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Latin America’s Moment analyzes economic, political, and social issues and trends throughout the Western Hemisphere.

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An illegal gold mining camp is discovered in Madre de Díos during a Peruvian military operation in 2019.
An illegal gold mining camp is discovered in Madre de Díos during a Peruvian military operation in 2019. Guadalupe Pardo/Reuters
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Illegal Gold Finances Latin America’s Dictators & Cartels. The United States Must Lead the Fight Against It.

by Will Freeman and Steven Holmes November 15, 2024

Four policy ideas to curb illegal gold mining in the Western Hemisphere.

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Americas
Corruption, Politics, and Corporate Transparency in Latin America
It is Latin America’s anticorruption season. Deep beneath the waves of revulsion about scandal, graft, and the general filthiness of local politics has been a profound concern with democracy. In particular, there is a growing awareness that the dangerous liaisons between corruption and electoral finance threaten the stability and legitimacy of elected governments in the region. While there is plenty of good news about the impressive corruption busters who are shaking up settled patterns of corruption and impunity in the region, many of the underlying links between corporate transparency, corruption, and campaign finance remain deeply troubling and potentially destabilizing. Of eighty-seven companies mentioned in the FCPA Blog’s most recent Corporate Investigations List—a count of companies whose public filings with the Securities and Exchange Commission reveal that they are the subject of an ongoing and unresolved investigation under the Foreign Corrupt Practices Act—fully twenty-six are Latin American. Given that Latin America accounts for only 7 percent of the global economy, the fact that it accounts for 30 percent of current enforcement actions is impressive. Equally remarkable is that Brazil alone accounts for more than one in five of the companies on the list. Of course, enforcement actions by U.S. regulators only target companies traded on the U.S. markets. The longstanding prevalence in Latin America of closed companies and conglomerates controlled by single families means that many regional corporate leaders are not publicly traded, much less traded on U.S. stock exchanges where they would be susceptible to U.S. regulation. Furthermore, it might be argued that much corruption is simply illegal enrichment, and does nothing to fund campaigns. But personal enrichment often comes at the cost of private-regarding policies. More damaging still is that as companies across the region increasingly expand beyond their domestic markets and into neighboring economies, they sometimes carry with them the nefarious practices of political influence-peddling that helped them dominate at home. By way of example, Odebrecht, the once-massive construction firm at the heart of Brazil’s Lava Jato case, has expanded significantly to neighboring countries since the turn of the century. In its baggage train it carried significant campaign contributions, whether to Peruvian candidates with a role in the construction of massive interoceanic highways, or to Panamanian politicians with influence in over-priced public works projects. Recognizing the dangers of corruption to electoral competition, the investigations that have swept the region in recent years have triggered a variety of changes in domestic laws aimed at destabilizing the nexus between politics and corruption. These include a ban on corporate donations in Brazil, a similar ban combined with campaign spending limits in Chile, and this week, after months of heavy civil society prodding, transparency requirements for politicians and the strengthening of anticorruption bodies in Mexico. But as a Transparency International report published earlier this month demonstrates, emerging market multinationals are lagging behind in the push for greater corporate transparency. Publicly listed companies do better than privately held companies, but overall, the results show that less than half of the emerging market multinationals are transparent about their internal anticorruption programs; only 47 percent report transparently on their holdings and subsidiaries in other countries; and a measly 9 percent report on their activities in other countries even though, on average, these multinationals have operations in twenty-six countries each. Latin American multinationals account for about a fifth of the index, and they perform about 10 percent better than the (abysmal) index average. But given that their home countries—Argentina, Brazil, Chile and Mexico—are all democracies, and half of the multinationals in the global sample are from non-democratic countries, perhaps we should expect even better from the multilatinas? Further regulation and red tape may have perverse effects, of course. But increased corporate transparency standards, especially if adopted voluntarily, might prove to be a competitive advantage, especially as the regulatory environment in Latin America is tightening anyway under citizen pressure. Under these new conditions, both multinationals and smaller firms in the region may see improved transparency standards as a way of simultaneously enhancing domestic politics in their home countries and improving their business prospects abroad.
