Latin America Policy Journal

HARVARD Kennedy School JOHN F. KENEDDY SCHOOL OF GOVERMENT LATIN AMERICA POLICY JOURNAL

Spring 2014

Inside: The Need for a Peaceful Revolution By Oscar Arias Third Edition 2013-2014 Latin America: Transition to Democracy and Development Paradigms By Leonel Fernandez

Is Social Policy in Latin America Heading in the Right Rethinking Direction? Beyond Conditional Cash Latin America: Transfer Programs By Santiago Levy Where We Are &

The Role of Cities In the Where We Are Headed Promotion of Growth By Mauricio Macri Staff Contents

Editor-in-Chief 4 Editor’s Remarks Alexandra De Filippo Commentaries Executive Director 7 The Need for a Peaceful Revolution:Lessons Latin America can learn Felipe Vallejo-Dabdoub from the Central America peace process 25 years on Oscar Arias Former President of Costa Rica and Nobel Laureate Managing Editor Tim Rogers 13 Latin America: Transition to Democracy and Development Paradigms Leonel Fernandez Former President of the Dominican Republic Content Editors 20 In Memoriam (Editorial remembering Mariana Filgueira Risso) Nicolás Ajzenman Emilia Gonzalez Laura Cepeda Amanda Beaujon Economic Development 24 Is Social Policy in Latin America Heading in the Right Direction? Marketing Managers Beyond Conditional Cash Transfer Programs Felipe Vallejo-Dabdoub Santiago Levy

Web Site and Digital Strategy 31 Science in Colombia Amilcar Flores Moisés Wasserman Steven Manllo 40 Riding Waves of Change: The case of Costa Rica´s Global Value Chain Editors driven economic development Aleszu Bajak David Bullón and Francisco Monge Camila Fernández Nova 52 Current Trends and a New Agenda for Foreign Direct Investment in Pilar Tavella Martín Maximino Latin America Juan Pablo Remolina Michael Penfold 60 The Economic Legacy of Hugo Chavez Collaborators Miguel Ángel Santos and Ricardo Villasmil Carlos Quintero Juan Ignacio Maquieryra 73 Politics and Institutions Mahesh Khemlani The Role of Cities in the Promotion of Growth: My experience in Buenos Roberto Patiño Aires and the great opportunity for Argentina Alejandro Oyervides Mauricio Macri ♻ 76 Fighting Corruption in Colombia: Interview with Alejandro Ordoñez Printed on responsibly harvested, agency- Maldonado certified paper containing 50% post-con- Juan Pablo Remolina sumer recycle content. 80 From Michoacán to Buenos Aires: Interview with Nilda Garré Martin Maximino ISSN 2327-8609 89 Energy Reform in Mexico: Lessons and Warnings from International Law Guillermo García Staff Contents

America isn’t so much a tradition to continue as a future to realize. — Octavio Paz

AFTER YEARS of exceptional macroeconomic performance based on solid democratic principles and a commitment to peace. and notable improvements in poverty reduction, education and Lastly, we highlight the fact that economic and democratic progress health standards, and regional integration, Latin America faces the has not occurred uniformly across the region. challenge of adapting to a new period of decelerated growth and a We would like to dedicate our third volume to Mariana Filgueira changing global environment. The region is expected to grow at 2.9 Risso, cofounder and former editor-in-chief of the Latin America percent in 2014, a modest improvement from 2013, but lackluster Policy Journal, who passed away tragically in Buenos Aires in compared to the average growth rate of the previous decade. As ad- December 2013. Mariana was a woman of incredible talent and vanced economies continue to scale back their fiscal and monetary passion, a vibrant leader and beloved friend, who inspired all of stimulus programs, and emerging countries such as China experi- us with her contagious energy, unconditional love for others, and ence an economic slowdown, Latin America’s resilience to external unyielding commitment to public service. As we strive to make factors will be tested again. At the same time, commodity prices are Latin America the more prosperous and just society that Mariana likely to continue falling, exerting additional pressure on national dreamed of, her memory will continue to motivate and guide us. budgets. As the global environment becomes less favorable, the region Alexandra De Filippo should look inward for homegrown solutions to its shared social and Editor-in-Chief economic problems. In the third volume of the Latin America Policy Journal, we bring together the experiences and opinions of former Felipe Vallejo-Dabdoub presidents, scholars, policy makers, and students to address is- Executive Director sues related to poverty, corruption, insecurity, and development. We offer a holistic view of the region, focusing on strategies to promote Tim Rogers economic and social progress amid changing circumstances. Managing Editor By presenting a range of experiences and proposals along two broad topics, economic development and political institutions, we strive to contribute to a new conversation on regional development. With presidential elections in Bolivia, Brazil, Colombia, Costa Rica, El Salvador, Panama, and Uruguay, as well as the potential for greater social unrest across the region, national leaders will have to tread carefully to maintain stability in a period of slower growth. From efforts to promote research and development and foreign direct investment, to strategies to fight corruption and harness global value chains, Latin American countries can learn from each other as they craft new strategies for growth. Cities should play a leading role in this new development agenda, given that they have more flexibility to engage in innovative policy design to tackle issues like poverty, insecurity, and climate change. Two former presidents, Oscar Arias of Costa Rica and Leonel Fer- nandez of the Dominican Republic, remind us in this edition that

our strategy toward economic progress and social justice must be COMMENTARIES

4 LATIN AMERICA POLICY JOURNAL spring 2014 5 Editor’s Remarks

America isn’t so much a tradition to continue as a future to realize. — Octavio Paz

our strategy toward economic progress and social justice must be COMMENTARIES

4 LATIN AMERICA POLICY JOURNAL spring 2014 5 The Need for a Peaceful Revolution

The Need for a Peaceful Revolution Lessons Latin America Can Learn from the Central America Peace Process Twenty-Five Years On

BY OSCAR ARIAS SÁNCHEZ

IN ONE OF HIS key addresses on group. In 1987, Central America and its Latin America, U.S. President John F. Ken- five presidents achieved a peaceful revolu- nedy famously said that “those who make tion. By gathering around the negotiating peaceful revolution impossible will make table and setting pen to paper, by ignoring violent revolution inevitable.” As a corol- the well-trodden escape route of war and lary, peaceful revolution, which is never striking out instead on a new path of com- inevitable, can only be achieved by those promise and agreement, and by trusting in who make violence impossible—those who the institutions of democracy rather than exclude it as an option through the sheer the institutions of violence, we changed power of their belief and the force of their the face of our region forever. In 2012, we will. To be a part of such an achievement celebrated the twenty-fifth anniversary is a rare and delicate privilege. To have of the signing of the Central American had the opportunity to change the world Peace Accords. We celebrated this mile- through the power of negotiation and com- stone with the pomp and circumstance it promise is to have glimpsed a better path deserved, but also with the introspection for humanity, an oasis of reason amidst a it demanded. Those of us who participated dreary desert of brutality. Just as veterans of in the process are called to transmit, as best war might feel a duty to teach others how we can, the lessons of our peace to the next to avoid their own suffering, veterans of generation and to figure out for ourselves a peaceful revolution are obliged to do all what those lessons might be. The past can they can to look for ways that their extraor- help us confront the present, despite the dinary experience might serve to turn the dramatic differences between the two eras. tide of violence for others. When we made our peace in 1987, the I count myself among that privileged world’s superpowers were fighting a war in

6 LATIN AMERICA POLICY JOURNAL spring 2014 7 The Need for a Peaceful Revolution

The Need for a Peaceful Revolution Lessons Latin America Can Learn from the Central America Peace Process Twenty-Five Years On

BY OSCAR ARIAS SÁNCHEZ

6 LATIN AMERICA POLICY JOURNAL spring 2014 7 COMMENTARIES The Need for a Peaceful Revolution

ognize the trembling of the earth as a tank and blaming others for all our problems. In texts and justifications instead of delivering Peaceful revolution, passes by, nor are they familiar with the the 1980s, the countries in my region faced results. The failure to take responsibility is smell of gunpowder. That, too, is progress. real interference from the United States, an epidemic that has afflicted leaders not which is never Indeed, the impact of the Peace Accords is but our greatest success came when we put only in Latin America, but also around the inevitable, can only be best measured today in terms of what does that aside, ignored the many excuses for world. The price we pay for our reluctance not exist: the soldiers who no longer die, failure, and found our own way out of the to look in the mirror is a population that achieved by those who the families that no longer flee. conundrum before us. If we managed that is increasingly tired of empty words and But we have achieved more than just in that difficult context, it is all the more meaningless promises. make violence that. Central America has returned its absurd that today so many Latin American These leaders need a wake-up call––a impossible. soldiers to civic life on a scale not ac- countries continue to use the United States mighty shout to bring to their feet coun- complished by any other region in the as an excuse for inaction. It is all the more tries accustomed to living on their knees. which they supplied the weapons and Cen- world. Our region’s economies have grown absurd that many leaders continue to com- If we choose to take responsibility for our tral America supplied the dead. The United considerably since the wars ended, and our plain about the Spanish empire that made failures, then we can finally understand States and the Soviet Union saw their quality of life is much improved. We have off with our riches, an American empire that we ourselves are capable of rewriting interests threatened by an independent advanced in social terms as well; the prob- that continues to bleed us dry, and laws our history. agreement among Central American lead- ability that a Central American child will of globalization that were deliberately de- The second lesson of our peaceful rev- ers, and we faced tremendous opposition die before the age of five has been reduced signed to keep our region in the shadows. olution is to respect democracy, which has from those who wanted military outcomes almost by half, and adults today live much Some Latin American leaders blame our been dangerously eroded in recent years. in our region, no matter the human cost. longer than they did during the age of underdevelopment on anyone but Latin As I have said many times, the ceasefire Even Costa Rica, a country that had abol- conflict. America itself. we achieved in Central America was only ished its army in 1948, found its borders At the same time, however, Central breached and sovereignty ignored by a U.S. Americans today suffer in new ways. While If we choose to take responsibility for our failures, administration that was using our territory young guerrillas no longer die, members of for military training—seeking, as it were, to young gangs do. While mothers no longer then we can finally understand that we ourselves are beat our plowshares into swords. cry because their children are at war, they capable of rewriting our history. It was a tremendous shock to Wash- do cry because their children have dropped ington, DC, and the White House when out of school. While Central Americans no Central America refused to capitulate to longer emigrate because of violence, they But consider this: when Harvard Uni- the overture of the Peace Accords. The leit outside instructions and instead found do emigrate because of a lack of opportuni- versity opened its doors in Cambridge in motiv was the democratization of the re- its own solution. Against all odds, on 7 ties. For a host of reasons, Central America 1636, there were well-established and near- gion. Those of us who signed the document August 1987, I joined the other presidents has failed to take advantage of the real op- ly centennial universities in the Dominican agreed that no attempt at peace would of the region in signing the document I had portunities we have had to move our region Republic, Peru, Mexico, Bolivia, Colombia, ever succeed if we failed to ensure respect presented to the group. The accords con- out of the past and into the developed Ecuador, Chile, and Argentina. We won for human rights and the rule of law, if we tained ten priority actions, including the world. I believe that the legacy of our Peace our independence one hundred or one failed to create strong and independent condition of suspending all military action hundred and fifty years before countries democratic institutions to guarantee social while beginning dialogue. It was a historic We need to stop such as South Korea and Singapore, which, stability, or if we failed to equip our nations achievement that allowed our region to despite their colonial past and lack of sig- with the distinctive features of any democ- wake up from a nightmare of violence, put playing victim and nificant natural resources, today exceed–– racy. We knew that the success of the Peace an end to the domestic conflicts and civil blaming others for all several times over––our per capita income. Accords depended on Central America’s wars that had plagued us throughout the Our region has faced terrible troubles and ability to give its citizens a prosperous, 1980s, and enter into a new era of peace. our problems. injustices, but pointing the finger of blame democratic life. What are the fruits of our labor a at others is no longer justified. And even Fast-forward to the present. I do not quarter century on? While we should not Accords offers at least four lessons that more surely, it is no longer useful. think I need to mention any names for be too satisfied with our achievements as a could be applied today to make Central Time has run out on the many gener- us to understand that in today’s Latin region, there is certainly progress to report. America and all of Latin America a more als and comandantes dedicated to waging America there are leaders who have made The fact that young Central Americans to- prosperous, peaceful, and inclusive region. war against the phantoms of their own use of democratic structures to subvert the day learn about war only in history class is The first lesson of our peaceful revolu- minds and imaginary foreign threats, as very basis of democracy. Upon election progress for us. Youth today no longer rec- tion is that we need to stop playing victim well as on the governments that invent pre- by the people, these leaders interpret their

8 LATIN AMERICA POLICY JOURNAL spring 2014 9 COMMENTARIES The Need for a Peaceful Revolution ognize the trembling of the earth as a tank and blaming others for all our problems. In texts and justifications instead of delivering Peaceful revolution, passes by, nor are they familiar with the the 1980s, the countries in my region faced results. The failure to take responsibility is smell of gunpowder. That, too, is progress. real interference from the United States, an epidemic that has afflicted leaders not which is never Indeed, the impact of the Peace Accords is but our greatest success came when we put only in Latin America, but also around the inevitable, can only be best measured today in terms of what does that aside, ignored the many excuses for world. The price we pay for our reluctance not exist: the soldiers who no longer die, failure, and found our own way out of the to look in the mirror is a population that achieved by those who the families that no longer flee. conundrum before us. If we managed that is increasingly tired of empty words and But we have achieved more than just in that difficult context, it is all the more meaningless promises. make violence that. Central America has returned its absurd that today so many Latin American These leaders need a wake-up call––a impossible. soldiers to civic life on a scale not ac- countries continue to use the United States mighty shout to bring to their feet coun- complished by any other region in the as an excuse for inaction. It is all the more tries accustomed to living on their knees. which they supplied the weapons and Cen- world. Our region’s economies have grown absurd that many leaders continue to com- If we choose to take responsibility for our tral America supplied the dead. The United considerably since the wars ended, and our plain about the Spanish empire that made failures, then we can finally understand States and the Soviet Union saw their quality of life is much improved. We have off with our riches, an American empire that we ourselves are capable of rewriting interests threatened by an independent advanced in social terms as well; the prob- that continues to bleed us dry, and laws our history. agreement among Central American lead- ability that a Central American child will of globalization that were deliberately de- The second lesson of our peaceful rev- ers, and we faced tremendous opposition die before the age of five has been reduced signed to keep our region in the shadows. olution is to respect democracy, which has from those who wanted military outcomes almost by half, and adults today live much Some Latin American leaders blame our been dangerously eroded in recent years. in our region, no matter the human cost. longer than they did during the age of underdevelopment on anyone but Latin As I have said many times, the ceasefire Even Costa Rica, a country that had abol- conflict. America itself. we achieved in Central America was only ished its army in 1948, found its borders At the same time, however, Central breached and sovereignty ignored by a U.S. Americans today suffer in new ways. While If we choose to take responsibility for our failures, administration that was using our territory young guerrillas no longer die, members of for military training—seeking, as it were, to young gangs do. While mothers no longer then we can finally understand that we ourselves are beat our plowshares into swords. cry because their children are at war, they capable of rewriting our history. It was a tremendous shock to Wash- do cry because their children have dropped ington, DC, and the White House when out of school. While Central Americans no Central America refused to capitulate to longer emigrate because of violence, they But consider this: when Harvard Uni- the overture of the Peace Accords. The leit outside instructions and instead found do emigrate because of a lack of opportuni- versity opened its doors in Cambridge in motiv was the democratization of the re- its own solution. Against all odds, on 7 ties. For a host of reasons, Central America 1636, there were well-established and near- gion. Those of us who signed the document August 1987, I joined the other presidents has failed to take advantage of the real op- ly centennial universities in the Dominican agreed that no attempt at peace would of the region in signing the document I had portunities we have had to move our region Republic, Peru, Mexico, Bolivia, Colombia, ever succeed if we failed to ensure respect presented to the group. The accords con- out of the past and into the developed Ecuador, Chile, and Argentina. We won for human rights and the rule of law, if we tained ten priority actions, including the world. I believe that the legacy of our Peace our independence one hundred or one failed to create strong and independent condition of suspending all military action hundred and fifty years before countries democratic institutions to guarantee social while beginning dialogue. It was a historic We need to stop such as South Korea and Singapore, which, stability, or if we failed to equip our nations achievement that allowed our region to despite their colonial past and lack of sig- with the distinctive features of any democ- wake up from a nightmare of violence, put playing victim and nificant natural resources, today exceed–– racy. We knew that the success of the Peace an end to the domestic conflicts and civil blaming others for all several times over––our per capita income. Accords depended on Central America’s wars that had plagued us throughout the Our region has faced terrible troubles and ability to give its citizens a prosperous, 1980s, and enter into a new era of peace. our problems. injustices, but pointing the finger of blame democratic life. What are the fruits of our labor a at others is no longer justified. And even Fast-forward to the present. I do not quarter century on? While we should not Accords offers at least four lessons that more surely, it is no longer useful. think I need to mention any names for be too satisfied with our achievements as a could be applied today to make Central Time has run out on the many gener- us to understand that in today’s Latin region, there is certainly progress to report. America and all of Latin America a more als and comandantes dedicated to waging America there are leaders who have made The fact that young Central Americans to- prosperous, peaceful, and inclusive region. war against the phantoms of their own use of democratic structures to subvert the day learn about war only in history class is The first lesson of our peaceful revolu- minds and imaginary foreign threats, as very basis of democracy. Upon election progress for us. Youth today no longer rec- tion is that we need to stop playing victim well as on the governments that invent pre- by the people, these leaders interpret their

