Economic Policy

Mexico's 'soda tax' leads families to cut back

June 23, 2015

by AQ Online

Nearly a year after former Mayor Michael Bloomberg’s anti-soda efforts fell flat in New York City, makers of sugary beverages still have plenty to worry about. In March, the first so-called soda tax in the U.S. went into effect in Berkeley, California, earning the city $116,000 in the first month alone. Legislation to tax sweetened beverages is reportedly coursing its way through statehouses in Connecticut, Illinois, Vermont and Hawaii. And while San Francisco voters rejected a soda tax in November, earlier this month the city's Board of Supervisors approved measures restricting soda advertising and barring the use of city funds to purchase sweetened drinks.

The latest bit of bad news (for soda makers) comes out of Mexico, which passed the world’s first soda tax in late 2013. According to a study released by the University of North Carolina and the Mexican National Public Health Institute (INSP), the nation’s one peso per liter tax on sodas caused an average decline in purchases of 6 percent over the course of 2014.

Contrary to earlier suggestions by Mexican bottling giant Coca-Cola FEMSA that the tax’s effect had waned over the course of the year, the report found that the decline in sales had accelerated over time. The tax especially influenced the country’s poorer households, which cut purchases of sugary drinks by an average of 9 percent.

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Tags: Mexico, Health policy, Economic Policy

Businesses to Advertise in Cuban Phonebook

December 9, 2011

by AQ Online

The Cuban government announced yesterday that it will allow small- and medium-size private businesses to advertise in the next edition of Cuba’s national phonebook. To list a business name, address and up to two phone numbers in the back of the book, the state telephone monopoly Etecsa will charge the equivalent of $10, a steep fee in a country where the average salary is $20 per month. The deadline for reserving ad space in the 2012 phonebook is December 23.

“The insertion of the services of the non-state sector into the Telephone Directory helps satisfy the demand for that information," reported Granma, Cuba’s Communist Party newspaper. The government's decision comes as a result of extensive economic reforms in the last two years that have created a space for private enterprise in Cuba. This was done to stimulate the island’s struggling economy after the government began laying off thousands of public-sector workers last fall. Since then, more than 346,000 private businesses have been created.

But a study published by the Center for Democracy in the Americas in November found that the Castro government’s reforms, particularly creating opportunities for a new private sector, will not be enough to address Cuba’s economic woes. Cuba's New Resolve: Economic Reform and its Implications for U.S. Policy finds that Cubans will require job training and skill development to operate their business’ successfully.

Tags: Small business, Raul Castro, Economic Policy

Brazil Unexpectedly Cuts Key Interest Rate

September 1, 2011

by AQ Online

Citing concerns about slowed global as well as domestic growth, Brazil’s central bank cut its key interest rate from 12.5 percent to 12 percent on Wednesday. The move, which follows five rate increases this year, surprised many and worried investors concerned about inflation. It also raised questions about government influence on monetary policy, as a number of politicians, including President Dilma Rousseff, had recently called for a rate cut.

The Banco Central do Brasil’s monetary policy committee, Comitê de Política Monetária (Copom), voted five to two on Wednesday to cut the Selic rate by 50 basis points, translating to an interest rate decrease of 0.5 percentage points. A Reuters poll of 20 economists showed that they all expected the central bank to maintain the rate at 12.5 percent; investors expected at most a decrease of 25 basis points.

In a statement accompanying the news, Copom said that in “reevaluating the international scenario, [it saw] a generalized reduction of great magnitude in the growth projections” for the U.S. and European economies. The committee was concerned that this dip would affect the domestic economy through reductions in trade, weaker investment flows, tighter credit, and pessimism among consumers and businesses. The statement said effects were already being felt in declining growth projections for the Brazilian economy.

Signs of an overheated economy and unsustainable growth have lately begun to manifest themselves in Brazil. The real has appreciated more than 40 percent against the dollar since the end of 2008, hurting the manufacturing sector through less competitive exports and cheaper imports. As of mid-August 2011, annual inflation stood well above the central bank’s target 6.5 percent upper limit—at 7.1 percent. Throughout this year, Brazil has been taking steps to tighten its economy, not only raising the key interest rate multiple times, but also cutting spending and requiring banks to increase their reserves. Nonetheless, Copom said that at this time it considered the balance of risks against inflation to be “more favorable.”

