On any given day, city residents here wait in long lines to cross the border and shop for bargains in Arizona. Gaby Medina is one of them. She visits the stores in Nogales, Ariz., at least twice a month to look for deals on clothes, which she says are often less expensive than in the border state of Sonora, Mexico.
Earlier this week, she filled several plastic bags with tops she bought for herself and relatives who lack a visa to visit the United States. Come January, Ms. Medina may head to the United States more frequently, she says. That's when Mexico's new sales tax will take effect, increasing to 16 percent from 11 percent in Mexico's border cities and towns.
The sales tax is part of broad fiscal reforms that President Enrique Peña Nieto pushed through with support from his Institutional Revolutionary Party (PRI) to bolster tax collection in Mexico. The government, which had allowed the reduced rate in border areas to encourage consumer shopping in Mexico, is bringing the region in line with the rest of the country. The president says the broad reforms will ensure a robust future for Mexico's development, but critics contend the law will hurt the growing middle class and jeopardize the country's economy.
Medina has her own reasons for disliking the changes.
"It's really going to affect our family budget," the mother of three says. "It would be good if people's salaries also went up to compensate for the tax increase."
The tax hikes sparked strong resistance from Mexico's conservative opposition National Action Party (PAN) as well as many businesses and citizens around the country. The final plan includes higher income taxes for top earners and places levies on soft drinks and junk food.
Some say the changes will mean more business for US merchants because of the lower sales taxes. For example, Nogales, Ariz. shoppers pay 8.6 percent tax on their retail purchases. Farther north, in Tucson and Phoenix, it is 8.1 percent and 8.3 percent, respectively.
Mexican visitors already are a boon for businesses on the US side of the international boundary. One University of Arizona study found that over a one-year period between 2007-08, Mexican shoppers spent $2.69 billion in the state.
"It's going to be good for our economy because people are going to come to Nogales, Ariz.," says Olivia Ainza-Kramer, president of the Nogales-Santa Cruz County Chamber of Commerce. "Maybe this is a good opportunity for us to create some incentives."
Medina will return to the Nogales shops soon, she says, provided the peso doesn't keep weakening against the dollar.
Businessman Dale Smith hails from New Zealand, which is tied with Denmark as the world’s least corrupt nation, according to watchdog group Transparency International. But Mr. Smith is working in Brazil, which is ranked 72nd worldwide and is located in a region notorious for corruption.
The result, he says, is compromise.
“If you came here and did everything correctly, you’d fail,” says Smith, who has several businesses in Brazil. “You’ve got to flow with the river a little bit.”
That reality is underscored by Transparency International’s annual Corruption Perceptions Index, released today. The report found that corruption worsened in Latin America over the past year as economic heavyweights Brazil and Mexico didn’t improve and gang-plagued Central America worsened. The index reveals that all of the Americas – spanning from Alaska to Argentina – are now perceived as more corrupt than all of Asia-Pacific – a region that Transparency International classifies from secretive North Korea to war-torn Afghanistan.
That should be a “wake up call” to Latin America in particular, says Alejandro Salas, Americas director for Transparency International. The region often proclaims loudly that it’s against corruption, with 31 countries now signatories to the Organization of American States' Convention Against Corruption. Meanwhile, 17 countries participate in anti-corruption initiative Open Government Partnership, which requires participants to deliver an action plan and commit to independent progress reporting. Now the region needs to embrace those laws more fully.
“Latin America has a lot of anti-corruption infrastructure in place,” Mr. Salas says. “The difference is when you take it into practice and actually enforce the laws that you are signing.”
According to Berlin-based organization, the Americas' most transparent nation is Canada (9th worldwide) while the least is Haiti (163rd worldwide). The US ties with Uruguay for 19th place, while Brazil and Mexico rank 72 and 106, respectively. The 177-nation ranking is based on 13 data sources, from the World Bank to the Economist Intelligence Unit.
In Latin America, Guatemala showed the greatest increase in corruption over the past year, falling 10 places in the index to 123rd as gang violence and drug trafficking continues to spill over from Mexico. Regional neighbors such as Costa Rica, which has also seen an uptick in violence, also fell one spot to 49th.
“Organized crime and violence are undermining the strength of institutions,” Salas told the Monitor by telephone. "[W]hen we look at a country like Costa Rica, which has always been a good example for the region, lately it’s more common to read about it being part of drug trade route where we are discovering corruption schemes.”
Brazil and Mexico are also criticized for failing to improve in the rankings, he adds.
“Countries like Brazil should be an example for how to improve governance and corruption,” he says, suggesting that Latin American nations are more interested in justifying corruption than in tackling the problem. “There is no excuse for countries like Brazil to not improve.”
Salas points to examples of corruption across Latin America: rampant police-bribing in Bolivia, vote-buying in Venezuela, and political nepotism in Paraguay. All are part of a culture of corruption that has failed to disappear despite the region’s economic growth and democratic reforms.