8 LATIN AMERICA POLICY JOURNAL spring 2014 9 COMMENTARIES The Need for a Peaceful Revolution

mandate as a carte blanche. They use their longer cherish such a hope. It is unrealistic ahead, a champion will emerge for the con- last, this fourth lesson of Central America’s power not to promote the human devel- in today’s Latin America, which, despite cept at the financial institutions that have triumph of peace. opment of their peoples, but to persecute an almost total lack of credible threats, con- the power to make it a reality. I sat down to write thinking of the their opponents, shackle the media, and tinues to lavish upon its armies the money The fourth and final lesson that I words of Kennedy, and I find myself seek reforms that allow them to stay in it should lavish upon its children. Just look would like to mention, one with relevance returning to him now. When he launched power forever. We must never confuse the at the recent example provided by Brazil. for peace and conflict resolution not just his Alliance for Progress in 1961, he said democratic origin of a regime with the With citizens already up in arms over the in Latin America but around the world, something that I, and I suspect many oth- democratic function of the State. A govern- government’s choice to spend an estimated is that the international community has ers throughout Latin America, have never ment born of democracy loses its right to $3.5 billion on stadiums and infrastruc- an urgent responsibility to regulate the forgotten: use that word when it resorts to dictatorial ture for the 2014 World Cup, rather than global arms trade. Arms suppliers from the vices. That is precisely what has happened schools and other urgent priorities, Brazil developed world irresponsibly channeled We propose to complete the revolution all too often in Latin America. And as long recently approved a $4.5 billion purchase of weapons to Central America during the of the Americas, to build a hemisphere as the region fails to reach the threshold of Swedish fighter jets. In a word, this is mad- 1980s. For decades to come, those weapons where all men can hope for a suitable development, the phantom of authoritari- ness. Foolish choices like this are made all were found in the hands of the gangs that standard of living and all can live out anism will rise again and again. over the world, every day, by rich and poor roamed the countryside of Nicaragua, or their lives in dignity and in freedom. Across the region, we can benefit from nations alike. in the hands of teenage boys on the streets assuming the kind of commitment to de- Real change in any sovereign nation’s of San Salvador and Tegucigalpa. Other It is sometimes tempting, after a long mocracy that united those of us who signed spending habits must come from within, weapons were shipped to Colombian guer- career in public service, to feel that the the Peace Accords. We must make it our but there is much that the international rilla or paramilitary groups or drug cartels, moments of progress one has experienced priority to convince the citizens of Latin community could do to exert a positive ready to destroy yet more lives. Central were a few paltry steps forward among America that democracy works. It is urgent influence in Latin America and throughout America learned the hard way that a ship- many steps back. It is sometimes tempting that we reform the workings of our States the developing world. During my second ment of weapons into a developing country to believe that a peaceful revolution is the so they are better able to execute public presidency, I formulated a proposal I is like a virus in a crowded room. It cannot exception to the rule of violence. However, policy. Improving the public response to called the Costa Rican Consensus. It is a be contained; we do not know whom it will these are temptations we must resist. We citizen demands, and increasing our fiscal simple idea that I believe has the power to attack, and it can spread in ways we would must choose, with Kennedy, to believe in never have imagined. the destiny of the Americas to fulfill the In 1997, I, along with other Nobel lofty ideals that marked our independence. As long as the region fails to reach the threshold of Peace Laureates, began an effort to estab- We must choose to believe that a mo- development, the phantom of authoritarianism will lish a comprehensive Arms Trade Treaty ment of progress, such as the signing of that would prohibit the transfer of arms to the Central American Peace Accords, was rise again and again. States, groups, or individuals, if sufficient not an exception, rather a prelude. And we reason exists to believe that those arms will must redouble our efforts to ensure that its be used to violate human rights or inter- lessons are not confined to the pages of his- resources by taxing the richest among us, change the world. It calls on international national law. After more than fifteen years tory, but rather become a living legacy. is essential if we are to move toward a true financial institutions such as the World of hard work by people all over the world, culture of liberty. Bank to change their policies so that aid the Arms Trade Treaty was finally ap- But increasing public income is not calculations take into account the spending proved at the United Nations last year. The enough. We must also spend those funds habits of recipient nations, rewarding those United States has since signed the treaty, with conscience, which brings me to the countries that invest in education, health along with more than one hundred other third lesson of our Peace Accords that has care, and conservation rather than their countries. For the treaty to enter into force, not yet been fulfilled in Latin America— militaries. It is ridiculous for any world fifty countries must choose to ratify it; nine Oscar Arias was born in Heredia, indeed, far from it. That is importance leader to talk of peace when the calculus have done so to date, and France, one of Costa Rica, in 1940. He studied law and of investing in people before investing in of foreign aid creates a powerful incen- the world’s largest traders of arms, has now economics at the University of Costa Rica armies. tive for developing nations to waste their chosen to join this group as well. We need and received a doctoral degree in political In the first years after our peace agree- budgets on weapons and war and punishes all the support we can get for forty more science at the University of Essex, England. ment, I dreamed that Central America countries such as Costa Rica that invest in countries to ratify the treaty, including the Arias was appointed Costa Rican Minister might become the world’s first demilita- human development. This is an idea whose United States, whose support is a long shot of Planning and Economic Policy, then won rized region. But now I must admit I no time has come. I hope that, in the years but essential if the world is to learn, at long a seat in Congress in 1978 and was elected

10 LATIN AMERICA POLICY JOURNAL spring 2014 11 COMMENTARIES The Need for a Peaceful Revolution mandate as a carte blanche. They use their longer cherish such a hope. It is unrealistic ahead, a champion will emerge for the con- last, this fourth lesson of Central America’s power not to promote the human devel- in today’s Latin America, which, despite cept at the financial institutions that have triumph of peace. opment of their peoples, but to persecute an almost total lack of credible threats, con- the power to make it a reality. I sat down to write thinking of the their opponents, shackle the media, and tinues to lavish upon its armies the money The fourth and final lesson that I words of Kennedy, and I find myself seek reforms that allow them to stay in it should lavish upon its children. Just look would like to mention, one with relevance returning to him now. When he launched power forever. We must never confuse the at the recent example provided by Brazil. for peace and conflict resolution not just his Alliance for Progress in 1961, he said democratic origin of a regime with the With citizens already up in arms over the in Latin America but around the world, something that I, and I suspect many oth- democratic function of the State. A govern- government’s choice to spend an estimated is that the international community has ers throughout Latin America, have never ment born of democracy loses its right to $3.5 billion on stadiums and infrastruc- an urgent responsibility to regulate the forgotten: use that word when it resorts to dictatorial ture for the 2014 World Cup, rather than global arms trade. Arms suppliers from the vices. That is precisely what has happened schools and other urgent priorities, Brazil developed world irresponsibly channeled We propose to complete the revolution all too often in Latin America. And as long recently approved a $4.5 billion purchase of weapons to Central America during the of the Americas, to build a hemisphere as the region fails to reach the threshold of Swedish fighter jets. In a word, this is mad- 1980s. For decades to come, those weapons where all men can hope for a suitable development, the phantom of authoritari- ness. Foolish choices like this are made all were found in the hands of the gangs that standard of living and all can live out anism will rise again and again. over the world, every day, by rich and poor roamed the countryside of Nicaragua, or their lives in dignity and in freedom. Across the region, we can benefit from nations alike. in the hands of teenage boys on the streets assuming the kind of commitment to de- Real change in any sovereign nation’s of San Salvador and Tegucigalpa. Other It is sometimes tempting, after a long mocracy that united those of us who signed spending habits must come from within, weapons were shipped to Colombian guer- career in public service, to feel that the the Peace Accords. We must make it our but there is much that the international rilla or paramilitary groups or drug cartels, moments of progress one has experienced priority to convince the citizens of Latin community could do to exert a positive ready to destroy yet more lives. Central were a few paltry steps forward among America that democracy works. It is urgent influence in Latin America and throughout America learned the hard way that a ship- many steps back. It is sometimes tempting that we reform the workings of our States the developing world. During my second ment of weapons into a developing country to believe that a peaceful revolution is the so they are better able to execute public presidency, I formulated a proposal I is like a virus in a crowded room. It cannot exception to the rule of violence. However, policy. Improving the public response to called the Costa Rican Consensus. It is a be contained; we do not know whom it will these are temptations we must resist. We citizen demands, and increasing our fiscal simple idea that I believe has the power to attack, and it can spread in ways we would must choose, with Kennedy, to believe in never have imagined. the destiny of the Americas to fulfill the In 1997, I, along with other Nobel lofty ideals that marked our independence. As long as the region fails to reach the threshold of Peace Laureates, began an effort to estab- We must choose to believe that a mo- development, the phantom of authoritarianism will lish a comprehensive Arms Trade Treaty ment of progress, such as the signing of that would prohibit the transfer of arms to the Central American Peace Accords, was rise again and again. States, groups, or individuals, if sufficient not an exception, rather a prelude. And we reason exists to believe that those arms will must redouble our efforts to ensure that its be used to violate human rights or inter- lessons are not confined to the pages of his- resources by taxing the richest among us, change the world. It calls on international national law. After more than fifteen years tory, but rather become a living legacy. is essential if we are to move toward a true financial institutions such as the World of hard work by people all over the world, culture of liberty. Bank to change their policies so that aid the Arms Trade Treaty was finally ap- But increasing public income is not calculations take into account the spending proved at the United Nations last year. The enough. We must also spend those funds habits of recipient nations, rewarding those United States has since signed the treaty, with conscience, which brings me to the countries that invest in education, health along with more than one hundred other third lesson of our Peace Accords that has care, and conservation rather than their countries. For the treaty to enter into force, not yet been fulfilled in Latin America— militaries. It is ridiculous for any world fifty countries must choose to ratify it; nine Oscar Arias was born in Heredia, indeed, far from it. That is importance leader to talk of peace when the calculus have done so to date, and France, one of Costa Rica, in 1940. He studied law and of investing in people before investing in of foreign aid creates a powerful incen- the world’s largest traders of arms, has now economics at the University of Costa Rica armies. tive for developing nations to waste their chosen to join this group as well. We need and received a doctoral degree in political In the first years after our peace agree- budgets on weapons and war and punishes all the support we can get for forty more science at the University of Essex, England. ment, I dreamed that Central America countries such as Costa Rica that invest in countries to ratify the treaty, including the Arias was appointed Costa Rican Minister might become the world’s first demilita- human development. This is an idea whose United States, whose support is a long shot of Planning and Economic Policy, then won rized region. But now I must admit I no time has come. I hope that, in the years but essential if the world is to learn, at long a seat in Congress in 1978 and was elected

10 LATIN AMERICA POLICY JOURNAL spring 2014 11 COMMENTARIES Latin America

Secretary-General of the National Libera- tion Party in 1981. In 1986, he was elected President of Costa Rica, assuming office at a time of great regional discord, with civil wars and unrest throughout Central America. In 1987, Arias drafted a peace plan to end the regional crisis. His initiative culmi- nated in the signing of the Esquipulas II Ac- cords, or the Procedure to Establish a Firm and Lasting Peace in Central America, by five Central American presidents on 7 Au- gust 1987. He was awarded the Nobel Peace Prize later that year. In 1988, Arias used the Latin America monetary award from the Nobel Peace Prize to establish the Arias Foundation for Peace Transition to Democracy and and Human Progress, which allowed him to continue his pursuit of global peace and hu- Development Paradigms man security after leaving office. In 2006, he was elected to a second term BY LEONEL FERNÁNDEZ as President, becoming the first Nobel Laure- ate in history to be elected to a nation’s top office after winning that prize. After leaving office in 2010, Arias has dedicated his time to the Arias Foundation and, in particular, the effort to implement a Abstract within their respective societies. With few comprehensive Arms Trade Treaty to address THE TRANSITION to democracy in exceptions, this was not possible during the unchecked flow of arms across borders, Latin America was not a straightforward the twentieth century when most of the especially into the developing world. The path, since it has coexisted with extreme countries in the region were plagued by treaty, which began as a Code of Conduct poverty and inequality in the region. Even economic stagnation, social unrest, and on Arms Transfers drafted at a meeting that though democracy remains as the ideal political instability. Arias held with fellow Nobel Peace Laureates political system, people’s demands today Various attempts were made during in 1997, was approved by the United Nations are not only for protection of human rights, this period to move away from traditional last year. but also for better education and economic authoritarian regimes to pluralistic, demo- Arias has received approximately sixty and social prosperity. China’s request for cratic, and inclusive societies. honorary doctorates from colleges and uni- commodities at the turn of the twenty-first From the end of World War II until versities and numerous prizes, among them century helped Latin America experience the 1970s, the political pendulum swung the Martin Luther King Jr. Peace Award, the an economic bonanza, which translated on different occasions from dictatorial to Liberty Medal of Philadelphia, the Prince of into a reduction of unemployment, eco- democratic forms of government, even Asturias Award, and the Albert Schweitzer nomic growth, and increased life satisfac- though it was not until the 1980s that a Humanitarian Award. tion. However, many challenges persist, full transition took place in what Harvard and innovation is key to guarantee sustain- professor of political science Samuel Hun- able economic development with inclusive tington referred to as the “third wave of societies. democratization.”1 At the beginning, people’s reaction Introduction toward democracy was one of rejoicement. Since achieving their independence, Freedom, political participation, and full the Latin American and Caribbean na- recognition of human rights and human tions always aspired to install democracy dignity were achieved. There was a wide-

12 LATIN AMERICA POLICY JOURNAL spring 2014 13 COMMENTARIES Latin America

spread sense of support, hope, and social ment that had occurred. In other words, Satisfaction with Democracy change in the hemisphere. Organizations sustained economic growth together with that had been involved in armed revolu- increasing levels of prosperity led to the tionary struggles put down their arms and need for a democratic transition. integrated themselves with the democratic However, in Latin America, the transi- process to participate through the electoral tion emerged from other causes. The mili- system as the only legitimate way of attain- tary regimes’ disrespect for civil liberties ing power. and disregard for human rights, along with Nonetheless, this happened within a their inability to manage the economic cri- context of not only illegitimate military sis, helped to further destroy the political regimes but of deep economic and social legitimacy of the dictatorships, leading the crisis as well. Consequently, in its first way to the installment of elected civilian stage, the transition to democracy in Latin governments. America coincided with what has been labeled the “lost decade.” Washington Consensus In spite of its recognized achievements, In spite of the political feats of the the present and future of democracy in 1980s, due to the inheritance of misman- Latin America is not free of challenges. The aged economies, very little progress was region continues to be the most economi- achieved. The region’s high levels of exter- cally and socially unequal of the world. The nal debt, low growth, and high unemploy- Figure 1 — Satisfaction with Democracy in Latin America, 2000-2010. current global economic crisis has begun ment and inflation rates were difficult for to take a toll on these countries’ abilities the new elected governments to tackle, generating prosperity, and stimulating restore confidence and achieve major ad- to fulfill some of their populations’ needs, resulting in a loss of appeal and support of progress. vances in the consolidation of democracy. leading to disappointment with elected democracy from different sectors of society. The democratic governments’ inabil- According to Latinobarómetro, a governments and massive social protests. All this came as a result of different ity to address issues of poverty, inequal- well-recognized polling firm, in 2001, only Different social sectors are claiming factors, but most importantly, from the ity, weak public institutions, corruption, 25% of the region preferred democracy to that their leaders must focus on increasing end of the post–World War II economic criminality, and violence, as well as the any other form of government; and 41% the quality of education and encouraging development model, characterized by im- inefficient provision of basic public ser- expressed satisfaction with their lifestyle. innovation in order to guarantee develop- port substitution reforms, industrialization, vices, contributed to the “loss of faith” in While in 2010, 44% of those polled indicat- ment and prosperity.2 Such demands are and state-centric system that had prevailed democracy. At the time, it seemed that the ed their preference for democracy; whereas rapidly increasing and are at the center of until the 1970s. democratic honeymoon in Latin America 71% showed comfort with their quality of 5 the many protests that occurred in 2013 in In reaction to the shortcomings of the had come to an end. life (see Figures 1 and 2). countries like Brazil, Colombia, Mexico, previous economic and social paradigm, The same firm established that there The Latin American Decade and Chile. and in trying to overcome the lost decade, is also a high appreciation in the region of the Washington Consensus was introduced At the beginning of the twenty-first what democracy has brought in terms of Transition to Democracy in 1989 and further implemented dur- century, Latin America began a process, respect for human rights, free and fair elec- In Latin America, the transition to ing the first half of the 1990s. It sought to never experienced before, of sustained tions, freedom of the press, independence democracy occurred very differently from promote macroeconomic stability, free economic growth, increased foreign direct of the judiciary, the rule of law, and govern- other parts of the world. In other regions, trade, foreign investments, deregulation, investments, infrastructure development, ment accountability. this transition was preceded by a period of privatization, and the reduction of hyper- poverty alleviation, and social prosperity. This clearly indicates a shift in the sustained economic growth and social de- inflation, among others.3 Nevertheless, These successes, together with the impor- public’s perception toward democracy and velopment. For instance, in Asia, particu- the Washington Consensus lacked a social tant social policies that had been imple- social conditions, given the astonishing and larly in South Korea, economic and social policy and generated adverse effects on the mented in the region during the 2001-2010 positive changes that have materialized in development resulted in people’s claims for well-being of the majority of the countries’ period, are what Sir Martin Sorrell, CEO the majority of nations in the region. freedom and respect for human rights and populations. Once again, the economies of of WPP, referred to as the “Latin America The Chinese Factor dignity. the region failed to reach levels of sustained decade”‘ at the World Economic Forum 4 Democracy was therefore a byprod- economic growth that would enable them 2011. These changes helped not only to The Latin American decade, which uct of the economic and social develop- to meet the challenges of reducing poverty, improve the life of citizens, but also to has been a period of economic bonanza,

14 LATIN AMERICA POLICY JOURNAL spring 2014 15 COMMENTARIES Latin America spread sense of support, hope, and social ment that had occurred. In other words, Satisfaction with Democracy change in the hemisphere. Organizations sustained economic growth together with that had been involved in armed revolu- increasing levels of prosperity led to the tionary struggles put down their arms and need for a democratic transition. integrated themselves with the democratic However, in Latin America, the transi- process to participate through the electoral tion emerged from other causes. The mili- system as the only legitimate way of attain- tary regimes’ disrespect for civil liberties ing power. and disregard for human rights, along with Nonetheless, this happened within a their inability to manage the economic cri- context of not only illegitimate military sis, helped to further destroy the political regimes but of deep economic and social legitimacy of the dictatorships, leading the crisis as well. Consequently, in its first way to the installment of elected civilian stage, the transition to democracy in Latin governments. America coincided with what has been labeled the “lost decade.” Washington Consensus In spite of its recognized achievements, In spite of the political feats of the the present and future of democracy in 1980s, due to the inheritance of misman- Latin America is not free of challenges. The aged economies, very little progress was region continues to be the most economi- achieved. The region’s high levels of exter- cally and socially unequal of the world. The nal debt, low growth, and high unemploy- Figure 1 — Satisfaction with Democracy in Latin America, 2000-2010. current global economic crisis has begun ment and inflation rates were difficult for to take a toll on these countries’ abilities the new elected governments to tackle, generating prosperity, and stimulating restore confidence and achieve major ad- to fulfill some of their populations’ needs, resulting in a loss of appeal and support of progress. vances in the consolidation of democracy. leading to disappointment with elected democracy from different sectors of society. The democratic governments’ inabil- According to Latinobarómetro, a governments and massive social protests. All this came as a result of different ity to address issues of poverty, inequal- well-recognized polling firm, in 2001, only Different social sectors are claiming factors, but most importantly, from the ity, weak public institutions, corruption, 25% of the region preferred democracy to that their leaders must focus on increasing end of the post–World War II economic criminality, and violence, as well as the any other form of government; and 41% the quality of education and encouraging development model, characterized by im- inefficient provision of basic public ser- expressed satisfaction with their lifestyle. innovation in order to guarantee develop- port substitution reforms, industrialization, vices, contributed to the “loss of faith” in While in 2010, 44% of those polled indicat- ment and prosperity.2 Such demands are and state-centric system that had prevailed democracy. At the time, it seemed that the ed their preference for democracy; whereas rapidly increasing and are at the center of until the 1970s. democratic honeymoon in Latin America 71% showed comfort with their quality of 5 the many protests that occurred in 2013 in In reaction to the shortcomings of the had come to an end. life (see Figures 1 and 2). countries like Brazil, Colombia, Mexico, previous economic and social paradigm, The same firm established that there The Latin American Decade and Chile. and in trying to overcome the lost decade, is also a high appreciation in the region of the Washington Consensus was introduced At the beginning of the twenty-first what democracy has brought in terms of Transition to Democracy in 1989 and further implemented dur- century, Latin America began a process, respect for human rights, free and fair elec- In Latin America, the transition to ing the first half of the 1990s. It sought to never experienced before, of sustained tions, freedom of the press, independence democracy occurred very differently from promote macroeconomic stability, free economic growth, increased foreign direct of the judiciary, the rule of law, and govern- other parts of the world. In other regions, trade, foreign investments, deregulation, investments, infrastructure development, ment accountability. this transition was preceded by a period of privatization, and the reduction of hyper- poverty alleviation, and social prosperity. This clearly indicates a shift in the sustained economic growth and social de- inflation, among others.3 Nevertheless, These successes, together with the impor- public’s perception toward democracy and velopment. For instance, in Asia, particu- the Washington Consensus lacked a social tant social policies that had been imple- social conditions, given the astonishing and larly in South Korea, economic and social policy and generated adverse effects on the mented in the region during the 2001-2010 positive changes that have materialized in development resulted in people’s claims for well-being of the majority of the countries’ period, are what Sir Martin Sorrell, CEO the majority of nations in the region. freedom and respect for human rights and populations. Once again, the economies of of WPP, referred to as the “Latin America The Chinese Factor dignity. the region failed to reach levels of sustained decade”‘ at the World Economic Forum 4 Democracy was therefore a byprod- economic growth that would enable them 2011. These changes helped not only to The Latin American decade, which uct of the economic and social develop- to meet the challenges of reducing poverty, improve the life of citizens, but also to has been a period of economic bonanza,

14 LATIN AMERICA POLICY JOURNAL spring 2014 15 COMMENTARIES Latin America

Life Satisfaction in Latin America

Figure 3 — Economic Growth of Latin America and the Caribbean, 2000-2010.

