The United States and the Wealth Gap

By Eliot Brockner | Published: July 26, 2011

A Reuters analysis, “In debt row, hints of emerging-economy crisis”, highlights the point that the United States’ current debt ceiling stalemate, brought on by highly factionalized political camps, is akin to crises faced by emerging economies. The analysis itself is worth a read, although one quote, from Argentine President Cristina Fernandez de Kirchner, stands out:

“When did the American dream become a nightmare?”

Good choice of words, Mrs. President. Fresh data (AP) reveals that that within the United States, the gap is growing wider, particularly between whites and minorities. The reason for this:

“What’s pushing the wealth of whites is the rebound in the stock market and corporate savings, while younger Hispanics and African-Americans who bought homes in the last decade – because that was the American dream – are seeing big declines, said Timothy Smeeding, a University of Wisconsin-Madison professor who specializes in income inequality.”

The developed world often scolds Latin America for having some of the world’s largest disparities between rich and poor, yet within the United States, the wealth gap has been growing, at least according to some analysis.

The data in Latin America are indeed disturbing. Gini coefficients, the measure of income distribution as determined by the United Nations, consistently ranks Latin America as the world’s most uneven region. Development experts consistently point to this discrepancy as one of the largest problems facing the region, claiming that it is partly responsible for high levels of urban crime and a risk to internal security.

The following map, courtesy of Vision of Humanity, provides a visualization of the latest Gini data, published by the UN in 2009, per country.

GINI Map

Map of wealth distribution, by country. Greener means more even distribution

The deadlock here in the United States has me thinking about this (and I am not the only one). Regardless of this week’s outcome, narrowing this gap is something the United States must address.

Posted in Argentina, United States | Leave a comment

The Peso Paradox

By Eliot Brockner | Published: July 23, 2011

One of the more troubling signs of financial difficulties in Argentina has been the recent news that the government has fined economists for publishing inflation rates that do not reflect those of the national statistics agency, INDEC.

There is another indicator, the value of the peso against the decreasing value of the dollar, that is also cause for concern.

Compared to other currencies in Latin America, the Argentine peso is moving in the opposite direction in its relation to the dollar. As the dollar has weakened against the likes of the Brazilian real, Mexican peso, and Peruvian sol over the past year, it has strengthened against the Argentine peso.

The below, courtesy of Oanda.com, shows the percent changes in the value of the dollar relative to the values of the Brazilian Real and Mexican Peso over the past year.

Dollar's value relative to Argentine, Brazilian, and Mexican currencies. Courtesy of Oanda.com

Dollar's value relative to Argentine, Brazilian, and Mexican currencies. Courtesy of Oanda.com. From 21 July 2011

Going back two and five years, the trend is the same.

A comparison with the other South American currencies shows a year over year decline on every one, with the exception of the Boliviano. Given the dollar’s decreasing value relative to other currencies, including the beleaguered Euro, one would expect the Argentine peso to strengthen against the dollar as well. A non-appreciating peso certainly favors Argentine exports and has been a stated goal of the Argentine Central Bank, but this degree of deviation from other South American currencies is surprising.

An article in La Nacion sheds some light on the reasons. The article cites Argentines’ habit of reverting to the dollar in times of uncertainty as one of the most important reason. This habit was brought on in large part because of fear that stems from the 2001 financial meltdown, as well as uncertainty surrounding the future of the currency and domestic political and economic stability.

This will worsen this year, as presidential elections slated for October 2011 will encourage more people to buy dollars. What is most interesting about these dollar purchases is that they are small in scale. Up to 35 percent of the $10 billion dollars purchased during the first quarter of 2011 are taking the form of dollar purchases of less than $1500. The phenomenon, known is Spanish as “Fuga Hormiga” (loosely translated as ‘petty [capital] flight’), has led the Argentine government to discourage people from purchasing dollars illegally, instead encouraging them to invest in Argentine industry and the MERVAL, the Argentine stock exchange.