There are signs of improvement. In Brazil, the judiciary has taken on a major corruption case against dozens of high-profile politicians and bankers connected to former President Luiz Inácio Lula da Silva. The case, known as the Mensalão, or "the big monthly payoff," resulted in its first prison sentences this month.
The trial is important because it shows that “it doesn’t matter if you’re a close ally to the president, you will still pay if you engage in corruption,” Salas says. “They (Brazil) have to do more, but this is a start.”
• A version of this post ran on the author's blog, riorealblog.com. The views expressed are the author's own.
If you are one of this city’s 1.4 million (22 percent of the population) who live in a favela (slum), if you work as an architect, urbanist, or social scientist, or are simply a concerned carioca, now may well be the perfect moment to paint some new protest banners and get out on the streets to march.
Morar Carioca (Carioca Living), the favela upgrade program hailed only three years ago as a key social legacy of the Olympic Games – and which mobilized scores of architectural firms in a project contest held by the Brazilian Institute of Architects — was meant to bring the city’s favelas up to standard by 2020. In January 2011, mayor Eduardo Paes happily announced that work would begin in March of that year. Yet not much has happened, except for some scattered projects.
When asked, government officials, who still include Morar Carioca in their Olympics and other presentations, say the program has met with unexpected difficulty but will soon get under way.
The program was to have taken Rio’s pioneering 1990s favela urbanization approach, Favela Bairro, one giant step further. Based on a philosophy of urban equality, it would have focused on integrating Rio’s informal and formal territories, and could have shown the way for urban integration efforts around the world.
To succeed, it would have to have developed effective community participation strategies. So far, most of the city’s transformation has taken place from the top down, suggesting that all those concerned face difficulty in listening to, organizing, articulating, and negotiating needs.
For almost three years, since the contest results were announced in December 2010, the question has been posed: Where is Morar Carioca? Forty teams were selected, most of which still await a call to action.
Over time, the answers have changed. Initially, the delay had something to do with contracts, the bane of Rio’s transformation. Then it was murmured that the city, having spent millions on infrastructure and having failed to create private-sector housing-related incentives, had run out of funds and was looking to the federal government.
Now, a City Hall source concludes, the problem is political: the municipal housing secretariat, SMH, is run by a Worker’s Party (PT) member, Pierre Batista. That was fine, given the city’s governing PT-PMDB alliance — until the PT decided to field a candidate of its own in the October 2014 gubernatorial contest. Senator Lindbergh Farias plans to run against the mayor’s PMDB party’s candidate, Luiz Fernando “Pezão” de Souza.
If Morar Carioca were to move forward now, credit for any success would go to the PT, instead of Mayor Paes’ PMDB. Thus, the source says, Morar Carioca is once again put off, at least until after the election.
In the absence of an urban revolution, City Hall is counting on good old public works to please its citizens. Under the aegis of the municipal public works secretariat, SMO, over $900,000 are being spent on the Bairro Maravilha program in the North and West Zones, which, after decades of neglect, do need their own upgrades. In addition, the City Hall source says, Mayor Paes has been meeting with residents of many neighborhoods, jotting down their needs, and pushing his secretaries to attend to them. TV Globo’s noon news program seems to be on board with this approach, as reporters point out a variety of problems across the city, talk to residents, set up deadlines and pressure those responsible.
“It’s all done without any planning,” the source pointed out.
And, in the absence of Morar Carioca, mobility will surely be Rio’s Olympic legacy, with Mayor Paes’ new dedicated bus lanes connecting the West Zone to the rest of the city, better-organized bus service and the virtual extinction of the largely informal (and to a great extent run by paramilitary groups) van transportation service. This is an admirable achievement, and, in addition to the state government’s extension of the Metro’s Line 4, will truly change the face of Rio de Janeiro. It also poses new challenges, such as the need to integrate the Metro with the existing Supervia train service and keep growth in the West Zone to a minimum.
The absence of Morar Carioca also means that many of those 1.4 million favela residents continue to live in dreadful conditions. The public policy challenges of improving their lives are daunting and explain much of the slow pace, both at the municipal and state levels of government. But a visit to the alleys and rubble-strewn lots of the North Zone Manguinhos favela complex, is such a stinky, devastating experience that it’s impossible not to conclude that its official 55,000 residents are still simply off the map.
And this is a pacified favela where federal funds have allowed the state government to build a fabulous library and to hire world-renowned architect Jorge Jauregui to design a project to raise the train tracks and create a linear park.
According to people who have been working on the upgrade in that area, the lack of coordination between state and city government agencies, difficult negotiations with residents to be relocated, plus tragic sewage and water supply conditions, have led to a situation where the park is unfinished, nails have been stolen from faux-wood planking, sewage flows out of manholes and has taken over local streams, residents remain in condemned homes with cracked and crooked walls, and water pipes leak enormous amounts of water more often than not.
