How We've Oversold the Rule of Law

July 13, 2010

We hear it often: the rule of law is essential for investment.  For over a decade, a legion of organizations and scholars--from the World Bank to Douglass North--have argued that if countries really want to develop they need to develop an independent, impartial, pro-market system for the application of laws and their adjudication.  And those that don’t establish the rule of law will be ignored by international investors and the global market.

If only it were true.

The relationship isn’t that easy or clear.  There are plenty of examples of countries and economies that have prospered without the effective rule of law; ones that haven’t even though they may have it; and plenty of companies that are willing to invest even in abysmal or deteriorating conditions. 

It may be heretical to say it, but we have oversold the rule of law. Truth is: it matters most for small and medium enterprises.  For large investors, national economies and specific economic sectors, it matters far less than we’ve convinced ourselves. 

Let me highlight some of the overblown assumptions we’ve made about the rule of law and economic growth.  Only by understanding them can we really recognize, in a more nuanced and targeted way, the limited, though important, way that the rule of law is important and for whom.

Myth 1:  Big Investors Need the Rule of Law

In a famous speech, then-Secretary of State Colin Powell made an argument for countries to reform their judicial systems by stating that “capital is a coward.  It flees from corruption, bad policies, conflict and unpredictability.”  Left out of this was the bald truth that big investors can afford to invest in less safe conditions nationally because they come with their own protection: arbitration agreements.  Many of the contracts negotiated in private equity, vendor agreements, and even fixed investments establish that in the event of a contract dispute both parties will submit to international arbitration--often under  the Inter-American Convention on International Commercial Arbitration (1975) and the UNICITRAL Model Law on International Commercial Arbitration (1985)--with arbitration occurring outside the country. 

What this does is effectively take the issue outside the country’s system for the rule of law, obviating the sweeping reform of the judicial system, an overhaul of commercial codes, and the creation of an effective, transparent independent system for the naming and oversight of justice officials necessary for the rule of law. 

Sure, this international arbitration is great for investors who don’t have to wait for the lengthy, uncertain process of wholesale reform of a country’s legal and judicial system.  And it’s a boon to policymakers who can establish an effective, quick pathway to attract investors.  But it does little for pressuring the system as a whole for reform and reduces the advocacy and urgency for broader reform.  Yes, other disputes will arise that do not rise to the level of arbitration and that will need to be dealt with in the local courts, even for the big investors.  This can include matters of resolution of bankruptcy claims, contract violation, arbitrary regulatory changes, and intellectual property violation.  To be sure, the threat of these complications--often costly--is a disincentive for investment.  But, for many of the largest investors looking to sink their funds into a lucrative market, these are only one of the calculations among many that they make, which brings me to the next point.

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Handling Dissent in the OAS: Can Hillary Clinton Negotiate Honduras' Return?

June 7, 2010

This week, from June 6 to 8, the Organization of American States (OAS) will hold its General Assembly with all the region’s foreign ministers and secretaries gathering in Lima to discuss affairs in the hemisphere....well, almost. Last year the theme of the General Assembly, held in Honduras, was supposed to be security, but the event was derailed by a movement to revoke Cuba’s suspension from the OAS. This year, it’s likely to be the return of the government of President Porfirio Lobo Sosa of Honduras to the OAS that will consume the attention of the gathered diplomats.

Different country, same divisions, on different sides. As with the outcome at the last OAS General Assembly, some artful diplomacy could produce a positive step that will finally--for the good of regional diplomacy and Honduras--help to move this process along.

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After Pacification: The Social Aspect of Controlling Crime

May 18, 2010

Asserting the democratic rule of law and recovering social peace is a difficult task, especially in places like Rio de Janeiro’s favelas and Colombia’s one-time, crime-ridden cities and war-torn countryside. Democratic and sustainable crime control means establishing state control in places where it has never been present or where it was lost long ago. It also means more than just plopping down an occupying, even pacifying force. Establishing and maintaining peace requires developing a state that can deliver services to local populations.

My recent trip and discussions with police, policymakers and experts on this theme in Rio have reminded me this is no easy task.

The term “failed state” has become a fashionable term to describe countries like Somalia, Afghanistan and Haiti, but we also now know that there can be pockets of state failure elsewhere. While not as broad, dangerous or deep as those countries teetering on the edge of anarchy, pockets of failed states suffer from the same need: to develop the institutional and physical infrastructure to integrate deprived communities into the nation state and the legal market economy.

For the last two days I’ve been traveling with a group of security experts to observe and discuss with Sérgio Cabral, the governor of Rio de Janeiro, the state’s security plan to prepare for the 2014 World Cup and the 2016 Summer Olympics. Among the group were former NYC Police Commissioner and LAPD Chief William Bratton and his colleague (and AQ co-author) Bill Andrews, former Vice President of Costa Rica and senior fellow at the Brookings Institution Kevin Casas Zamora, local civil society, private-sector leaders, and the leadership of the newly created “pacification police” (policia pacificadora), or as their local units on the ground are called, UPPs. The latter is a police force created by Governor Cabral that serves as local beat cops in the crime-ridden favelas.

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Citizen Security without Ideology

May 17, 2010

In the next ten years, Rio de Janeiro  is going to host both the finals of the World Cup of soccer and the 2016 Summer Olympics. Can the city that coined the word favela (and with it all the connotations of desperation and lawlessness) and the reputation as one of the most crime-ridden cities in the world pull off these massive international events? Certainly, Rio state authorities are doing everything they can to allay international fears and address concerns. 