It is not clear whether Cristina’s attempts will decrease demand for the dollar (particularly as campaigning heats up); the dollar is still seen as a bastion of safety in Argentina in spite of the its current vulnerability. The Argentine government will continue to pay extra close attention to large flights of currency. With the election of Cristina and continuation of the norm the expected outcome in October, this uncertainty might be here to stay.

A comparison with the other South American currencies shows a year over year decline on every one, with the exception of the Boliviano. Given the dollar’s decreasing value relative to other currencies, including the beleaguered Euro, one would expect the  Argentine peso to strengthen against the dollar as well.  A non-appreciating peso certainly favors Argentine exports and has been a stated goal of the Argentine central bank, but this degree of deviation from the performance of other South American currencies is surprising.
Posted in Argentina, United States | Leave a comment

Ideas, not money, will make Central America safer

By Eliot Brockner | Published: June 24, 2011

Boz has a great point about the fresh funding headed to Central America:

I think a lesson is that there is no amount of money that the US could put on the table and no amount of attention the US could give that would guarantee Central America’s success in fighting organized crime.

The US is not alone in its monetary commitment. The US pledge of $300 million is less than the $1 billion promised by the World Bank and the $500 million from the Inter-American Development Bank that came out of Guatemala City earlier this week. Aside from the fact that this money does not compare to the up to $39 billion per year that goes to Mexico alone from drug trafficking each year, the problem that Boz points out is that the money needs to be spent better.

Less attention should be spent on how much, and more on how spent. For example, nuts and bolts ideas those proposed by Colombian President Juan Manuel Santos to set up an anti money laundering unit and to train special forces in Colombia with veterans who have seen similar insurgencies are what will lead to improvements.

The dialogue needs to change to focus on these specific ideas, and more broadly, how, when, and why they should be implemented. In an ideal world, we could give the problem carte blanche with a theoretical limitless amount of cash, and shift the focus not so much on securing money, but on stimulating ideas on how to improve security. Obviously this idea would never happen in reality, but it is one I put forward to suggest that the center of attention change from money to ideas.

Lead with good ideas, and the money will follow. Fund all (or most) ideas. Scrap the bad ones, and invest more in the good ones. Revise, tweak, and remain as nimble and creative as the enemy, which is very much both of those things. The simple promise of more money creates the illusion, and the expectation, that the problem will be solved.

Posted in Belize, Colombia, Costa Rica, El Salvador, Guatemala, Honduras, Latin America, Panama, nicaragua | Tagged , , , , | Leave a comment

Cristina Will Run (and Probably Win)

By Eliot Brockner | Published: June 22, 2011

A little less than three years ago, LatAmThought wrote a commentary questioning the viability of the at that time new Kirchner administration. CFK was less than one year into what had been one of the more tumultuous since 2003. We had good reason for our words – a bitter feud with the agricultural sector, a split with her vice-president, soaring inflation, expensive domestic meat prices, and local and foreign commentators questioning her ability to govern. In December 2009, her approval rating fell to 27 percent, and she was for months the most unpopular president in the Americas. Some estimates even had that rating as low as 21 percent.

Today, we are singing a different tune. After months of feigned speculation (there was never much doubt she would run), at 7 pm local time on June 21, CFK announced that she would indeed seek re-election in this year’s presidential election. Were elections held tomorrow, CFK would probably win, potentially even in the first round. According to a poll cited by Bloomberg, she is a full 35 points ahead of her next closest rival. This does not mean victory is guaranteed – this is Argentine politics, where things can change instantaneously, especially with four months to go – but does bode well, given that she has more or less maintained high approval ratings in spite of a recent scandal involving the misuse of funds by the popular ally Madres de Plaza de Mayo and January 2011 protests from the grain workers that hurt exports.