In addition, efforts to transfer residents’ at-home commercial enterprises to ready-made kiosks near and under the train tracks have not been wholly met with success, despite a training program. Ownership and maintenance issues have arisen. Though each kiosk was meant to sell something different, they all sell the same products, including beer, which is illegal.
“Social integration cannot be built,” notes a person who has been involved in work going on Manguinhos. “This is a big question in all these projects. You don’t make social change by way of infrastructural change”.
This was the exact conclusion that planners and urbanists drew from the Favela Bairro experience. It was social integration that Morar Carioca was supposed to address.
The Manguinhos area is perhaps less hellish for most than before its pacification in January 2013, (though residents claim pacification police killed a helpless 18-year-old ten days ago), but so much is still lacking, particularly in the realm of water and sewage.
CEDAE, the state water and sewage concession, will only come under Agenersa‘s regulatory scrutiny in 2015. This past week, much of the city of Rio was without running water; only 30 percent of all sewage is properly collected and treated. The state government has just proudly announced that it will clean up a number of Rio beaches, but in fact this merely involves collecting additional sewage and sending it out to sea.
Clearly, both for favela and non-favela residents, the concession is yet another “black box” that demands attention; the digital activism group Meu Rio is working on this.
Meanwhile, Where is Morar Carioca? The drawings were so beautiful; the reality so ugly and demeaning. The program was included in the mayor’s Strategic Plan, early this year, but the selected architects — and thousands of favela residents — are still waiting.
Politicians, presumably under pressure from the Olympic Committee and FIFA to reduce street violence, worried about their political careers, are paying better attention to many demands. And, while the “Where’s Amarildo?” campaign hasn’t turned up his body, it did unleash perhaps the most sweeping and efficient police inquiry into a favela death ever seen in Rio.
According to the City Hall source, mayor Paes has put a halt to virtually all removals, to avoid demonstrations (maybe this is why people in Manguinhos are living in condemned homes).
So it might just be a good time to remind him, peacefully, to fulfill his promise for suitable living quarters for everyone in Rio de Janeiro.
– Julia Michaels, a long-time resident of Brazil, writes the blog Rio Real, which she describes as a constructive and critical view of Rio de Janeiro’s ongoing transformation.
• A version of this post ran on the author's blog. The views expressed are the author's own.
For the last few weeks [leading up to] the Honduran election, no surveys of the electorate can be published. But really, the only poll that matters will take place this coming Sunday, Nov. 24. According to the Tribunal Supremo Electoral (TSE), 5.3 million Hondurans are eligible to vote.
Throughout the country, people in five thousand election centers will place their ballots for president, congress, and municipal mayor in three separate ballot boxes.
What happens then? What ensures that the ballot cast is counted and reported accurately? How reliable should we expect the numbers to be? In part, what you think the answer is depends on how you assess the procedures set in place by the TSE.
Each individual ballot for president has a Mesa Electoral Receptora number, the name of the voting center, and the department printed on it. Each of these ballots also has a unique number, with the name of the municipio preprinted on it.
Each Mesa Electoral Receptora (MER) has a custodian. In previous elections the churches, through the Catholic Church and the Evangelical Church Association, supplied the custodians. Most of the custodians this time around are students from the Universidad Nacional Autonoma de Honduras (UNAH).
Each MER has one representative, and an alternate, from each political party. Each has a president, secretary, watcher, and members, all appointed to office by the TSE. All procedural votes are by simple majority, with the president of the Mesa abstaining unless there is a tie.
The charge to the MER technical custodians is
- to make sure there is adequate access by voters from the starting hour to the ending hour of voting.
- to observe the rights of the citizens
- to maintain order in the voting centers
- to be yourself transparent and responsible, absent of any authoritarianism.
- to respect the popular will when counting the votes and inscribing the results on the tally sheet
- to return the voting boxes with the tally sheets to the TSE.
Those tally sheets are key to linking the count made at the Mesa and the outcome the TSE reports.
A separate manual for each department of Honduras has detailed instructions including how to count and record the votes from each of the ballot boxes. Observers, both national and international, may be present but must not reveal any results nor advocate for any candidate. The members of each Mesa fill out and sign an opening form that records how many ballots they have for each office (in numbers and written out in words).
To prevent voters selling their vote, cell phones and cameras are newly banned from voting booths. The voter is given a ballot for the presidential vote, congress, and municipal mayoral election, signed on the back by members of the Mesa. The voter folds each of the three ballots in half to obscure their vote, then brings them back to the Mesa where members verify they have the required signatures on the back.
Counting of the votes begins with checking the ballot for the required signatures and stamp, then the voter's markings are evaluated. Each ballot has a photo of the candidate, the party flag, and a space to mark the vote. But a mark anywhere on the candidate or the flag counts, as long as most of the mark is in the space of a single candidate.
Vote counting is done in public. Anyone can watch, but must remain silent.
