasons to ban computers and...
Pension System Reform - Coverage and Risk via CIPE Development Blog
Chile has changed its pension system. This is big news, considering how controversial the current system was when it was introduced in the early ‘80s and how vaunted it has become, being emulated around the world.
Earlier Chile had a so-called PAYGO or pay-as-you-go system, in which today’s workers contribute to the system and those contributions are (for the most part) paid out for today’s retirees. One major problem with PAYGO systems is demographic bulges in which more people retire than enter the workforce, creating imbalances in the ratio of persons being “supported” by current workers. Increasing life expectancy exacerbates that problem further. In the individual account system that Chile adopted, workers contribute to their own accounts, investing those contributions...
Brazil’s Entrepreneurs Afraid to Take Risks via CIPE Development Blog
Entrepreneurship involves risk. According to a March 6th article in the Economist, “Betting the Fazenda,” Brazilian entrepreneurs are less willing to take risk than their Chinese and Russian counterparts. What could account for this? Well it doesn’t take long to figure out why once you look at the stats from the IFC’s “Doing Business” report. Here’s what the Economist points out:
Starting a business takes 152 days and requires 18 different procedures, according to the IFC’s annual worldwide “Doing Business” study. It takes 2,600 hours for a medium-sized business to keep up with its taxes each year. The same hypothetical business would pay 69% of its second-year profits in tax, if it played by the rules and did not receive special tax breaks.
Geez! Considering...
Food Rots in Haitian Ports due to Bureaucratic Red Tape via CIPE Development Blog
Much-needed food-relief imports are rotting at the Haitian ports of Port au Prince and Cap-Hatien, according to the AP. In a country where the UN Food and Agriculture Organization estimates that at least half the population is malnourished, roughly 4 million people, and 75% of the food is imported, the effects of this problem are immense. The government instituted these regulations in an effort to prevent corruption in the country, which Transparency International has ranked as the most corrupt (followed by Burma and Iraq). Also, the closer inspections were meant to curtail the Colombian drug smugglers who have used Haiti as a stopover on their way to the US.
The effort is noble indeed. Both of these problems do need to be addressed. However in a country with poorly trained customs...
Is He Really Gone? via CIPE Development Blog
Reading the newspaper headlines this week it looks like Andres Oppenheimer’s and other author’s predictions of Fidel Castro’s demise have finally come true. (There are dozens of books with titles like “Castro’s Final Hour” or “After Fidel” that have been published over the last 50 years since Fidel came to power.) However, the million dollar question is: Will things actually change now that Fidel has retired as commander in chief?
The long illness that forced Fidel to temporarily transfer power to his brother was hardly the “transition” that most people would have hoped for. The Cuban government showed it could function even without Fidel the micromanager running things on a day to day basis. Now that Raul Castro will permanently assume the role of commander in chief...
Venezuela lifting price controls? via CIPE Development Blog
Yep, that’s right. I was surprised too when I read this article from Bloomberg. The Venezuelan government has lifted price controls on sterilized milk. Producers were stymied by the controls and significantly reduced production since they were operating at a loss. There are still prices controls on meat, eggs, cooking oil, etc., but this might be the first domino to fall in Chavez’s socialist economic agenda.
While Chavez blames the food shortages on speculation by private companies, 46% percent of Venezuelans blame it on the president himself. Not encouraging numbers, especially since his much hyped constitutional changes failed in the recent referendum.
Could it be that the tide is turning on Mr. Chavez? It certainly seems like it. Apparently people are catching on that his...
Should Latin America be afraid of China and India? via CIPE Development Blog
On December 6, 2007, the Organisation for Economic Co-operation and Development (OECD) launched the publication Latin American Economic Outlook in Washington, DC. The report analyzes specific challenges that Latin American economies are facing including: mismanaged public expenditures, pension reform, and the need to create a more competitive telecommunications sector.
The Economic Outlook focuses also on the relationship between India, China, and Latin America. It is clear that the booming economies of China and India have contributed to the recent growth of Latin American economies. Both countries are key buyers of Latin America’s raw materials. This demand for raw materials has helped Latin America sustain one of the best growth periods since the 1970’s. Since 2003, economic...
The 21st century socialism not so popular? via CIPE Development Blog
President Hugo Chávez suffered his first electoral fiasco in the nine years in office. In a Sunday referendum to decide – among others – whether he could stay in power beyond 2012, 51 percent of the voters said “no.” Such a close margin shows that Chávez remains popular among large segments of the society, but apparently his political and economic vision, which includes formally declaring Venezuela a socialist state, abolishing presidential term limits, and controlling the Central Bank, turned out to be too radical for many. Even some of the voters who supported Chávez in the December presidential elections this time around declined to give him carte blanche.
Observers and international analysts point out that the referendum results show a growing societal mistrust on whether...
Hernando de Soto on the Future of Democracy and Markets in Latin America via CIPE Development Blog
Hernando de Soto is famous for his work on reducing the size of the informal sector and paving the way for people to be part of the formal economy and to participate in a democracy. But to us at CIPE he is also known as the first person - literally - who walked through our doors when we opened back in 1984. A program with Hernando’s Institute for Liberty and Democracy in Peru was our very first project. And since that first project he remained a good friend of CIPE, a committed supporter of market reforms and democratic institutions around the world.
De Soto gained a lot of global visibility since we first met him in the 1980s - some may even say he has a celebrity status these days. He advises presidents; he is known worldwide for offering economic solutions to terrorism;...
From the Streets to the Shopping Mall via CIPE Development Blog
A couple of weeks ago, thanks to CIPE’s friends at the Institute for Liberty and Democracy (ILD), I was able to visit a very special shopping center in Lima, Peru. The name of the shopping mall is Polvos Azules: it derives its name from the street where a group of informal vendors used to be located. These informal vendors are now the owners of the Polvos Azules shopping center.
In the 1980s, approximately 5,000 street vendors were forced by the city to abandon their business locations and move to the Polvos Azules area. At that time, these poor entrepreneurs were widely considered a nuisance. Hernando De Soto’s organization, ILD, came to the aid of these entrepreneurs, recognizing their desire to make an honest living, improve their lives, and thereby make a productive contribution...