Though government officials say that the central bank maintains independence in setting interest rates, Rousseff’s administration said earlier this week it was increasing its 2011 surplus target to pave the way for looser monetary policy, and central bank president Alexandre Tombini has in the past advocated for greater policy coordination with finance ministry officials.

Tags: Brazil, Economic Policy, Central Bank of Brazil, Comitê de Política Monetária (Copom)

Rousseff Wins Key Legislative Victory

February 17, 2011

by AQ Online

In a series of votes late Wednesday, Brazil’s lower house of Congress approved a 6.8 percent increase in the minimum wage to 545 reais a month ($326.50), from 510 reais. Labor unions and some politicians had sought to increase the wage to as high as 600 reais. The bill will now go to the Senate, where it is expected to be approved next week.

The approval is considered an important victory for Brazilian President Dilma Rousseff, who took office on January 1. Although she was elected by a landslide last October and her governing coalition holds a majority in Congress, that coalition is itself made up of politically disparate groups, including everything from radical leftists and union leaders to socially conservative Christians.

Wednesday’s approval by a strong majority in the lower house shows Rousseff was able to rally her coalition even on politically sensitive issues for her labor constituency. Nonetheless, she risks losing some of her popularity by pushing austerity measures, including planned cuts in federal spending. Last week Rousseff’s government announced a goal of reducing the federal budget for 2011 by 50 billion reais ($30 billion), as she seeks to curb inflation and hold down interest rates. Inflation reached a six-year high of 6 percent in 2010.

Limiting increases to the minimum wage is important because the wage is used to calculate a range of government salaries and benefits, including federally-funded pension funds. Each real added to the minimum wage amounts to a 300 million reais ($180 million) annual increase in federal spending. 

Under Rousseff’s predecessor Luiz Inácio Lula da Silva, a former union leader, the minimum wage increased nearly 60 percent between 2002 and 2010, which helped millions move out of poverty and earned him enormous popularity. Current union leaders critical of Rousseff’s proposal say the limited increase in minimum wage and other measures of fiscal austerity will hurt the poor and working class the most.

A 2006 agreement between Lula and labor unions, which Rousseff has pledged to extend, determined that the minimum wage increase would be calculated by adding the previous year’s rate of inflation to the rise in GDP of two years ago. The Brazilian economy stagnated in 2009, meaning the government only had to increase the wage in line with inflation this year. It will face a more difficult decision next year, when the wage rise will have to reflect Brazil’s 2010 economic growth rate of 7.5 percent.

Tags: Brazil, Labor rights, Economic Policy, Dilma Rousseff

Innovating and Creating Shared Value Get Respect

February 9, 2011

by John Parisella

Just recently, I came across an article in the Harvard Business Review written by renowned professors Michael E. Porter and Mark R. Kramer.  The authors lament the increasingly negative views toward business and capitalism of recent years and argue that companies must lead the effort to bring business and society back together.  In their view, those who use corporate social responsibility to enhance reputations, recognition and respect miss the point.  Porter and Kramer claim that businesses will gain the most respect if they embrace the concept of shared value, in which the creation of economic value meets social progress.  Furthermore, this concept has the greatest potential for launching the next era of growth and innovation.

Porter and Kramer acknowledge that adherence to shared value is far from the norm in business today.  While they offer examples of companies moving in the direction of combining economic and societal progress in their business models, such as Wal-Mart, General Electric and Nestle, they argue there is still much to change with education in business schools.

Listening to the recent State of the Union speech by President Obama convinced me that preparing for—or as he says—“winning” the future will require more than short-term job stimulus and deficit/debt-reduction measures.  It will require a new mindset very much in line with the Porter-Kramer vision. 