First the President takes an inventory of the leftover supplies, stamps each as "left over" and records the counts on the accounting form. The president then hands the sealed ballot box to the examiner who opens it and extracts a vote.
The examiner qualifies the vote as valid, null, or blank and indicates to which party (if valid) it belongs. It is shown to the members of the Mesa, then passed to the president, who ratifies it. The secretary records it on the appropriate tally sheet with a tick mark for the party, null, or blank.
The president sorts ballots into piles by party, null, or blank, then gives each pile to the Secretary who seals them in plastic bags and puts them back in the voting place briefcase. Once all the votes are counted, the Secretary fills out the vote count section for each candidate as well as tallying the number of citizens, and Mesa members, who voted. This, along with the annotation of the number of blank ballots received, plus those left over, finalizes the form. The numbers are then transferred to the closing tally form which is signed by the Mesa members.
Getting the vote tallies to the TSE in Tegucigalpa has been a point of potential weakness in the whole process. In 2009, the tallies were read over cell phones, and entered into the computer in Tegucigalpa based on the phoned-in counts. The results were, to be charitable, incredibly inaccurate.
This year, the TSE is trying a new approach, used successfully in Guatemala and the Dominican Republic. Completed closing forms for president, congress, and the municipal election will be scanned, and sent to the TSE either through a wired internet connection or through a wireless modem across the cell phone network.
500 voting centers lack electricity or an internet connection, so those votes will not be counted until opened more than a week later in Tegucigalpa.
In addition to scanning and transmitting the closing form, each custodian will print out a copy for the representative of each political party, and for any member of the Mesa that desires a copy. Once sent, the original closing form will be stamped by the custodian with a stamp indicating it has been transmitted (all copies will be stamped).
The president of the Mesa will then aggregate all the official forms into an envelope to close out the polling place. All papers will be returned to the briefcase, sealed for return to the TSE.
In the past, the TSE then recounted every ballot box, and entered the data into a new computer file. The TSE has said it will not announce results the night of the election, only "trends". Meanwhile, Hagamos Democracía, an NGO that produced exit polling that was more accurate than the TSE in 2009, will be operating again this year.
A fairly fragile system for such a consequential election.
– Russell Sheptak, the co-author of the blog Honduras Culture and Politics, specializes in the study of colonial history and economic anthropology in this little-reported corner of Central America.
Mexico’s last shot at making the World Cup kicks off this afternoon with the first leg of a home-and-home series with New Zealand, and Mexican productivity is expected to plunge as fans tune in to the match. Even Congress is planning to break from its annual budget debate to watch.
But the business of soccer and the corporate interests behind the senior national side have left some supporters with little to cheer for, while more than a few fans are privately pulling for a loss.
“The way that soccer is organized has the same vices [that] society and the business class suffer from,” says César Velázquez Guadarrama, public policy professor at the Iberoamerican University in Mexico City.
GALLERY: FIFA World Cup 2014: Who is in?
Some observers like Mr. Velázquez cite Mexico’s soccer system as an example of some of the country’s most problematic practices – such as companies colluding or keeping competitors under control, instead of embracing competition – which limit player development in the domestic league and leave the national team ill-equipped for international tournaments.
It produces sub-par performances on the pitch, too – as the team stumbled against Central American minnows in recent qualifying matches complete with coaches and players in constant conflict and, at times, a distinct lack of effort.
“The players weren’t running,” Eduardo García, a soccer fan and publisher of the online publication Sentido Común, recalls of a qualifying match against Honduras (ending in a draw) that he attended in September.
“They need to be taught a lesson” by missing the World Cup, says Claudio Hall, a chef and soccer fan unhappy with the team and its organizer, the Mexican Football Federation (FMF).
Those organizational vices – like a lack of effort and perceived lack of preparation – were apparent on the national team as it scraped through qualifying rounds and only advanced to the last-chance series thanks to some assistance from a US national side that itself qualified easily. Some fans fear those vices will become visible once again now that "El Tri," as the Mexican team is known, must defeat New Zealand in a two-match, total-goal playoff (scheduled for Nov. 13 and Nov. 20) to make it to Brazil.
Just 56 percent of respondents in a GCE poll said Mexico would beat New Zealand; only 55 percent thought their team deserved to qualify for the World Cup. For a team that has traditionally been a lock for World Cup qualifying, the numbers show significant doubt among Mexican fans.
The FMF “worry only about money and not the sport,” Mr. Hall says. “That is why they are in this situation.”
The pessimism about the senior soccer side comes as Mexico once again achieved success at the junior level. The U-17 squad recently finished runner-up in the World Cup for its age group and has won the tournament twice since 2005. But the secret of that success hasn’t translated to the senior level.
“What you see with the kids winning … is at that level there are not so many business interests. ... Their hearts are in it,” says Mr. García.
With the Mexican league paying comfortable salaries and not offering the sternest competition, effort seems to slide, García says.
Big business interests?