This week I toured a once-infamous Rio favela, Dona Marta, with a representative of the governor of Rio de Janeiro’s cabinet.  My impression of the favela that I visited is that there certainly has been progress. We visited one of three police precincts that had been recently established to pacify the informal neighborhood. The one we visited had seven video cameras posted throughout the favela, friendly beat police walking the narrow, twisting stairs that threaded their way among the houses, and a sense of peace, even civility.  A success by any standards in what many consider to be the quintessential den of crime and lawlessness. 

Unfortunately, it’s only one of over 300 favelas in Rio de Janeiro.  The plan is to take each one, one at a time, with a combination of rooting out local drug lords and criminal networks and establishing a system of community policing, providing basic services (such as electricity and social services) to these informal settlements perched on cliffs overlooking the city or islands within the city.  By all accounts, including that of former New York City Commissioner Bill Bratton, this is the only way to do it. 

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Obama's Latin American Policy: Talking Like It's 1999

April 8, 2010

When it comes to Latin America, the Obama administration's change in tone from the early days of the last administration has been tremendously important. The emphasis on multilateralism has helped to salve long-standing wounds. The emphasis on broader social goals and the willingness to listen has echoed the growing demand to be listened to south of the border. And President Barack Obama's State of the Union shout out for free trade with Panama and Colombia has demonstrated that this administration will not jettison the best initiatives of President George W. Bush in the name of partisanship. All this is very welcome.

But still there's been a troubling sense of anachronism in this administration's rhetoric toward Latin America. Part of this reflects the understandable tendency to define things in regional generalities; but doing so tends to boil them down to retrograde platitudes. It obscures policymakers' sophisticated understanding of differences in the region--and the changes that have occurred in the last 10 years.

If the first 5 years of the Bush administration seemed like a replay of 1980s, with the Manichean obsession with our enemies, unabashed support for specific candidates and a loss of sense of scale--with an inordinate amount of attention devoted to Cuba, Nicaragua and El Salvador--today it's beginning to feel like we're partying like it's 1999. We're running out of retro.

Prince - 1999

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Global Immigration: Help Wanted, but Don’t Ask Us for Any

March 23, 2010

(A fuller version of this article will appear in the forthcoming SIPA News magazine.)

The occasional explosion of violence between native born-French and Northern African immigrants or the recent riots between African immigrants and Italian citizens in Calabria, Italy remind us that immigration is not just a U.S. phenomenon.  (The violence also reminds us that for all the ugliness of U.S. public opinion or U.S. policy toward immigrants, the U.S.’s anti-immigrant backlash is relatively tame in comparison.)   The pull of labor markets and the desire to seek a better life remains strong across the world.

The problem is that the pull for jobs and the policy to facilitate immigration and integration do not always match.  Perhaps more problematic is that the principal engine for workers to cross borders (the businesses that employ them) remain largely unwilling confront the contradiction between need for and receptiveness to immigrants.  While they may attract them and admit they benefit from them, businesses are too often unwilling to defend immigrants and immigration.

Who Wants Immigrants?  Turns out most of us do.

According to the Economist Intelligence Unit’s (EIU) Global Migration Barometer¹, of the top ten countries ranked by their attractiveness and accessibility for migrants all but two are in English speaking (Australia, Canada, U.S., the UK, and New Zealand) or in Northern Europe (Sweden, Norway, Belgium.)  The outliers are Singapore and Hong Kong, both small economies that have actively sought to bolster their shallow workforce with the skills of immigrant workers.

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Political Limits of Being Gay in Latin America

March 15, 2010

Co-Author: Mitch Seligson

The new found momentum for allowing homosexuals to openly serve in the U.S. military springs from attitudinal changes that have taken place since the “don’t ask don’t tell” policy of 17 years ago.  If only this type of generational change were occurring south of our own borders.  Recent surveys demonstrate that levels of political tolerance of gay rights in Latin America have changed little across generations. 

The most basic measure of tolerance is that of citizens to accept the right of a citizen (in this case a homosexual) to run for political office.   Sadly, even by this basic measure of tolerance, younger generations in Latin America are only marginally more supportive of political gay rights, especially in the most notoriously intolerant environments for homosexuals, Jamaica and Haiti.

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The Age of Discontent in the Americas? Not Really

March 5, 2010

This piece was co-authored with Mitchell Seligson of Vanderbilt University.

According to the UN Commission on Trade and Development over 60 percent of the population south of the Rio Grande is under 35 years old.  Latin America’s young people will have an impact on political stability and the economy not just in their home countries but also in the U.S., where Latin America accounts for 20 percent of U.S. exports and is the major source of narcotics consumed in the U.S.  There’s also the issue of immigration, where a backlash against Hispanic immigration has fueled a growing desire to close borders and sometimes spilling over into an ugly racist anger against immigrants already within our borders.  With the huge demographic bubble south of U.S. border, the lack of economic opportunity faced by many of the young means that in the years ahead larger numbers of them will be knocking on U.S. doors for entry.

Below are the results from surveys conducted by the AmericasBarometer at Vanderbilt University in 2008 that examine youth attitudes and activities compared to their older counterparts.

The good news is that, despite lack of economic opportunity and the drug-fueled violence in Mexico and Central America and the Andes, two decades after the democratic transitions swept out military governments in every country throughout the region (except Cuba) Latin America’s “democratic generation” remains satisfied with democracy. But it’s not all good news.  There is a support for violent protest—along the lines of factory seizures and sealing of highways we have seen in countries like Chile and Argentina—and a limited interest in local politics.   But as we show below, the former does not mean support for such extra-legal activities enjoy broad support.  In fact it remains marginal, though it is larger in the under 35 generation in Chile.