Politically, CFK has been the beneficiary of a great tragedy, the death of her husband Nestor in October 2010. Many in Argentina credited Nestor with rescuing the country from the yolk of international creditors, a legacy that has helped Kirchnerismo become a powerful mainstay in Justicialist politics and helped pave the way for CFK’s landslide October 2007 election. Cristina invoked Nestor during her announcement

More recently, she has been the beneficiary of more typical political issues, such as the lack of a coherent opposition. Of the five expected candidates – Ricardo Alfonsin, Hermes Binner, Elisa Carrio, Eduardo Duhalde, and Alberto Rodriguez Saa – only Alfonsin is within shouting distance (and it would have to be a loud shot). Mauricio Macri, the mayor of Buenos Aires, formally dropped out of the race last month, likely because he did not believe he would have the support to beat CFK.

Her next step is to see which candidates will emerge from the war of attrition that is likely to heat in the weeks leading up to the August 14 primary, when the presidential field will narrow. This will only work in her favor – the candidates will be more concerned about strengthening their own chances – and buys her time to shore up support from fringe supporters, including those who may have split from the Justicialist Party to join Duhalde.

It’s too early to tell what will happen, but prospects for CFK are looking good.

Posted in Argentina | Tagged , | Leave a comment

Patagonian hydroelectric dams approved

By Aleszu Bajak | Published: June 17, 2011

The multibillion-dollar HidroAysén project has been given the final green light to build five hydroelectric dams in an untouched area of Chilean Patagonia. HidroAysén proposes to dam up two rivers at five locations, inundating 14,000 acres of wilderness to produce 2,750 megawatts of energy by 2020. The argument is a familiar one coming from a developing country: Chile needs cheap energy in order to grow.

The decision has been met with widespread disapproval from citizens. According to a poll by La Tercera, one of Chile’s largest newspapers, 74 percent of Chileans “reject the hydroelectric project.”

HidroAysén proposes to build dams on the Baker and Pascua rivers in southern Chile, in Aysén state. The two glacier-fed rivers roar through a remote piece of Patagonia that abuts several national parks, accessible from points north by ferry and by road over the Andes from Argentina.

“This project destroys all of Patagonia,” insists Rodrigo Pizarro, the former director of TerrAm, a Chilean NGO focused on sustainable development. “It’s like virginity. You can only lose it once,” said Pizarro, adding that former dictator Augusto Pinochet wasn’t protecting Chile’s environment when he signed over the water rights to the private energy industry at the end of his reign.

Pizarro is now a graduate student in food security and the environment at Stanford University, where he studies conservation policies in Latin America. He warns that once these floodgates are opened, there is no stopping energy companies from exploiting Patagonia for its resources. He says Chile should be more aggressively pursuing wind, solar and geothermal electricity generation because of how well-suited the country is to these.

In fact, Spanish-owned Solarpack is currently building a 1 megawatt solar farm in northern Chile that will power a nearby copper mine (owned by Codelco with which it is financing the project). It is among the first industrial scale solar farms in South America, says Jon Segovia, Solarpack’s director in Chile. Along with California’s Mojave desert and the Sahara, Chile’s Atacama desert has the world’s highest levels of solar radiation, an advantage that Segovia says will allow Solarpack’s farm to operate much more efficiently than it would anywhere else.

“Chile needs long-term vision that includes this kind of energy,” said Segovia. He admits that Chile also needs cheap energy fast and that because of this, HidroAysén — which will produce almost 3,000 times the energy his solar farm will — is a necessary evil. But this isn’t to say solar can’t compete with non-renewable utilities: construction begins today on a solar thermal farm near Blythe, California that will produce a little more than 1,000 megawatts once completed.

Chile depends on dammed-up rivers for 20 percent of its energy, according to the country’s national energy commission’s figures from 2008. Most of what Chile consumes for energy is oil, of which 99 percent is imported. HidroAysén, a joint venture of Colbún and Endesa Chile (which Endesa Spain indirectly controls), views this as a reason to pursue hydroelectricity domestically.

Earlier this month, the Aysén state commission charged with weighing the HidroAysén’s environmental effects voted almost unanimously to construct the dams, with 11 of 12 delegates voting in the project’s favor. The approval was accompanied by the commission’s requests for reforestation, discounted power for local municipalities, compensation for relocated families and an independent environmental audit at each stage of construction.