Figure 2 — Life Satisfaction in Latin America, 2000-2010.

can best be explained by the commodities back in 2010 with an annual growth of 5.8 export boom, in which China, the second percent, while other developed countries largest economy in the world, has played and regions were still struggling, especially a pivotal role by increasing its world and the United States and the European Union regional demand for raw materials. (see Figure 3).7 This trend even continued during the Hence, China’s demand for primary unfolding of the global financial crisis in products and its enormous economic 2007-2008, and it has been only recently, growth has served as a locomotive for the as a result of China’s relative economic changes experienced in the region, espe- slowdown, that the Latin American region cially in countries like Argentina, Bolivia, has begun to feel the impact of a global Brazil, Chile, Colombia, Peru, Uruguay, economic downturn. and Venezuela, which are commodity pro- According to data from the World ducers. Consequently, these countries have Bank, by 2004 China was growing in seen improvements in their economies, double digits, reaching an astonishing 14.2 transformation of their infrastructures, percent in 2007. Even though it continued increases in their populations’ income, a to grow after the beginning of the global reduction of their jobless rates, mitigation financial crisis, the percentage decreased of poverty levels, and the upgrading of Figure 4 — Unemployment, Economic Growth, and GDP per Capita for Latin Ameri- 8 to approximately 8 percent, which eventu- general well-being (see Figure 4). can Countries, 2000-2011. ally led to the drop of their raw materials demand.6 Challenges to Democracy hundred years, since the declaration of the trends and achieve a historical low on The 2010 report by the Economic It has become clear that, due to the independence. its unemployment rates, with an average Commission for Latin America and the Ca- economic and social changes that occurred According to the 2012 Office of the of 6.5 percent, adding 35 million new jobs ribbean (ECLAC), Latin America and the in Latin America during the last decade, Chief Economist for Latin America and during the last decade.9 Caribbean in the World Economy, estab- an enormous and unprecedented trans- the Caribbean Region of the World Bank Although Latin America has made lished that after the economic contraction formation within a democratic setting has report, despite the current global economic great strides in favor of democracy—such of 2009, Latin America managed to bounce been accomplished for the first time in two climate, Latin America managed to break as the achievements of fundamental rights,

16 LATIN AMERICA POLICY JOURNAL spring 2014 17 COMMENTARIES Latin America

Life Satisfaction in Latin America

Figure 3 — Economic Growth of Latin America and the Caribbean, 2000-2010.

Figure 2 — Life Satisfaction in Latin America, 2000-2010. can best be explained by the commodities back in 2010 with an annual growth of 5.8 export boom, in which China, the second percent, while other developed countries largest economy in the world, has played and regions were still struggling, especially a pivotal role by increasing its world and the United States and the European Union regional demand for raw materials. (see Figure 3).7 This trend even continued during the Hence, China’s demand for primary unfolding of the global financial crisis in products and its enormous economic 2007-2008, and it has been only recently, growth has served as a locomotive for the as a result of China’s relative economic changes experienced in the region, espe- slowdown, that the Latin American region cially in countries like Argentina, Bolivia, has begun to feel the impact of a global Brazil, Chile, Colombia, Peru, Uruguay, economic downturn. and Venezuela, which are commodity pro- According to data from the World ducers. Consequently, these countries have Bank, by 2004 China was growing in seen improvements in their economies, double digits, reaching an astonishing 14.2 transformation of their infrastructures, percent in 2007. Even though it continued increases in their populations’ income, a to grow after the beginning of the global reduction of their jobless rates, mitigation financial crisis, the percentage decreased of poverty levels, and the upgrading of Figure 4 — Unemployment, Economic Growth, and GDP per Capita for Latin Ameri- 8 to approximately 8 percent, which eventu- general well-being (see Figure 4). can Countries, 2000-2011. ally led to the drop of their raw materials demand.6 Challenges to Democracy hundred years, since the declaration of the trends and achieve a historical low on The 2010 report by the Economic It has become clear that, due to the independence. its unemployment rates, with an average Commission for Latin America and the Ca- economic and social changes that occurred According to the 2012 Office of the of 6.5 percent, adding 35 million new jobs ribbean (ECLAC), Latin America and the in Latin America during the last decade, Chief Economist for Latin America and during the last decade.9 Caribbean in the World Economy, estab- an enormous and unprecedented trans- the Caribbean Region of the World Bank Although Latin America has made lished that after the economic contraction formation within a democratic setting has report, despite the current global economic great strides in favor of democracy—such of 2009, Latin America managed to bounce been accomplished for the first time in two climate, Latin America managed to break as the achievements of fundamental rights,

16 LATIN AMERICA POLICY JOURNAL spring 2014 17 COMMENTARIES Latin America

widespread election of civilian-based policies upheld by a deeper cooperation Circle, the Council of Freely Elected Heads governments, and establishment of a free and stronger partnership for development. of Government, Inter-American Dialogue, and independent press—many challenges and the Club of Madrid. Since 2000, he has remain. chaired the Executives Club USA-Caribbean, Unlike in Europe and the United organized by the Center for Strategic and States, where democracy endures alongside International Studies. Fernández is vice great wealth, in Latin America it has his- president of the Eminent Persons Group of torically coexisted with widespread poverty ACP Countries and a founding member of References

and inequality. According to ECLAC’s 2013 the Advisory Board of the Center for Latin 1 Leonel Fernández was Head of State Huntington, Samuel P. “Democracy’s Third Wave,” report, nearly 164 million people (27.9 of the Dominican Republic for three terms American Studies at Georgetown University. Journal of Democracy 2(2): 12-34, Spring 1991. percent of the population) live in poverty, (1996-2000, 2004-2012). In 1996, he became 2 Lederman, Daniel et al. Latin American En- of which 68 million live in extreme poverty the youngest democratically elected president (11.5 percent of the population). Crime trepreneurs: Many Firms but Little Innovation. of the Dominican Republic and the first from World Bank, 2014. and corruption continue to proliferate, the the Dominican Liberation Party, over which informal economy still prevails, and social 3 Williamson, John. A Short History of the 10 he currently presides. His administration protests have risen. focused on the modernization of the State, Washington Consensus. Paper commissioned institutional strengthening and transparen- by Fundación CIDOB for From the Washington The Future of Democracy in Latin Consensus Towards a New Global Governance America cy, public services, and economic and social development. Additionally, he is president of conference, Barcelona, Spain, 24-25 September With the consolidation of democrati- 2004. the Global Foundation for Democracy and cally elected governments in the region, Development (FUNGLODE). 4 people’s priorities shifted. The population Sorrell, Martin. World Economic Forum on From a young age, Fernández was at- Latin America: Laying the Foundation for Latin now believes that in a democracy, not only tracted to progressive ideas, which led him American Decade. Paper presented at the World will civil and political rights be protected, to work with Professor Juan Bosch, a former Economic Forum, Rio de Janeiro, Brazil. but a wider set of economic, social, and president and distinguished Dominican cultural rights should also be promoted. 5 Latinobarómetro. Annual Reports 2001, 2010, scholar, who became his guide and mentor. Therefore, there seems to be a correla- and 2013. He graduated with honors from law school tion between the level of support in favor of at the Autonomous University of Santo 6 World Bank. World Development Indicators, democracy as a political system and the ac- Domingo in 1978, where he later became 2000-2010. World Bank, 2010. complishment of major economic growth, a faculty member. He also taught several social development, poverty reduction, and 7 Economic Commission for Latin America and generations at the Latin American Social social mobility. This explains why in 2013, the Caribbean (ECLAC). Latin America and the Sciences Institute. 56 percent of the population pointed to de- Caribbean in the World Economy, 2009-2010. For his contributions to political science, mocracy as their ideal political system and ECLAC, December 2010. 11 he was honored with the title of Doctor Ho- 77 percent approved their quality of life. 8 noris Causa by several renowned universi- International Monetary Fund (IMF) Statistical What is at stake today in Latin ties, including La Sorbonne University, Uni- Database, 2000-2011. America is not the fear of a possible roll- versidad Nacional Pedro Henríquez Ureña, back to military dictatorships, but rather, 9 Office of the Chief Economist for the Latin Seton Hall University, the State University of how to guarantee sustainable economic America and Caribbean (LAC) Region of the Santiago de Chile, Lehman College, Stevens development, transparent and accountable World Bank. The Labor Market Story Behind Institute of Technology, Nova Southeastern democracies, a growing middle class, and Latin America’s Transformation. World Bank, University, the University of Massachusetts, October 2012. more cohesive and inclusive societies. the State University of Panama, Chinese The future of democracy in the region 10 Cultural University in Taiwan, and Hankuk ECLAC. Latin America and the Caribbean will depend upon our ability to overcome University in South Korea. in the World Economy: A Sluggish Postcrisis, these challenges. In order to achieve that, Mega Trade Negotiations and Value Chains: In addition to his local responsibilities, the region needs a new set of policies that Scope for Regional Action. ECLAC, 2013. Fernández is a member of various interna- is able to balance the role of the State with tional institutions, such as the Montevideo 11 Latinobarómetro. Annual Report 2013. that of the market and implement social

18 LATIN AMERICA POLICY JOURNAL spring 2014 19 COMMENTARIES Latin America widespread election of civilian-based policies upheld by a deeper cooperation Circle, the Council of Freely Elected Heads governments, and establishment of a free and stronger partnership for development. of Government, Inter-American Dialogue, and independent press—many challenges and the Club of Madrid. Since 2000, he has remain. chaired the Executives Club USA-Caribbean, Unlike in Europe and the United organized by the Center for Strategic and States, where democracy endures alongside International Studies. Fernández is vice great wealth, in Latin America it has his- president of the Eminent Persons Group of torically coexisted with widespread poverty ACP Countries and a founding member of References and inequality. According to ECLAC’s 2013 the Advisory Board of the Center for Latin 1 Leonel Fernández was Head of State Huntington, Samuel P. “Democracy’s Third Wave,” report, nearly 164 million people (27.9 of the Dominican Republic for three terms American Studies at Georgetown University. Journal of Democracy 2(2): 12-34, Spring 1991. percent of the population) live in poverty, (1996-2000, 2004-2012). In 1996, he became 2 Lederman, Daniel et al. Latin American En- of which 68 million live in extreme poverty the youngest democratically elected president (11.5 percent of the population). Crime trepreneurs: Many Firms but Little Innovation. of the Dominican Republic and the first from World Bank, 2014. and corruption continue to proliferate, the the Dominican Liberation Party, over which informal economy still prevails, and social 3 Williamson, John. A Short History of the 10 he currently presides. His administration protests have risen. focused on the modernization of the State, Washington Consensus. Paper commissioned institutional strengthening and transparen- by Fundación CIDOB for From the Washington The Future of Democracy in Latin Consensus Towards a New Global Governance America cy, public services, and economic and social development. Additionally, he is president of conference, Barcelona, Spain, 24-25 September With the consolidation of democrati- 2004. the Global Foundation for Democracy and cally elected governments in the region, Development (FUNGLODE). 4 people’s priorities shifted. The population Sorrell, Martin. World Economic Forum on From a young age, Fernández was at- Latin America: Laying the Foundation for Latin now believes that in a democracy, not only tracted to progressive ideas, which led him American Decade. Paper presented at the World will civil and political rights be protected, to work with Professor Juan Bosch, a former Economic Forum, Rio de Janeiro, Brazil. but a wider set of economic, social, and president and distinguished Dominican cultural rights should also be promoted. 5 Latinobarómetro. Annual Reports 2001, 2010, scholar, who became his guide and mentor. Therefore, there seems to be a correla- and 2013. He graduated with honors from law school tion between the level of support in favor of at the Autonomous University of Santo 6 World Bank. World Development Indicators, democracy as a political system and the ac- Domingo in 1978, where he later became 2000-2010. World Bank, 2010. complishment of major economic growth, a faculty member. He also taught several social development, poverty reduction, and 7 Economic Commission for Latin America and generations at the Latin American Social social mobility. This explains why in 2013, the Caribbean (ECLAC). Latin America and the Sciences Institute. 56 percent of the population pointed to de- Caribbean in the World Economy, 2009-2010. For his contributions to political science, mocracy as their ideal political system and ECLAC, December 2010. 11 he was honored with the title of Doctor Ho- 77 percent approved their quality of life. 8 noris Causa by several renowned universi- International Monetary Fund (IMF) Statistical What is at stake today in Latin ties, including La Sorbonne University, Uni- Database, 2000-2011. America is not the fear of a possible roll- versidad Nacional Pedro Henríquez Ureña, back to military dictatorships, but rather, 9 Office of the Chief Economist for the Latin Seton Hall University, the State University of how to guarantee sustainable economic America and Caribbean (LAC) Region of the Santiago de Chile, Lehman College, Stevens development, transparent and accountable World Bank. The Labor Market Story Behind Institute of Technology, Nova Southeastern democracies, a growing middle class, and Latin America’s Transformation. World Bank, University, the University of Massachusetts, October 2012. more cohesive and inclusive societies. the State University of Panama, Chinese The future of democracy in the region 10 Cultural University in Taiwan, and Hankuk ECLAC. Latin America and the Caribbean will depend upon our ability to overcome University in South Korea. in the World Economy: A Sluggish Postcrisis, these challenges. In order to achieve that, Mega Trade Negotiations and Value Chains: In addition to his local responsibilities, the region needs a new set of policies that Scope for Regional Action. ECLAC, 2013. Fernández is a member of various interna- is able to balance the role of the State with tional institutions, such as the Montevideo 11 Latinobarómetro. Annual Report 2013. that of the market and implement social

18 LATIN AMERICA POLICY JOURNAL spring 2014 19 COMMENTARIES In Memoriam

Risso Basombrio, former editor-in-chief of this journal, who passed away suddenly in December 2013. Mariana was born in Pata- Emilia González is a Chilean advocate gonia, Argentina, and took her vocation of for children's rights and inclusive develop- service first to medicine, as a psychiatrist, ment. She holds a master of public admin- and then to public policy, as chief of staff istration degree from the John F. Kennedy of the Ministry of Health of the City of School of Government at Harvard Univer- Buenos Aires. While at the Harvard Ken- sity, and a master’s degree in management nedy School, Mariana was characterized by science and a bachelor’s degree in business the strong personal ties she built with her management and economics, both from P. peers, but particularly by the deep connec- Universidad Católica de Chile. Combining tions she helped cultivate among others. her quantitative training with her passion She led projects that favored the integra- In Memoriam for a more just society, she has worked for tion of different cultures, always putting different nonprofits devoted to social devel- Mariana Filgueira Risso Basombrio the dreams of a better world at the center. opment in Chile, in fundraising and project Latin America and the reality of women in management roles. She currently works as the region occupied a special place in her Development Chief at Educación Fundación heart, and so she cofounded the League Chile, a “do tank” dedicated to the creation of Latin American Women at Harvard. BY EMILIA GONZÁLEZ of innovative educational practices that in- During 2013, the League hosted guests as crease equality in the Chilean school system. diverse as Valeria Mazza and Margarita Zavala de Calderón, showing how different yet how similar the efforts of women in the public sphere are across Latin America. IN THE LATE eighteenth and early struggle, we, Latin American women of the We want to honor Mariana’s ex- nineteenth centuries, a group of women twenty-first century, have before us a new ample, inviting all women in the region fiercely fought for the liberation of Latin task: the challenge of building a more just who dream of taking a leading role in the America; these women gave their lives with and integrated region. development of our countries to join Let's dignity and hope for a free and inde- This shared mission requires leaders Connect, an initiative that seeks to develop pendent region. From Javiera Carrera to who are able to trust one another past their women leaders in the region by fostering Policarpa Salavarrieta and Josefa Ortiz de differences, develop a common under- collaboration and support, both profes- Dominguez, women used their privileged standing of the complexities of the region, sional and personal. We need more women social position to advocate for their coun- learn from the shared experiences, and, like Mariana in the public arena, women tries’ self-determination. Although they above all, profess a genuine love for our with passion and determination, willing to are rarely mentioned in the official history, land and its people. It is the human dimen- follow the path set by our ancestors, eager their courage and bravery were fundamen- sion of the region where large development to become heroines of the twenty-first cen- tal during the struggle for independence. and collaboration projects thrive, and it is tury, ready to tackle the modern challenges Since then, the leadership of Latin in places like the John F. Kennedy School our region faces. Let’s Connect! American women has been exercised on of Government at Harvard University that new stages and has embraced new causes. we have a unique opportunity to grow in Facebook page: Four countries in the region are currently knowledge and humility while sharing our Let's Connect : A Tribute to Mariana led by women: Argentina, Brazil, Chile, dreams for a more just and prosperous Filgueira Risso and Costa Rica. The region has experi- Latin America. References enced a steady increase in female legisla- In this editorial, we remember with Twitter: @letsconnect4mfr tive representation, reaching an average love a woman who embodied all these at- 1 Gender Equality Observatory for Latin 23.2 percent1 in 2012, and female leaders tributes of these strong yet gentle women, American and the Caribbean. Annual Report play a growing role in civil society. Around as well as regional vision, passion, and 2012. A Look at Grants: Support and Burden for two hundred years after the independence generosity: our dear Mariana Filgueira Women. United Nations Publications, 2013.

20 LATIN AMERICA POLICY JOURNAL spring 2014 21 COMMENTARIES In Memoriam

20 LATIN AMERICA POLICY JOURNAL spring 2014 21 SIMILARLY TO OTHER emerging countries, Latin America has been growing at a considerably fast pace during the last years, partly as a consequence of the “commodity boom” and the high level of capital inflows to the region. In this context, poverty rates were reduced in almost every country, and, with a few exceptions, macroeconomic stability was maintained even during the world economic crisis of 2008-2009. Furthermore, although growth had the shorenstein center analyzes the power of media, in all its forms, and its not reached everyone at the same level, countries have been trying impact on public policy and politics. Through research, teaching, high‑profile events and to improve their social policies by taking advantage of the enhanced engagement, the Center plays a leading role in the discussion about media and politics in fiscal positions. the 21st century. Digital technology pushes the impact of the Center far beyond Cambridge. In this context, some crucial questions arise: Does this progress mean that the region has structurally changed? Is Latin America teaching. Faculty now in a sustainable, balanced growth path, or have we just passed members teach and through the ascending curve of the cycle? Moreover, have we been conduct research on able to translate growth into better and more efficient social poli- political communication, cies? This section aims to shed some light onto these issues, analyz- public opinion, new media ing regional trends and special cases. and the intersection of David Bullón and Francisco Monge describe and analyze the case press, politics and policy. of Costa Rica and its public policy–led introduction into the global value chain of production. Through active industrialization policies, the country strongly increased foreign direct investment (FDI) for students. The fellowships. productive greenfields and successfully diversified its production. In Center offers Kennedy Outstanding journalists another insightful article, Moisés Wasserman describes the situa- School students access to and scholars spend a tion of Colombia with regard to science and technology policies. internships, positions as semester at the Center The author shows how the country has lagged behind the region in research assistants, skills‑ researching and writing a terms of research and development and presents the new national based digital workshops paper, and participating policies designed to spur investment in science using resources and scholarships. in Harvard activities. derived from primary sectors, like mining. Michael Penfold also analyzes the idea of investing in innovative sectors; he explores public programs. whether the “new wave” of FDI into the region is focused on new Weekly events with ventures and linked to more dynamic industries, as opposed to the distinguished scholars huge FDI inflows of the 1990s, which were primarily directed to- and practitioners ward privatizations of utilities and other public companies. Santiago attract students, faculty Levy makes a thorough and precise assessment of the social policies and members of the implemented in Latin America beginning in the early 2000s. The community. author shows how the current social protection programs in the region sometimes amount a subsidy to informal employment, which explains the high level of informality in the region. He proposes an research. goldsmith awards Studies integrated reform, especially focused on changing the method of in political published online include financing social insurance, in order to avoid distortions in the labor journalism. research on collaboration The market. Finally, Miguel Ángel Santos and Ricardo Villasmil present Goldsmith Awards include in local investigative the case of Venezuela, arguing that the country has not matched the a prize for investigative reporting, and how economic, social, and institutional progress experienced elsewhere reporting, two book prizes women politicians use in the region. and a career award. social media.

