Tag Archives: Latin America and the Caribbean

The Story Behind the Numbers in Peru

Participants of the LíderAcción program

A few months back, Martin Friedl wrote about the impact that the Instituto Invertir’s LíderAcción program has had on improving youth’s perceptions of a market economy and democracy. LíderAcción, a leadership and entrepreneurship program for rural Peruvian youth, is also providing students with the tools to start their own business. Having only just finished its second year, the results in numbers are impressive:

3,600 = number of university students that have applied for the program

300 = number of rural university students who have completed the courses on democracy, free market economics, leadership and entrepreneurship

5,000+ = number of other university students and community members reached through the multiplicative efforts of LíderAcción students

78 = number of business plans developed with guidance from leading academics and business practitioners

20+ = number of actual businesses all over Perú that have been started by LíderAcción students

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Long before it quaked

A satellite photograph of the border between Haiti, on the left, and the Dominican Republic on the right. Generations of political instability have left Haiti's poor with no other opportunity except that offered by deforestation. (NASA Goddard Space Flight Center)

As thoughts, prayers, and assistance turn toward Haiti after this week’s catastrophic earthquake, it may seem paradoxical to talk about governance given what’s taking place in the country right now. But when you think about all the resources that will be pouring into the country in the days ahead, from so many different organizations from various countries, the day-to-day processes of who decides what resources go where and how will it get there fall under the governance umbrella. Aid workers will meet many challenges in the coming days; as they bring with them resources, technology, and know-how when it comes to disaster relief, perhaps the greatest challenge they face will be finding ways to involve the Haitian people not just as sources of information but as active participants in their day-to-day governance.

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A Fear Mongering Media and Educational Reform in Venezuela

By now, most people have read or heard about the Venezuelan government’s constant attempts to shut down media outlet Globovisión, including back in May 2009 after Globovisión reported on an earthquake that had taken place in the towns of Miranda, Vargas, and Aragua. At the time, the government accused Globovisión of destabilizing the country by reporting on the earthquake and creating fear among the people. It should be no surprise then that in August the National Assembly passed a new Institutional Education Act (Ley Orgánica de Educación) that may have severe consequences for independent media in Venezuela. As noted in a recent article in the Economist, President Hugo Chavez sees the mass media as one of the three most important institutions in educating children, reason enough to include several articles affecting it in his education reform. Among other things, the new law gives the government the authority to “immediately suspend” the publication of content that “causes terror in children,” promotes “indiscipline,” or goes against “the mental and physical health of the people.” Anywhere these days it’s hard to imagine the news showing anything that wouldn’t fit into one of these categories based on Chavez’s judgment call.

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Cuban Reform?

In a recent communiqué issued by the Cuban government, the ruling Communist party’s central committee suggested that it was time to formalize their country’s informal sector and actively reduce corruption.  While notionally aimed at reducing the instance of theft, this statement may reflect a realization by those in power that citizens need to have stake in what they produce.  In short, the Cuban government is realizing that its citizens need property rights.

After assuming power in his brother Fidel’s absence, Raul Castro embarked on a series of economic reforms, beginning in 2008 with the decentralization of agricultural production and the leasing of inactive state property to private actors.  Facing a severe balance of payments crisis and production totals grown limp from the government’s stranglehold, Mr. Castro’s revamped economic cabinet is now saying that the previous reforms did not gone far enough: “The remainder of the economy must adapt to a form of property better suited to the resources available.”

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Cuba Solidarity Day

On Wednesday, May 20, people around the globe will celebrate Cuba Solidarity Day.  All during the month of May inside Cuba, peaceful demonstrations have been taking place by democratic opposition leaders who are wearing white bracelets with the word “CAMBIO”  (“change”) inscribed and promoting the “Yo No Copero” (“I Will Not Cooperate”) campaign to speak out against the violation of human rights in Cuba.
Last week, I had the opportunity to view a new documentary film by Yesenia E. Alvarez Temoche, President of the Instituto Político para la Libertad in Peru, entitled “Cuba and the Elephants.” The film provides a harsh look at the realities of the Castro regime’s public policies and their impact on the Cuban people. Particularly jarring are the sad states of Cuban health care and education that had always been flaunted as the successes of the regime.

There is an increasing trend of opinion that opening up Cuba to trade is the right way to go. After all, decades of isolation have not worked and the regimes of the brothers Castro have found ways to coopt the embargo to extend their grip on power. In other countries like China, trade has certainly helped to bring at least some economic democracy to people in the country.