One thing is clearly revealed in the graphs below: whether you’re a marketer or a politician, if your target is the younger generation: use the Internet.

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Moving U.S. Policy Beyond Hemispheric Crises

February 10, 2010

Two recent crises have overtaken the U.S.’s broader policy framework and agenda for the region. First, there was the coup in Honduras, now the tragedy in Haiti. The first was a potentially avoidable political train wreck that ended up dividing the hemisphere, the latter, one of the worst humanitarian disasters in the hemisphere’s history and an opportunity to unite the hemisphere.

Together the two countries, whose populations total just under 17 million people, have dominated the U.S. policy agenda in a region with close to 600 million people. In other words, we risk having lost our focus on genuine regional powers such as Brazil and looming political problems such as Venezuela by focusing on the immediate crises of just under 3 percent of the region’s population.

But there is hope. For all its heart-wrenching tragedy, Haiti is an opportunity to forge a broader hemispheric coalition and agenda in a way we failed in Honduras. Creating this historical partnership requires establishing a broad regional framework for monetary pledges, coordination, modalities, and goals of a comprehensive, long-term relief plan for Haiti that builds off Brazil and Chile’s long-standing commitment and the U.S.’s deep pockets and military and humanitarian presence.

Time, though, is running out.

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The 7 Things President Hugo Chávez Has Taught Me

February 4, 2010

With the 11th anniversary this week of President Hugo Chávez’s ascension to power, I started reflecting on what I had learned from the leader of the Bolivarian Revolution.  President Chávez’s behavior and profile, internationally and nationally, provide a powerful lesson on how to challenge and defy traditional wisdom—and with it international norms and precedent. 

1) Break All Diplomatic Rules and Decorum and You’ll Get a Free Pass: President Chávez has called U.S. President George W. Bush  “the devil” on the floor of the UN; said on his regular, one-man variety show Aló Presidente that then-Secretary of State Condoleezza Rice needed a real man and described how he would seduce her; called the Secretary General of the Organization of Americas States, José Miguel Insulza a “pendejo” (to put it nicely, a jerkwad), just to cite a few of the incidents of his intemperate name calling.  And what has the international community done?  Besides King Juan Carlos of Spain telling him to “shut up” at the Ibero-American Summit, nothing.   This over-the-top behavior challenges the traditional civility of diplomacy.  Arguably, these sorts of outbursts don’t deserve a polite response.  But they have had the effect of intimidating would-be critics, cowing heads of state and multilateral organizations all the while President Chávez thumbs his nose at democratic and human rights norms. The international community has watched as standards for free and fair elections have declined; stood on the sidelines as the government systematically dismantles freedom of expression by closing down opposition media; and given a meek response when it has jailed opponents.  And the recommendation by many observers?  Don’t provoke Chávez, implying that even raising legitimate issues is forbidden because it may provoke a childish reaction.   President Chávez’s behavior also has the benefit of reinforcing a convenient image of a buffoon (see #7 below).

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U.S. Policy in Latin America: Naïve or Disingenuous?

December 2, 2009

This is not another posting about Honduras.  We’ve had enough of those and the back and forth. This is broader: about the general sense of drift of this administration’s policy in the region.  (Warning: this is a précis of a future article.) 

Is partnership really possible today in the Americas? For all the rhetoric and desire for collective action, the hemisphere is too divided, U.S. politics too polarized, and a number of Latin American countries too willing to shirk responsibility for that to happen.

President Barack Obama’s administration walked into office and the Summit of the Americas in Trinidad and Tobago talking about partnership in the hemisphere—a welcome refrain from recent years.  But if current events are any indication, the region doesn’t want partners it wants a punching bag.  Partnership assumes a level of shared values, responsibility and future.  The last eight months demonstrate everything but. 

First, the sad debate at the Summit of the Americas in April.  President Obama came armed with public adulation, a global honeymoon and a promise of partnership.  All the presidents of the hemisphere united; the first regional meeting with the newly elected President Obama, and what do the Latin American countries put on the agenda? Cuba. 

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Here We Go Again: Nicaragua-Honduras-Re-Election

November 6, 2009

Just south of Honduras, in Nicaragua, another constitutional crisis is brewing over re-election.  And while attention is focused on Honduras, many of the actors that stood on the sidelines leading up to the June 28 coup in Honduras are standing on the sidelines again as political totalitarian ambition and institutions head toward a train wreck.

In this case, Sandinista President Daniel Ortega has sparked a constitutional crisis of his own by—like his friend Honduran President Manuel Zelaya—pushing for a constitutional reform to allow himself to run for re-election in 2011. 

In this case, though, six members of the Ortega-packed Supreme Court supported the reform (under the curious and specious decision that Article 147 of the constitution was “inapplicable.” Huh?), and the Nicaraguan Congress refused to question it.  The President of the Supreme Court declared his opposition to the ruling, but the pro-Ortega Sandinista congressional representatives spurned the opportunity to overturn it. 

So wait: the Nicaraguan Supreme Court approved it, and Nicaraguan Congress supported the Supreme Court’s decision.  If this were Honduras this would be constitutional, right?  That’s what U.S. conservatives have been saying: that the coup in Honduras wasn’t a coup because the Honduran Congress and Honduran Supreme Court supported it, and thus democratic institutions had spoken.  (Note: in both cases, the Supreme Court acted in secret with no public debate; in Honduras it was to arrest President Zelaya; in Nicaragua it was to support Daniel Ortega’s totalitarian plan.)

