Tag: latin america

Remembering Giancarlo Ibarguen (1963-2016)

Giancarlo Ibarguen, the former president of Francisco Marroquin University (UFM) in Guatemala, passed away today.

Giancarlo was a friend and teacher to many of us in the international freedom movement, and especially in Latin America. His influence at the University, the center of classical-liberal thought in the region, was large. He was an advocate of innovative and age-old techniques to promote ideas and learning. As Argentine scholar Martin Krause notes, he was an enthusiastic proponent of the University’s “New Media” program and of the Socratic method of teaching. As its chairman and founder, he was the proud backer of the Antigua Forum, a novel way of bringing together distinguished thinkers, entrepreneurs and others to solve real world problems. Giancarlo played no small role in making UFM among the most modern universities in the region, something to which thousands of UFM alums and countless visiting professors and other scholars from the Americas can attest. I was proud that, under Giancarlo’s encouragement, we began the first of our successful series of Cato University seminars for Latin Americans at UFM seven years ago.

In addition to strengthening classical liberalism through UFM, Giancarlo did so as a member of the board of directors of Liberty Fund, as a president and vice president of the Association of Private Enterprise Education, and as secretary of the Mont Pelerin Society. His interest in making the world of ideas relevant to improving the way people lived, led to him to advocate both the importance of liberal principles and of public policy reform. In terms of the latter, Giancarlo was an architect, along with Tom Hazlett, of Guatemala’s successful telecommunications privatization, putting the country on the vanguard in that policy area.

Most of us who knew Gianca, as his friends called him, will remember him for his commitment to the “principles of a society of free and responsible persons,” which was also UFM’s mission. Like his mentor Muso Ayau, the founder of the university, Gianca embodied the spirit of liberalism. He was tolerant, curious, modest about his own knowledge and accomplishments, courteous, open-minded and confident about the human potential. He urged students to question everything and to always question themselves. When Muso Ayau died, he told me that one of the things that most impressed him about Muso was that he had “a very strong sense of right and wrong.” The same could be said about Giancarlo.

Giancarlo died of a debilitating disease that he had been battling for several years. To those of us who interacted with him during this time mostly from afar, there was never any indication that anything was wrong, though his condition was no secret and we of course knew better. He kept extremely engaged, responding quickly to emails, sending personal notes and suggestions, recommending readings or events on Twitter, etc. He was a constant source of optimism and inspiration. To the end, he was a model of dignity.

Follow Panama: Dollarize

Most central banks do one thing well: they produce monetary mischief. Indeed, for most emerging market countries, a central bank is a recipe for disaster.

The solution: replace domestic currencies with sound foreign currencies. Panama is a prime example of this type of switch. Panama adopted the U.S. dollar as its official currency in 1904. It is one of the best-performing countries in Latin America (see the accompanying table). In 2014, economic growth in Latin America and the Caribbean was a measly 0.8 percent. In contrast, Panama’s growth rate was 6.2 percent. Not surprisingly, it was the only country in Latin America to have realized an increase in the number of greenfield FDI projects

Panama Selected Economic Data

Measuring Misery in Latin America 2014: More Dollarization, Please

In my misery index, I calculate a ranking for all countries where suitable data exist. My misery index — a simple sum of inflation, lending rates, and unemployment rates, minus year-on-year per capita GDP growth — is used to construct a ranking for 108 countries. The table below is a sub-index of all Latin American countries presented in the world misery index.

A higher score in the misery index means that the country, and its constituents, are more miserable. Indeed, this is a table where you do not want to be first.

Venezuela and Argentina, armed with aggressive socialist policies, end up the most miserable in the region. On the other hand, Panama, El Salvador, and Ecuador score the best on the misery index for Latin America. Panama, with roughly one tenth the misery index score of Venezuela, has used the USD as legal tender since 1904. Ecuador and El Salvador are also both dollarized (Ecuador since 2000 and El Salvador since 2001) – they use the greenback, and it is clear that the embrace of the USD trumps all other economic policies.

The lesson to be learned is clear: the tactics which socialist governments like Venezuela and Argentina employ yield miserable results, whereas dollarization is associated with less misery.

In Memory of Carlos Ball

I’m sad to report that Venezuelan journalist and Cato adjunct scholar Carlos Ball passed away last week. He was 75. Carlos was a champion of liberty and a long-time friend to so many of us in the freedom movement in the Americas. His life was a testimony to the power of ideas, and he lived it true to his classical-liberal convictions.