Blog Post by Matthew M. Taylor July 21, 2016 Latin America’s Moment
Trade
Argentina and Brazil Grow Together
In my piece published this week on Foreignaffairs.com I reflect on Argentina’s and Brazil’s current political and economic situations. I argue that while their current challenges are their own, a potential long-term solution to their problems comes from each other—namely working to build an integrated South American economic hub. You can read the first two paragraphs of the article below: This year has been a rough one for South America’s two largest states. Brazil—once lauded as a rising global power—has fallen deeper into recession and political turmoil. And although Argentina is finally attempting to transform itself into a model of sober pro-market governance after years of Peronist populism, it shares with its northern neighbor a grim set of economic and political indicators: stagnating growth, endemic corruption, and a new government beset by high expectations. As a result, Argentine President Mauricio Macri’s initially high approval ratings have declined since he took office in December. In Brazil, meanwhile, interim President Michel Temer comes close in unpopularity to the disgraced Dilma Rousseff. Despite their undeniable problems, however, there remains in both countries a cause for optimism. Argentina and Brazil are, for now, absorbed in their own domestic dramas, but they have within easy reach the long-term solution to their economic woes: each other. You can read the entire piece as it appeared on Foreignaffairs.com here.
Blog Post by Shannon K. O'Neil July 15, 2016 Latin America’s Moment
Americas
Latin America’s Savings Problem
Savings are essential for growth: domestic savings finance productive investment, provide a safety net for the future, and are strongly associated with long-term growth prospects. Sadly, a new report from the Inter-American Development Bank (IADB) makes the convincing case that Latin America has fallen behind, with repercussions for development in the region for decades to come.  National savings result from the combination of decisions by individuals, businesses, and the public sector. On all of these fronts, Latin America does relatively poorly, as shown in Table 1: gross public savings are only a bit more than one-third those of emergent Asian economies, while private savings are 69 percent those of advanced economies and only 57 percent of emergent Asian economies. Latin America’s only saving grace (pun intended) is that external savings partly compensate for low national savings. But foreign savings such as foreign debt are less desirable than domestic savings, not least because they may be comparatively expensive and may also make national economies more susceptible to foreign shocks. Source: Cavallo and Serebrisky, Ahorrar para Desarrollarse, p. 30. Who is to blame for low savings? The report notes that Latin America and the Caribbean did poorly at saving during the region’s demographic boom, with the result that average savings are about 8 percent lower than where they could have been. Low levels of trust in the financial sector contribute: only 16 percent of the region’s adults have savings accounts, against 40 percent in emerging Asia and 50 percent in the advanced economies. Banks in Latin America only loan around 30 percent of gross domestic product (GDP) to the private sector, as compared with 80 percent in Asia and 100 percent in the Organisation for Economic Co-operation and Development (OECD). In the absence of good financial sector options, citizens and businesses may turn to options that are less desirable for long-term development, like sending money abroad, purchasing durables, or simply consuming instead of investing. Also problematic is the rapid aging of Latin America, which will put pressure on pension systems, many of which do not yet cover even half of the national population. Government consumption is also a significant part of the problem, in part because the region so desperately needs to increase investment in long-term infrastructure projects that governments may be better positioned to provide. The IADB estimates regional economies need to increase such investment by 1 to 2 percent a year. But for a variety of reasons, governments have found it easier to bias spending toward consumption: between 2007 and 2014, total government spending increased by 3.7 percent of GDP, but the report notes that 90 percent of this increase went to current expenditure, and public investment accounted for only 8 percent. The report minces no words when it comes to the problems of tax arrangements: tax evasion accounts for more than half of potential tax revenue in the region, which places much of the burden on compliant citizens, who then have every incentive against saving, with pernicious effects on aggregate investment and productivity. What can be done? The answer, according to authors Eduardo Cavallo and Tomás Serebrisky, lies in a combination of pension reform, infrastructure investment, more targeted tax policies, efforts to build productivity, and financial sector reform. As though this were not a daunting enough list, they also suggest that Latin America needs to create incentives for a “savings culture,” including by improving access to the financial system, developing new and more accessible savings products, and adopting microeconomic policy to provide better incentives. It is a daunting agenda, and at times seems to include everything but the proverbial kitchen sink (in this case, the kitchen sink would be a greater discussion of the role of political institutions that get in the way of building the proper regulatory environment, institutional trust, and compliance). Overall, the report provides policymakers with a useful framework for thinking about the conditions for Latin American development over the long haul, and a reminder that Latin American leaders must pay far more attention to strategically selecting long-term economic policies, particularly as the demographic boom eases away and the turn-of-the-century boom times recede into memory.