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U.S. at a Standstill; Brazil Moves On

October 21, 2009

This isn’t another confirm Tom Shannon as Ambassador to Brazil or confirm Arturo Valenzuela as Assistant Secretary of State for Western Hemisphere Affairs essay—though I support both of those positions, and understand that things may be moving. This is an expression of wonder at the inability of the U.S. government to walk and chew gum at the same time when it comes to Latin America policy. 

Let me be clear.  I’m not one of those persistent whiners who always complain about the lack of attention paid to Latin America.  The last administration of George W. Bush paid plenty of attention to the region, traveling there more frequently and receiving more Latin American heads of state in the White House than any past president, and launching a series of serious initiatives for the region: the free trade agreements with Peru, Panama and Colombia, the Merida Initiative with Mexico, and a series of genuinely exciting efforts with Brazil, Uruguay and Chile—starting with, but not limited to, trade.  

Sad thing is, despite a time during the campaign when it seemed that all a potential President Obama needed to do was show up to be more effective, his administration is at real risk of losing the gains of the last eight years. 

I never thought I’d say that. 

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Deal or No Deal?

October 15, 2009

Howie Mandel wasn’t there, but he may as well have been as yesterday the small group of dedicated Latin Americanists waited to hear if the negotiations had been successful in resolving the crisis in Honduras. The morning opened up with news that the negotiators were optimistic and that they were 90 percent there. Then came the news from the Commander of the Army, General Romeo Vásquez, that a deal to resolve the impasse was close at hand. Then the news! A deal had been struck. Then the downer. No deal, said de facto President Roberto Micheletti. 

In the statement he warned the national and international media “to be cautious in their reporting about the negotiations as they have a responsibility not to interfere with the dialogue.” Before that, Micheletti clearly left his options open: “Today, the negotiating teams began discussing the most difficult issue in the negotiations—the possible reinstatement or not of former President Zelaya within the rule of law and in line with our Constitution.” (Which by the way was broken when the military sent him packing out of the country on June 28, but I guess that doesn’t matter.)

We probably all should have taken the optimism with a grain of salt. In large part because by their own admission the negotiators were saying that they had resolved everything except the status of ousted President Manuel Zelaya. Saying that you’re 90 percent there but having not resolved the critical and most polarizing issue of the crisis is akin to saying you’ve solved global warming except that messiness about countries controlling carbon emissions. You can’t get a resolution without it, and yet it’s the major sticking point.

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Democracies and Double Standards

October 8, 2009

Exactly 30 years ago (1979) the late Jeanne Kirkpatrick wrote a famous, though controversial, article in Commentary that for a group of conservative foreign-policy analysts guided policy toward Latin America during the administration of President Ronald Reagan.  The basic thesis of the argument was that as autocratic regimes differed, so should U.S. policy toward them.  On the one hand were totalitarian regimes, more encompassing in their control over society and the state and thus more oppressive and durable.  On the other were traditional authoritarian regimes, less complete in their domination over politics and society, less suffocating, more temporary.  (Not coincidentally the former were also often of the Left and opposed to U.S. interests; the latter often more rightwing and shared the U.S.’s anti-communist orientation.)  The implication was that the U.S. should weigh human rights abuses differently under these two different dictatorial systems.

Today we’re seeing a similar cognitive and moral dissonance over Latin American democracy in the rhetoric around Venezuela and Honduras. This time, though, it comes from both the Left and the Right.  Commentators, activists and writers are holding democracies to double standards based on their ideological orientation.  The assumption for each is that a human rights abuse under one government is worse than under another.  They aren’t.  They’re the same. 

The victims of this repolarization or return to Cold War discourse are the basic liberties and principles of democracy.   If this continues the basic consensus that has undergirded our policy toward the hemisphere from the administration of President George H.W. Bush until the end of the administration of President Bill Clinton may soon join the dustbin of history.

This can be seen no more clearly than in the arguments marshaled to defend the shuttering of the freedom of expression in Venezuela and more recently in Honduras.  In both cases, supporters of the respective governments cite the political and ideological biases of the targeted media—in the case of Venezuela a TV station and in the case of Honduras a radio station—to defend the governments’ illiberal actions.  In neither case, as despicable as the positions of the stations may have been (and I’m not judging here) were the actions taken by the governments defensible.

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The Honduras Crisis, Three Months Out: Is Micheletti's Support Unraveling?

September 29, 2009

It appears that Roberto Micheletti, the de facto president of Honduras, overplayed his hand on Sunday when he announced a decree that closed down two media outlets (Radio Globo and Canal 36), dissolved the right of assembly and permitted police to detain suspects without warrents. Just for good measure he also gave the Brazilian embassy a 10-day ultimatum to release elected-President Mel Zelaya, saying that the government would not respect the embassy as Brazilian territory (a violation of diplomatic protocol and what would amount to—according to the Brazilian government—as an invasion of Brazilian territory).  And he threw out the OAS delegation that had arrived, saying they had come too early. 

In a move familiar to President Zelaya before he was unconstitutionally removed, the Honduran Congress said that it would not support Micheletti’s decree. 

A visibly shaken Michelletti issued a televised mea culpa and said the decree would be suspended.  But its effects on clamping down on the media and heading off demonstrations were still felt. 

The question is: has Micheletti lost it?  I mean this both in the sense of his political strategy and his political/institutional support. 

First, the wisdom of the move.  The coup President has shown a remarkable level of stubborn disregard for the international community—a result in large part of his conviction of the legitimacy of the government’s actions and his belief that other governments haven’t taken Zelaya seriously as a threat to Honduran democracy.  But the actions on Sunday have effectively closed off what was Micheletti’s last (narrow) path out of this: the November 29th elections and the hope that somehow, someway the international community would accept them as a path forward and recognize the winner. 