Velázquez sees in Mexican soccer too many vices that he says are common in the country, too. He starts with the system of promotion and relegation, common to leagues around the world, in which only one team – the one with the worst record – is demoted and the winner of the second division is promoted. But in Mexico, the rules are created in such a way that a team must struggle for three seasons before being demoted – something that favors the wealthiest clubs, which are unlikely to lose for so long, and makes it difficult for upstart squads to establish themselves.
Then there are the alleged gentlemen’s agreements – never officially acknowledged by the FMF – in which owners will not sign a player who left Mexico for another league, unless he was under contract with them prior to leaving.
Some owners also have had multiple soccer franchises, in violation of a policy set by FIFA, the sport’s governing body. It’s something Velázquez compares to public figures and big companies running roughshod over the rules, “and nothing happening.”
Other observers say the league's decision to squeeze two short seasons into each calendar year and crown two champions produces profit, but not necessarily the best on-field product.
“This scheme … contributes to the teams’ instability,” says Gerardo Esquivel, economics professor at the Colegio de México.
“They fire coaches all the time and don’t search for stability over the long-term that could be beneficial” for developing talent.
Alleged meddling by owners is another matter.
"It was more or less the club owners that decided how the national team should be run, at least that's how things ran before I got there," ESPN FC reported former Mexico coach Sven-Goran Eriksson, who was fired during the 2010 World Cup qualifying rounds, saying in a recently published autobiography.
"There it was important to make allies with the people high up in the football establishment, as if that would help the national team win games."
Mexico has cycled through four coaches in its 2014 World Cup qualifying season. It most recently turned the reins over to Miguel Herrera, coach of league champion and perennial power Club America, who brought ten of his team’s players.
The move was met with skepticism in some circles. The Club America owner, broadcasting giant Televisa – which is polemic for its alleged influence in the country’s political and cultural affairs – was accused of appropriating the national team for its own commercial ends. The national team is a strong symbol and considered a unifying force in Mexico.
“The team has stopped being something national and became something belonging to Televisa,” says Ilán Semo, political historian at the Iberoamerican University.
“A loss for the national side is seen as a loss for Televisa. That’s why some people want the team to lose,” Mr. Semo says.
GALLERY: FIFA World Cup 2014: Who is in?
Costa Rica is approaching February’s presidential and legislative elections with a distinct lack of enthusiasm, if not with dread.
Most international surveys present Costa Rica as the “world’s happiest country” (the Happy Planet Index), or in the elite club of the world’s “full democracies” (ahead of Japan and Belgium in The Economist’s list), or as the 48th least-corrupt country (out of 174 reviewed by Transparency International).
The economy is expected to grow about 3 percent this year, and the country’s access to foreign direct investment is blunting the impact of the government’s fiscal deficit of about 5 percent of GDP. Crime is on the rise, but Ticos know that their pain is small compared to that wreaked by the narcos and maras in Guatemala, El Salvador, and Honduras.
Reputable polls show, however, that Costa Ricans are gloomy about the state of their political institutions and specifically about their upcoming elections. According to polls, about 32 percent of the country’s 3 million eligible voters say they plan to abstain, citing corruption, a lack of leadership, insensitivity to the average citizen, and unemployment as reasons to reject not just the candidates but also the political elite in general.
The President of the Supreme Electoral Tribunal (TSE), Luis Antonio Sobrado, acknowledged last month that the election was taking place in the context of “citizen uneasiness … and a lot of anger with politics and politicians.”
Abstentionism was high in 2006 (35 percent) and 2010 (32 percent), but commentators sense a much deeper and darker alienation this time around. A columnist lamented that the “multiparty” system has been replaced by “atomization,” and another said the political parties have “disconnected themselves from the national reality.”
Further reflecting the malaise, President Laura Chinchilla’s support has nosedived – a July poll showed only 9 percent of voters said she was “good” and none said “very good” – and pundits cite her ineffectiveness as the cause of collapsed highways, dengue outbreaks, and other calamities.
The nominee of her Partido de Liberación Nacional (PLN), Johnny Araya, is widely thought to have an edge in February, but his 12 years as mayor of San José have coincided with a deterioration in the city’s infrastructure and security, and his personal lifestyle (including five marriages) may be a factor in popular skepticism. The government’s recent announcement that it will contract the services of 4,125 new employees in 2014, mostly in the education sector, drew immediate criticism as yet another example of political patronage to influence the race.
The self-doubt seems at this point indicative of concerns about President Chinchilla and the crop of candidates, rather than a rejection of democracy. Costa Ricans comparing themselves with the rest of Central America still feel good about themselves, and the green image that eco-tourists reinforce is comforting. But crumbling infrastructure – including collapsing bridges and the exorbitant cost of repeated repairs – and shocking crimes, such as the recent assassination of an environmentalist protecting turtles on a Caribbean beach, fuel the sort of doubts that only effective political and economic leadership can quell.
• David Smilde is the moderator of WOLA's blog: Venezuelan Politics and Human Rights. The views expressed are the author's own.