Nicolas Ajzenman

shorensteincenter.org | @ShorensteinCtr DEVELOPMENT ECONOMIC Content Editor

22 LATIN AMERICA POLICY JOURNAL spring 2014 23 SIMILARLY TO OTHER emerging countries, Latin America has been growing at a considerably fast pace during the last years, partly as a consequence of the “commodity boom” and the high level of capital inflows to the region. In this context, poverty rates were reduced in almost every country, and, with a few exceptions, macroeconomic stability was maintained even during the world economic crisis of 2008-2009. Furthermore, although growth had the shorenstein center analyzes the power of media, in all its forms, and its not reached everyone at the same level, countries have been trying impact on public policy and politics. Through research, teaching, high‑profile events and to improve their social policies by taking advantage of the enhanced engagement, the Center plays a leading role in the discussion about media and politics in fiscal positions. the 21st century. Digital technology pushes the impact of the Center far beyond Cambridge. In this context, some crucial questions arise: Does this progress mean that the region has structurally changed? Is Latin America teaching. Faculty now in a sustainable, balanced growth path, or have we just passed members teach and through the ascending curve of the cycle? Moreover, have we been conduct research on able to translate growth into better and more efficient social poli- political communication, cies? This section aims to shed some light onto these issues, analyz- public opinion, new media ing regional trends and special cases. and the intersection of David Bullón and Francisco Monge describe and analyze the case press, politics and policy. of Costa Rica and its public policy–led introduction into the global value chain of production. Through active industrialization policies, the country strongly increased foreign direct investment (FDI) for students. The fellowships. productive greenfields and successfully diversified its production. In Center offers Kennedy Outstanding journalists another insightful article, Moisés Wasserman describes the situa- School students access to and scholars spend a tion of Colombia with regard to science and technology policies. internships, positions as semester at the Center The author shows how the country has lagged behind the region in research assistants, skills‑ researching and writing a terms of research and development and presents the new national based digital workshops paper, and participating policies designed to spur investment in science using resources and scholarships. in Harvard activities. derived from primary sectors, like mining. Michael Penfold also analyzes the idea of investing in innovative sectors; he explores public programs. whether the “new wave” of FDI into the region is focused on new Weekly events with ventures and linked to more dynamic industries, as opposed to the distinguished scholars huge FDI inflows of the 1990s, which were primarily directed to- and practitioners ward privatizations of utilities and other public companies. Santiago attract students, faculty Levy makes a thorough and precise assessment of the social policies and members of the implemented in Latin America beginning in the early 2000s. The community. author shows how the current social protection programs in the region sometimes amount a subsidy to informal employment, which explains the high level of informality in the region. He proposes an research. goldsmith awards Studies integrated reform, especially focused on changing the method of in political published online include financing social insurance, in order to avoid distortions in the labor journalism. research on collaboration The market. Finally, Miguel Ángel Santos and Ricardo Villasmil present Goldsmith Awards include in local investigative the case of Venezuela, arguing that the country has not matched the a prize for investigative reporting, and how economic, social, and institutional progress experienced elsewhere reporting, two book prizes women politicians use in the region. and a career award. social media.

Nicolas Ajzenman

shorensteincenter.org | @ShorensteinCtr DEVELOPMENT ECONOMIC Content Editor

22 LATIN AMERICA POLICY JOURNAL spring 2014 23 ECONOMIC DEVELOPMENT Is Social Policy in Latin America Heading in the Right Direction

ing in their human capital, in particular, More sharply, I argue that under the cur- their health, nutrition, and the education of rent architecture, the Region’s governments their children. The bet is that healthier and are caught in a dilemma between increased more educated youngsters will enter the productivity and faster growth on one labor market under better conditions than hand, and increased social spending on their elders, allowing them to earn more the other. And I argue that in the context income through their own efforts, break- of more democratic contests for political Is Social Policy in Latin ing the intergenerational transmission of power, governments will incline in the poverty. In short, rather than “transfers direction of higher social spending at the of income today and transfer of income cost of faster growth and, eventually, long- America Heading in the tomorrow,” the new paradigm emphasizes term fiscal sustainability. My main point, “transfers of income today to facilitate however, is that if this flaw is corrected—no greater earned income tomorrow.” minor matter—countries in the Region can Right Direction? Greater macroeconomic stability and make a qualitative jump in the direction of Beyond Conditional Cash Transfer Programs these new poverty programs, more com- reduced inequality, greater social inclusion, monly known as conditional cash transfer and faster growth. (CCT) programs, have allowed the Region to reduce the proportion of households Insurance Versus Retribution BY SANTIAGO LEVY living in extreme poverty and to lower Two dimensions of social policy need income inequality. Other forces have also to be separated. The first concerns objec- contributed, such as the expansion in cov- tives, and for our purposes here I distin- erage of primary education, potable water, guish between programs that provide social and electricity. But it is the combination of insurance and programs that redistribute faster growth and lower inflation associated income. The first help households man- Abstract in the direction of universal provision with with macroeconomic stability, along with age events like losing jobs (unemployment CONDITIONAL CASH transfer unified sources of finance. more effective transfer to the poor through insurance), getting sick (health insurance), (CCT) programs in Latin America have CCTs that has meant that, for the majority suffering an accident (disability insurance), been effective in reducing current poverty Introduction of the poor in LA, the present is better than or facing old-age poverty (retirement and improving human capital indicators, Over the last decade and a half, coun- the past. Equally important, the promise pensions). Social insurance programs are but they are far from a complete strategy to tries in Latin America (henceforth, LA that the future can be better than the pres- targeted to all households regardless of eliminate poverty. The segmentation of the or the Region) have by and large crafted ent is more credible now than in the past. their income level and their objective is to Region’s social insurance system as a result societal consensuses in favor of macroeco- I argue here that these notable achieve- protect households against risks. In most of the formal-informal dichotomy is a ma- nomic stability and have invested heavily in ments are insufficient to bring about member countries of the Organization jor obstacle for poor workers to find more policies and institutions necessary for that further and lasting gains in social welfare for Economic and Cooperative Develop- productive jobs. The recent expansion of stability. Seen from the prism of previous and that some trends in social policy are ment (OECD), these programs have broad social insurance programs for informal decades, this is a major achievement. worrisome and may be acting against the coverage, are a core component of their workers is enhancing distortions in the Over roughly the same period, these long-term interests of the poor. There is social policy, and absorb a significant labor market that already taxed formality countries also developed new programs to a deep flaw in the overall architecture of percentage of public spending. Programs to and reduced productivity. Trapping poor combat poverty. Beginning in Mexico in the Region’s social policy (“social policy” redistribute income, on the other hand, are workers in low-productivity informal jobs 1995, and in parallel in Brazil, a simple idea referring to a broader set of programs focused on a subset of households, usually will limit the returns to the investments in has taken hold: rather than transferring in- than those transferring income to the the poor; their objective is to increase their education effected by CCTs, and increasing come to the poor through price subsidies, poor through CCTs). This flaw is a major consumption. In OECD countries, these transfers through these programs to raise food stamps, or direct distribution of food- obstacle to reduce inequality further and to programs take various forms (food stamps, workers’ incomes may not serve the long- stuffs (milk, tortillas, bread), it is better to construct a more effective social safety net negative income taxes), but their coverage term interests of the poor. The core objec- transfer income directly in monetary form. that goes beyond the elementary goals of is more narrow and are substantially less tive needs to be creating more productive However, to ensure that such transfers are providing poor households with minimum onerous to the public purse. jobs, and this requires a revision of the not permanently needed, it is convenient to levels of consumption and facilitating their The second dimension relates to ac- architecture of social insurance programs condition them on poor households invest- investments in nutrition and education. cess. Since the origins of social insurance in

24 LATIN AMERICA POLICY JOURNAL spring 2014 25 ECONOMIC DEVELOPMENT Is Social Policy in Latin America Heading in the Right Direction

to compensate parents for the lost income Panama, Brazil, and Mexico. Argentina of having their children in school and not recently extended to informal workers fam- helping on the family farm or begging in ily allowances previously reserved only for the streets; however, larger transfers can formal workers. undermine households’ incentives to work, More programs will emerge, or exist- creating a “poverty trap.” Third, these ing ones strengthened, for three reasons. programs do not create jobs, although they First, increased life expectancy, population should help poor youngsters getting more aging, and previous histories of informal- education today find jobs with higher pro- ity imply that many workers are reaching ductivity when they enter the labor market retirement age with no pension. Second, tomorrow; the program’s exit door is a the transition from preventable to chronic more productive job. Differently put, CCTs degenerative diseases generates more are not meant to be permanent welfare, but expensive health challenges. The third is Figure 1 — Dimensions of Social Policy rather, temporary investments in the hu- of a different nature but equally relevant: man capital of the poor. in the Region’s more democratic environ- LA in the middle of the past century, access Redistribution with Investments in ments, governments rightly feel the need to has been limited to workers with a salaried Human Capital Two Systems of Social Insurance overcome the limitations of their “truncat- The majority of workers in Latin job (an inheritance, as it happens, from Perhaps the most important innova- ed welfare State” and extend social insur- America are informal and, by design, ex- Bismark’s first social insurance programs in tion in social policy in the Region over ance to the informal sector. Willy-nilly cluded from social insurance. This creates a Germany at the end of the nineteenth cen- the last fifteen years concerns the bottom and to various degrees across countries, major problem, because governments can- tury!). The reason is that these programs row of Figure 1. A myriad of programs a system of social insurance for informal not leave them unprotected against risks. are paid by firms, with contributions based to transfer income to poor households workers parallel to the existing one for As a result, and in addition to the CCT on workers’ wages. But many workers do through various means have been gradually formal workers is being created; a different programs described above, governments not have a salaried job because they work replaced by programs that give direct mon- phenomenon from CCTs, which, it is use- in the Region have been creating programs on their own; others are employed by firms etary transfers while imposing conditions ful to reiterate, are transitory programs to to provide social insurance to informal that evade these contributions. As a result, associated with attendance to school and enhance the human capital of the poor. workers. These programs have been less many are left without access to these pro- health clinics: LA’s flagship CCTs. Evalua- Having two parallel systems of social noted and are usually confused with CCTs, grams (“informal workers” in the Region’s tions of Mexico’s Progresa-Oportunidades, insurance is not a good idea. As noted, as they are all lumped together under the lingo). Anchoring social insurance on sala- Brazil’s Bolsa Familia, Colombia’s Familias programs for formal workers are paid with label of social safety nets (and, because they ried labor has resulted in Latin America’s en Acción, and similar undertakings in wage-based contributions. But because increase social spending, are applauded by “truncated welfare State”: formal workers Honduras, Nicaragua, the Dominican for a variety of reasons, workers and firms all, comme il faut). But the distinction is are covered, informal ones are not. This is a Republic, and Ecuador among others, consider that the programs’ costs exceed critical because their objectives are differ- key flaw, as it is evident that informal work- show that these programs have been more their benefits, they perceive them partly as ent (insurance versus redistribution), their ers can also get sick, lose their jobs, suffer effective than previous ones in reaching the a tax. The same happens with employment time horizon is different (permanent versus an accident, or face old-age poverty. poor and have had a positive effect on criti- protection rules (regulations that make it temporary), their target population is dif- Figure 1 depicts these two dimen- cal indicators like school attendance, grade very difficult or costly to fire workers), an ferent (informal versus poor), and, as noted sions. The rows classify workers by income progression, nutrition, and health status. important component of social insurance below, so are their economic implications. level: poor and nonpoor; the columns by They have also helped, indirectly, to reduce in a region where unemployment insur- In the early 2000s, a program to labor status: formal and informal. Note inequalities in the distribution of income. ance is the exception rather than the rule: provide free health insurance to informal that formal and informal is not equivalent Three things need to be noted about they create barriers to formal jobs that are workers was created in Mexico (although to nonpoor and poor. A large informal CCTs. First, all poor households benefit also equivalent to a tax on formality. On similar efforts started decades before); sector is a distinguishing feature of LA from them, regardless of whether their the other hand, even if informal workers in Colombia, there is a legal mandate to economies vis-à-vis those belonging to the workers hold formal or informal jobs. do not fully value the benefits of the social provide informal workers with the same OECD. Its social implications have already Second, the size of the income transfer, insurance programs at their disposal, they health benefits as formal ones (paid partly been noted, but the bottom of Figure 1 by itself, is not meant to raise households are free; moreover, in some cases, informal with taxes on formal workers). Programs to highlights a key economic one: on average, from poverty. The transfer complements workers lose access to their benefits if they provide income to retired workers without firms and workers are more productive in the household’s own income and is set to get a formal job. De facto, this setup results a pension have been created in Uruguay, the formal sector. provide some minimum consumption and in a tax on formal employment and a sub-

26 LATIN AMERICA POLICY JOURNAL spring 2014 27 ECONOMIC DEVELOPMENT Is Social Policy in Latin America Heading in the Right Direction

sidy to informal employment, a combina- standing problems in the labor market that provide social insurance for the poor may and a healthier and more educated labor tion that goes a long way in explaining the social insurance programs and employ- deepen the problem. A targeted program force. To reach that, LA needs to eliminate very large informal sectors observed in LA. ment regulations for formal workers had to invest in the human capital of the poor the tax on formality and the subsidy to How workers and firms react to these already created. cannot simultaneously provide them with informality and provide all workers with taxes and subsidies is of critical concern. social insurance conditioned upon their the same social insurance programs. Poor Consider the message to a firm: if it hires a Opening the Doors to Escape holding informal jobs, while at the same workers need, most of all, a more produc- salaried worker legally, it must pay for his Poverty time expect the poor to transit out of pov- tive job; they also need to benefit from health insurance, but if it does so illegally, Returning to Figure 1, the labor erty by finding higher-productivity formal unemployment, health, life, and disability the worker will get the insurance for free force in LA is divided between the four jobs. And if the poor’s earnings lag behind insurance, as well as retirement pensions (or subsidized). If the firm is small and quadrants. As a general proposition, the those of the rest of the population as a and related protection mechanisms enjoyed unlikely to be detected by the authorities— upper left and lower right quadrants are result of their lagging productivity, inequal- by other workers—not much different from the situation of the vast majority of firms more populated than the other two. This ity will increase and with it the temptation what currently occurs in OECD countries. in LA—the temptation to evade is large is exactly the opposite of what one would to reduce it by increasing transfers to the Reaching this is essential for genuine social indeed. Now consider the message to the expect, particularly in a region where more poor—focusing on the rows, not on the inclusion. Therefore, after ensuring that worker: if she is formally employed, she is than two-thirds of the total population is columns. CCTs reach all of the target population and obliged to save for her pension, but if she urban. Poor workers have low education LA has reasons to feel proud of the operate effectively, additional efforts need is informally employed, she will receive a and few financial resources; the expectation CCTs that it pioneered over a decade ago. to focus on raising the productivity of the free pension from the government. In the is that they would be salaried and therefore Mutatis mutandis, they are being replicated poor; this requires facilitating their getting end, the most important social institution formal. But if formal jobs are taxed and in other regions of the world, including a higher-productivity formal job. It is time in these countries, the labor market, is informal ones subsidized, this expectation the United States. In some countries, such for LA to move on and tackle new social strongly distorted. is unrealized; all the more so if, as it also as Colombia, Mexico, and Brazil, these challenges beyond those that can be solved None of this is good for productivity. happens in the Region, many social insur- programs provide benefits to around one- through CCTs. Informal firms tend to be small, underex- ance programs for informal workers are quarter of the total population, sometimes ploiting economies of scale, and engage targeted to poor workers. The point here exceeding the population estimated to be Conclusion little in labor training, technology adop- is that the distribution of the labor force in poverty; they need to grow no longer. Looking forward, a large challenge for tion, or innovation. Informal workers ped- between quadrants is not independent of In other countries, like Peru, Guatemala, social policy in LA is to focus on the root dle wares in the streets instead of learning the incentives implicit in social insurance and Paraguay, there is a need to expand causes of the formal-informal dichotomy. new skills in firms. It is also not good for programs including their form of financ- their coverage. In all, there is room to This requires revising regulations in the fiscal sustainability: a small formal sector ing, and that in some cases these programs improve their operations, focusing more, Region’s labor markets and the methods narrows the tax base while social insurance may be contributing to trap poor workers in particular, on early child development. of financing its social insurance programs; programs for informal workers increase in low-productivity informal jobs. These programs have already made a large more bluntly, tax and labor market reform. spending and erode the tax base. And it is More generally, the formal-informal contribution to poverty alleviation. To These issues, long unaddressed, are as clearly not good for the rule of law. dichotomy is a major stumbling block to continue to do so effectively, the programs difficult as they are urgent. In fact, one The economic shortcomings start with break the intergenerational transmission of need to focus sharply on their objectives can see the gradual emergence of social the original design of social insurance, poverty. As a result of the Region’s CCTs, to invest in the human capital of the poor; insurance programs for informal work- limited only to formal workers, funded in the years ahead, poor youngsters will they must resist the temptation to use them ers as a way of bypassing these issues—a through a tax on labor that creates costly enter the labor market with more human to respond to any circumstance, to be the bypassing facilitated perhaps in some cases distortions, and characterized by coun- capital than their earlier peers but they may only instrument to reduce poverty through by a favorable international environment terproductive employment regulations. not find more productive jobs. Differently ever-increasing transfers, or to transform characterized by high commodity prices But these shortcomings are compounded put, the exit doors from CCTs are being ob- them into hybrids with many goals, in the and associated revenue windfalls. This is by adding a parallel system for informal structed by the flaws in the Region’s social end reaching none, like the eagle that pur- understandable, but it is unlikely to be a workers. The social raison d’être for this insurance architecture. sues two rabbits at the same time. fiscally sustainable solution over the long addition is unquestionable; doing nothing Critically, note that the problem is in After reaching full coverage of those run and is a costly solution from the point to protect large segments of the labor force the columns of Figure 1, not in the rows. in need, the greatest triumph of LA’s CCTs of view of productivity and growth. It is from various risks is evidently unaccept- Thus, the problem cannot be solved by would be to gradually shrink and, in the also questionable whether this solution able. But that should not deny that from creating new CCTs or increasing transfers long run, be unneeded as extreme poverty strengthens social inclusion, as workers are the economic point of view, these programs in the existing ones. Moreover, attempts to is progressively eradicated from a region permanently segmented into formal and are aggravating, not mitigating, the long- reconvert or extend existing CCTs to also benefiting from macroeconomic stability informal categories, and whether a social