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Zelaya Holes Up in the Brazilian Embassy: Now What?

September 23, 2009

So he’s back in Honduras.  How Zelaya got in is still a mystery and to the de facto President Micheletti a source of some concern, primarily if it may mean that some segments of the armed forces may have been complicit. That concern will increase as the  nervous Micheletti asks the armed forces to enforce his curfew and crack down on pro-Zelaya demonstrators .  The clamp down has already caused a number of injuries and reportedly between one to six deaths, prompting a public statement from Amnesty International condemning the government’s heavy handed tactics.

In any democratic transition, the point of change comes when moderate segments of the armed forces decide that the cost of repressing escalating social unrest is too great and break with the government.  Such a scenario is looking possible in Honduras.  (Remember also the statement of some junior military officers in late July endorsing the San José accord that called for Zelaya to return?) But by no means is it desirable.

Getting to that point implies increased upheaval and turmoil, something that President Zelaya is clearly trying to stoke from his temporary quarters inside the Brazilian embassy The stunt of his sneaking into Honduras (as with his earlier antics of flying over the capital threatening to land and his two-step over the Nicaraguan/Honduran border) are unfortunate efforts to energize his supporters, keep himself in the news and provoke clashes.   And they make it difficult for the diplomatic world to support him—even when they are (as they should be) supporting the institutional and democratic/electoral process that he represents and that was overturned on June 28th.  It’s just that it would be easier if he weren’t so cynically trying to seize media attention, ally himself with unsavory allies who themselves have little interest in institutional integrity and use his supporters as cannon fodder.

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Zelaya's Return to Honduras: Another Media Stunt?

September 21, 2009

Fame, even political fame, seems to depend more and more on your ability to grab the public fascination—even if it’s lack of respect—than any real attributes.  Just the mere aura of media attention confers importance, talent and relevance now-a-days.  Just ask the vacuous Paris Hilton, or the duly-elected president of Honduras, Manuel “Mel” Zelaya, whose latest tactics indicate that more than resolving the constitutional crisis in a serious manner, he’d prefer to just be in the news. For whatever.   Just today (Monday, September 21) Zelaya appeared suddenly in the Brazilian embassy claiming he had crossed mountains, rivers and the military-manned border to re-appear in Honduras to defy the government’s arrest order.  And then he gave a friendly wave to supporters from the Brazilian embassy. 

This isn’t helpful. 

Sure the man was deposed in a coup.  (Just a quick side note: as Mary O’Grady wrote in today’s Wall Street Journal, the Honduran constitution does allow for the Supreme Court to try a president and issue a warrant. What it clearly does not say is that it gives them the power to bundle him up and take him out of the country.  It also implies that the trial would be transparent and under due process—neither of which was true in the rushed, closed-door “hearing” that was held preceding President Zelaya’s jammy-clad plane trip into exile.  The U.S. constitution allows for an impeachment process; but once it has been completed and a president found guilty, it doesn’t allow for him to be sent into exile—most would agree that to be beyond the constitutional order.) 

But his antics: first circling over the airport in a Venezuelan government plane, then the hokey pokey at the Nicaraguan/Honduras border, and now this demonstrate a craven need to keep himself in the public eye and to remind the world of his martyrdom, and, in some twisted way, even present himself as a credible politician.

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Latin America's Middle Class Isn't What You Think (cont'd): The Unbanked

August 19, 2009

Two weeks ago I started a serialized essay on Latin America’s middle class that will appear every other week on the AQ blog. As I wrote at the time, Latin America’s middle class has received a lot of attention of late, including worry about its size, praise and high expectations for its growth and debate about its future. It’s also sparked a fair amount of speculation by businesses about its market potential.

But as I wrote two weeks ago, Latin America’s middle class is much more heterogeneous and, quite frankly, poorer and marginalized than many of us in developed countries would believe.  In the last post, I talked about the definition of the middle class.  In this one I talk about access to banking.  And not to give away the punch line: it’s lower than you think.  In later ones I’ll talk about wage security, education, access to health care, access to insurance, quality of housing, levels of satisfaction, and support for democracy.  But more about this in subsequent posts. 

Now it’s about the integration of Latin America’s middle class into the formal banking/financial system.

Consider this: according to an article that appeared in The New York Times on August 18, 2009, in New York City (notice how as a resident now I capitalize City as if to give it special meaning.  Why I don’t know.) “in the world’s banking capital, 12 percent of households do not have a bank account” compared with 8 percent nationally. 

That’s in New York and is a statistic that transcends socioeconomic groups—upper class, middle class and the poor. 

Consider this: in Latin America, in Mexico, for example, the middle class’s access to formal credit averaged just over 20 percent (in other words, just under 80 percent of the Mexican middle class did not have access to formal credit sources—banks, credit agencies, credit cards, etc.).  And in Peru under 18 percent had access to savings accounts. 

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Latin America's Middle Class Isn't What You Think

August 6, 2009

Many hopes and assumptions are pinned on the middle class in developing countries, not least in Latin America. The Economist has praised its growth; economists and statisticians have struggled to define and measure it; and many have hailed it as the answer to the region’s political and developmental ills.

But for all this talk, we really don’t know much about this middle class. Who are they? Where do they work, and what is the nature and stability of that work? Do they have access to basic public goods such as health care, pensions or insurance? And now how have they been affected by global economic and financial crisis?

