Tag: latin america

Argentina’s Point of No Return

The most important development this week in Latin America is the decision of the Argentine government to seize control of Yacimientos Petrolíferos Fiscales (YPF), the country’s largest oil company. On Monday, President Cristina Fernández de Kirchner announced the expropriation of the controlling stake of YPF that is owned by the Spanish company Repsol. The Spanish government, backed by the European Union, has announced that it will take retaliatory measures against Argentina, noting that “all options are on the table.” The Economist Intelligence Unit has a very good analysis on the case and the implications for Argentina.

The big question after Fernandez’s overwhelming reelection last fall was whether she would deepen the economic model she and her late husband (and predecessor) implemented since arriving to power in 2003—marked by high government spending, tight economic controls on industries, and selective nationalizations of businesses—or instead change course given the growing signs of exhaustion: high inflation, growing fiscal deficit, increasing capital flight, fall in foreign direct investment, the weakening peso, etc.

Any doubt is now gone. With the nationalization of YPF, Argentina firmly joins Venezuela, Ecuador, and Bolivia in the club of Latin American nations that espouse high-octane economic populism. In the upcoming months, we can expect more protectionist measures, further controls on the economy and, once the government runs out of the money that it seized in the past three years from the private pension funds and the Central Bank’s reserves, we should not be surprised if it moves to take control of the banks.

Things will only get worse for Argentina.

Acting as the Typhoid Mary of the Global Economy, the OECD Urges Higher Taxes in Latin America

Is it April Fool’s Day? Has somebody in Paris hacked the website at the Organization for Economic Cooperation and Development? Have we been transported to a parallel dimension where up is down and black is white?

Please forgive all these questions. I’m trying to figure out why any organization—even a leftist bureaucracy such as the OECD—would send out a press release entitled, “Rising tax revenues: a key to economic development in Latin American countries.”

Not even Keynesians, after all, think higher taxes are a recipe for growth.

Ah, never mind. I just remembered that the OECD is a hotbed of statism, so the press release makes perfect sense. After all, the U.S.-taxpayer-funded organization has become infamous for reflexively advocating big government.

With this dismal track record, it’s hardly a surprise that the Paris-based bureaucracy is now pushing to undermine prosperity in Latin America. Here’s some of what the OECD said in its release.

Additional tax revenues enable governments to simultaneously improve their competitiveness and promote social cohesion through increased spending on education, infrastructure and innovation. Latin American countries have made great strides over the past two decades in raising tax revenues.

You won’t be surprised when I tell you that the Paris-based bureaucrats do not bother to provide even the tiniest shred of proof to support the silly claim that higher taxes improve competitiveness. But that shouldn’t be surprising since even Keynesians don’t believe something that absurd.

And the claim about social cohesion also is a bit of a stretch given the riots, chaos, and social disarray in many European nations.

The only accurate part of the passage is that Latin American nations have increased tax burdens over the past 20 years. To the tax-free bureaucrats at the OECD, that is making “great strides.”

Let’s see what else the OECD had to say.

Despite these improvements, significant gaps between Latin America and OECD countries remain. The average tax to GDP ratio in OECD countries is much higher than in Latin American countries (33.8% compared to 19.2% in 2009, respectively). As the countries in the region still find themselves in relatively strong economic conditions, now is the time to consider reforms that generate long-term, stable resources for governments to finance development.

Wow. The OECD is implying that Latin American nations should mimic OECD nations. In other words, the bureaucrats in Paris apparently think it makes sense to tell nations to copy the failed high-tax, welfare-state model of countries such as Greece, Italy, and Spain.

Is that really the lesson they think people should learn from recent fiscal history? Are they really so oblivious and/or blinded by ideology that they issued the release as these European nations are in the middle of a fiscal crisis?

To further demonstrate their bias, the folks at the OECD even acknowledged that the Latin American nations, with their less oppressive tax regimes, are enjoying “relatively strong economic conditions.” Normal people would therefore conclude that the failed high-tax European nation should copy Latin America on fiscal policy, not the other way around. But not the geniuses at the OECD.