Blog Post by Matthew M. Taylor July 14, 2016 Latin America’s Moment
  • Trade
    Venezuela’s Woes Reach Mercosur
    Mercosur is under considerable internal strain. As at other times in the trade bloc’s history, shifting political winds and changing trade priorities have placed the member countries at loggerheads. The five-member organization is in the midst of what is perhaps the most severe of its periodic identity crises, exacerbated by the Left’s waning power in the region, the rise of the Pacific Alliance, and renewed member interest in external trade agreements. The most immediate cause of the current tension is the possibility that Venezuela might be given the next six-month term as rotating chair of the organization as early as next week. Foremost among the concerns this raises is the possibility that Venezuela might get in the way of ongoing talks with the European Union (EU). But also lurking in the background is the possibility that with Venezuela in the chair, it will be harder to invoke Mercosur’s “democratic clause” against the Maduro government, which has descended into seemingly intractable crisis and appears intent on sidelining its opposition in a variety of increasingly autocratic ways, including threats to dissolve the National Assembly. Paraguay has called for barring Venezuela from the chair outright. Uruguay seems intent on upholding the pre-established timetable for rotating the chair, noting that Maduro has not yet acted on his threat against the Assembly. In an emergency mission to Montevideo, a delegation led by Brazilian foreign minister José Serra pushed an intermediary solution, noting that Venezuela has not yet met the terms of Mercosur accession, which it must complete by August. Until it has met the terms of membership, Venezuela would not be eligible for the chair. Argentina has said that it will happily take the chair in the interim. Brazil’s criticism of the Venezuelan regime’s human rights record and calls for a referendum on Maduro were met earlier this week by the full twittering firepower of the Venezuelan foreign minister. Delcy Rodríguez let loose a barrage of criticism of the “insolent” and “amoral” statements of her “de facto” colleague, Brazilian foreign minister José Serrá.  For good measure, she alleged that Brazil has joined the “international right” in its efforts against Venezuela, and called attention to the ongoing “golpe” in Brazil. Caught up in her twitter tantrum, Rodríguez did not make the stronger argument in Venezuela’s favor: namely, that Brazil’s justifications for temporarily suspending Venezuela seem contrived, given that Venezuela has been permitted to chair the organization once before, and Mercosur has been famously tolerant of member violations of its rules. Ultimately, the tension within Mercosur is an expression of deeper political changes, including most especially, the shift away from leftist governments with the arrival of the Cartes administration in Paraguay, Macri in Argentina, and Temer in Brazil. The Cartes government harbors deep resentment of the Maduro administration, not least because Paraguay was suspended from the trade bloc under the democratic clause from 2012 to 2013 after the (admittedly questionable) impeachment of Fernando Lugo. Particularly galling to the Paraguayans is the fact that they have staked a great deal on Mercosur—more than 40 percent of imports and 20 percent of exports are to Paraguay’s non-Venezuelan Mercosur partners—even as the Venezuelan Johnny-come-lately seems intent on using the bloc largely as a platform for its regional political pretensions. Lost in the political scrum is trade. From this perspective, Mercosur continues to be an ambivalent accomplishment. The trade bloc has increased trade among the member countries, but also imposes opportunity costs in terms of foregone trade agreements elsewhere. Meanwhile, although trade today is higher than it was at Mercosur’s inception, it is lower as a percentage of total trade than it was at the peak of intra-Mercosur commerce in the late 1990s. Recognizing this, Argentina and Brazil had already exchanged a number of high-level visits this year before Rousseff’s impeachment, and more recently, Foreign Ministers Serra and Malcorra have reiterated their interest in improving bilateral exchanges and reviving Mercosur. Mercosur, though, has had enormous difficulty in moving forward on outward