28 LATIN AMERICA POLICY JOURNAL spring 2014 29 ECONOMIC DEVELOPMENT Is Social Policy in Latin America Heading in the Right Direction sidy to informal employment, a combina- standing problems in the labor market that provide social insurance for the poor may and a healthier and more educated labor tion that goes a long way in explaining the social insurance programs and employ- deepen the problem. A targeted program force. To reach that, LA needs to eliminate very large informal sectors observed in LA. ment regulations for formal workers had to invest in the human capital of the poor the tax on formality and the subsidy to How workers and firms react to these already created. cannot simultaneously provide them with informality and provide all workers with taxes and subsidies is of critical concern. social insurance conditioned upon their the same social insurance programs. Poor Consider the message to a firm: if it hires a Opening the Doors to Escape holding informal jobs, while at the same workers need, most of all, a more produc- salaried worker legally, it must pay for his Poverty time expect the poor to transit out of pov- tive job; they also need to benefit from health insurance, but if it does so illegally, Returning to Figure 1, the labor erty by finding higher-productivity formal unemployment, health, life, and disability the worker will get the insurance for free force in LA is divided between the four jobs. And if the poor’s earnings lag behind insurance, as well as retirement pensions (or subsidized). If the firm is small and quadrants. As a general proposition, the those of the rest of the population as a and related protection mechanisms enjoyed unlikely to be detected by the authorities— upper left and lower right quadrants are result of their lagging productivity, inequal- by other workers—not much different from the situation of the vast majority of firms more populated than the other two. This ity will increase and with it the temptation what currently occurs in OECD countries. in LA—the temptation to evade is large is exactly the opposite of what one would to reduce it by increasing transfers to the Reaching this is essential for genuine social indeed. Now consider the message to the expect, particularly in a region where more poor—focusing on the rows, not on the inclusion. Therefore, after ensuring that worker: if she is formally employed, she is than two-thirds of the total population is columns. CCTs reach all of the target population and obliged to save for her pension, but if she urban. Poor workers have low education LA has reasons to feel proud of the operate effectively, additional efforts need is informally employed, she will receive a and few financial resources; the expectation CCTs that it pioneered over a decade ago. to focus on raising the productivity of the free pension from the government. In the is that they would be salaried and therefore Mutatis mutandis, they are being replicated poor; this requires facilitating their getting end, the most important social institution formal. But if formal jobs are taxed and in other regions of the world, including a higher-productivity formal job. It is time in these countries, the labor market, is informal ones subsidized, this expectation the United States. In some countries, such for LA to move on and tackle new social strongly distorted. is unrealized; all the more so if, as it also as Colombia, Mexico, and Brazil, these challenges beyond those that can be solved None of this is good for productivity. happens in the Region, many social insur- programs provide benefits to around one- through CCTs. Informal firms tend to be small, underex- ance programs for informal workers are quarter of the total population, sometimes ploiting economies of scale, and engage targeted to poor workers. The point here exceeding the population estimated to be Conclusion little in labor training, technology adop- is that the distribution of the labor force in poverty; they need to grow no longer. Looking forward, a large challenge for tion, or innovation. Informal workers ped- between quadrants is not independent of In other countries, like Peru, Guatemala, social policy in LA is to focus on the root dle wares in the streets instead of learning the incentives implicit in social insurance and Paraguay, there is a need to expand causes of the formal-informal dichotomy. new skills in firms. It is also not good for programs including their form of financ- their coverage. In all, there is room to This requires revising regulations in the fiscal sustainability: a small formal sector ing, and that in some cases these programs improve their operations, focusing more, Region’s labor markets and the methods narrows the tax base while social insurance may be contributing to trap poor workers in particular, on early child development. of financing its social insurance programs; programs for informal workers increase in low-productivity informal jobs. These programs have already made a large more bluntly, tax and labor market reform. spending and erode the tax base. And it is More generally, the formal-informal contribution to poverty alleviation. To These issues, long unaddressed, are as clearly not good for the rule of law. dichotomy is a major stumbling block to continue to do so effectively, the programs difficult as they are urgent. In fact, one The economic shortcomings start with break the intergenerational transmission of need to focus sharply on their objectives can see the gradual emergence of social the original design of social insurance, poverty. As a result of the Region’s CCTs, to invest in the human capital of the poor; insurance programs for informal work- limited only to formal workers, funded in the years ahead, poor youngsters will they must resist the temptation to use them ers as a way of bypassing these issues—a through a tax on labor that creates costly enter the labor market with more human to respond to any circumstance, to be the bypassing facilitated perhaps in some cases distortions, and characterized by coun- capital than their earlier peers but they may only instrument to reduce poverty through by a favorable international environment terproductive employment regulations. not find more productive jobs. Differently ever-increasing transfers, or to transform characterized by high commodity prices But these shortcomings are compounded put, the exit doors from CCTs are being ob- them into hybrids with many goals, in the and associated revenue windfalls. This is by adding a parallel system for informal structed by the flaws in the Region’s social end reaching none, like the eagle that pur- understandable, but it is unlikely to be a workers. The social raison d’être for this insurance architecture. sues two rabbits at the same time. fiscally sustainable solution over the long addition is unquestionable; doing nothing Critically, note that the problem is in After reaching full coverage of those run and is a costly solution from the point to protect large segments of the labor force the columns of Figure 1, not in the rows. in need, the greatest triumph of LA’s CCTs of view of productivity and growth. It is from various risks is evidently unaccept- Thus, the problem cannot be solved by would be to gradually shrink and, in the also questionable whether this solution able. But that should not deny that from creating new CCTs or increasing transfers long run, be unneeded as extreme poverty strengthens social inclusion, as workers are the economic point of view, these programs in the existing ones. Moreover, attempts to is progressively eradicated from a region permanently segmented into formal and are aggravating, not mitigating, the long- reconvert or extend existing CCTs to also benefiting from macroeconomic stability informal categories, and whether a social

28 LATIN AMERICA POLICY JOURNAL spring 2014 29 ECONOMIC DEVELOPMENT Science in Columbia

contract based on asymmetries in rights Santiago Levy is the Vice-President for and obligations across labor categories is Sectors and Knowledge at the Inter-Amer- politically desirable. ican Development Bank, and previously The technical difficulties in an inte- Chief Economist. grated reform of taxes and labor regula- Previously, he was General Director at tions are large, and reasonable people can the Mexican Social Security Institute (IMSS) have different views as how best to address from December 2000 to October 2005. them. But at this point, this is not central. From 1994 to 2000, Levy served as the What is central is to recognize that, given Deputy Minister at the Ministry of Finance where we are today, further lasting advanc- and Public Credit of Mexico, becoming the es in social policy in the Region can hardly main architect of the renowned social pro- be obtained if we continue along the route gram Progresa-Oportunidades that benefits of ever higher transfers for the poor, which the poor. distort the original intent of CCTs, on one He holds a Ph.D. in economics and a hand, and more taxes to formality and Masters in Political economy from Boston subsidies to informality, on the other. University. He was a post-doctoral fellow at Science in Colombia Tax and labor reforms will occur only Cambridge University. if there is a societal consensus for them, Mr. Levy has advised several govern- much the same as what happened with ments and international organizations and BY MOISÉS WASSERMAN macroeconomic stability. But there is a po- has held several teaching positions, including litical opportunity to construct this consen- faculty positions at the Instituto Tecnológico sus, noting that these reforms, rather than Autónomo of Mexico and Boston University, being ends in themselves, acquire meaning where he was Associate Professor and Direc- as building blocks for an ambitious social tor of the Institute for Economic Develop- reform; one, in particular, that resolves ment. Abstract ing. Such lag has a negative impact on the design flaws at the root of the Region’s He is the author of at least 80 articles, THIS ARTICLE presents a brief how the country will deal with free trade truncated welfare State, extends the same monographs and book chapters on such description of specific, discontinuous, and agreements recently signed with various social insurance to all and in particular diverse subjects as poverty reduction, com- discrete developments of science in Co- countries. the poor, and amplifies opportunities for petitiveness, foreign exchange policy, export lombia during its colonial period and early In 2011, the distribution of royalties productive jobs. This will provide a sound imbalances, pricing, microeconomics and days of the Republic. Starting in the second from mining activities was changed, and basis to effect a clearly desirable increase in energy. His paper Poverty in Mexico won the half of the twentieth century, scientific 10 percent of those monies were assigned social spending, without augmenting costly 1992 National Research Prize in Economics activity was institutionalized through the to science and technology. Such a change economic distortions, and will enhance the awarded by the Bank of Mexico. issuance of legislation in government agen- has generated great expectations, but also foundations of a lasting prosperity based His recent published books are: No cies, universities, and other centers. None- there is great fear that a regulation created on higher productivity. This will need tech- Growth without Equity? Inequality, Interests theless, there has been a divorce between a parallel system of science—a system too nical expertise and ideological agility but, and Competition in Mexico (edited with the official discourse and the actual facts. sensitive to local politics and short-term most of all, bold political leadership. The Michael Walton), Palgrave-Macmillan and Such divorce manifested in scarce fund- needs. Region faces a great opportunity. the World Bank, 2009; Good Intentions, ing, far from the government goals and the Bad Outcomes: Social Policy, Informality, general purposes in the region. Introduction The author’s opinions do not necessarily and Economic Growth in Mexico, Brookings Despite the lack of support, the sci- Science in Colombia had specific de- coincide with those of the institution he is Institution Press, 2008; Progress Against entific community grew, and the number velopments when it was a Spanish colony. affiliated with. Poverty: Sustaining Mexico’s Progresa-Opor- of scientific articles increased significantly The most important of them, the Botanical tunidades Program, Brookings Institution over the last fifty years, but at a slower rate Expedition, was also a seedbed for young Press, 2006; Sin Herencia de Pobreza, Edito- than in other countries in the region. There intellectuals who promoted the pro-inde- rial Planeta, 2005 (with Evelyne Rodríguez); is a weak relationship between university pendence and republican ideas. For more and Ensayos sobre el Desarrollo Económico research and the industry. The number of than a century, science was characterized y Social de México, Fondo de Cultura patents in Colombia is below the regional by small individual and isolated initiatives. Económica, Mexico, 2004. average, and innovation is recently emerg- By the mid–twentieth century, the institu-

30 LATIN AMERICA POLICY JOURNAL spring 2014 31 ECONOMIC DEVELOPMENT Science in Columbia contract based on asymmetries in rights Santiago Levy is the Vice-President for and obligations across labor categories is Sectors and Knowledge at the Inter-Amer- politically desirable. ican Development Bank, and previously The technical difficulties in an inte- Chief Economist. grated reform of taxes and labor regula- Previously, he was General Director at tions are large, and reasonable people can the Mexican Social Security Institute (IMSS) have different views as how best to address from December 2000 to October 2005. them. But at this point, this is not central. From 1994 to 2000, Levy served as the What is central is to recognize that, given Deputy Minister at the Ministry of Finance where we are today, further lasting advanc- and Public Credit of Mexico, becoming the es in social policy in the Region can hardly main architect of the renowned social pro- be obtained if we continue along the route gram Progresa-Oportunidades that benefits of ever higher transfers for the poor, which the poor. distort the original intent of CCTs, on one He holds a Ph.D. in economics and a hand, and more taxes to formality and Masters in Political economy from Boston subsidies to informality, on the other. University. He was a post-doctoral fellow at Science in Colombia Tax and labor reforms will occur only Cambridge University. if there is a societal consensus for them, Mr. Levy has advised several govern- much the same as what happened with ments and international organizations and BY MOISÉS WASSERMAN macroeconomic stability. But there is a po- has held several teaching positions, including litical opportunity to construct this consen- faculty positions at the Instituto Tecnológico sus, noting that these reforms, rather than Autónomo of Mexico and Boston University, being ends in themselves, acquire meaning where he was Associate Professor and Direc- as building blocks for an ambitious social tor of the Institute for Economic Develop- reform; one, in particular, that resolves ment. Abstract ing. Such lag has a negative impact on the design flaws at the root of the Region’s He is the author of at least 80 articles, THIS ARTICLE presents a brief how the country will deal with free trade truncated welfare State, extends the same monographs and book chapters on such description of specific, discontinuous, and agreements recently signed with various social insurance to all and in particular diverse subjects as poverty reduction, com- discrete developments of science in Co- countries. the poor, and amplifies opportunities for petitiveness, foreign exchange policy, export lombia during its colonial period and early In 2011, the distribution of royalties productive jobs. This will provide a sound imbalances, pricing, microeconomics and days of the Republic. Starting in the second from mining activities was changed, and basis to effect a clearly desirable increase in energy. His paper Poverty in Mexico won the half of the twentieth century, scientific 10 percent of those monies were assigned social spending, without augmenting costly 1992 National Research Prize in Economics activity was institutionalized through the to science and technology. Such a change economic distortions, and will enhance the awarded by the Bank of Mexico. issuance of legislation in government agen- has generated great expectations, but also foundations of a lasting prosperity based His recent published books are: No cies, universities, and other centers. None- there is great fear that a regulation created on higher productivity. This will need tech- Growth without Equity? Inequality, Interests theless, there has been a divorce between a parallel system of science—a system too nical expertise and ideological agility but, and Competition in Mexico (edited with the official discourse and the actual facts. sensitive to local politics and short-term most of all, bold political leadership. The Michael Walton), Palgrave-Macmillan and Such divorce manifested in scarce fund- needs. Region faces a great opportunity. the World Bank, 2009; Good Intentions, ing, far from the government goals and the Bad Outcomes: Social Policy, Informality, general purposes in the region. Introduction The author’s opinions do not necessarily and Economic Growth in Mexico, Brookings Despite the lack of support, the sci- Science in Colombia had specific de- coincide with those of the institution he is Institution Press, 2008; Progress Against entific community grew, and the number velopments when it was a Spanish colony. affiliated with. Poverty: Sustaining Mexico’s Progresa-Opor- of scientific articles increased significantly The most important of them, the Botanical tunidades Program, Brookings Institution over the last fifty years, but at a slower rate Expedition, was also a seedbed for young Press, 2006; Sin Herencia de Pobreza, Edito- than in other countries in the region. There intellectuals who promoted the pro-inde- rial Planeta, 2005 (with Evelyne Rodríguez); is a weak relationship between university pendence and republican ideas. For more and Ensayos sobre el Desarrollo Económico research and the industry. The number of than a century, science was characterized y Social de México, Fondo de Cultura patents in Colombia is below the regional by small individual and isolated initiatives. Económica, Mexico, 2004. average, and innovation is recently emerg- By the mid–twentieth century, the institu-

30 LATIN AMERICA POLICY JOURNAL spring 2014 31 ECONOMIC DEVELOPMENT Science in Columbia

tionalization of science as an activity was stand previous developments as well as the seemed to be a premonition of what was leged class, without thinking that science is undertaken and promoted in a professional current situation. to come during most of the republican life, like a river, which subjugates all obstacles, and organized fashion at institutes and As mentioned earlier, during the Span- not only in Colombia but also in the entire constantly growing and spreading fertility universities. The most important mile- ish colony, the most important scientific Latin American continent. and life through its course." stones in the process of institutionalization achievement was the Botanical Expedi- In the early Republic, General Fran- were the formation of Colciencias as the tion. The expedition was entrusted to the cisco de Paula Santander, as vice president, The Institutionalization of Science principal institute; the organization of a priest José Celestino Mutis by Carlos III. founded the Central University in Bogota, During the first half of the twentieth very inclusive National System of Science, His purpose was to improve the economy Caracas, and Quito. He also built a Nation- century, incipient institutions began to Technology and Innovation; and the issu- of the kingdom and the vice kingdom by al Library, a Museum of Natural History, appear, mostly personal initiatives in the ance of two legislations accompanied by surveying useful plants, but there were and the School of Mining. Such initiatives fields of health, agriculture, and mining their respective regulations. multiple collateral results. There are differ- were short lived and not in the context and geology. There were also some more The importance of science as a factor ent views about Mutis’s personality, which of the Botanical Expedition. In addition, general institutions, such as the Academy of economic, social, and cultural develop- are complex and contradictory. He was a the scientists and heroes involved in these for the Exact, Physical and Natural Sci- ment was included in the political dis- physician, but chose to teach physics and efforts were not recognized. In the second ences, at the initiative of the government course but not reflected in political action, mathematics. He also promoted scientific half of the nineteenth century, two impor- and some private professional unions. But evidenced by the low investment indica- thinking based on methodological doubt tant initiatives stand out: the creation of the one can say that until the mid–twentieth tors. The investment in research and devel- and promoted research-based education in National University and the Chorographic century, there was no policy in Colombia opment (R&D) was less than 0.2 percent the traditional scholastic system. He was Commission. The latter was conceived as a for the support of science, and its institu- of the gross domestic product (GDP), and a monarchist, but encouraged a group of mission to explore the country, practically tionalization was very weak. the investment in STIA (scientific, techno- native intellectual revolutionaries. proposing its rediscovery: a survey and in- In 1968, during the administration logical, and innovation activities), which More than 20,000 plant and 7,000 ani- ventory of its physical and human resourc- of President Carlos Lleras Restrepo, a sig- includes activities related to science but not mal species were surveyed, and an astro- es, in addition to cartography, which would nificant effort was made to institutionalize strictly research, was only 0.47 percent of nomical observatory was created. That was facilitate development. A divorce between science. Major national institutes in various the GDP. National competitiveness indica- the starting point of Colombian science, the discourse and the facts was evident areas of knowledge were established. Vari- tors are poor, largely due to weak scientific but in fact it was the dissemination of Eu- from the start. The resources allocated to ous initiatives previously mentioned con- development. In spite of it, the scientific ropean science, rather than the generation these efforts were always insufficient. The verged in these institutions. Examples of community has grown dramatically, be- of the country’s own scientific knowledge. Commission lasted only nine years and was these efforts include the National Institute tween 300 percent and 600 percent over the The collection generated by the Botanical suspended once immediate results were of Health in which multiple interests flour- past twenty years. Expedition was brought to Spain. obtained; it was never conceived as a long- ished, such as control of yellow fever, vac- Recently, Congress amended the The consolidation of a group of young term knowledge enterprise. cine manufacturing, and special programs Constitution to allocate 10 percent of the people—full of scientific and libertarian Colombia did not have a true scientific for epidemiological surveillance. Similar mining royalties to science and technology ideas and who promoted independence development policy. Actions changed from efforts were undertaken in agriculture with projects. The injection of funds generates and the republic—was an important side government to government, which caused the Instituto Colombiano Agropecuario great expectations and hopes, but also effect of the expedition. Mutis’s collabora- a chronic lack of institutionalization of (ICA); in geosciences, chemistry, and min- some fears because a new management and tors began to forge independence and a science and higher education. One example ing with INGEOMINAS; in geography and administration mechanism, parallel to the new republic. Unfortunately, almost all of was the Military College, which oscillated planning with the Geographic Institute; National System of Science, Technology them were shot during the campaign un- between an emphasis on training military and so on. However, the most significant and Innovation, has been created. The fear dertaken by the Spanish Crown to subdue engineers and civil engineers. This institu- initiative of institutionalization was the is that the new mechanism may become the revolution. If that group had survived, tion was founded and closed three times in creation of Colciencias, a blend between contaminated by strange and short-term- the role of science and education in the a few years. The only institution that had promotion and funding for the sciences. oriented handling, not in line with the context of the new republic would have stability—possibly because of its directives, These and other similar developments processes established in the scientific com- been different. which defended the need for science in the demonstrated that the need for scientific munity. It is said that when leniency was development of the country—was the Na- research was a government concern. In requested for Francisco José de Caldas, tional University. This position is evident fact, the entire region began to move in a Historical Background one of those remarkable young people, the in the following quotation from its sec- parallel direction due to policies promoted I begin with a brief account of scien- commander of the Spanish Army respond- ond chancellor, Antonio Vargas Vega: “an by multilateral agencies. Through similar tific activity in Colombia. The knowledge ed that “Spain does not need wise men, argument has been made to point out that efforts, agencies dedicated to sciences were of some historical facts will help under- but rather good subjects.” That statement college education is the legacy of a privi- created in other countries, such as the