Many observers impute to this vague, amorphous category of the emerging economies’ middle class a whole set of assumptions based on concepts of the European or the United States middle class that drove economic development and ushered in an era of political stability. The truth is, though, that Latin America’s nascent middle class is more inchoate, informal and fragile than most people realize. We’re not talking here about Father Knows Best.

To say this is not to diminish their importance, but it is a call to recognize the limitations and vulnerabilities of one of the most talked about trends in the developing world today.

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Honduras: Sides Harden, Logic Breaks Down, and Tragic Silliness Begins

July 26, 2009

Although President Manuel “Mel” Zelaya prefers to wear a white hat, there are no men in white hats in the escalating situation in Honduras. Unfortunately, now with the military’s statement supporting Costa Rican President Óscar Arias’ seven-point plan to resolve the impasse between the ousted President and the de facto government that replaced him, the implication is that again the men in the barracks will save the day.  But by announcing its support and, in effect, contradicting the position of de facto President Micheletti, the military is again insinuating itself in politics and serving as a political broker.  It was dangerous and wrong when it did it on June 28th, and it’s dangerous now.

As I wrote here earlier, de facto President Micheletti’s refusal to accept President Arias' San José Accord was a serious mistake. The stumbling block was the provision to allow President Zelaya to return to Honduras to a shorter mandate and with severely curtailed powers in a coalition government.  Micheletti stated that he would not allow Zelaya to return to Honduras and then never budged.

The intransigence led to the breakdown in the talks and drove Zelaya—never a cool head to begin with—out of a sensible, moderate process and back into the arms of Presidents Chávez of Venezuela and Daniel Ortega of Nicaragua. Zelaya swore he’d return to Honduras and on Friday led a caravan and a television crew briefly over the Nicaraguan border into Honduras then flitted back across the border to set up a camp on the Nicaraguan side.  To anyone (myself included) who supported the idea that the events of June 28th were a coup and that Zelaya should be returned in a limited capacity, the clownishness of his actions made his stunt Friday and Saturday tough to watch.

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Arias Led Mediation for Honduras, Close but No Cigar…Yet

July 21, 2009

In a logical world, President Oscar Arias’ seven-point plan for resolving the Honduran impasse is the best—and perhaps only—way forward after the Honduran coup. In many ways it reflects the things that we have promoted on this website: move up the date of the elections (in Arias’ plan to October), allow President Zelaya to return with a significantly curtailed role in a coalition government, an amnesty for the charges against him pre-June 28, and a commitment by the ousted president not to press for re-election. Pretty straightforward.

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Honduras' Holding Pattern

July 6, 2009

Things aren’t going well in Honduras. Lines have been drawn on both sides now, pitting the ousted president Manuel (“Mel”) Zelaya Rosales (backed by the international community, including the U.S.) against the de facto government, led by Roberto Micheletti (backed by the Honduran Congress—where he came from—a majority of the Honduran people and a handful of conservatives.) The question is, now that the Organization of American States (with the support of the U.S.) has declared the June 28th removal of Zelaya an “unconstitutional alteration of the constitutional regime," denounced the military’s actions of June 28th, and called for his return, what’s going to happen?

The international community is squarely in favor of declaring this a coup and having Zelaya returned to power. The Honduran Congress, armed forces, Supreme Court, and many of its people refuse to allow it. Just yesterday when Zelaya (unwisely) chose to try to return on (again, unwisely) a Venezuelan jet, he was turned back by the military blocking the airport.

Meanwhile, the OAS Secretary General José Miguel Insulza is engaging in shuttle diplomacy, going between the different actors in the Honduran capital, Tegucigalpa, and trying to foster some compromise.

Before laying out my position on this, to avoid any confusion at a time (and in a region) where people like to ideologically pigeonhole others and claim that one or the other is not on the “side of freedom,” let me say the following in as direct a fashion as possible:

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The Honduran Coup is Still a Coup: But Where Was Everybody Before?

June 29, 2009

Let me say upfront, unequivocally: what occurred on June 28, 2009, in Honduras was a coup and should be condemned for the violation of constitutional, democratic rule that it is.  And unlike the street coups that removed Presidents Gonzalo Sánchez de Lozada (Bolivia) or Lucio Gutiérrez (Ecuador), this one was positively 1970s-style retrograde: the marching of military officers into President José Manuel Zelaya Rosales’ residence, his forced removal (or kidnapping as he called it) at gun point, his being placed by military brass on a plane to be flown out of the country, and the swearing in of a new president, Roberto Micheletti—the speaker of the Honduran Congress. But let’s be clear. This event has been brewing for some time and regional governments and multilateral institutions have sat on the sidelines. Their reaction now—while correct—underscores their passiveness earlier, and turns a President who had been bent on steamrolling the checks and balances of power to secure re-election into an unnecessary victim. 

Despite the Honduran Congress and Supreme Court’s superficial efforts to give this a constitutional fig leaf, the sacking of President Zelaya represents a genuine threat to the shared democratic vision and system of governance that most of the region has enjoyed for over two decades and violates the body of regional law and precedent defending democratic governments from the “interruption of the constitutional order.” In short order, as they should have done, the governments of the region have denounced President Zelaya’s removal and called for the restoration of democratic government.

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Mexico's Mid-term Elections: the Political and Policy

June 22, 2009

Stolen elections and ballot-box stuffing became such the norm in Mexico under the Partido Revolucionario Institucional (PRI) that observers used to say that even the dead rise and vote on election day. In the mid-term legislative elections on July 5, this time it may be the once-thought moribund PRI that rises from the dead. A newly resurgent PRI in Mexico’s bicameral congress will have consequences for the policy agenda (mostly positive) of President Felipe Calderón and his Partido Acción Nacional (PAN) and signal the decline of the leftist Partido Revolucionario Democrático (PRD)—under its current leadership, maybe not such a bad thing). 