oriented trade agreements, including a deal with the EU. Prospects for such a deal might be more positive than in years past, given the rise of the pro-trade agenda in Brazil and Argentina. But the fact is that the EU is—to put it mildly—distracted at the moment. Closer to home, too, the Pacific Alliance is exerting an enormous pull on some Mercosur members. Argentina’s Macri will be a guest at the Pacific Alliance’s presidential summit later this month, and Chile in particular seems eager to build bridges to members of Mercosur. The foreign ministers of the four original members of Mercosur will meet on Monday, July 11, to discuss the situation in Venezuela. Pushed by Uruguayan foreign minister Rodolfo Nin Novoa, they seem unlikely to invoke the democratic clause against Maduro until or unless there is a more concrete violation of democratic norms. Whatever happens Monday, however, the newly proactive Mercosur is likely to be back in force by early 2017, when Argentina is scheduled to take the helm, beginning a succession of chairs from the center-right governments of Argentina, Brazil and Paraguay. This has the potential to kickstart the most active eighteen-month window of change in Mercosur since the bloc’s formation in the early 1990s. If it succeeds, Mercosur’s potential may be resurrected.  If it fails, the bloc’s long-term prospects will be increasingly in doubt.
    Blog Post by Matthew M. Taylor July 7, 2016 Latin America’s Moment
  • Immigration and Migration
    How Americans See Mexico
    The three North American leaders meet tomorrow in Ottawa, the new Trudeau government reviving an annual summit. As a recent poll of U.S. perceptions of its neighbors by Vianovo and GSD&M confirms, they face public opinion headwinds. Canvassing 1,000 U.S. adults through YouGov, the survey reveals the deep suspicions Americans hold of their neighbors, especially Mexico. Less than one in four Americans have a positive image of Mexico, and fewer still believe it has a modern economy or is safe for travel. Many see Mexico as an economic drain—when removing those who say they don’t know enough, a similar number want to leave as stay in NAFTA (mirroring the Brexit divide). A majority of Americans see the Mexican government as corrupt, the nation as unstable, and believe illegal immigration is increasing. Over half want to build a wall to shield the United States from these perceived problems. For them, Mexico is a problem, not a partner. These views divide sharply along partisan lines. By a two-to-one margin Democrats say they want to preserve NAFTA, compared to pluralities of Republicans and independents who would prefer to abandon it. Feelings about Mexico in particular differ depending on one’s politics. Republicans overwhelmingly see Mexico as the source of problems for the United States rather than as a good neighbor; Democrats are split between the two views. These perceptions don’t reflect reality. Since 2009 migration flows from Mexico have been net zero to negative (more people leaving than coming). Instead the largest sources of U.S. migrants are China and India. Economically, North American supply chains undergird much of U.S. manufacturing and support the jobs of millions of Americans. Without NAFTA the auto, electronics, and machinery industries would likely shut down, moving wholesale to other regions. Overall the majority of Americans miss the fundamental transformations Mexico has undergone over the last few decades. Now the eleventh-largest global economy, Mexico boasts top research universities, highly successful multinational companies, tens of millions of middle class consumers, and GDP per capita topping $18,000 (in PPP terms). Though cold comfort, American suspicions aren’t limited to Mexico. One in five Americans want to wall themselves off from Canada. These isolationist views aren’t driven by Trump—perceptions haven’t changed much in four years (the last time the firms conducted a survey). Few respondents even mentioned him, though when asked a strong majority thought he would worsen relations with our neighbors. What did emerge is that Americans that know Mexico—having visited for work or fun—feel better about the country. Time to encourage more visits—on top of the estimated 22 million trips by U.S. citizens each year. Perhaps that can change perceptions.
    Blog Post by Shannon K. O'Neil June 28, 2016 Latin America’s Moment