32 LATIN AMERICA POLICY JOURNAL spring 2014 33 ECONOMIC DEVELOPMENT Science in Columbia tionalization of science as an activity was stand previous developments as well as the seemed to be a premonition of what was leged class, without thinking that science is undertaken and promoted in a professional current situation. to come during most of the republican life, like a river, which subjugates all obstacles, and organized fashion at institutes and As mentioned earlier, during the Span- not only in Colombia but also in the entire constantly growing and spreading fertility universities. The most important mile- ish colony, the most important scientific Latin American continent. and life through its course." stones in the process of institutionalization achievement was the Botanical Expedi- In the early Republic, General Fran- were the formation of Colciencias as the tion. The expedition was entrusted to the cisco de Paula Santander, as vice president, The Institutionalization of Science principal institute; the organization of a priest José Celestino Mutis by Carlos III. founded the Central University in Bogota, During the first half of the twentieth very inclusive National System of Science, His purpose was to improve the economy Caracas, and Quito. He also built a Nation- century, incipient institutions began to Technology and Innovation; and the issu- of the kingdom and the vice kingdom by al Library, a Museum of Natural History, appear, mostly personal initiatives in the ance of two legislations accompanied by surveying useful plants, but there were and the School of Mining. Such initiatives fields of health, agriculture, and mining their respective regulations. multiple collateral results. There are differ- were short lived and not in the context and geology. There were also some more The importance of science as a factor ent views about Mutis’s personality, which of the Botanical Expedition. In addition, general institutions, such as the Academy of economic, social, and cultural develop- are complex and contradictory. He was a the scientists and heroes involved in these for the Exact, Physical and Natural Sci- ment was included in the political dis- physician, but chose to teach physics and efforts were not recognized. In the second ences, at the initiative of the government course but not reflected in political action, mathematics. He also promoted scientific half of the nineteenth century, two impor- and some private professional unions. But evidenced by the low investment indica- thinking based on methodological doubt tant initiatives stand out: the creation of the one can say that until the mid–twentieth tors. The investment in research and devel- and promoted research-based education in National University and the Chorographic century, there was no policy in Colombia opment (R&D) was less than 0.2 percent the traditional scholastic system. He was Commission. The latter was conceived as a for the support of science, and its institu- of the gross domestic product (GDP), and a monarchist, but encouraged a group of mission to explore the country, practically tionalization was very weak. the investment in STIA (scientific, techno- native intellectual revolutionaries. proposing its rediscovery: a survey and in- In 1968, during the administration logical, and innovation activities), which More than 20,000 plant and 7,000 ani- ventory of its physical and human resourc- of President Carlos Lleras Restrepo, a sig- includes activities related to science but not mal species were surveyed, and an astro- es, in addition to cartography, which would nificant effort was made to institutionalize strictly research, was only 0.47 percent of nomical observatory was created. That was facilitate development. A divorce between science. Major national institutes in various the GDP. National competitiveness indica- the starting point of Colombian science, the discourse and the facts was evident areas of knowledge were established. Vari- tors are poor, largely due to weak scientific but in fact it was the dissemination of Eu- from the start. The resources allocated to ous initiatives previously mentioned con- development. In spite of it, the scientific ropean science, rather than the generation these efforts were always insufficient. The verged in these institutions. Examples of community has grown dramatically, be- of the country’s own scientific knowledge. Commission lasted only nine years and was these efforts include the National Institute tween 300 percent and 600 percent over the The collection generated by the Botanical suspended once immediate results were of Health in which multiple interests flour- past twenty years. Expedition was brought to Spain. obtained; it was never conceived as a long- ished, such as control of yellow fever, vac- Recently, Congress amended the The consolidation of a group of young term knowledge enterprise. cine manufacturing, and special programs Constitution to allocate 10 percent of the people—full of scientific and libertarian Colombia did not have a true scientific for epidemiological surveillance. Similar mining royalties to science and technology ideas and who promoted independence development policy. Actions changed from efforts were undertaken in agriculture with projects. The injection of funds generates and the republic—was an important side government to government, which caused the Instituto Colombiano Agropecuario great expectations and hopes, but also effect of the expedition. Mutis’s collabora- a chronic lack of institutionalization of (ICA); in geosciences, chemistry, and min- some fears because a new management and tors began to forge independence and a science and higher education. One example ing with INGEOMINAS; in geography and administration mechanism, parallel to the new republic. Unfortunately, almost all of was the Military College, which oscillated planning with the Geographic Institute; National System of Science, Technology them were shot during the campaign un- between an emphasis on training military and so on. However, the most significant and Innovation, has been created. The fear dertaken by the Spanish Crown to subdue engineers and civil engineers. This institu- initiative of institutionalization was the is that the new mechanism may become the revolution. If that group had survived, tion was founded and closed three times in creation of Colciencias, a blend between contaminated by strange and short-term- the role of science and education in the a few years. The only institution that had promotion and funding for the sciences. oriented handling, not in line with the context of the new republic would have stability—possibly because of its directives, These and other similar developments processes established in the scientific com- been different. which defended the need for science in the demonstrated that the need for scientific munity. It is said that when leniency was development of the country—was the Na- research was a government concern. In requested for Francisco José de Caldas, tional University. This position is evident fact, the entire region began to move in a Historical Background one of those remarkable young people, the in the following quotation from its sec- parallel direction due to policies promoted I begin with a brief account of scien- commander of the Spanish Army respond- ond chancellor, Antonio Vargas Vega: “an by multilateral agencies. Through similar tific activity in Colombia. The knowledge ed that “Spain does not need wise men, argument has been made to point out that efforts, agencies dedicated to sciences were of some historical facts will help under- but rather good subjects.” That statement college education is the legacy of a privi- created in other countries, such as the

32 LATIN AMERICA POLICY JOURNAL spring 2014 33 ECONOMIC DEVELOPMENT Science in Columbia

Figure 1 — Investment in one that includes activities that these coun- in local developments. There is also a tra- Science as Percentage of tries report as investment in education and ditional cultural barrier: the private sector Gross Domestic Product. industrial or infrastructure projects) gives feels that research is too academic and not the impression of greater investment, and directed to answer their problems. Re- Source: Data from the Observatorio it aims, somehow, to justify the precarious- searchers think that the private sector has Colombiano de Ciencia y Tecnología. R&D figures correspond to interna- ness of true scientific development efforts. no real interest in original developments, tionally accepted indicators as used by Thus, we are far from the goals established but rather in discrete solutions or improve- the Organization for Economic and by the Latin American presidents in Punta ments in production lines. No doubt the Cooperative Development (OECD). del Este in 1967 and far from the invest- free trade agreements will push for greater STIA corresponds to additional indicators that include activities related to ment indicators of the leading countries of interaction between the two sectors. research such as consulting, doctoral the region, who invest little in science as The OECD report on Colombian in- training and others. well. Only Brazil has exceeded 1 percent of novation reinforces the previous findings its GDP. Mexico, Argentina, and Chile, who in the following words: “The Colombia Conselho Nacional de Desenvolvimento second, the Mission for Science, Education, do not invest like Brazil, triple the Colom- innovation system is still small and lacks a Científico e Tecnológico (CNPq) in Brazil and Development—known as "The Mis- bian indicator. strong business support. R&D is only 0.2 (1951), the Consejo Nacional de Investiga- sion of the Ten Wise Men"—gave precise The OCyT report shows that the share percent of GDP, while in Brazil [it?] is 1.2 ciones Científicas y Tecnicas (CONICET) recommendations for the construction of of industry in funding for 2012 is less than percent, and OECD’s is 2.4 percent. Other in Argentina (1958), the Comisión Nacio- science policy in the country. 40 percent of the total (STIA), despite calls measures of innovation such as patenting nal de Investigación Científica y Tecnológi- The Situation Today and initiatives to involve the private sector. and scientific publications per capita situate ca (CONICYT) in Chile (1967), El Consejo The number of patents approved for Co- Colombia behind some of its neighbors Unfortunately, one of the major Nacional de Investigaciones Científicas lombian residents according to the Inter- such as Brazil, Chile, and Argentina. One features of the development of science in y Tecnológicas (CONICIT) in Venezuela national Patent Treaty during 2012 is fewer can learn a lot from other emerging econo- Colombia has been the distance between (1967), and the Consejo Nacional de Cien- than ten. The patents approved for Colom- mies that are major players in the global in- political discourse and the facts. The politi- cia y Tecnología (CONACYT) in Mexico bian nationals goes up to 30; on the other novation.” The Colombian government has cal discourse universally recognizes the im- (1970). The Declaration of the Presidents hand, international patents approved in applied for membership to the OECD, but portance of knowledge and the role that it of America in Punta del Este in April 1967 the country are above six hundred. Those their indicators of science and technology plays in the generation of economic, social, raised the need to increase investment in numbers reinforce the perception of a poor and educational attainment are bad. That, and cultural development. The facts, on the science, from 0.2 percent of GDP to 1 or relation between research groups (which again, reflects the clear separation between other hand, show a lack of concrete actions 1.5 percent. are 90 percent university) and private sec- political discourse and facts. and lack of decision making, especially to Colciencias dramatically changed the tor. Such low rates are due possibly because Despite the above, the activity in adequately fund research. scientific activity of the country. For the the Colombian industry in general is not science and technology in Colombia has Figure 1, taken from the 2012 report of first time, the government formed a body innovative and prefers to import tech- grown significantly in recent years. Figures the Observatorio Colombiano de Ciencia to promote and fund sciences. While fund- nologies, including some already outdated 2 and 3, constructed with data from the y Tecnología (OCyT), shows how investing has been discontinuous and chronically rather than risking a substantial investment Observatorio Colombiano de Ciencia y insufficient, Colciencias has remained over ment has not grown relative to GDP in the time and has organized a national policy. last ten years. The observatory presents Science also received strong support with two data series: one named investment in two pieces of legislation: Act 29 of 1990 and R&D, which uses the same indicators as the Act 1286 of 2009, which regulated the ac- Organization for Economic and Coopera- Figure 2 — Active tivity and set mechanisms to stimulate and tive Development (OECD) and does not Researchers. develop it. In addition, these laws defined exceed 0.2 percent of GDP; and another a functional national system, with great one, approaching 0.5 percent of GDP, is Source: Data comes from the programs and a structure that supports named STIA (scientific, technological, and Observatorio Colombiano de innovation activities) and includes factors Ciencia y Tecnología. Defined broad participation, resource allocation, as active researchers who have and tracking of achievements. such as industrial and feasibility stud- created some form of scientific Two national missions of high aca- ies and training activities. The use of two output (publications, patents, demic level were organized to analyze the different indicators (one standard measure and others) over the past two years. development of science in the country. The used by developed countries and a second

34 LATIN AMERICA POLICY JOURNAL spring 2014 35 ECONOMIC DEVELOPMENT Science in Columbia

Figure 3 — Number of country to fund science. Congress issued innovation to being the technical secre- Indexed Publications. the Legislative Act 5 (an amendment to tariat of a committee, which even though it the Constitution) by which the distribu- has participation from academia, it also has Source: Data comes from the Ob- tion of royalties from mining activity was assured majority for the government. The servatorio Colombiano de Ciencia reformed and 10 percent of it was awarded decision-making body has a fundamentally y Tecnología as publications reported in the Scopus, ISI, and to science and technology projects with political composition with three votes: one other internationally recognized regional impact. This is a significant sum from the national government, one from database systems. that could increase the indicator of STIA to the department, and one from "academia." 0.7 percent or 0.8 percent of GDP. This parallel system generated for project Act 5 is cause for optimism in the approval, excludes national disciplinary Colombian scientific community. However, and sector programs that are established there are serious concerns about how the after the issuance of the science and tech- implementation of these resources was nology laws on wide consultations with regulated. Instead of financing the agreed the academic community. Such academic Tecnología, show the growing number of considered. While factors specific to the policies and capitalizing the fund created community, although it should not have researchers and scientific publications. country's economic potential rank in better by the 2009 Act, that 10 percent royalty "established rights" on the national science This is perhaps the most remarkable fact in position—market size, 31; macroeconomic established a new policy that was not and technology plan, does provide an Colombian science in the last twenty years. environment, 34—those dependent on designed based on studies, knowledge, or excellent sensor of national needs and has The scientific community and the poten- efforts in science and education rank far previous plans. It emerged from the con- knowledge of global developments needed tial for national research have both grown worse—technological readiness, 80; inno- ciliation of political interests in Congress, to solve them. dramatically in parallel with the growth in vation, 70; and quality of institutions, 109. especially the House of Representatives in The governors have, in this new high-level graduate programs, especially In contrast, regional leaders present better which its members are elected regionally system, the veto power in the approval doctoral degrees. Concerning, however, results; for example, Brazil ranks 48 overall and defend very local political interests. process and can also exert a pre-filter of is the fact that in the last three years the and 49 in innovation, Chile ranks 33 over- Such resources were distributed at the relevance. This pre-filter ensures the coher- number of active researchers has stagnated all and 44 in innovation, and Mexico ranks departmental level and based on “unmet ence of the project with the management and even declined. 53 overall and 56 in innovation. Some basic needs.” It is unusual that a scientific program, which has a maximum horizon Possibly, this is happening because much smaller countries have had good plan is based on those needs. While science of four years (to prevent the cancellation with an increase of the research groups also performance as well: Panama ranks 40 and brings long-term improvement of living of projects in the event of a change in increased the number of projects submitted Costa Rica ranks 57 overall. Also countries conditions, it isn’t its mandate to build aq- governor). The aim of the system is to sup- for funding at Colciencias. Unfortunately, whose regimes do not put priority on re- ueducts or basic health services. There is no port regionalization, but it does not have the growth of its budget is not proportional search occupy low positions, most notably reason to base science policy on the same a well-grounded plan. The system was not to the growth of applicants; therefore a Venezuela, which ranks 126. Although this parameters in which an equality policy is conceived as a great national project, but smaller percentage of the projects get is only an indirect indicator assembled of based. This dependence of funding based rather as a fragmented set of local projects. funded. In the last term, fewer than 2.5 various components, there appears to be a on poor local conditions predicts on one From the projects approved so far, percent of projects submitted were funded. correlation between persistent and aggres- hand that the largest investment will be is very difficult to see the full picture of a Surprisingly, this fact apparently did not sive scientific research policies and the made in areas where there is less capac- departmental plan, let alone a regional or generate concern amongst the highest lev- degree of economic global competitiveness. ity in technological applications to solve national one. Projects that would result els of Colombian science, and no measures immediate problems. On the other hand, from careful analysis of the indicators, such to counter such negative trends have been Royalties for Science: A New Era? there will be no resources to fund broader as the strengthening of research groups, the announced. Among the Colombian efforts to in- projects with national scope and long-term repatriation of brain drain, the strengthen- Notwithstanding the growth in human stitutionalize science, there are two special impact. In addition, a system for approval ing of doctoral programs, and the financ- capacity and scientific publications, low pieces of legislation, which gave science a and management of projects was created in ing of a greater number of projects and investment levels produce an economic boost but lacked something very impor- parallel to the National System of Science, initiatives (underfunded in the regular competitiveness inferior to that of other tant: an ensured and constant funding Technology and Innovation, a fact that budget), among others are not possible. It is countries with similar population size. source for programs and projects. A special affects the existing institution of science in very difficult for researchers to access funds In the Global Competitiveness Report fund was created with the 2009 Act, but several ways. from royalties, if not through an open bid. from the World Economic Forum (WEF), it was a fund with no resources. The year Colciencias went from being the Because of this approval mechanism, they Colombia ranks 69 among 144 countries 2011 saw what could have possibly been the most daring event in the history of the governing body of science, technology, and see themselves forced to solicit mediation

36 LATIN AMERICA POLICY JOURNAL spring 2014 37 ECONOMIC DEVELOPMENT Science in Columbia

and lobbying mechanisms alien to their References 15 Organization for Economic and Cooperative Devel- training and academic ethos. opment (OECD). “Colombia,” in Estudios de la OCDE 1 Liévano Aguirre, Indalecio. Los Grandes Conflictos de las Políticas de Innovación. OECD/International In addition, investment in projects ap- Sociales y Económicos de Nuestra Historia. Imprenta Bank for Reconstruction and Development/World proved so far, focuses more on STIA rather Nacional de Colombia, Biblioteca Luis Ángel Arango, Bank, 2013. than R&D. In some cases, the projects are 1996. Moises Wasserman is a chemist and 16 only tangentially science and technology, Schwab, Klaus. The Global Competitiveness Report professor emeritus in the Faculty of Sciences 2 Arboleda, Luis Carlos. Historia Social de la Ciencia 2012–2013. World Economic Forum, 2012. which in addition to being inefficient for at Colombia's Universidad Nacional, where en Colombia. Tomo III. Historia Natural y Ciencias scientific development; they generate con- he served as dean of the faculty from 2004 Agropecuarias. (Segunda Parte) Colciencias, 1993; fusion for the indicators. and 2006 and president between 2006 and Poveda Ramos, Gabriel. Historia Social de la Ciencia In short, a system for submitting and en Colombia. Tomo V. Ingeniería e Historia de las 2012. He has taught at the university for Técnicas. Colciencias, 1993. managing projects has been generated, thirty-three years. one that is completely foreign to the usual Wasserman was the General Director of 3 Restrepo, Olga. “Primera Parte Naturalistas, Saber y mechanisms of science management. the Colombian National Institute of Health Sociedad en Colombia,” in Historia Social de la Cien- Also, new entities with complex personnel cia en Colombia, Tomo III Historia Natural y Ciencia between 1995 and 1998, where he was the Agropecuarias. Colciencias, 1993. management were created, causing on one head of the Biochemistry Laboratory and a hand, the growth of bureaucracy and on researcher for fifteen years. He was president 4 Restrepo, “Primera Parte Naturalistas.”; Wasser- the other, the dilution of human capital in of the Colombian Academy of Exact, Physi- man, Moisés. “Sobre la Importancia de Investigar en Colombia, Un País Subdesarrollado,” Biomédica 21, universities. cal and Natural Sciences from 2002 to 2006 2001, 13-24. In summary, it can be said that the and is also a member of the Latin American Colombian system of science and technol- Academy of Sciences. For six years, he was a 5 Safford, Frank. “Capítulo 7,” inEl Ideal de lo Práctico. ogy is young, that it has an appropriate member of the International Council of Sci- Editorial UN-Áncora Editores, 1989. level of institutionalization and organiza- ence’s Committee for Freedom and Respon- 6 Vargas Vega, Antonio. Informe del Rector de la tion, perhaps better than other countries in sibility in Science, and served in numerous Universidad Nacional, Al Señor Secretario de lo Interior the region, and that has grown consistently director boards of academic Colombian y de Relaciones Exteriores. Director General de Instruc- despite a chronic lack state funding and institutions. ción Universitaria. Anales Universidad Nacional, 1871. attention. On the other hand, the recent Wasserman has been honored with 7 Wasserman, Moisés. La Ciencia en Colombia en 200 award of mining royalties to science and several distinctions, among them: the Años de Vida Republicana. En Colombia 200 Años technology is a mixed blessing. It generates Colombian National Science Prize “Alejan- de Identidad, Tomo V Para Pensar a Colombia. Eds. Semana y Universidad Nacional, 2010, 9-19. unprecedented available resources in the dro Angel Escobar” (1984), the Exceptional country, but also generates risks and chal- Teaching Prize from the National University 8 Ospina Bozzi, Martha Luz. Colciencias 30 Años. lenges that if not addressed properly, could of Colombia (1995), the National Prize for Memorias de un Compromiso. Colciencias, 1998. squander a great effort. That is the most Scientific Merit (1996), the Prize for Life in 9 Colciencias. Colombia Construye y Siembra Futuro: serious dilemma facing the Colombian sci- Science (2012) from the Colombian Associa- Política Nacional de Fomento a la Investigación y la ence today. tion for the Advancement of Science, the Innovación. Documento para discusión Bogotá: Ed. medal for scientific achievements from the Colciencias, 2008. National University of Colombia (2001), and 10 Misión Ciencia, Educación y Desarrollo. Colombia: a doctorate honoris causa from the Universi- Al Filo de la Oportunidad. Tomo 1. Consejería Presi- dad de Antioquia. dencial para el Desarrollo Institucional. Tercer Mundo Dr. Wasserman holds a PhD in bio- Editores, 1996. chemistry from the Hebrew University at 11 Wasserman, Sobre la Importancia de Investigar en Jerusalem and was a postdoctoral fellow at Colombia. the State University of New York at Stony 12 Brook. He writes a column for Colombia's Observatorio Colombiano de Ciencia y Tecnología (OCyT). Indicadores de Ciencia y Tecnología: Colom- El Tiempo newspaper and has written more bia 2012. OCyT, 2013. than eighty essays on science and society and published close to ninety scientific papers. 13 Ospina Bozzi, Colciencias 30 Años. 14 UNESCO Science Report 2010: The Current Status of Science Around the World. UNESCO, 2010.