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Tags: Sustainable development, Health care, Economic Policy, Alternative energy and renewables

Venezuela to Create Public Stock Exchange

November 12, 2010

by AQ Online

Venezuela’s National Assembly last week passed the Ley de la Bolsa Pública de Valores Bicentenaria, which will allow for the creation of a new stock exchange geared toward both public and private-sector entities wishing to undertake stock exchange operations. The move is seen as the continuation of a trend in Venezuela toward greater state control over traditionally private-sector functions. 

House Finance Committee President Ricardo Sanguino called the new law an important component of the transition to twenty-first-century socialism and not a capitalist enterprise. He says the exchange is not meant to generate a speculative market, but rather to democratize access to liquidity and investment. Entities that will be allowed to raise capital on the market include public companies, joint ventures, collective and social production companies, savings banks, private companies, and small and medium-sized enterprises. 

Critics of the new law say it raises more questions than answers. The major issue, according to analyst María Inés Fernández, is which titles are going to be traded and who is going to trade them. It is not clear that there is market demand for a public stock exchange—especially considering that most traders prefer to trade in dollars rather than the volatile bolívar.

State companies are currently traded on the private Caracas Stock Exchange, which will continue to operate but will no longer have access to public titles. The new public stock exchange legislation now awaits final approval by President Hugo Chávez.

Tags: Venezuela, Hugo Chavez, Economic Policy

Piñera on First Presidential Trip to Asia

November 10, 2010

by AQ Online

Chilean President Sebastián Piñera leaves today on a seven day trip to Japan to attend the Asia-Pacific Economic Cooperation (APEC) meetings being held on November 13 and 14 in Yokohama.  He will then travel to Beijing on his first official state visit to China.  The President will stay through the 40th anniversary of Chinese-Chilean bi-lateral relations on November 17. 

This year’s APEC meetings will continue to work on establishing a regional free-trade zone, envisioned to encompass all of Asia despite on going disputes regarding foreign exchange and monetary policies.  President Piñera’s participation will be focused around Chile’s participation in the Trans-Pacific Partnership (TPP) protocol, currently including Brunei, New Zealand, Australia, Singapore, the United States, and Chile, which reduces tariffs for trade between APEC countries and the other non-Asian participants. Malaysia has recently joined TPP, and much speculation is on Japan and South Korea to follow suit.

Piñera’s itinerary will include meetings with local officials in Tokyo on Monday before departing to China where he is scheduled to meet Chinese President Hu Jintao, Prime Minister Wen Jiabao and Chairman of the National Assembly Wu Bangguo.  The President returns to Santiago, Chile, on November 18.

Tags: Chile, trade, Economic Policy, Japan, Chilean President Sebastián Piñera

New Report Says Latin America Poised for Strong Growth in 2010 and 2011

October 8, 2010

by AQ Online

Latin America and the Caribbean are likely to grow 5.7 percent this year—twice the expected recovery for the United States—say the World Bank and International Monetary Fund in a report released this week. Regional output of goods and services is expected to continue to grow in 2011, although at the slower rate of 4 percent.

Brazil, Peru and Uruguay are expected to grow 7.5, 8.3 and 8.5 percent, respectively. The report highlighted Brazil as an emerging economic behemoth, thanks to credit growth and increased exports of iron ore, beef, soy, and sugar on the international scene, combined with strong consumption and poverty reduction at home.

Experts attribute the better-than-expected pace of Latin American growth—despite the global financial crisis—to a decade of good fiscal and debt management, strong commodity prices, growing foreign investment, and increased trade links with Asia.

The World Bank and IMF report cautioned against complacency, urging commodity-exporting countries in particular not to waste huge capital inflows on domestic financial excess, but instead set up windfall savings funds for emergencies. In addition, Luis Alberto Moreno, president of the Inter-American Development Bank, warned U.S. businesses not to miss out on the opportunity to develop ties to fast-growing economies. He said that for years, free trade in the U.S. has inaccurately been synonymous with loss of jobs. He also pointed out that, as a result of strong macroeconomic performance in the region and various free trade agreements, U.S. exports to Latin America increased 82 percent between 1998 and 2009.

Tags: economic growth, World Bank, Economic Policy, International Monetary Fund