Now that we’ve addressed the awful policy advice of the OECD, let’s take a moment to look at the real policy challenges facing Latin America.

The Fraser Institute, in cooperation with dozens of other research organizations around the world, produces every year a comprehensive survey measuring Economic Freedom of the World.

The report ranks 141 nations based on dozens of variables that are used to construct scores for five key measures of economic freedom. Of those five categories, the Latin nations have the highest average ranking on…you guessed it…fiscal policy.

Yet the OECD wants policies that will undermine the competitiveness of the Latin nations, hurting them in the area where they are doing a halfway decent job.

If the bureaucrats actually wanted to boost economic performance in Latin America, they would be pressuring those nations to make reforms in the two areas where the burden of government is most severe—legal structure/property rights and regulation.

But that would make sense, which is contrary to the OECD’s mission of promoting statism.

The only semi-positive thing to say about the OECD is that it is consistent. As this video explains, the Paris-based bureaucrats are advocating bigger government in the United States. And to add insult to injury, they’re using American tax dollars to push that agenda.

What a scam. Politicians from various nations send taxpayer money to Paris. The bureaucrats at the OECD then issue reports and studies saying the politicians in those countries should raise taxes and increase the burden of government. Everybody wins…except for taxpayers and the global economy.

Per dollar spent, OECD subsidies may be the most destructively wasteful part of the federal budget. And that says a lot.

Reefer Madness Here and Abroad

In the New York Times, Ethan Nadelmann takes aim at the “reefer madness” of the Obama administration, which despite promises and expectations has stepped up the war on marijuana:

But over the past year, federal authorities appear to have done everything in their power to undermine state and local regulation of medical marijuana and to create uncertainty, fear and confusion among those in the industry. The president needs to reassert himself to ensure that his original policy is implemented.

The Treasury Department has forced banks to close accounts of medical marijuana businesses operating legally under state law. The Internal Revenue Service has required dispensary owners to pay punitive taxes required of no other businesses. The Bureau of Alcohol, Tobacco, Firearms and Explosives recently ruled that state-sanctioned medical marijuana patients can not purchase firearms.

United States attorneys have also sent letters to local officials, coinciding with the adoption or implementation of state medical marijuana regulatory legislation, stressing their authority to prosecute all marijuana offenses. Prosecutors have threatened to seize the property of landlords and put them behind bars for renting to marijuana dispensaries. The United States attorney in San Diego, Laura E. Duffy, has promised to start targeting media outlets that run dispensaries’ ads.

President Obama has not publicly announced a shift in his views on medical marijuana, but his administration seems to be declaring one by fiat.

As bad as the drug war is in the United States, it’s wreaking far more havoc in Mexico and Latin America. That’s why the Cato Institute is holding an all-day conference next week, “Ending the War on Drugs,” featuring:

  • the former president of Brazil
  • the former drug czar of India
  • the former foreign minister of Mexico
  • the author of Cato’s study on decriminalization in Portugal
  • the Speaker of the House in Uruguay
  • plus video presentations by former Secretary of State George Shultz and former Mexican President Vicente Fox.

Check it out. And be there November 15.

Rafael Correa’s Flat in Belgium

It is traditional for a Latin American nationalist to criticize people who take their money out of their country and invest it somewhere else. President Rafael Correa has done it several times. In 2009 he forced private banks to repatriate part of their assets.

What is unusual is finding evidence that he who preaches does not necessarily practice what he preaches. Last week, Ecuadorians were surprised to hear the news—with our tax authority (Servicio de Rentas Internas–SRI) and then the presidency as a source—that Correa had transferred $330,000 to his bank account in Germany. The President then clarified (“…don’t be stupid, the money was sent to Belgium not Germany”) [in Spanish] that the money was transferred to pay for an apartment for his family in Belgium, given that his children may pursue studies in that country.