38 LATIN AMERICA POLICY JOURNAL spring 2014 39 ECONOMIC DEVELOPMENT Science in Columbia and lobbying mechanisms alien to their References 15 Organization for Economic and Cooperative Devel- training and academic ethos. opment (OECD). “Colombia,” in Estudios de la OCDE 1 Liévano Aguirre, Indalecio. Los Grandes Conflictos de las Políticas de Innovación. OECD/International In addition, investment in projects ap- Sociales y Económicos de Nuestra Historia. Imprenta Bank for Reconstruction and Development/World proved so far, focuses more on STIA rather Nacional de Colombia, Biblioteca Luis Ángel Arango, Bank, 2013. than R&D. In some cases, the projects are 1996. Moises Wasserman is a chemist and 16 only tangentially science and technology, Schwab, Klaus. The Global Competitiveness Report professor emeritus in the Faculty of Sciences 2 Arboleda, Luis Carlos. Historia Social de la Ciencia 2012–2013. World Economic Forum, 2012. which in addition to being inefficient for at Colombia's Universidad Nacional, where en Colombia. Tomo III. Historia Natural y Ciencias scientific development; they generate con- he served as dean of the faculty from 2004 Agropecuarias. (Segunda Parte) Colciencias, 1993; fusion for the indicators. and 2006 and president between 2006 and Poveda Ramos, Gabriel. Historia Social de la Ciencia In short, a system for submitting and en Colombia. Tomo V. Ingeniería e Historia de las 2012. He has taught at the university for Técnicas. Colciencias, 1993. managing projects has been generated, thirty-three years. one that is completely foreign to the usual Wasserman was the General Director of 3 Restrepo, Olga. “Primera Parte Naturalistas, Saber y mechanisms of science management. the Colombian National Institute of Health Sociedad en Colombia,” in Historia Social de la Cien- Also, new entities with complex personnel cia en Colombia, Tomo III Historia Natural y Ciencia between 1995 and 1998, where he was the Agropecuarias. Colciencias, 1993. management were created, causing on one head of the Biochemistry Laboratory and a hand, the growth of bureaucracy and on researcher for fifteen years. He was president 4 Restrepo, “Primera Parte Naturalistas.”; Wasser- the other, the dilution of human capital in of the Colombian Academy of Exact, Physi- man, Moisés. “Sobre la Importancia de Investigar en Colombia, Un País Subdesarrollado,” Biomédica 21, universities. cal and Natural Sciences from 2002 to 2006 2001, 13-24. In summary, it can be said that the and is also a member of the Latin American Colombian system of science and technol- Academy of Sciences. For six years, he was a 5 Safford, Frank. “Capítulo 7,” inEl Ideal de lo Práctico. ogy is young, that it has an appropriate member of the International Council of Sci- Editorial UN-Áncora Editores, 1989. level of institutionalization and organiza- ence’s Committee for Freedom and Respon- 6 Vargas Vega, Antonio. Informe del Rector de la tion, perhaps better than other countries in sibility in Science, and served in numerous Universidad Nacional, Al Señor Secretario de lo Interior the region, and that has grown consistently director boards of academic Colombian y de Relaciones Exteriores. Director General de Instruc- despite a chronic lack state funding and institutions. ción Universitaria. Anales Universidad Nacional, 1871. attention. On the other hand, the recent Wasserman has been honored with 7 Wasserman, Moisés. La Ciencia en Colombia en 200 award of mining royalties to science and several distinctions, among them: the Años de Vida Republicana. En Colombia 200 Años technology is a mixed blessing. It generates Colombian National Science Prize “Alejan- de Identidad, Tomo V Para Pensar a Colombia. Eds. Semana y Universidad Nacional, 2010, 9-19. unprecedented available resources in the dro Angel Escobar” (1984), the Exceptional country, but also generates risks and chal- Teaching Prize from the National University 8 Ospina Bozzi, Martha Luz. Colciencias 30 Años. lenges that if not addressed properly, could of Colombia (1995), the National Prize for Memorias de un Compromiso. Colciencias, 1998. squander a great effort. That is the most Scientific Merit (1996), the Prize for Life in 9 Colciencias. Colombia Construye y Siembra Futuro: serious dilemma facing the Colombian sci- Science (2012) from the Colombian Associa- Política Nacional de Fomento a la Investigación y la ence today. tion for the Advancement of Science, the Innovación. Documento para discusión Bogotá: Ed. medal for scientific achievements from the Colciencias, 2008. National University of Colombia (2001), and 10 Misión Ciencia, Educación y Desarrollo. Colombia: a doctorate honoris causa from the Universi- Al Filo de la Oportunidad. Tomo 1. Consejería Presi- dad de Antioquia. dencial para el Desarrollo Institucional. Tercer Mundo Dr. Wasserman holds a PhD in bio- Editores, 1996. chemistry from the Hebrew University at 11 Wasserman, Sobre la Importancia de Investigar en Jerusalem and was a postdoctoral fellow at Colombia. the State University of New York at Stony 12 Brook. He writes a column for Colombia's Observatorio Colombiano de Ciencia y Tecnología (OCyT). Indicadores de Ciencia y Tecnología: Colom- El Tiempo newspaper and has written more bia 2012. OCyT, 2013. than eighty essays on science and society and published close to ninety scientific papers. 13 Ospina Bozzi, Colciencias 30 Años. 14 UNESCO Science Report 2010: The Current Status of Science Around the World. UNESCO, 2010.

38 LATIN AMERICA POLICY JOURNAL spring 2014 39 ECONOMIC DEVELOPMENT Riding Waves of Change

may not lead to high productivity initially, countries in the region emerged from the but it sets the stage for upgrading toward aftermath of the crisis with a comparative higher-value-added activities that can drive advantage in mineral extraction or agricul- significant improvements in productivity. tural activities.4 Despite the opportunities At the dawn of the era of GVCs in presented by the fragmentation of global the mid-1980s, Latin America was in the production, a significant proportion of the middle of the so-called “lost decade,” strug- countries in the region have specialized in gling to recover from a deep recession. nontechnological sectors that create limited The import substitution industrialization opportunities for growth-enhancing struc- (ISI) policies that were adopted across the tural transformation. region from the 1950s to the 1970s were However, Figure 1 demonstrates that Riding Waves of Change ineffective in sustaining growth-enhancing Mexico and Costa Rica have been able to structural transformation for the major- harness the power of GVCs for industrial The Case of Costa Rica’s Global Value ity of Latin American countries.3 In small development. Mexico has favorable condi- Chain–Driven Economic Transformation countries, internal demand proved insuf- tions for economic development because ficient to drive vibrant industrialization, the demand from its wealthy neighbor, the and much of the light industry that had de- United States, and its own sizable popula- veloped was not globally competitive. The tion allow firms to build significant econo- BY DAVID BULLÓN AND FRANCISCO MONGE relative success that Brazil has had with its mies of scale. In contrast, Costa Rica is a inward-oriented approach has relied on the small economy in a disadvantaged neigh- large size of its domestic market, but this borhood, which is far more representative leaves a question about the sustainability of the majority of the countries in the re- of this strategy in the medium term. Most gion. The case of Costa Rica´s development

1 Abstract ing an unbundling of production stages. Figure 1 — Evolution of Manufacturing Exports as a Percentage of Merchandising THERE IS A VIBRANT policy dis- Activities that used to be performed in one Exports for the Most Successful Latin American Industrializers Compared to the cussion about the way in which countries country to build a final product are now Rest of the Region. might harness the evolving trends in global dispersed across international borders as production to drive economic develop- countries engage in the stages of the GVC ment. Most of Latin America has remained in which they can best compete. Develop- largely disconnected from the global value ing and sustaining a comparative advantage chains (GVCs) that have developed. In no longer depends on acquiring the capa- contrast, Costa Rica has ridden three waves bilities to host an entire production chain, of policy reforms, which have enabled but rather on making use of the competen- significant GVC-driven growth over the cies necessary to focus on specific activities past twenty-five years. This article strives to in the production chain.2 This shift offers use the case of Costa Rica to illustrate the countries a valuable development opportu- type of policy-making approach that may nity, because developing a comparative ad- be useful to small economies throughout vantage in one activity requires a narrower the region. set of capabilities than building expertise in the range of activities required to produce The Promise of Global Value Chains a final good. Furthermore, capabilities such for Development as management skills, sources of capital, Global value chains (GVCs) emerged and advanced technology can be borrowed on the global scene as a consequence of the from foreign sources to leverage domestic information and communication technol- production potential in order to kick-start ogy (ICT) revolution, which has signifi- development. Integration into GVCs may start with low-value-added activities that cantly reduced coordination costs, trigger- Source: Author’s elaboration using World Development Indicators, World Bank.

40 LATIN AMERICA POLICY JOURNAL spring 2014 41 ECONOMIC DEVELOPMENT Riding Waves of Change

is relevant because it illustrates some of the ports were coffee and bananas, even as the quintessential policies that are necessary country’s popularity as a tourist location for countries to leverage participation in grew rapidly after the 1980s. GVCs in order to drive improved economic However, a significant change oc- performance. curred in the mid-1990s as a growing number of world-class multinational enterprises The Evolution of Costa Rica’s (MNEs) established operations in Costa Economic Structure Rica, giving the country a foothold in Over the last twenty years, the Costa advanced manufacturing and sophisticated Rican economy has evolved from tradition- services GVCs. While a few foreign firms al agricultural activities toward skills-based established operations in Costa Rica prior products and services that are integrated to 1990, it was Intel’s decision to establish in global production networks. Agricul- operations on Costa Rican soil in 1997 tural exports dropped from representing that marked a turning point. Since then, 35 percent of total exports in 1995 to 14.9 the country has attracted a series of firms percent in 2012, whereas manufacturing in advanced manufacturing, life sciences, exports increased from 38.4 percent to and services. Figure 3 shows the steady 50.6 percent, and business, computing, and growth in foreign direct investment (FDI) information services exports rose from as a percentage of GDP from 1982 to 2012 2 percent to 15.8 percent (see Figure 2). relative to the rest of Latin America and the Despite its name, Costa Rica (“rich coast” Caribbean (LAC), demonstrating that FDI Figure 3 — Evolution of Costa Rica’s Foreign Direct Investment (FDI) as a Percentage in English) is not rich in mineral resources. has grown faster in Costa Rica than in the of Gross Domestic Product (GDP) Compared to the Rest of Latin America and the As a consequence, the country was initially rest of the region. Caribbean (LAC). an agrarian society in which agriculture The MNEs that have established opera- Source: Author’s elaboration using World Development Indicators, World Bank. boomed as soon as independence from tions in Costa Rica are, for the most part, Spain enabled the use of trade routes integrated in GVCs, since they import through neighboring countries.5 Up until intermediate inputs from other countries, the mid-1990s, Costa Rica’s two main ex- transform them by adding value in Costa Offshore Medical dev- Aerospace Electronics Figure 2 — Composition of Costa Rica’s Total Exports from 1995 to 2012. Services ics No. of foreign firms (2011) 104 18 36 46 % Established after 1995 100% 83% 67% 96% 2011 Employment * 37,049 2,000 - 3,000 8,800 12,500 2011 Exports (M USD)* 1,565 90** 2,573 1,283

Figure 4 — Multinational Firms Established in Costa Rica by 2011 and Their Impact on Employment and Export Activity in Key Sectors.

Source: Author’s elaboration using Duke University, Center on Globalization, Governance, and Competitiveness data6 *Employment and export data are for the entire sector including domestic and foreign companies. ** For the aerospace value chain, the most recent data available is for 2008. Source: Ministry of Foreign Trade, with data from Trade Promotion Agency and Central Bank.

42 LATIN AMERICA POLICY JOURNAL spring 2014 43 ECONOMIC DEVELOPMENT Riding Waves of Change is relevant because it illustrates some of the ports were coffee and bananas, even as the quintessential policies that are necessary country’s popularity as a tourist location for countries to leverage participation in grew rapidly after the 1980s. GVCs in order to drive improved economic However, a significant change oc- performance. curred in the mid-1990s as a growing number of world-class multinational enterprises The Evolution of Costa Rica’s (MNEs) established operations in Costa Economic Structure Rica, giving the country a foothold in Over the last twenty years, the Costa advanced manufacturing and sophisticated Rican economy has evolved from tradition- services GVCs. While a few foreign firms al agricultural activities toward skills-based established operations in Costa Rica prior products and services that are integrated to 1990, it was Intel’s decision to establish in global production networks. Agricul- operations on Costa Rican soil in 1997 tural exports dropped from representing that marked a turning point. Since then, 35 percent of total exports in 1995 to 14.9 the country has attracted a series of firms percent in 2012, whereas manufacturing in advanced manufacturing, life sciences, exports increased from 38.4 percent to and services. Figure 3 shows the steady 50.6 percent, and business, computing, and growth in foreign direct investment (FDI) information services exports rose from as a percentage of GDP from 1982 to 2012 2 percent to 15.8 percent (see Figure 2). relative to the rest of Latin America and the Despite its name, Costa Rica (“rich coast” Caribbean (LAC), demonstrating that FDI Figure 3 — Evolution of Costa Rica’s Foreign Direct Investment (FDI) as a Percentage in English) is not rich in mineral resources. has grown faster in Costa Rica than in the of Gross Domestic Product (GDP) Compared to the Rest of Latin America and the As a consequence, the country was initially rest of the region. Caribbean (LAC). an agrarian society in which agriculture The MNEs that have established opera- Source: Author’s elaboration using World Development Indicators, World Bank. boomed as soon as independence from tions in Costa Rica are, for the most part, Spain enabled the use of trade routes integrated in GVCs, since they import through neighboring countries.5 Up until intermediate inputs from other countries, the mid-1990s, Costa Rica’s two main ex- transform them by adding value in Costa Offshore Medical dev- Aerospace Electronics Figure 2 — Composition of Costa Rica’s Total Exports from 1995 to 2012. Services ics No. of foreign firms (2011) 104 18 36 46 % Established after 1995 100% 83% 67% 96% 2011 Employment * 37,049 2,000 - 3,000 8,800 12,500 2011 Exports (M USD)* 1,565 90** 2,573 1,283

Figure 4 — Multinational Firms Established in Costa Rica by 2011 and Their Impact on Employment and Export Activity in Key Sectors.

42 LATIN AMERICA POLICY JOURNAL spring 2014 43 ECONOMIC DEVELOPMENT Riding Waves of Change

to point out that the agricultural sector three levels: the individual, the firm, and has continued to grow, but at a slower pace the economy. Cesar Hidalgo and Ricardo than other sectors. Hausmann refer to this range of capabili- Figure 5 shows that the reliance on ties and their interactions as “economic knowledge-based inputs has significantly complexity,” because higher levels of pro- increased while the reliance on unskilled ductivity require a more sophisticated set labor has fallen. This evolution has oc- of building blocks.8 Individuals must learn curred in several GVCs, but the evolution skills that enable them to engage in so- of the medical devices industry is most phisticated activities. Firms, in turn, must telling. The industry began to develop be able to organize production in order to in 1987 with manufacturing of medica- make use of the skills that are available in tion delivery systems. By 2000, the sector the labor force. At the highest level of ag- consisted of twenty-four firms, a figure that gregation, economy-wide investments must has almost tripled since, making Costa Rica be made that enable industries to remain the second largest medical device exporter competitive. Advanced capabilities at these in Latin America. The sector has developed three levels are, by nature, difficult and human resources with sector-specific skills costly to develop and are therefore scarce. and has attracted suppliers of sophisticated This allows countries that have mastered components and services. These develop- the right set of capabilities to engage in ac- ments have fueled significant growth in the tivities that are valued highly in the global Figure 5 — Structure of Costa Rican Industrial Exports by Intensity in the Use of manufacturing of class III cardiovascular, marketplace, generating high profits and Factors of Production (1994, 2001, and 2012). orthopedic, gastroenterology, urology, and well-paid jobs. Costa Rica has succeeded in Source: Costa Rica Investment Promotion Agency (CINDE), using Procomer data. women’s health products. Moving forward, harnessing GVCs for development because Note: The following classification was used to determine the use of factors of production: there is potential for product upgrading it has adopted a set of policies that have Natural resource intensive: activities that require significant natural resource inputs, such as manufacturing of food, leather, wood, and mineral products. in capital equipment, process upgrading developed higher capabilities in individu- Labor intensive: activities that require significant labor inputs, such as manufacturing of textiles, furniture, acces- among local suppliers, and functional up- als, firms, and the economy as a whole. sories, and metal products. grading toward R&D and marketing.7 The process through which Costa Capital intensive: activities that require high investment in fixed assets, such as manufacturing of containers, Thus, Costa Rica has inserted itself in Rica has adopted the right set of policies paper boxes, plastics, glass, and printed materials. Knowledge intensive: activities that relate to the production of specialized products or that require significant GVCs and achieved significant upgrading is as telling as the policies it has adopted. technological knowledge such as motors, turbines, machinery, electric equipment, paints, pharmaceuticals, in less than two decades leveraging FDI, In a perfect world, all-knowing and all- chemical products, and professional and scientific equipment. which has played a key role in planting the powerful policy makers would design and seeds that have started to grow into clus- rapidly implement the appropriate poli- Rica, and then export them to the coun- and in the way that industrial exports have ters. But, how exactly did Costa Rica create cies to maximize economic growth. In the tries that host the next stage in the value become more sophisticated through greater the enabling environment that is attractive real world, the policy-making process is chain. Companies based in Costa Rica have reliance on knowledge-intensive inputs. to multinationals? What was the sequenc- a complex, nonlinear activity with many operations in various stages of the GVCs in Figure 2 shows the way in which Costa ing of policy reforms that enabled a small unknowns, involving not only technical which they participate, including research Rica’s exports in manufacturing and ser- agrarian society to move toward high-tech concerns but also political negotiations and and design (R&D), manufacturing, market- vices have boomed relative to agriculture industrial activity? What are the reforms administrative constraints. In this context, ing, and administrative services, to name since the mid-1990s. The two main export that are currently underway to guarantee an approach aimed at targeting binding a few. Figure 4 quantifies the way in which product categories shifted from coffee and continued upgrading toward knowledge- constraints can be more effective than a the establishment of foreign firms has given bananas in 1994 to microprocessors and based activities? It is the answers to these strategy based on wholesale reform.9 Costa the country a presence in some key GVCs, medical devices in 2012. Similarly, whereas questions that make Costa Rica an interest- Rica is an example of a country that has leading to significant growth in these sec- in 2000, IT and business services exports ing case study. achieved steady progress by implement- tors in terms of employment and exports. were only one-quarter of tourism exports, ing waves of reforms that have been able Costa Rica’s participation in GVCs has by 2011 they already outnumbered tourism Waves of Change: Leveraging GVCs to relieve binding constraints through the driven structural transformation that can exports. In 2012, IT and business services for Development acquisition of new capabilities. The country be observed in the way exports have shifted exports accounted for the same share in Economic development is about has been able to ride each wave of policy from low- to high-productivity sectors, GDP as agricultural exports. It is important upgrading nontradable capabilities at changes until the next reform opportunity

