Surprising Nicaraguan News

Two stories about Nicaragua caught my eye today.

First, President Daniel Ortega rushed to congratulate the newly elected President of Honduras, Juan Orlando Hernández. This surprised me since Orlando Hernández is from a conservative party and was running against Xiomara Castro de Zelaya, wife of former president Manuel Zelaya.  When Zelaya was booted out of office by the military, Nicaragua was one of his most vigorous supporters at the time.  And lastly, the results were relatively close and Zelaya is rejecting the vote, saying that they were robbed.  Interesting that Ortega would rush to recognize the new president and promise to fortify ties between the two countries.

Second, and perhaps even more surprising, is the fact that Nicaragua has just been ranked by the UN as the second safest country in Latin America (when ranked by # of homicides and assaults).  The fact that Chile was #1 wasn’t too surprising, but Nicaragua as #2?  As one analyst points out, “Nicaragua’s ranking as the second safest country in the region has surprised analysts because the Central American nation shares a border with Honduras, which has been hit hard by drug-related violence.”

 

 

Losing the pura vida?

The Christian Science Monitor has a piece on Costa Rica that discusses the disenchantment that voters have about politics in general and the February elections in particular.

Polling firms report that 32% of the population plans to abstain from the presidential election because of anger over “corruption, a lack of leadership, insensitivity to the average citizen, and unemployment.”  While the article tries to spin this as a new phenomena, citing “a much deeper and darker alienation this time around,” abstention was at least that high in the last two presidential elections (35% in 2006 and 32% in 2010).

The current president, Laura Chinchilla, only has a 9% approval rating as voters blame her for a variety of ills ranging from “collapsed highways, dengue outbreaks, and other calamities.”

Laura-Chinchilla-cropped

Johnny Araya, current major of San José, has the lead in the presidential polls but citizens aren’t too thrilled with him either.  Apparently, the infrastructure and security of the capital city has greatly deteriorated under his 12 year tenure and people are unhappy with “his personal lifestyle (including five marriages).”  Given that he has the edge in polling so far, I guess not everyone is unhappy with him, or perhaps they consider him the least bad option.

ARAYA

 

 

Room for improvement

Andres Oppenheimer has a recent article on endless litigation in Latin America.  Specifically, he looks at the World Bank’s Doing Business Report for 2014, which ranks 189 countries in terms of how difficult it is to do things like enforce contracts.

The ranking shows that Latin America as a whole has some serious room for improvement.  As Oppenheimer reports, “it shows that it’s easier to enforce a contract between two domestic private businesses in Communist China or corruption-ridden Russia than in Brazil, Mexico, Colombia, Argentina and virtually any other Latin American country.”

So let’s look at some specifics:

Contract enforcement: Russia 10, China 19, Argentina 57, Chile 64, Mexico 71, Venezuela 92, Ecuador 99, Peru and Uruguay 105, Panama 127, Brazil 121, Colombia 155 and Honduras 182.  I’m curious about Russia’s ranking of 10.  Does contract enforcement include extra-legal enforcement?

# of Days it takes to Enforce a Contract: Russia 270, Mexico 400, China 460, Peru 426, Chile 480, Argentina 590, Venezuela 610, Uruguay 725, Brazil 731, Colombia 1,288, and Guatemala 1,402.  My thoughts:  (1) way to go Mexico; and (2) same question w.r.t Russia–does this include knee-capping as a means of enforcement?

Average legal fees to enforce a contract (as a % of the total value of the contract): China 11, Russia 13, Brazil 16, Argentina 20, Chile 29, Mexico 31, Peru 36, Venezuela 44, Colombia 48, and Panama 50.  The Panamanian score surprises me for some reason.  Mexico isn’t too hot on this ranking either.  I’ll shut up now about Russia.

Not surprisingly, East Asian countries are leading the way in contract enforcement.  Oppenheimer notes that:

“In Singapore and South Korea, once chaotic and corruption-ridden countries, it only takes an average of 150 and 230 days, respectively, to enforce a contract, according to the report. In the United States, it takes an average of 370 days. 