During my last stay in Venezuela the handful of analysts I talked to with ties to the government all concurred on one point: Nicolás Maduro’s talk of an economic war is not a show used to distract followers. He actually believes the economy is being sabotaged by his national and international opponents.
Of course Venezuela’s economic performance is reaching crisis dimensions. Inflation reached 5.1 percent in October and 54.3 percent over the past 12 months. The scarcity index reached 22.4 percent (meaning in any given retail outlet 22.4 percent of basic consumer goods are unavailable) its highest level since early 2010.
But there should be no mystery regarding the causes, as the Venezuelan economy has the basic ingredients of any inflationary context: stagnant production and an expanding money supply.
While oil prices are still high, Venezuela’s oil production has stagnated in recent years. More importantly they get fewer dollars for their oil as a half million barrels a day go to China to pay for resources it has put into the China Fund.
This means not only that the government has less money to spend; it has fewer dollars to distribute to importers. Add to this a wildly overvalued exchange rate and the situation gets even more complicated as there are incredible incentives for dollars to be siphoned off into corruption and capital flight. The dollar crunch creates scarcities directly – by making it harder to import finished goods – and indirectly, by making it harder to import components needed to manufacture. It also creates a wildly undervalued parallel exchange rate that becomes a reference point for the pricing of many imported goods and even real estate.
At the same time, Venezuela’s monetary supply has grown by 70 percent in the past year. Thus the Venezuelan economy has a lot of local currency, but not enough things to buy. Goods whose prices are effectively controlled are scarce; the prices of everything else are soaring.
Mark Weisbrot has usefully pointed out that Venezuela is not Greece and is not on the verge of default. He is not alone. Institutional investors who look at the numbers beyond politics have made money hand over fist on Venezuelan debt in recent years. Sitting on immense oil wealth, Venezuela itself is still creditworthy; PDVSA could still take on more debt; the Central Bank could convert some of its gold into dollars. The government could take any number of measures to absorb excess liquidity or reduce pressure on the parallel dollar. It could also reduce subsidies to foreign allies.
But these measures require actual execution and it is not clear that Maduro has enough of a grasp of the problem to do so. On Wednesday he announced much anticipated “economic” measures. But most were quixotic plans to combat the “economic war.” He said they would fight speculation and hoarding through new processes of examination and controls: “we’ll go to every corner to look at the prices of every product.” He singled out web-based market places, suggesting they would call in their administrators “so that they can explain to us how it is that they fix speculative and false prices.” He also announced the creation of a new institution: the National Center for Foreign Commerce which would coordinate the different institutions administering foreign exchange.
There were a couple of non-war measures, but they seemed like too little. He suggested they would seek to coordinate and facilitate internal transportation with 5000 new trucks purchased from China and Brazil, incentivize worker production during December vacations through subsidies to enterprises and institutions, and roll out a new program to stimulate savings. Interest on savings is currently far below the inflation rate meaning most people logically spend their money as soon as they get it.
The futility of Maduro’s economic announcements have led some to suggest that he is not up to the task. That may be. But just as important is a political structure in which so much power is concentrated in the president that the people around him have little incentive to honestly lay out difficult facts. For months it looked like Finance Minister Nelson Merentes was putting together a pragmatic, concrete plan to address the crisis. But alas he was sidelined in favor of people who recommend continuity.
This could get much worse. If 50 percent inflation has not provoked a change in course, it is not clear what will. Again, Venezuela’s immense resource base means it is not on the verge of collapse or default. But it is sliding into serious economic dysfunction and that could seriously undercut Chavismo’s viability as a democratically supported political project.
– David Smilde is the moderator of WOLA's blog: Venezuelan Politics and Human Rights.
• InSight Crime researches, analyzes, and investigates organized crime in the Americas.
A series of violent confrontations and seemingly indiscriminate attacks on local infrastructure has provoked questions about the governability of the western Mexican state of Michoacan, and has some politicians calling for extreme measures.
On Oct. 27, a group of assailants attacked at least three gas stations and ten power plants with firearms and Molotov cocktails. The attacks killed no one, but they left thousands of residents in some of the principal cities, including the capital of Morelia, without power. Authorities have since alleged that the Knights Templar, currently the state’s most powerful criminal group and an offshoot of the Familia Michoacana that emerged in 2011, were behind the attack.
The assaults against the state’s providers of electricity and gas come just five days after the return of Fausto Vallejo to the governor’s post, after an absence of six months for an undisclosed illness. Mr. Vallejo’s return sparked controversy; journalists reported that the interim governor, Jesus Reyna, did not want to relinquish the post, and deputies in the state legislature called for Vallejo to be denied his old position.
The turmoil in the governor’s seat, the attacks against the basic energy infrastructure, and the ongoing drumbeat of criminal violence have led some in Mexico City to question the viability of the Michoacan government. The National Action Party bloc in the national Chamber of Deputies announced days later that it was considering pursuing a declaration of “Desaparicion de Poderes,” or “Disappearance of Powers,” a seldom-used provision of the Mexican constitution would essentially grant the federal government the right to take over the local government.