Carlos was a co-founder of CEDICE, the market-liberal think tank in Caracas that celebrated its 30th anniversary this year and with whom Cato has worked closely for many years (and that has been severely harassed by the Chavista regime). In the 1980s, Carlos was the editor of El Diario de Caracas, an important daily that was critical of government policies. It was when Carlos represented Venezuelan journalists at an Inter-American Press Association conference in 1987 in San Antonio, Texas and denounced then-President Lusinchi’s attacks on freedom of the press, that Lusinchi demanded that Carlos be fired from the newspaper, conditioning the renewal of the license of the popular television station RCTV—part of the same media company—on that outcome. Carlos was let go from the paper, he was criminally charged by the government, and was told by the judge presiding his case that “I have orders from above.” It was at that time that Carlos left Venezuela, moving to Florida where he would live the rest of his life. RCTV received a 20-year license. It was the expiration of that license in 2007—that Hugo Chavez refused to renew, thus shutting down the television station—that triggered the massive student uprising against the government that year. (As a result, Chavez lost a constitutional referendum and temporarily slowed down his accumulation of power.)

The idea that Venezuela was doomed to repeat such experiences and that the country would only lose more freedoms if economic freedom was not also respected was a long-time theme in Carlos’s writings. In that regard, he was among a very small group of Venezuelan intellectuals who decades ago warned against the ideology of socialism predominant in the political system and much of Venezuelan society. Indeed, he very correctly viewed Hugo Chavez’s regime as a logical, though more extreme, extension of what had come before. “Chavez,” he wrote, “has intensified, accelerated and exacerbated corruption, the concentration of power, the violation of property rights” and the power of the bureaucracy in people’s lives. In a 1992 essay, Carlos wrote that the “fatal date” for his country was January 1976, when President Perez nationalized the petroleum industry. That “meant a radical change; for the first time since the death of General Gomez [1935], political and economic power was again concentrated in the same hands: in those of the head of state.”

He would later write: “Without that concentration of wealth in political hands, Chavez would never have been able to Cubanize Venezuela because it was the economic power of oil that allowed the government to crush the individual liberties of the Venezuelans.” How right he was.

Measuring Misery in Latin America: More Dollarization, Please

In my misery index, I calculate a ranking for all countries where suitable data from the Economist Intelligence Unit exist. My misery index — a simple sum of inflation, lending rates, and unemployment rates, minus year-on-year per capita GDP growth — is used to construct a ranking for 89 countries. The table below is a sub-index of all Latin American countries presented in the world misery index.

A higher score in the misery index means that the country, and its constituents, are more miserable. Indeed, this is a table where you do not want to be first.

Venezuela and Argentina, armed with aggressive socialist policies, end up the most miserable in the region. On the other hand, Panama, El Salvador, and Ecuador score the best on the misery index for Latin America. Panama, with roughly one tenth the misery index score of Venezuela, has used the USD as legal tender since 1904. Ecuador and El Salvador are also both dollarized (Ecuador since 2000 and El Salvador since 2001) – they use the greenback, and it is clear that the embrace of the USD trumps all other economic policies.

The lesson to be learned is clear: the tactics which socialist governments like Venezuela and Argentina employ yield miserable results, whereas dollarization is associated with less misery.

Will Venezuela Be Next?

Last year, Nicholas Krus and I published a chapter, “World Hyperinflations”, in the Routledge Handbook of Major Events in Economic History. We documented 56 hyperinflations – cases in which monthly inflation rates exceeded 50% per month. Only seven of those hyperinflations have savaged Latin America (see the accompanying table).

At present, the world’s highest inflation resides in Latin America, namely in Venezuela. The Johns Hopkins – Cato Institute Troubled Currencies Project, which I direct, estimates that Venezuela’s implied annual inflation rate is 302%. Will Venezuela be the eighth country to join the Latin American Hall of Shame? Maybe. But, it has a long way to go.

The Hanke-Krus Hyperinflation Table
Latin American edition

Country Month With Highest Inflation Rate Highest Monthly Inflation Rate Equivalent Daily Inflation Rate Time Required for Prices to Double
1. Peru Aug. 1990 397% 5.49% 13.1 days
2. Nicaragua Mar. 1991 261% 4.37% 16.4 days
3. Argentina Jul. 1989 197% 3.69% 19.4 days
4. Bolivia Feb. 1985 183% 3.53% 20.3 days
5. Peru Sep. 1988 114% 2.57% 27.7 days
6. Chile Oct. 1973 87.6% 2.12% 33.5 days
7. Brazil Mar. 1990 82.4% 2.02% 35.1 days

Source: Steve H. Hanke and Nicholas Krus (2013), “World Hyperinflations”, in Randall Parker and Robert Whaples (eds.) Routledge Handbook of Major Events in Economic History, London: Routledge Publishing.

Sovereign Currency Populism versus Dollarized Populism

Venezuela and Ecuador both have left-wing populist governments that have benefited tremendously from record high oil revenues. Both governments used those revenues to significantly increase public spending. However, there is a critical difference between these countries: while Venezuela has its own currency (the so called “strong Bolívar”), Ecuador adopted the U.S. dollar as its official currency in 2000. That means that, no matter how fiscally irresponsible the Ecuadorean government, it can’t print money to pay for its spending.

The result: Venezuela has the highest inflation rate in Latin America whereas Ecuador has one of the lowest rates in the region.

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