Asian countries such as Malaysia are creating groups of judges who are highly specialized in commercial litigation and can thus do their jobs faster and better.

South Korea also has sped up litigation considerably by creating e-courts, where lawsuits are filed electronically. Virtually all court procedures can be done online 24 hours a day, 7 days a week. South Korea launched its electronic case filing system in 2010, and about half of its civil cases are currently e-filed, saving a lot of time and money, Lobet said. By conducting litigation electronically, South Korea uses less paper, eliminates the need for storage space, and — most importantly — makes it easier to access documents.”

We debate how replicable the East Asian miracle is in development.  A lot of elements of the miracle are indeed hard (or impossible) to transplant, but I would think that following the East Asian lead on these kind of issues would be both do-able and advisable.

Corruption and Colonial Legacies

There has been some great work in the last couple of years investigating the long-run effects of Spanish colonialism on Latin American development.  Melissa Dell’s “The persistent effects of Peru’s mining mita” is one example (it was published in Econometrica but here is a working paper version).

I just learned of another interesting working paper on this general topic.  The author is Jenny Guardado R. and the piece is called “Office-Selling, Corruption and Long-term Development in Peru.” I haven’t read it yet but it’s moving to the top of my pile.  Here’s the (rather long) abstract:

This paper investigates the private returns to colonial offices and how these influence long-term economic and political outcomes across sub-national provinces in Peru. Exploiting exogenous variation in the needs of Spanish monarchs to sell offices due to fiscal emergencies induced by European wars and employing a unique dataset of the prices at which they sold them, I show how rates paid for colonial offices exhibit a pattern consistent with rent- seeking. In particular, positions with greater access to rents from agriculture and to gains from trade monopolies exhibit differentially higher prices than others. A closer look at the mechanisms behind these results reveals that when faced with a trade-off between revenue and quality of colonial officials, the Crown generally chose the former. The result was a decline in the ability of the Spanish monarch to monitor and enforce colonial policy limiting rent-seeking. I then present evidence demonstrating that these activities exerted negative influences on development over the long run. Specifically, provinces with highly valued offices in the 18th century today have higher poverty rates, lower public good provision and lower household consumption. One reason why the effects of rent-seeking persisted is through political conflict: provinces with highly valued offices also exhibited frequent anti-colonial rebellions, heightened anti-government violence and a deep-seated mistrust of politicians and democracy today. These results suggest that corruption have negative lasting consequences for economic development by exacerbating political conflicts.

h/t Justin Sandefur

Carts & Horses

According to Quartz.com, hyperinflation in Venezuela is “forcing” the country to “print hundreds of millions of extra banknotes”.

Yikes!

“The more expensive things get in Venezuela, the more 100 bolivar bills Venezuelans are forced to carry in their pockets.”

High inflation is usually, at a deep level, caused  by fiscal failure. For example, countries at war that cannot finance expenditures with taxes or borrowing resort to printing money.

But the proximate cause of the high inflation is the money printing. It’s charmingly naive to see the argument reversed.

The article also refers to 45% annual inflation as “well above much feared hyperinflation levels”.

The common definition of hyperinflation in economics is an inflation rate that is above 50% per month for a sustained period of time. That would be an annualized inflation rate of over 500%.

Venezuela has an inflation problem, which I believe to be caused by a governance problem, but it’s still pretty far away from a hyperinflation episode

 

 

 

 

 

 

Crime in Latin America

InsightCrime has had some great articles recently on crime & violence in Latin America.  Here is a link to the ones I found most interesting:

1. Southern Pulse: The Politics of Corruption in Guatemala

2. How Street Gangs Have Complicated Mexico Security

3. The Mara Women: Gender Roles in Central American Street Gangs

4. Brazil’s Military Police: Calls for Demilitarization

Latin American News Round Up

1. From tragedy to defending champs, Juarez Football team makes a comeback  Three years ago, “gunmen killed two players and injured several more as they celebrated a birthday in a notorious attack in Ciudad Juarez.”