Thus far, however, the proposal has gone nowhere, and political analysts give the move slim chances of passing.
InSight Crime Analysis
The attacks against the power plants and the gas stations represent another escalation by the various armed actors in Michoacan. In recent months, the Knights Templar have used a series of novel tactics to advance their interests, such as blockading towns controlled by the local vigilante groups that oppose them. Like those efforts, this latest act seems to target the convenience and wellbeing of the civilian population.
But the Oct. 27 attacks also appear to be a message to the government. The timing is striking in that the attacks come on the heels of Vallejo’s return; this could be an attempt to intimidate the newly active executive. It’s also noteworthy that the power plants and gas stations are both controlled by prominent state-owned companies – the gas stations operate under the brand name Pemex, while the power stations belong to the Comision Federal de Electricidad – which suggests that the attacks were an assertion of power directed at the state.
Michoacan’s situation is unusual in that it has spilled out of the security realm, and has helped provoke a full-blown political crisis. The clearest examples are the rumors of a federal takeover and the mysterious hiatus, and tumultuous return, of Vallejo. Additionally, Luisa Maria Calderon, the sister of former President Felipe Calderon and the runner-up to Vallejo in the 2011 election, accused the governor’s family of links to organized crime. She added that he negotiated with drug trafficking groups prior to winning the election.
Certainly, there are prior examples of a security crisis morphing into a political scandal. For instance, in a video released just after the Casino Royale disaster, a video hit the airwaves in which the brother of Monterrey mayor Fernando Larrazabal appeared to be accepting kickbacks from local casinos. This led to a widespread lack of confidence and a wave of calls for him to step aside, though Mr. Larrazabal remains in his post.
However, such cases are rare. Generally, there is a degree of separation between public security and political legitimacy. Political officials have only occasionally been targeted in corruption probes related to organized crime, and the political class (especially in Mexico City) has often been accused of not paying enough attention to security issues. Moreover, in many of the most notorious locales, grave deterioration in security [has] not even provoked changes in the incumbent party. In that sense, Michoacan is an outlier.
This is even more so the case when one considers that, notwithstanding its reputation, Michoacan is not a terribly violent state. According to the National System of Public Security, the state registered a homicide rate of roughly 19 per 100,000 residents during 2011 and 2012, which is less than the national average. Through the first nine months of 2013, the state had an annualized rate of 21, which is slightly north of the national rate this year, but falls short of the most violent states.
Unfortunately, both of the major realms of activity that affect public security – the government and the criminal groups – appear to be wracked by instability. It is not clear what the recent upheaval in Michoacan promises for the state, but there is little hope for an enduring security improvement, and an end to the nuisance attacks from the Knights Templar, without deep changes to this prevailing dynamic.
– Insight Crime researches, analyzes, and investigates organized crime in the Americas. Find all of Patrick Corcoran's research here.
• David Smilde is the moderator of WOLA's blog: Venezuelan Politics and Human Rights. The views expressed are the author's own.
On Saturday I did an interview on Aljazeera English regarding Nicolas Maduro’s first six months in office. Here I will quickly summarize my notes.
President Maduro’s first six months as elected president (he was sworn in on April 19) have been rocky with no honeymoon. A contested election in April transitioned into food shortages in May, into an electricity crisis in July, into undeniable economic deterioration in the past couple of months. With inflation closing in on 50 percent, and a parallel exchange rate that is seven times higher than the official rate, economic distortions are becoming epic.
The baseline causes of these problems, of course, were inherited from Maduro’s predecessor and mentor, Hugo Chávez Frias. Serious shortages first appeared in early 2008. Electricity blackouts were one of the reasons that the government lost ground in the 2010 legislative elections. And foreign exchange distortions have been a mainstay over the past five or six years. In 2012 Mr. Chávez covered over this waning sustainability with $30 billion in loans from China against future oil sales.
Now Maduro is presiding over a distorted economy with limited alternatives. Venezuela’s bonds have descended into junk territory, and China does not seem willing to hand over big cash infusions as in the past. Devaluing the currency and pushing forward a structural adjustment would send the economy into recession and be political suicide.
Average Venezuelans do not pardon their leaders for devaluations. Maduro’s popularity took a serious hit when he devalued the currency in February as acting president, and only recovered when Chávez passed away. Thus there is almost no chance his government will devalue the currency before the Dec. 8 municipal elections. Nevertheless, the government needs to get a hold of this foreign exchange problem very soon as it creates irresistible incentives for corruption and capital flight. And this, in part, is behind the government’s push for an enabling law.