What remains, however, is the approval to construct a transmission line to carry the Patagonian energy up to Santiago and the northern regions (where 90 percent of the Chilean population lives and the mining industry operates). This may prove to be the project’s Achilles’ heel. The transmission line must cross nine Chilean states and cut a 2,000-kilometer gash that will zigzag around about a dozen national parks. Each state must approve the construction and representatives will have to weigh the political cost of voting for the line’s approval.

HidroAysén officials expect to receive a decision by the end of this year and begin construction by 2014. Although company officials have said they won’t begin construction until the transmission line is approved, they would be breaking no laws by breaking ground and thus rendering the transmission line’s approval moot, says Pizarro. This may be a lose-lose waiting game for environmental protection advocates.

Posted in Latin America | Tagged , , | Leave a comment

Reclaiming Brand Mexico

By Eliot Brockner | Published: June 13, 2011

Roberto Newell Garcia of the Woodrow Wilson Center has published a great report titled “Restoring Mexico’s Reputation.”

The basic premise of Newell’s argument is that Mexico is facing a number of problems, but that the one that gets far and away the most coverage – organized crime/drug-related violence – is not necessarily the most important. Citing successes across issues as disparate as improved health care/life expectancy and economic conditions that should be the envy of the BRICs, he implies that in many ways, things in Mexico are going well.

What is not going well, the author argues, is how Mexico has managed the onslaught of negative media surrounding the body counts and gruesome killings of the drug war, which he implies does have a real negative economic impact on the country. This is not to suggest that the violence, impunity, and lawlessness are not a major concern (follow any social media on the drug war and you will hear of horrific atrocities being committed on a daily basis), but rather to say that it is one that receives a disproportionate amount of coverage.

There are numbers behind this. One of the most fascinating points in the report is a study conducted on the content of articles published in the NYT and WSJ between 1987 and 2010. Newell points out that between that time period, not only has coverage of the country shrunk, but the focus of attention has shifted almost exclusively to organized crime, undocumented immigrants, and corruption. In 1993 13 percent of articles focused on these three issues, by 2010 84 percent did.

The recent explosion of news articles focusing on the narco-tanks serves as a good example for the overall debate. That story was picked up by dozens of English-language media, while very few analyzed its overall significance (or lack thereof) in the grand scheme of issues Mexico must confront. Newell’s report strikes a similar tone, suggesting that narco tanks are not the issue, but rather:

…the need to dramatically improve the quality of law enforcement and the judicial system. The country also needs to improve and reform vital regulatory institutions, especially those that regulate telecommunications and the energy sector, and create the conditions that will stimulate labor productivity growth. There is also a need to reduce the dependence of public finances on oil revenues. Steps should also be taken to improve the quality and pertinence of higher education.”

Newell argues for a coordinated communications campaign that runs through the president himself, and talks about the importance of recapturing Mexico’s brand to restore faith in the international community. While I agree that it is important to present a more balanced account of everything that is happening in the country and that Mexico would benefit from ‘reclaiming its brand’, it is important to recognize a few major issues with this strategy:

  • That people, especially journalists, decision makers, and opinion influencers will recognize a government flack campaign as hollow and disingenuous at best and deceptive and manipulative at worst
  • The drug war is a popular story, and apparently, according to the afore-linked critique from the Mex Files, one that editors constantly seek out that could lead to selective pitching
  • Simply trying to change the brand will not be enough. The reality must also be changed. Companies dealing with supply chain issues or violence at maquiladoras along the border and people in towns where fear of talking is pervasive are facing realities that require immediate action that messaging alone does not solve

So how do you reclaim brand Mexico? To me, it starts with changing the organized crime narrative that has characterized coverage of Mexico in the mainstream media for the last five years.

This is obviously no small order, and one that no amount of PR, even led by the president (Calderon’s pithy remarks about at a recent tourism industry summit in Las Vegas included) will be able to change. So it has to change with the gatekeepers of information themselves. Broaden the scope to include other issues. After all, selective attention is a real phenomenon, and sometimes, as a result, the big picture slips through the cracks.