At stake in these elections are 128 seats in the Mexican Senate and all 500 seats in the Chamber of Deputies. If polls are to be believed, these elections may dramatically shrink the seats that the PRD gained in the 2006 elections. At the time, many believed this would be the trend, as Mexico appeared cleaved between the Right (PAN) and the Left (PRD). In the 2006 elections, the PRD scored 37 of the one-third-open Senate seats, compared to 57 for the PAN and 32 for the PRI.  Most remarkable was that only six years earlier in the 2000 presidential/legislative elections the PRD only managed 17. In the lower-house elections in 2006, Mexico’s standard bearer for the Left, the PRD, did even better scoring 106 seats in the chamber, exceeding the 66 it won in 2000. 

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La OAS: Hasta La Irrelevancia Siempre!

June 9, 2009

Last Wednesday, to much fanfare, the Organization of American States' (OAS) annual meeting of the hemisphere's foreign ministers issued a resolution calling for a dialogue to readmit Cuba to the region's premier diplomatic body. Despite all the atmospherics, the statement sealed the OAS's irrelevance and the most promising chapter in the regional organization's history.

Both sides in last week's theater are claiming victory. On the pro-Cuba side, the governments of Venezuela, Ecuador, Bolivia, and Nicaragua wasted no time in sending their foreign ministers to declare the resolution that overturned the 1962 rationale for Cuba's suspension—as a Marxist-Leninist government—as a blow to the U.S.'s embargo policy. In a parallel media blitz, U.S. officials rushed to say that the consensus agreement did not readmit Cuba into the OAS, but only called for dialogue in line with "practices, proposals and policies of the OAS."

The latter is supposedly a reference to the human rights and democracy requirements for membership, set out in a number of OAS documents including the 2001 Inter-American Demoratic Charter—heralded at one time as the greatest achievement of the OAS. Now, unfortunately, it's relegated to an oblique reference. Despite the U.S.'s efforts to put the best face on this, the reality is that the final document failed to include explicit mention of the issues detailed in the charter, such as respect for human rights and democracy—topics that the U.S. had insisted be included.

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Venezuelan President Hugo Chávez Versus the Human Right of Private Property

May 18, 2009

You wouldn’t know it the way the media and most human rights groups have covered Venezuelan President Hugo Chávez’s recent seizure of land on May 11, but the right to private property is protected under the Universal Declaration of Human Rights (1948). Most have treated President Chávez’s most recent policy move as a rich person’s problem. In reality, most journalists and human rights activists are loath to appear that they’re coming to the defense of rich, pampered Venezuelan landowners.

But in not defending this internationally recognized right they are weakening human rights in the hemisphere—something they would be equally loath to do if it were judicial due process or freedom from torture.

Now, I’m not one to defend the egregious excess and avarice of Venezuela’s once-ruling class. In fact, few are, and President Chávez knows this. And that’s where the problem lies: no one wants to be the one appearing to defend a group of Latin American elite that had become infamous in the hemisphere for its excess. (As one friend, a professor at an Ivy League university, once said, “I don’t feel sorry for all those people I used to see in the duty free shops in Miami airport buying Rolex watches by the dozens.”) But this isn’t about whom you’re defending. It’s about what you’re defending. Private property is a human right, enshrined and endorsed by the UN General Assembly. And rights, whether the freedom against torture or the freedom against the seizure of one’s property, are seamless. The same government that will arbitrarily invade your land for some higher good is the same one that will detain and torture outspoken opponents for the same supposed good.

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How the Media Misinterpreted the Summit of the Americas

April 28, 2009

I swore I wouldn’t write another blog on the Summit.  In fact, I had even urged the AQ staff to move on—that it wasn’t that important.  And yet here I am with an insatiable desire to slake my thirst for just one more blog post. 

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Obama Lifts the Cuban-American Restrictions

April 14, 2009

It should come as no surprise that it happened, nor should the timing. President Barack Obama’s lifting of the restrictions on Cuban-Americans’ travel and remittances to the island was a campaign promise and presented an easy way to set the tone for the Summit of the Americas from April 17 to 19 in Trinidad and Tobago. It won’t go as far as most will want, but it helps to set a new debate within the United States—which is where policy change toward Cuba has to play out, not the Summit of the Americas.

The restrictions on Cuban-American travel and remittances to the island, implemented by the administration of President George W. Bush, were never popular, even among many Cuban-Americans. While their stated purpose was to deprive even more the Cuban government of resources, the truth was they seemed downright mean spirited and inhumane—an example of a policy that had gone to yet another unprecedented extreme: of denying family members the right to unite and help one another in need. But even at a strategic level, if the intent was to promote independent activity and thought on the island, denial of individuals to send money or transmit ideas through person-to-person contact gave the Cuban regime even more uncontested ability to shape the perceptions and destinies of the people who remained on the island.

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Obama at the Summit of the Americas: What to Do with Venezuela?

April 9, 2009

On April 17-19, President Barack Obama will travel to Trinidad and Tobago for the fifth Summit of the Americas that will convene all 34 democratically elected heads of state from the hemisphere.  To see a U.S. president focus so much attention on the region so early in his administration (in only his third international forum) is historic—and positive.

But beyond symbolism and a president’s rare attention it’s unclear what he can concretely achieve.  One thing he can do is reject the Venezuelan government’s blatant attempt to throw into question the human rights system in the Americas that for 50 years has protected and defended the rights of citizens, journalists and activists against disappearances, murder and censorship in places like Argentina, Chile and Peru.