Still, we can only expect trade to work so far with a regime that has proven its brutality repeatedly over fifty years. The Associated Press recently reported that the European Union had seen no progress toward getting the Cuban government to improve its human rights record through a lifting of economic sanctions. This is a sobering realization, but one that can only demand continued resolve to figure out ways in which the Cuban people can achieve democracy.

A tale of two Chinas

If you remove China from global poverty statistics, increasing poverty somewhere nearly wipes out decreases everywhere else. Since 1981 China on average has moved 20 million people per year past the dollar a day benchmark. A few economists have documented the process for this progress in great detail, which can be crudely summarized as a near instantaneous decentralization of economic control under Deng Xiaoping in the late 1970s followed by a decade of cultivating and reaping the benefits from the greater presence of market forces in the economy.

It is easy to assume that China’s ascension to the upper echelon of global economies is due solely to Deng-era reforms, but something else entirely may have taken root beneath the skyscrapers of Shanghai and other fast-rising cities in the 1990s:

But then, in 1989, came the Tiananmen Square protests. A generation of policymakers who had grown up in the countryside, led by Zhao Ziyang, were swept away by city boys, notably the president, Jiang Zemin, and Zhu Rongji, his premier. Both men hailed from Shanghai and it was the “Shanghai model” that dominated the 1990s: rapid urban development that favoured massive state-owned enterprises and big foreign multinational companies. The countryside suffered. Indigenous entrepreneurs were starved of funds and strangled with red tape. Read the rest of this story in last week’s Economist.

When you look at the trendlines, you can clearly see progress against poverty has decelerated since the 1980s, even though overall growth has famously accelerated. It makes sense, when you consider 60 percent of China and almost all of its sub-$1 a day population live in rural areas – the domain of the Township and Village Enterprises that led China’s growth in the 1980s. Those areas now neglected by the 1990s “Shanghai model,” which indicates a return to centralized control, most lavishly displayed in the building-up for the 2008 Beijing Olympics.

It would be interesting to see if another region of the world offered lessons about a government-led policy focused on growing large powerhouse cities through industrial state-owned enterprises (SOEs). In theory, such a policy would be unsustainable, given the historic inefficiency, mismanagement, and cronyism of SOEs causing bloated budgets and long-term inflation. In practice? Ask Latin America.

A risk we can all afford

These days, the wealthy might want to learn a thing or two from the poor. Mexico’s CompartamosBanco is a microfinance institution that raised eyebrows in April 2007 when it shed its nonprofit mantle and became a publicly traded entity. Since then, its stock price has not been able to avoid a hit from the global financial crisis; but when it comes to determining its true value, Compartamos might have a distinct advantage.

Microfinance, especially lending to microentrepreneurs with no collateral, is labour-intensive and costly—in Compartamos’s case, around $152 a year per client, with an average loan of $450. By charging an interest rate that generates a profit, the bank can grow fast and provide many more “micro-entrepreneurs” with the finance they need, even at interest rates that by the standards of rich countries seem unacceptably high. The bank now has over 900,000 clients, and expects to reach over 1m this year, up from the 61,000 it had in 2000, after a decade as a traditional non-profit outfit. Read the rest of the article in The Economist

Raising capital on the backs of microentrepreneurs comes a little too close to the ethical line for some; but what Compartamos might lack in that respect, it makes up by the fact that it puts the effort into the groundwork to provide the information needed to properly assess risk. To add to the competitive advantage of proper information, Compartamos is as committed to their clients’ ability to generate revenue as the clients themselves – leading Mexican entrepreneurs to vote with their ledgers and helping Compartamos reach the one million client goal:

Mr. Alvarez also mentioned that the one million client goal is also an indicator of the Company’s excellent execution of the business model. “Our clients have very good credit quality, with NPL’s of only 1.38% at June 2008. In the midst of the banking industry’s financial crisis, Compartamos is consolidating as the strongest microfinance institution in Mexico in terms of growth and with excellent future potential.”

It has never been a secret that financiers depend on properly assessing and supporting the financial health of their clients. Non-collateral loans are risky, but Compartamos maintains a tight connection between financier and client – a connection that is the missing element preventing the financial crises from passing. Having that connection makes microfinancing a risk we can all afford; and in the case of Compartamos (and its recently inspired competitors), a risk that contributes to needed institutional development for entrepreneurs in developing markets.