Posted in Mexico | Tagged , , , | Leave a comment

US-LatAm Relations

By Eliot Brockner | Published: May 21, 2011

My apologies in advance: the last thing the world needs is another blog post on US-Latin American relations. With that out of the way, there really are some interesting developments going on that warrant mention.

The NYTimes reports on a recent private dinner between Secretary of State Hillary Clinton and six former Latin American presidents. The article talks about the vacuum created by the departure of Arturo Valenzuela, the United States’ top diplomat to the region, and a clash of cultures on what US policy in the region should be. The article also talked about certain Latin American leaders’ opinion that it is a “lack of sustained US engagement” that is the biggest risk to US (economic)  interests in the region.

For anyone interested in the future of hemispheric relations, I recommend it. Colombia’s El Tiempo has coverage here, Living in Peru here, Excelsior (MX) here.

Moving forward, sustained engagement and dialogue are no doubt extremely important to future commercial and diplomatic ties. As are the need for country-specific approaches to region-wide problems. But perhaps equally important is to rethink the notion that the United States needs to be extremely active in what is going on in Latin America.

Many have criticized President Obama and former president Bush for neglecting the region. Yet during these supposed periods of neglect, Latin America has in some ways surged ahead. Although fears of a bubble exist, some are calling this “Latin America’s decade”.

So what role does the US now play? What role should it play? If that role is diminished, what are the consequences and advantages to the United States? To Latin America? Economic and cultural ties between the two regions are generally very strong, with the possibility the latter grows stronger as the Latino population grows in the US, and these are things that will likely not change in the immediate future. But what will US policy towards the region be (if there are changes), and how will it differ from the status quo?

Posted in Latin America, United States | Tagged , | Leave a comment

Iranian Soft Power in Latin America: Yet Another Information Network

By Eliot Brockner | Published: May 17, 2011

Back in 2008, LatAmThought wrote about Iran’s presence in Latin America. The topic has generated significant interest in recent years, as the Islamic Republic has continued to strengthen ties with Latin American countries, particularly Venezuela, and remains a very real thorn in the side of any potential negotiations between the United States and many countries in the region.

The fight for hearts and minds reached a new level on 3 May, when Cuba and Iran announced plans to increase media cooperation via Iranian run Spanish language news network Hispan TV. Hispan TV was launched last week eight months after a September 2010 announcement from Iranian state officials announcing the importance of increasing awareness of Iran’s “ideological legitimacy”.

But why Spanish? The Guardian reports that Ezatollah Zarqami, the head of Iranian State TV, says because half of the world speaks Spanish. Based on that assumption, and this data, that would mean that 2.6 billion people speak Spanish as a second language.

The answer most likely has to do with the intended audience. Launching a Spanish language network clearly targets the Spanish speaking world, the majority of which resides in Latin America. It is an example of the type of soft power information campaigns that many governments are undertaking in efforts to promote policy, improve public diplomacy, and have a say in the information madhouse that exists today.

The Miami Herald reports that the goal of the cooperation is ‘first-hand, authentic news’. This is an oft-desired, rarely-found goal that takes years of consistency to cultivate. Ironically, in this case, the elusiveness stems from its purported aim to inform: Looking at Iran’s desire to project influence in Latin America from a communications perspective, creating a news network – which seems like the right way to go – will fail if those who consume the media do not trust the source. Users, not the brand, determine a brand’s identity and credibility – they have an excellent filter. Simply providing information and claiming one as a credible source does not

Hispan TV is getting off on the wrong foot – the government’s claim that half the world speaks Spanish is questionable. Further efforts at creating authentic news will be hampered by gaffes like that.

But maybe for Iran’s purposes, veracity isn’t most important. A veteran DC journalist recently told LatAmThought that in his opinion, in today’s world, a commercially successful journalist has a point of view. In a similar manifestation of this sentiment, an ad campaign by Pix11 on the NYC subways poses the rhetorical question “Shouldn’t your newscast have a point of view?”, implying that the news come with a point of view.