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Don’t Forget Immigration! Hillary Clinton’s Spring Break in Mexico (or The real Cancun)

March 26, 2009

There’s a lot on the agendas of the three cabinet members and President Obama when they travel to Mexico this month to meet with Mexican officials, including President Felipe Calderon.  First it’s Secretary of State Hillary Clinton (March 25-26), then Attorney General Eric Holder and Secretary of Homeland Security Janet Napolitano (April 1 and 2), and then the President—on his way to the Summit of the Americas.

For the first time in U.S. history the full complexity and proximity of our relationship with Mexico is being dealt with at the level it deserves.  Everything from drug-cartel related violence, the economic crisis, trade, security, intra-regional relations, trade, NAFTA, and immigration will be on the list of items to be discussed. And the best part is that, at a rhetorical level, the administration is approaching this with the appropriate level of partnership that the relationship deserves—a trend started with President Bush’s Plan Merida program to support Mexico’s war on narcotics trafficking.

My concern?  That immigration will slip through the cracks.  To be sure, the context is set to deal with it in the right way: bilaterally.  But the risk is that issues like the drug violence, trade spats and the economic crisis that have dominated the media coverage (particularly the former) will crowd out one of the most important bilateral issues we face: the flow of humans across our borders that serve the U.S. labor market and—through remittances back home—provide a crucial social safety net to poor communities in Mexico.

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El Salvadoran President-Elect Mauricio Funes to Travel with VP Biden to Costa Rica (Or why this isn't El Salvador Retro 1980s)

March 25, 2009

On both the left and the right a lot has been made of Mauricio Funes’ victory in the March 15 presidential elections in El Salvador. Those on the left say this is yet another vindication of the failure of the neo-liberal model—another in a string of left-leaning leaders that have come to power through the ballot box. On the right, observers see this as a sign that the 1980s sky is falling—the nemesis of the Reagan administration now occupies the presidential palace.

Truth is, quite frankly, it’s neither. This isn’t the outsider politics of recent memory. First, let’s take a close look at who the candidate is and the evidence of the FMLN’s evolution. First, Funes. The man, an outsider to his party, is hardly a firebrand revolutionary. The former TV journalist is not the camouflage-wearing, bush-trained guerrilla of the FMLN past. Nor for that matter does he fit the pattern of the other outsider candidates that some want to equate him with. He’s not a former military officer (either official or out of the bush) like President Hugo Chávez of Venezuela; he’s not a political newbie, academic like Ecuadorian President Rafael Correa; he’s not a full-time provocateur/protester like Bolivian President Evo Morales; and he’s not a career, unrepentant revolutionary (and accused child molester) like Nicaraguan President Daniel Ortega. (And full disclosure, I don’t believe necessarily that Correa or Morales are as radical as the others. While their career trajectory has been unorthodox, they represent the dysfunctionality of the party systems that preceded them, more than a hard ideological turn one way or the other.)

Funes on the other hand is a professional; a polished politician who preaches moderation. Immediately after the election he called for moderation and reconciliation. His slogan. “a safe change,” is positively Obama-esque.

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President Lula: A Social Democrat Defends Free Trade

March 12, 2009

Who’d have guessed it?

When Brazilian President Luis Ignacio Lula da Silva and U.S. President Barack Obama meet on March 14th, one of the top items on their agenda will be free trade—pushed by the former labor leader President Lula.  This is the same President that, when elected, roiled markets due to investor fears that he would reverse the sound macroeconomic policies of the past decade.  It is the same Lula who, in the WTO negotiations in Cancun, led a group of developing countries to demand market access concessions that led to the acrimonious collapse of the negotiations. Now that same President is preaching the need to avoid protectionism in the midst of the crisis.

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Does the U.S. Embargo on Cuba Protect Human Rights?

February 25, 2009

Frankly, the Cuban embargo has always been a difficult issue for me. Publicly I’ve avoided the issue largely because I’ve always believed it’s been a huge distraction for what is the main issue concerning Cuba: the almost incomprehensible level of repression and control that the Castro regime exercises over its population. So, in my often-failed objective to avoid discussing the embargo, I want now (in the heightened debate over President Barack Obama’s Cuba policy) to try to weigh the pros and cons as I view them in my own humble opinion. Fortunately, as a very thoughtful and balanced recent staff trip report by the Senate’s Committee on Foreign Relations demonstrates, a number of groups are trying to bridge the divide that has traditionally hamstrung policy toward Cuba.

Cuba defies modern explanation, especially in this hemisphere: constitutional and legal restrictions on the rights of citizens to congregate, denial of citizens to express political views, sham elections in which only one party is allowed to compete, the regular detention and harassment of human rights activists by the police or state-controlled neighborhood committees, and jailing of dissidents through kangaroo courts on trumped up charges of treason and violence. In a 1997 report, Human Rights Watch described it best in the title of its study, Cuba’s Repressive Machinery.

This level of institutional, legal and political control is incomprehensible for many in a hemisphere that experienced (in all but country—Cuba) the third wave of democracy starting in 1978. In part, I think, Cuba's hemispheric anomaly explains the lame and sometimes pathetic response of many regional human rights groups to the abuses on the island. Many quite simply can’t fathom that level of control, having grown up under more bloody but less subtle forms of authoritarianism.

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The Costs of Economic Nationalism

February 6, 2009

In the midst of the financial crisis and job insecurity, economic nationalism has resurfaced in its most unproductive and dangerous form, having implications not just for U.S. producers but for Latin American markets as well.

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