2. A button in Brazil may change a culture. “The electronic devices use GPS technology to quickly signal that a woman needs help, and they transmit images that help police track down the attacker.”

3. As a Boom Slows, Peru Grows Uneasy.  “Hey, wait a minute, we were going to be the next Inca tiger, what a disappointment.”

4. Mexico Chamber of Deputies Approves Professional Teaching Service Act. “Lawmakers from the opposition parties argued that this is a “legislative albazo” [“strike at dawn”], given the conditions that Congress finds itself surrounded by demonstrations against the education reform in the context of Enrique Peña Nieto’s first government report.”

5. Which is scarier – Brazil’s taxman or a murderous husband?  “Tax code on your receipt, madam?” Customer: “On a bill this size? God forbid, my husband would kill me!”

A new free trade agreement in Latin America

It’s called the Pacific Alliance and its members include Mexico, Colombia, Peru and Chile. Apparently Costa Rica is set to join soon and Panama not that long afterward.  The group has agreed to remove all tariffs on member trade.  An article on the new agreement argues that this  will “encourage free trade between Latin America and the rest of the world.”  

I am all in favor of more free trade, but regional trade alliances are unlikely to foster free trade in the rest of the world.  As Paul Blustein explains wonderfully in Misadventures of the Most Favored Nations, bilateral and regional agreements give member countries less of a stake in the multilateral trading system of the WTO.  Given the trade diversion they may benefit from in the regional groupings, it’s possible they will be less likely, ceteris paribus, to want to move forward with the Doha Round.

I’m not saying that’s a bad thing, only that the idea that this trade agreement will foster free trade in the rest of the world seems doubtful.  Maybe they meant that it will inspire other countries to create their own free trade agreements?

The new pact explains that duties will drop to zero on 92% of the goods and services traded within the group. The remaining tariffs, mostly on agricultural goods, will be slowly phased out until 2030.  Interestingly, the members have “also declared their commitment to implement automatic tax and financial information exchange within the next six months, and it has been agreed that Mexico is to be accepted, probably by the end of this year, as a member of the Latin American Integrated Market, which currently consists of the stock markets of Colombia, Peru and Chile.”

Not everyone is thrilled with the news though.  Evo Morales has claimed that the FTA is “a geopolitical scheme by the United States to oppose the progressive, left-wing governments of Brazil, Argentina, Uruguay, Bolivia, Venezuela and Ecuador.”

presidentes


Good news about Latin American Inequality

la_inequality

In a new working paper on Latin American inequality called “Deconstructing the Decline in Inequality in Latin America,” Nora Lustig, Luis Lopez-Calva, and Eduardo Ortiz-Juarez find that the weighted average of the Gini coefficient in Latin America fell from .548 in the late 1990s to .488 a decade later.  As you can see from the figure, all countries in the region (except Honduras) experienced a decline in inequality. The authors find that the reductions are both statistically significant and quantitatively important.

Latin America is one of the most unequal regions in the world, and it is heartening to read that the drop in inequality accounts for 1/3 of the decrease in extreme poverty in the past decade.

So what caused this reduction in inequality?  This is the tough part.  The literature has put forth two main potential causes behind the phenomena:  a reduction in hourly wage inequality, and larger more progressive government transfers.  The evidence isn’t conclusive and there doesn’t seem to be a single explanation behind it for the entire region.  This seems totally reasonable to me; given how very different the countries are, it’s hard to believe there is an argument that explains inequality reduction in all of them.  But definitely check out the paper, because they do a really nice job of reviewing the literature and pointing to possible clues for individual countries.

By the way, does anyone know what is going on with Honduran inequality?

New online newspaper about Latin America

There is a very cool new online newspaper called Latin American Daily.  It is apparently created by paper.li, a platform I hadn’t heard of before now.  It looks very cool–click here for more information on it.

As for LA Daily, it has papers on a number of topics, in both English and Spanish, from blogs and newspapers around the world on Latin America.  I will definitely be subscribing.