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Latin America’s Moment

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

Illegal Gold Finances Latin America’s Dictators & Cartels. The United States Must Lead the Fight Against It.

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

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China
Foreign Direct Investment in Latin America
Foreign direct investment (FDI) in Latin America fell in 2014, down 16 percent to $159 billion according to the latest ECLAC report. This outpaced global declines closer to 7 percent, and fell far behind other emerging markets, which saw investments rise 5 percent on average, and 15 percent in Asia. The declines in part reflect the lumpiness of FDI—last year’s $13 billion acquisition of Modelo beer in Mexico by Anheuser-Busch InBev inflated the overall take, compounded by this year’s $5.6 billion divestment of América Móvil by AT&T; otherwise, this year’s numbers would be roughly on par with previous years. It also reflects the end of a commodity supercycle—mining investment returns in particular have been falling and helped bring down the overall average return on FDI in the region to 5 percent from a 9 percent high in 2006. Brazil leads, with $62 billion or nearly 40 percent of total flows, followed by the Pacific Alliance countries—Mexico, Chile, Colombia, and Peru. These five received 80 plus percent of all investment from abroad. While the amount of money coming in fell, the destination mix is more encouraging. Almost half funded services, 36 percent went to manufacturing, and the rest to natural resources. The majority of investments financed medium-high and high technology projects—including automotive investments in Mexico and Brazil among others—in sectors that are more likely to bring benefits to the broader economy in terms of technology, education, and indirect job creation. While much has been made of Chinese interest in Latin America, the numbers show actual money on the table still trails far behind the Netherlands (20 percent), the United States (17 percent), and Spain (10 percent). Asian FDI totals just 6 percent—though Chinese companies did close three of the top twenty deals in 2014. The profits on Latin America’s now substantial foreign owned capital stock (after decades of FDI) have soared from less than $20 billion in 2002 to over $100 billion today. Multinationals on average repatriate roughly half of these profits, reinvesting the other part locally. This has put pressure on the current accounts of Chile, Colombia, and Peru, among others, and potentially their currencies, particularly if the investments don’t contribute much to productivity and economic growth. Looking ahead, 2015 FDI will likely flag along with Latin America’s economies, particularly in Brazil. Mexico may be the exception, where expanding auto manufacturing, some loosening of service sector regulations, and the opening of its energy sector could boost investment. And overall Latin American nations need more money in the years to come for transport infrastructure, telecommunications, and electricity, whether from domestic or foreign funds. With regional savings remaining low, FDI looks to be the most likely source.
China
China’s RMB Swap Lines with Latin America
My colleagues Benn Steil and Dinah Walker recently published a great interactive on the spread of central bank currency swaps since the financial crisis. They find the United States provided developing nations with significant support through swap lines at the height of the financial crisis, but that China has been the most active extender of swap lines since 2009. China now has thirty-one swap agreements outstanding. The interactive also tells an interesting Latin America story. Argentina is one of the only countries in the world to take China up on its offer. Last year Argentina activated the swap line, and has since drawn a reported $2.7 billion of an available $11 billion. Under the agreed terms, the RMB may be freely converted into dollars. This is significant for Argentina, whose dollar reserves have plummeted from $53 billion in 2011 to $31 billion today. As such, the swap lines are being used less to settle Chinese goods trade than as a palliative for those unable to rely on the U.S. Federal Reserve, or in Argentina’s case most of the international banking system. International Monetary Fund, "Argentina: International Reserves/Foreign Currency Liquidity," 2015. China also maintains swap agreements with Brazil and Suriname, and just this week signed an agreement with Chile. Notably not on this list is Venezuela, which has already received $56 billion in loans since 2007. Even the Chinese seem to have their limits. Here is a link for more of Steil and Walker’s analyses on the topic.
Americas
Latin America Goes Global Launch
Today is the official launch of Latin America Goes Global. Led by Christopher Sabatini, adjunct professor at the School of International and Public Affairs at Columbia University and formerly editor-in-chief of Americas Quarterly, the new site already has many talented and thoughtful Latin American policy experts on board. Kicking it off, Sabatini has a piece on “The Media’s Bipolar Disorder with Latin America,” arguing that the common tropes trotted out in discussing politics in the region not only miss the real story but also skew policy responses in unhelpful ways. Both Evan Ellis and Jerry Haar look at the Trans-Pacific Partnership (TPP) and what it means for the region. And Kirsten Cowal highlights the rising profile of LGBT issues in her piece “The Other History Making Moment at the Summit: LGBT Rights.” For those interested in the hemisphere and its future, this new site is worth putting on your daily reading list.
  • United States
    Saving Ciudad Juarez