But the story did not end there. Earlier this week, the director of the SRI, Carlos Marx Carrasco, announced [in Spanish] that he will publish a list of all citizens that have taken money out of the country with the amount they have paid in taxes for doing so (currently there is a 2% tax on all transactions that imply taking money out of Ecuador). Marx Carrasco said that this has to be done “so that the citizens can see (the behavior) of those who represent El Universo, Diario Hoy, El Comercio and all media, who with human misery have allowed themselves to question (what the president has done)”.

This is how, those who concentrate political power in Ecuador, use information collected for the purpose of charging taxes to take reprisals.

Obama’s Latin America Trip

President Obama’s trip to Latin America is likely to focus on economic topics, but two security issues deserve scrutiny during his stops in Brazil and El Salvador. 

Washington’s diplomatic relationship with Brazil has become somewhat frosty, especially over the past year.  U.S. leaders did not appreciate Brazil’s joint effort with Turkey to craft a compromise policy toward Iran’s nuclear program.  The Obama administration regarded that diplomatic initiative as unhelpful freelancing.  And when Brazil joined Turkey in voting against a UN Security Council resolution imposing stronger sanctions on Tehran, the administration’s resentment deepened.  Obama should not only try to soothe tensions, he should shift Washington’s policy, express appreciation for Brazil’s innovative efforts to end the impasse on the Iranian nuclear issue, and consider whether the milder approach that the Turkish and Brazilian governments advocate has merit.

In El Salvador, worries about Mexico’s spreading drug-related violence into Central America are likely to come up.  El Salvador and other Central American countries are seeking a bigger slice of Washington’s anti-drug aid in the multi-billion-dollar, multiyear Merida Initiative.  President Obama should not only resist such blandishments, he should use the visit to announce a policy shift away from a strict prohibitionist strategy that has filled the coffers of the Mexican drug cartels and sowed so much violence in Mexico, and now increasingly in Central America as well.  Prohibition didn’t work with alcohol and it’s not working any better with currently illegal drugs.

Brazil’s Drug Czar: Let’s Look at Portugal’s Experience with Decriminalization

In yesterday’s Brazilian daily, O Globo, Pedro Abramovay, the drug czar of the new Brazilian administration, said that Portugal’s experience with drug decriminalization should be considered as an alternative to Brazil’s current anti-narcotics policy. This comes on top of Rio Governor Sergio Cabral’s call for drug legalization and of former President Fernando Henrique Cardoso’s criticism, along with other prominent Latin Americans, of drug prohibition. By officially weighing in on the side of harm reduction, Latin America’s giant can have a significant effect on the debate over this hemisphere’s drug war.

Let’s Open a Wireless Window to Cuba

Three of the world’s largest companies involved in wireless telecommunications—Nokia, AT&T, and Verizon—this week asked the Obama administration to further loosen the U.S. embargo against Cuba. According to a Bloomberg News story this morning:

Nokia, the world’s biggest mobile-phone maker, is urging the U.S. to ease its 47-year-old trade embargo so it can sell handsets to Cuba. AT&T and Verizon, the largest U.S. wireless providers, urged regulators to make it easier for U.S. companies to directly connect calls to and from Cuba.

The almost half-century-old embargo no longer serves any legitimate national security purpose, as I’ve argued before. The remaining restrictions on providing wireless communication services only demonstrate how the embargo actually undermines our stated goal of bringing more freedom to the long-suffering people of Cuba.

To President Obama’s credit, he has done more than most presidents to ease the embargo, including modest steps such as easing travel restrictions for Cuban-Americans and authorizing telecommunications firms to offer limited service in Cuba. In practice, however, President Obama’s efforts have had little effect, and they have not gone far enough.

If the basis of current U.S. policy toward Cuba is democratic empowerment of its people, then removing telecommunications restrictions would be a logical and healthy next step. According to the Bloomberg story, Cuba still has the lowest mobile-phone penetration rate in Latin America. What better way to empower nearly eleven and a half million people than by easing restrictions on their communications with free residents of the democratic United States?

President Obama himself argued in a White House statement in April 2009 that two of the best ways to promote Cuban democratization were by “facilitating greater contact between separated family members in the United States and Cuba” and “increasing the flow of … information to the Cuban people.”

Here is an opportunity to translate those sound words into action.