Central America's elites must fund their own state security, expert says

Testimony at a recent US Senate hearing on US-Central American security cooperation showcased one of the region’s key problems: countries do not collect enough taxes to win the fight against organized crime.

By , Guest blogger

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    In this image release by Guatemala's Presidential Press Office, Presidents, from left, Alvaro Colom of Guatemala, Porfirio Lobo Sosa of Honduras, and Mauricio Funes of El Salvador, wave as they pose for pictures during a meeting in Antigua Guatemala, Thursday May 19, 2011. The presidents met to define policies against drug trafficking and organized crime.
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In a recent US Senate Caucus on International Narcotics Control, Kevin Casas-Zamora -- who was Vice President of Costa Rica from 2006 to 2007 under Oscar Arias, and is now a senior fellow at the Brookings Institution -- told the committee that wealthy Central American elites are going to have to start footing the bill for security forces in their home countries, or face an increasingly difficult security situation. (Watch the hearing here.)

“Don’t let the Central American elites, who have never paid taxes, off the hook this time,” he told the committee. (To read Mr. Casas-Zamora’s testimony click here.)

Central America ranks at the bottom in terms of tax revenue as a percentage of GDP. According to the World Bank’s most recent data from 2009, Central America’s tax revenue falls below the average for not only Latin America, but even Sub-Saharan Africa (see chart at here).

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Guatemala has the lowest tax collection in the region, at only 10.4 percent of GDP, and has been the scene of particularly brutal crimes in recent months. The penetration of drug traffickers, and the weakness of the government, caused a United Nations body in the country to warn that it could become a "narco-state." Even the governments of countries such as Indonesia, Sierra Leone, and Kosovo were able to collect more tax than Guatemala.

The region, meanwhile, is suffering. Large criminal organizations, such as the Mexican-based Zetas and Sinaloa Cartel, have established bases throughout the isthmus, while Central America now suffers some of the highest homicide rates in the world.

The security forces are woefully underpaid and under-trained. Many law enforcement officials work closely with local and foreign criminal organizations, taking part in smuggling drugs, kidnapping, extortion, and other illicit activities.

The trend is region-wide. Most countries facing the challenges of organized crime do not collect taxes comparable to their counterparts in the developing world. Indeed, the wealthy tend to avoid taxes and buy their own social services, including private schools, hospitals, and security. In Mexico, for example, there are approximately 8,000 private security firms, according to the State Department’s 2010 Human Rights Report.

The one exception may be Colombia. In 2002, newly elected president Alvaro Uribe took on Colombia’s elite, raising over $800 million dollars with the implementation of a “wealth tax.” The tax was so successful that a similar measure was implemented from 2007-2011, which according to the State Department was expected to raise an additional $3.7 billion dollars.

Colombia's security situation has changed drastically since the measures were implemented. The military has killed and captured numerous top level guerrilla and paramilitary leaders.

Some Central American governments are beginning to take heed. The government of El Salvador, for example, recently proposed a new tax intended to raise $380 million to combat crime.

--- Elyssa Pachico is a writer for Insight – Organized Crime in the Americas, which provides research, analysis, and investigation of the criminal world throughout the region. Find all of her research here.

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