The Iranian government does not lack points of view. Presumably, neither will their information network.

Posted in Cuba | Tagged , , , | Leave a comment

The Media’s Role in International Diplomacy

By Eliot Brockner | Published: May 14, 2011

Two recent stories out of Latin America highlight some of the stranger ways the media plays a role in international diplomacy.

The first is minor. Living in Peru blog has an article on a recent diplomatic dispute between Bolivia and Peru:

“Bolivia’s Minister of Culture Elizabeth Salguero has requested clarification on the “plagiarism” of a Bolivian song performed by Dina Páucar in the new video for Peru’s new national brand campaign. Salguero argues the song belongs to Bolivian singer and songwriter, Alfonso Zabala, and was modified without permission.”

The idea is to show Peruvians bringing Peruvian culture to the town of Peru, Nebraska. LatAmThought remains unsure if the campaign will entice Colombia to bring its hearts to Bogota, New Jersey.

Though this will likely not spark a major international incident between the two countries, it is nonetheless an example of the potential damage to international relations from media generated internally.

The next example is a bit more serious.

Panama recently lost a case it filed in a Costa Rican court against a digital newspaper, El Pais (www.elpais.cr). The Panamanian government accused the paper of making slanderous comments that “had the potential to harm friendly relations between Costa Rica and Panama.”

Whether the allegations are true or not (given that one states the Panama Canal is controlled by the Israeli Secret Service, it is difficult to judge their veracity), Panama may actually have made the situation worse by calling attention to it. El Pais is a fringe, digital paper and not a particularly influential medium. Nonetheless, it has the potential to harm Costa Rican-Panamanian relations by virtue of the fact that it is a Costa Rican paper publishing things against Panama and that Panamanian authorities were upset enough by it to file a case in a Costa Rican court.

(Ironically, by calling attention to the Peru in Peru campaign, Bolivia may have given it more publicity than it would have otherwise generated).

What these two seemingly unrelated stories tell us is that when a particular medium assumes a country’s brand – a Costa Rican paper, a TV spot on Peru – official policy, whether intended or not, is often not far away.

Posted in Bolivia, Costa Rica, Panama, Peru | Tagged , , , | 2 Comments

Luxury Goods Target Brazil

By Eliot Brockner | Published: February 2, 2011

Brazil’s wavering on a contract estimated at more than $4 billion to French airplane manufacturer Dassault has not discouraged the French.

The product and consumer, however, could not be more different from the fighter jets that were destined for the Brazilian Air Force.

Less than seven months ago the Comité Colbert, a French umbrella organization consisting of 70 luxury brands, said that red tape, taxes, and Brazilian shoppers’ proclivity to buy luxury items abroad meant that the organization would aim their sites on the Middle East, which in spite of having a smaller population, offered a lower barrier to entry.

However, today, the group has changed this point of view. Efe reports:

French luxury organizations in the Comité Colbert will launch a publicity campaign in Brazil. Although the country only currently accounts for 2-3 percent of sales, the rate of increase over the past few years has been between 20 and 30 percent.

There is a new middle class in Brazil that has the ability to buy luxury goods in spite of extremely high import taxes. They [Brazilians] have a thirst for consumption, and not just in Sao Paulo, but also in Brasilia, according to Elisabeth Ponsolle de Portes, the Comité Colbert’s general delegate.

Referring to an appeal of French goods to foreign consumers (particularly the Chinese, who make up a large portion of Comité member sales), de Portes says:

“Everything French is romantic. Everyone dreams of having a cup of champagne in front of the Eiffel tower.”

It is an interesting change for Brazil. Some foreign commentators have referred to Brazil as a country that ’seduces the world’, having successfully leveraged certain cultural exports, some argue, to the country’s greater economic benefit. Brazilians, toting designer bags with more money inside, may soon find themselves on the other side of the equation.

Posted in Brazil | Tagged , , | Leave a comment