For months the government has seemed paralyzed with respect to the foreign exchange market and other basic economic issues. Indeed there are serious internal divisions on these issues and it appears that Maduro does not have the political capital to sit in a cabinet meeting, listen to alternatives, decide who wins, and then get his whole team to fall in line. The enabling law could provide him with the power to impose some direction on the government’s economic policy.
The enabling law is being framed as providing Maduro with the powers he needs to fight corruption and confront the “economic war” he says is being waged against Venezuela. At first glance the desire for an enabling law looks a little mysterious since he already has an absolute majority in the National Assembly. Thus any law he wants to decree, he could get passed by the National Assembly anyway.
But being able to decree laws instead of having them debated in the National Assembly would indeed increase Maduro’s power. First, it reduces public debate and potential opposition against the laws that he might want to decree. Chávez frequently passed laws that had been written behind closed doors in [the presidential palace] Miraflores and which had never seen the light of day until they were decreed. That reduces the possibility for criticism and negative publicity.
Furthermore, Maduro’s biggest problems are in his own coalition. There is a lot of discontent within the government at all levels, especially among people who think he does not have the power and vision to make the Chávez project work. The enabling law would increase his power within the government because it reduces the ability of pro-government legislators to alter his agenda and grab the spotlight.
Perhaps most importantly, insiders suggests that the government sees the enabling law as a message to China that Maduro is solidly in power, can impose his will, and can guarantee that China will not lose its money.
Nobody knows what economic measures an enabling law might lead to, but they will likely be more rather than less restrictive. In recent weeks pragmatists like Nelson Merentes have been marginalized in favor of left idealists like Jorge Giordani. While three or four months ago it seemed like the government might refloat the legal “permuta” market, now it seems like, at least in the short term, the government will focus on trying to increase controls over who gets dollars.
It is easy to exaggerate Venezuela’s economic problems. It is not as if Venezuelans are destitute. When I was in Caracas two weeks ago the restaurants and shopping malls were all full, and the airport even fuller. Of course in a highly inflationary economy people want to spend their money as soon as they can. To my eye it seemed like most of the shortages had improved. Furthermore, the electricity didn’t go out for the 4 days I was there – however the situation is more precarious in the interior.
Venezuela is sitting on top of the largest oil reserves in the world and has a continual flow of dollars coming in. So they are not on the brink of a collapse. But they are progressively sliding into the swamp of serious economic dysfunction that will make sustained growth difficult and that could undermine Chavismo as a viable democratic political project.
And it should be pointed out that Maduro’s support is less tenuous than is often made out in the international media. The last trustworthy polling from September showed that while Maduro’s job disapproval had increased to around 50 percent his approval ratings were still in the mid-40s. These are numbers that have only changed slightly since the April election. In fact his favorability ratings have declined less than the leader of the opposition, Henrique Capriles, during the same time period. Average Chávez supporters are still giving Maduro the benefit of the doubt and unless there is a dramatic deterioration, Chavismo will probably do better than the opposition in the December municipal elections.
– David Smilde is the moderator of WOLA's blog: Venezuelan Politics and Human Rights.
• A version of this post ran on the author's blog. The views expressed are the author's own.
The Canadian gold mining company Pacific Rim announced on Oct. 8 that it had signed an agreement to be acquired by OceanaGold Corp., an Australian mining firm. The acquisition price reflects a premium of approximately 50 percent above where Pacific Rim shares had been trading.
Pacific Rim currently has a high profile international arbitration pending against the government of El Salvador relating to the government's refusal to issue a permit to allow the mining company to begin operations. Apparently OceanaGold feels that the arbitration case, or the possibility of a negotiated resolution, is strong enough to warrant the investment in Pacific Rim.
According to the press release announcing the deal:
Mick Wilkes, Managing Director and CEO of OceanaGold commented, "We believe this transaction will provide OceanaGold shareholders with potential exposure to a high grade gold-silver resource located in a very prospective region. This project has the potential to be an economic engine for El Salvador much like how our recently commissioned world-class Didipio Mine has been for northern Luzon in the Philippines. This transaction aligns well with our strategy to create value through investment in high quality, low cost assets and utilising the OceanaGold's experience in building and operating gold mines in an environmentally and socially sustainable manner. El Dorado further complements our high grade gold-copper Didipio Mine in the Philippines and we will look to replicate the successes we've achieved in New Zealand and the Philippines in El Salvador. OceanaGold looks forward to working with our local community and government partners in establishing a roadmap to unlock the opportunity at El Dorado for El Salvador."
The international arbitration likely won't conclude until the second half of 2014, after a new president takes office. The current de facto ban on mining began under Tony Saca when he was president and has continued during the presidency of Mauricio Funes. [Mr. Saca is running for president in the February 2014 election with the newly created Unity party].
OceanaGold operates mines in Australia and New Zealand and has one mine in a developing country, its Didipio mine in the Philippines. That mine has run into protests from groups claiming that OceanaGold has not respected the rights of local indigenous communities. An article titled Destroying Didipio, sets out the conflict between OceanaGold and local people affected by the mine.