    In 2010, the homicide rate in Mexico’s Ciudad Juarez rose to over 250 per 100,000 inhabitants making it the most dangerous city in the world. Other crimes—extortions, kidnappings, and carjackings—also increased dramatically. By 2014, these rates had plummeted. The 424 reported murders still outpaced 2006 figures, but were just 14 percent of the 3,084 murders four years earlier. Last month, CFR hosted Javier Ciurlizza, program director for Latin America and the Caribbean at the International Crisis Group (ICG), Jorge Contreras, founder and coordinator of the Fideicomiso para la Competitividad y Seguridad Ciudadana, and Alejandra de la Vega, coordinator of the Mesa de Seguridad y Justicia de Ciudad Juarez, to discuss Ciudad Juarez’s recovery and potential future. According to a February 2015 ICG report, violence escalated due to three factors. First, drug cartels militarized as the value of and competition for plazas increased, and law enforcement efforts quickly followed suit. U.S. policy changes—the elimination of the ban on assault rifles, greater deportations of ex-convicts, increased border patrol—as well as a spike in cocaine prices, also played a role. Lastly, the 2008 financial crisis led to a loss of some 90,000 maquiladora jobs, providing the cartels and their gangs with easy recruits. In response, many Ciudad Juarez residents and civil society groups rallied together. They created hotlines to report kidnappings, tracked crime to share with and prod the police into action, and reached out to officials at all levels of government, finding and working with reformers while demanding the removal of the corrupted. In the wake of the 2010 Villas de Salvarcar massacre of fifteen people, the federal government turned its attention and resources to Ciudad Juarez. The federal Todos Somos Juarez initiative brought some $400 million to the city, mostly for health, education, and economic development programs. On security, the national government worked closely with state and local counterparts, as well as with citizens and civic groups through a Mesa de Seguridad y Justicia, developing strategies to cut crime. The business community also endorsed a surcharge of 5 percent of their payroll taxes to fund citizen led safety efforts, including collecting independent crime data. Combined with an economic recovery and what many analysts depict as the Sinaloa cartel triumph over its rivals, violence declined dramatically. The discussion ended focusing on whether Ciudad Juarez provides lessons for other cities struggling with insecurity. Some aspects—the long history of civic engagement, the huge influx of federal resources—are hard to replicate. But others, including Mesas bringing together the government, private sector, and civil society leaders, could perhaps gain traction. And International Crisis Group comparisons also show that there isn’t just one path—Medellin, Colombia’s recovery came from top-down state led interventions and investment in transportation, infrastructure, and public spaces. As Mexico struggles to reduce violence in Acapulco, Morelia, Reynosa, and other cities, the federal government would do well to try to understand and then emulate the lessons of Ciudad Juarez.
  • Mexico
    Mexico’s Fight Against Corruption
    Corruption allegations and revelations cover Mexico’s front pages. Public officials’ penchant for expensive watches, use of government helicopters for personal errands, and a string of expensive houses facilitated by preferred private contractors have incensed not only Mexico’s chattering classes but also the broader public. 2014 opinion polls conducted by the Pew Research Center show corruption ranks second only to crime in citizen concerns. The challenge of corruption goes beyond just a few bad seeds. A 2013 survey found that one third of Mexicans paid a bribe for a public service. Think tank Mexico ¿cómo vamos? estimates corruption reduces gross domestic product by 2 percent. Due to rampant corruption among judges and police (as well as weak investigation and adjudication systems), the World Justice Project’s international rule of law index ranks Mexico seventy-ninth out of ninety-nine countries, comparable to Egypt and Russia. Things may be poised to finally begin changing. After dragging its feet for nearly three years (anti-corruption promises were part of the original Pact for Mexico signed in December 2012), Congress recently passed constitutional reforms that will provide stronger tools to prevent, investigate, and sanction government corruption. The new National Anti-Corruption System targets the political system, requiring more public officials to report their assets and any potential conflicts of interest, strengthening the hand of federal auditors, expanding asset forfeiture laws, and creating a new independent anti-corruption prosecutor. Transparency International’s Mexico chapter has welcomed the reform, and others, including local think tank Instituto Mexicano para la Competitividad, see it as a step in the right direction. Shifts are already underway at the local level, led by Mexico City. Current mayor Miguel Angel Mancera announced an anti-corruption plan in early 2013 with five main aims: (1) professionalize public servants through training and evaluation; (2) strengthen internal controls; (3) simplify administrative processes; (4) engage citizens; and (5) create an anti-corruption website. Since then, the capital has appointed hundreds of new auditors and nearly doubled the number of investigations. It has suspended over 900 public officials and recovered roughly $9 million in illicit funds. The 21 million person megalopolis now has a citizen advisory council to supervise anti-corruption efforts, made up of business and non-profit executives, academics, and lawyers. And it “names and shames” sanctioned officials and disqualified suppliers through publicly available lists. In New York last week, Mancera signed on with the NGO Open Contracting Partnership (OCP) to become their first city partner to create an online portal opening up the capital city’s public contracts to citizen scrutiny. In their infancy, these reforms have yet to prove themselves, and if they can change the status quo. Mexico City’s nascent trial shows some promise. If Mancera can show visible anti-graft results in the capital city, it could prove a savvy political platform for the 2018 presidential election.