44 LATIN AMERICA POLICY JOURNAL spring 2014 45 ECONOMIC DEVELOPMENT Riding Waves of Change

arises. In recent history, it is possible to American countries,13 Costa Rica ranked In addition to building a broad and ers that enable the growth of clusters, such identify three waves of policy changes, each sixth in terms of the improvement in aver- robust trade platform, in the 1980s Costa as companies that provide sterilization of which has sought to resolve the binding age years of schooling achieved by fifteen Rica also started to implement a series services for the medical devices industry. It constraint of the moment, creating a self- to nineteen year olds between 1950 and of other actions that complemented the has also occurred through the knowledge reinforcing virtuous cycle. 1980, with a gain of 3.55 years of schooling, strengths that were developed in the first transfer process that occurs when MNEs The first waves of reform started in the almost doubling from 3.68 to 7.23.14 wave of reforms: (1) nondiscriminatory establish linkages with local firms. For late 1940s and early 1950s, with a strategic The aforementioned reforms provided investment rules and thirteen bilateral in- example twenty out of the sixty-six firms decision to strengthen democracy and grounds for growth during this period of vestment treaties (BITs) provide a favorable that participate in the medical devices boost investment in human capital. When ISI. However, the ISI model’s protectionist policy framework; (2) the Free Zone Re- GVC are domestic firms linked to MNEs, the new constitution was written in 1949, policies restricted competition, prevent- gime offers attractive fiscal incentives; and nine of which were founded after 1990 to after the civil war of 1948, the country ing firms from developing the capabilities (3) a well-coordinated inter-institutional supply the industry.21 Finally, there has also adopted several measures to prevent small necessary for the private sector to fully investment promotion strategy facilitates been upgrading of country-level capabili- groups from overthrowing the government capitalize on the stable environment and the process of establishing operations in ties, since MNEs have been able to lobby in the future, including the abolition of well-trained labor force. These capabilities Costa Rica.18 Since the mid-1980s, foreign for country-level improvements that bring the standing army, the establishment of an were not fully utilized for many years. firms have been well positioned to leverage broader benefits to foreign and national independent body in charge of ensuring The second wave of reform unlocked advantages that Costa Rica has always had, firms and individuals. For example, large the legitimacy of elections, significant re- and magnified latent local potential such as its geographical location, and ad- MNEs have been successful in convincing strictions to the executive branch’s powers, through policies of openness in trade and vantages that it developed in the first wave local public universities to broaden their an extension of suffrage to a broader base attraction of foreign investment in order of reforms, including high-skilled human offering of engineering programs, which of citizens, and democratization of access to take advantage of the rapidly changing capital and stability, by acquiring other develops the country’s talent pool in gen- to credit. These measures have guaranteed global production trends. After the debt necessary capabilities from foreign sources, eral. Since Intel established operations in peaceful political transitions ever since, crisis of the 1980s, the country reduced including access to international finance Costa Rica, the company has worked with making Costa Rica the longest-standing trade barriers in order to make the country and technological know-how developed the University of Costa Rica and the Costa democracy in Latin America. a viable location for globally oriented com- abroad. Rican Institute of Technology to increase The new constitution also established panies. Unilateral trade liberalization start- Since the 1980s, Costa Rica has ridden the number of IT graduates in electronic the Ministry of Public Education and ed in the 1980s, and the average import this second wave, allowing market forces engineering from roughly fifty to close to declared public preschool and secondary tariff dropped from 46.3 percent in 1982 to to determine the GVC stages in which three hundred per year.22 education to be free (in addition to primary 16.8 percent in 1989.15 In 1990, Costa Rica the country is best positioned to compete. The challenges today revolve around education, which was already free and joined the General Agreement on Tariffs This has brought a three-tiered FDI-driven climbing toward higher value-added compulsory).10 The elimination of military and Trades (GATT) and in 1995 it became transformation. First of all, there has been activities in GVCs. Since the beginning of spending allowed the government to invest a member of the World Trade Organization upgrading in capabilities at the individual the current decade, there has been a gap in human capital, and by 1980 Costa Rica (WTO). Although Costa Rica’s first prefer- level as professionals have acquired world- opening between the demand for hu- was spending 7.35 percent of its GDP on ential trade agreement (PTA) was signed class skills. Foreign companies have created man resources by companies establishing public education, ranking second out of the in the 1960s when the country joined the jobs through which workers have been operations in Costa Rica and the supply ten11 Latin American countries for which Central American Common Market, the able to learn industry-specific skills at a of professionals that local universities are data is available.12 PTA with Mexico marked the beginning globally competitive level. Many of these able to graduate. This reveals that the latent From 1950 to 1980, Costa Rica rode of a process of deeper trade liberalization. professionals then chose to establish their pool of human capital has now been put this wave, constructing capabilities that The country now has PTAs with fifty-eight own spinoffs, which have a much higher to use, which is confirmed by the market have been important to the country’s devel- countries.16 These trade agreements not success rate than other startups.19 The best pressures that are leading to rising wages. opment. For the economy as a whole, the only reduced barriers to trade, they also indicator of the upgrading in individual- For example between 2006 and 2010, the establishment of a stable political environ- served to drive other reforms that have level skills is the fact that companies that average salary for a range of key techni- ment created the enabling environment for been important to increase the country´s participate in each of the aforementioned cal and managerial professions rose by economic activity, while at the individual competitiveness. For example, the Domini- GVCs have upgraded toward activities more than 60 percent in both services and level investment in public education built can Republic-Central America Free Trade that require more skill-intensive domestic manufacturing. To name a few, the average an easily trainable workforce. During this Agreement (DR-CAFTA) played a fun- labor.20 salary for quality engineers in manufactur- period, Costa Rica was one of the Latin damental role in driving reforms to foster Second, there has been upgrading in ing rose 100 percent and the average salary American countries with the greatest gains healthy competition in the telecommunica- firm-level capabilities. This has occurred in for a bilingual associate at a contact center in education. Out of a list of nineteen Latin tions and insurance markets.17 part through the attraction of key suppli- rose 130 percent.23 These wage increases

46 LATIN AMERICA POLICY JOURNAL spring 2014 47 ECONOMIC DEVELOPMENT Riding Waves of Change arises. In recent history, it is possible to American countries,13 Costa Rica ranked In addition to building a broad and ers that enable the growth of clusters, such identify three waves of policy changes, each sixth in terms of the improvement in aver- robust trade platform, in the 1980s Costa as companies that provide sterilization of which has sought to resolve the binding age years of schooling achieved by fifteen Rica also started to implement a series services for the medical devices industry. It constraint of the moment, creating a self- to nineteen year olds between 1950 and of other actions that complemented the has also occurred through the knowledge reinforcing virtuous cycle. 1980, with a gain of 3.55 years of schooling, strengths that were developed in the first transfer process that occurs when MNEs The first waves of reform started in the almost doubling from 3.68 to 7.23.14 wave of reforms: (1) nondiscriminatory establish linkages with local firms. For late 1940s and early 1950s, with a strategic The aforementioned reforms provided investment rules and thirteen bilateral in- example twenty out of the sixty-six firms decision to strengthen democracy and grounds for growth during this period of vestment treaties (BITs) provide a favorable that participate in the medical devices boost investment in human capital. When ISI. However, the ISI model’s protectionist policy framework; (2) the Free Zone Re- GVC are domestic firms linked to MNEs, the new constitution was written in 1949, policies restricted competition, prevent- gime offers attractive fiscal incentives; and nine of which were founded after 1990 to after the civil war of 1948, the country ing firms from developing the capabilities (3) a well-coordinated inter-institutional supply the industry.21 Finally, there has also adopted several measures to prevent small necessary for the private sector to fully investment promotion strategy facilitates been upgrading of country-level capabili- groups from overthrowing the government capitalize on the stable environment and the process of establishing operations in ties, since MNEs have been able to lobby in the future, including the abolition of well-trained labor force. These capabilities Costa Rica.18 Since the mid-1980s, foreign for country-level improvements that bring the standing army, the establishment of an were not fully utilized for many years. firms have been well positioned to leverage broader benefits to foreign and national independent body in charge of ensuring The second wave of reform unlocked advantages that Costa Rica has always had, firms and individuals. For example, large the legitimacy of elections, significant re- and magnified latent local potential such as its geographical location, and ad- MNEs have been successful in convincing strictions to the executive branch’s powers, through policies of openness in trade and vantages that it developed in the first wave local public universities to broaden their an extension of suffrage to a broader base attraction of foreign investment in order of reforms, including high-skilled human offering of engineering programs, which of citizens, and democratization of access to take advantage of the rapidly changing capital and stability, by acquiring other develops the country’s talent pool in gen- to credit. These measures have guaranteed global production trends. After the debt necessary capabilities from foreign sources, eral. Since Intel established operations in peaceful political transitions ever since, crisis of the 1980s, the country reduced including access to international finance Costa Rica, the company has worked with making Costa Rica the longest-standing trade barriers in order to make the country and technological know-how developed the University of Costa Rica and the Costa democracy in Latin America. a viable location for globally oriented com- abroad. Rican Institute of Technology to increase The new constitution also established panies. Unilateral trade liberalization start- Since the 1980s, Costa Rica has ridden the number of IT graduates in electronic the Ministry of Public Education and ed in the 1980s, and the average import this second wave, allowing market forces engineering from roughly fifty to close to declared public preschool and secondary tariff dropped from 46.3 percent in 1982 to to determine the GVC stages in which three hundred per year.22 education to be free (in addition to primary 16.8 percent in 1989.15 In 1990, Costa Rica the country is best positioned to compete. The challenges today revolve around education, which was already free and joined the General Agreement on Tariffs This has brought a three-tiered FDI-driven climbing toward higher value-added compulsory).10 The elimination of military and Trades (GATT) and in 1995 it became transformation. First of all, there has been activities in GVCs. Since the beginning of spending allowed the government to invest a member of the World Trade Organization upgrading in capabilities at the individual the current decade, there has been a gap in human capital, and by 1980 Costa Rica (WTO). Although Costa Rica’s first prefer- level as professionals have acquired world- opening between the demand for hu- was spending 7.35 percent of its GDP on ential trade agreement (PTA) was signed class skills. Foreign companies have created man resources by companies establishing public education, ranking second out of the in the 1960s when the country joined the jobs through which workers have been operations in Costa Rica and the supply ten11 Latin American countries for which Central American Common Market, the able to learn industry-specific skills at a of professionals that local universities are data is available.12 PTA with Mexico marked the beginning globally competitive level. Many of these able to graduate. This reveals that the latent From 1950 to 1980, Costa Rica rode of a process of deeper trade liberalization. professionals then chose to establish their pool of human capital has now been put this wave, constructing capabilities that The country now has PTAs with fifty-eight own spinoffs, which have a much higher to use, which is confirmed by the market have been important to the country’s devel- countries.16 These trade agreements not success rate than other startups.19 The best pressures that are leading to rising wages. opment. For the economy as a whole, the only reduced barriers to trade, they also indicator of the upgrading in individual- For example between 2006 and 2010, the establishment of a stable political environ- served to drive other reforms that have level skills is the fact that companies that average salary for a range of key techni- ment created the enabling environment for been important to increase the country´s participate in each of the aforementioned cal and managerial professions rose by economic activity, while at the individual competitiveness. For example, the Domini- GVCs have upgraded toward activities more than 60 percent in both services and level investment in public education built can Republic-Central America Free Trade that require more skill-intensive domestic manufacturing. To name a few, the average an easily trainable workforce. During this Agreement (DR-CAFTA) played a fun- labor.20 salary for quality engineers in manufactur- period, Costa Rica was one of the Latin damental role in driving reforms to foster Second, there has been upgrading in ing rose 100 percent and the average salary American countries with the greatest gains healthy competition in the telecommunica- firm-level capabilities. This has occurred in for a bilingual associate at a contact center in education. Out of a list of nineteen Latin tions and insurance markets.17 part through the attraction of key suppli- rose 130 percent.23 These wage increases

46 LATIN AMERICA POLICY JOURNAL spring 2014 47 ECONOMIC DEVELOPMENT Riding Waves of Change

highlight the fact that it is important to and 2013, Costa Rica was the ninth best inward- nor outward-oriented nor is it continue to invest in keeping Costa Rica’s performer out of 186 countries in reducing focused on domestic or foreign agents, competitive advantages in terms of human the distance to the frontier in terms of deal- but rather it is focused on creating capa- 24 capital, stability, trade openness, and FDI ing with construction permits. There are bilities that allow a country to engage in David Bullón is coordinator of global attraction. However, they also point to the also important financial reforms underway. global production networks. The second value chains (GVCs) and innovation at fact that there may be other conditions For example, in 2013 the banking system is that development requires nurturing the Costa Rican Ministry of Foreign Trade, that need to be improved in the economy for development help the first publicly capabilities at all levels—individual, firm, where he leads a team-working drive up- in order for a greater proportion of Costa funded seed capital competition. That same and national. The third is that there are no grading toward innovation-based activities Rica’s most skilled human capital to engage year, a law proposal was submitted to the shortcuts to developing these capabilities, in GVCs. His expertise is in economic de- in high-value activities, whether they are legislative assembly to enable the use of but there are some paths that are less steep velopment and private sector development, oriented toward science and technology or intangible collateral for loans. than others. In Costa Rica’s case, reforms with experience in the United States, Mexico, high-impact entrepreneurship. As Costa Rica continues to strengthen have come in waves, each of which has Peru, China, India, South Sudan, and The third wave of reforms involves the nontradable capabilities required to en- served as a building block for the next. Costa Rica. Prior to joining the Ministry of fully unlocking the potential captured in gage in knowledge- and innovation-based Finally, the case of Costa Rica confirms Foreign Trade, he held leadership positions the capabilities built during the first and activities, foreign and domestic firms will that an inward-oriented approach is not in research and development and operations second waves by investing in policies to continue to climb toward more sophisti- advisable for small, developing countries, management in the private sector (Black stimulate a thriving innovation ecosys- cated activities, capturing more value in the particularly in a world in which increasing & Decker), development consulting (Access tem that will attract knowledge-intensive GVCs in which they participate. There is connections create valuable opportunities. Development Services), applied field research FDI and stimulate local innovation. At still plenty of momentum behind this third Economic development in an intercon- (Innovations for Poverty Action), and strate- the individual level, interesting partner- wave, which means that the main results nected world often requires leveraging gic planning in the public sector (Ministry of ships between MNEs and academia have are still to come. However, Costa Rica is external pressures to catalyze reforms and Commerce and Industry, South Sudan). emerged to create joint masters programs already ranked the most innovative coun- making use of external resources to unlock Bullón´s research trajectory has been to graduate research-oriented profession- try in Latin America in the Global Innova- the potential of domestic capabilities. diverse, including basic science research on 25 als that companies require to move toward tion Index in 2013, which is a promising nanotechnology at Harvard University’s De- R&D. The government is also pursuing sign that the economy is moving toward partment of Physics, economic research on loans with international organizations to knowledge-based activities. It is also financial constraints to integration in GVCs strengthen university programs in science, encouraging to observe that high-value with Innovations for Poverty Action, policy technology, engineering, and mathemat- innovation-based activities are already tak- research on backward linkages from multi- ics (STEM areas) and to provide funding ing place. Multinational enterprises such national enterprises to small and medium- to train research-oriented professionals in as HP and Intel engage in R&D activities. sized enterprises at Harvard University, and key areas abroad. At the firm level, seven In addition, local firms, such as Etipress,26 The views and opinions expressed in this article are those of the authors. research to map Costa Rica’s participation incubators and accelerators have been have developed innovative technologies for in GVCs with the Costa Rican Ministry of established to foster innovation-oriented the medical industry, and globally oriented Foreign Trade. entrepreneurship. The Trade Promotion startups in creative industries, such as Sab- Bullón is a member of the World Eco- 27 Agency’s export linkages program is also orstudio, have taken advantage of support nomic Forum´s Global Shaper Community playing a key role in supporting the devel- from incubators and accelerators to make and is involved in broadening educational opment of the capabilities of firms so that inroads in global markets. These are the opportunities in Costa Rica through Asobiti- they can provide high-value products and type of success stories that will continue to co, a nongovernmental organization (NGO) services to MNEs. At a national level, the fuel policy makers’ efforts to strengthen the that brings the International Baccalaureate Doing Business reports show that Costa national innovation system. to public high schools, and TicoFuturo, an Rica is one of the countries that has made NGO that funds graduate studies to the top Conclusion the most progress in streamlining processes universities abroad. He holds a master in to reduce unnecessary transaction costs The case of Costa Rica illustrates a few public administration in international devel- for firms. In the Doing Business index, key points that can be of use to other small opment from the John F. Kennedy School of between 2012 and 2013, Costa Rica was the economies throughout Latin America. Government at Harvard University. sixth best performer out of 189 countries The first is that GVCs offer countries an in reducing the distance to the frontier in unmatched opportunity for develop- terms of starting a business, and in 2011 ment; GVC-driven development is neither

48 LATIN AMERICA POLICY JOURNAL spring 2014 49 ECONOMIC DEVELOPMENT Riding Waves of Change highlight the fact that it is important to and 2013, Costa Rica was the ninth best inward- nor outward-oriented nor is it continue to invest in keeping Costa Rica’s performer out of 186 countries in reducing focused on domestic or foreign agents, competitive advantages in terms of human the distance to the frontier in terms of deal- but rather it is focused on creating capa- 24 capital, stability, trade openness, and FDI ing with construction permits. There are bilities that allow a country to engage in David Bullón is coordinator of global attraction. However, they also point to the also important financial reforms underway. global production networks. The second value chains (GVCs) and innovation at fact that there may be other conditions For example, in 2013 the banking system is that development requires nurturing the Costa Rican Ministry of Foreign Trade, that need to be improved in the economy for development help the first publicly capabilities at all levels—individual, firm, where he leads a team-working drive up- in order for a greater proportion of Costa funded seed capital competition. That same and national. The third is that there are no grading toward innovation-based activities Rica’s most skilled human capital to engage year, a law proposal was submitted to the shortcuts to developing these capabilities, in GVCs. His expertise is in economic de- in high-value activities, whether they are legislative assembly to enable the use of but there are some paths that are less steep velopment and private sector development, oriented toward science and technology or intangible collateral for loans. than others. In Costa Rica’s case, reforms with experience in the United States, Mexico, high-impact entrepreneurship. As Costa Rica continues to strengthen have come in waves, each of which has Peru, China, India, South Sudan, and The third wave of reforms involves the nontradable capabilities required to en- served as a building block for the next. Costa Rica. Prior to joining the Ministry of fully unlocking the potential captured in gage in knowledge- and innovation-based Finally, the case of Costa Rica confirms Foreign Trade, he held leadership positions the capabilities built during the first and activities, foreign and domestic firms will that an inward-oriented approach is not in research and development and operations second waves by investing in policies to continue to climb toward more sophisti- advisable for small, developing countries, management in the private sector (Black stimulate a thriving innovation ecosys- cated activities, capturing more value in the particularly in a world in which increasing & Decker), development consulting (Access tem that will attract knowledge-intensive GVCs in which they participate. There is connections create valuable opportunities. Development Services), applied field research FDI and stimulate local innovation. At still plenty of momentum behind this third Economic development in an intercon- (Innovations for Poverty Action), and strate- the individual level, interesting partner- wave, which means that the main results nected world often requires leveraging gic planning in the public sector (Ministry of ships between MNEs and academia have are still to come. However, Costa Rica is external pressures to catalyze reforms and Commerce and Industry, South Sudan). emerged to create joint masters programs already ranked the most innovative coun- making use of external resources to unlock Bullón´s research trajectory has been to graduate research-oriented profession- try in Latin America in the Global Innova- the potential of domestic capabilities. diverse, including basic science research on 25 als that companies require to move toward tion Index in 2013, which is a promising nanotechnology at Harvard University’s De- R&D. The government is also pursuing sign that the economy is moving toward partment of Physics, economic research on loans with international organizations to knowledge-based activities. It is also financial constraints to integration in GVCs strengthen university programs in science, encouraging to observe that high-value with Innovations for Poverty Action, policy technology, engineering, and mathemat- innovation-based activities are already tak- research on backward linkages from multi- ics (STEM areas) and to provide funding ing place. Multinational enterprises such national enterprises to small and medium- to train research-oriented professionals in as HP and Intel engage in R&D activities. sized enterprises at Harvard University, and key areas abroad. At the firm level, seven In addition, local firms, such as Etipress,26 The views and opinions expressed in this article are those of the authors. research to map Costa Rica’s participation incubators and accelerators have been have developed innovative technologies for in GVCs with the Costa Rican Ministry of established to foster innovation-oriented the medical industry, and globally oriented Foreign Trade. entrepreneurship. The Trade Promotion startups in creative industries, such as Sab- Bullón is a member of the World Eco- 27 Agency’s export linkages program is also orstudio, have taken advantage of support nomic Forum´s Global Shaper Community playing a key role in supporting the devel- from incubators and accelerators to make and is involved in broadening educational opment of the capabilities of firms so that inroads in global markets. These are the opportunities in Costa Rica through Asobiti- they can provide high-value products and type of success stories that will continue to co, a nongovernmental organization (NGO) services to MNEs. At a national level, the fuel policy makers’ efforts to strengthen the that brings the International Baccalaureate Doing Business reports show that Costa national innovation system. to public high schools, and TicoFuturo, an Rica is one of the countries that has made NGO that funds graduate studies to the top Conclusion the most progress in streamlining processes universities abroad. He holds a master in to reduce unnecessary transaction costs The case of Costa Rica illustrates a few public administration in international devel- for firms. In the Doing Business index, key points that can be of use to other small opment from the John F. Kennedy School of between 2012 and 2013, Costa Rica was the economies throughout Latin America. Government at Harvard University. sixth best performer out of 189 countries The first is that GVCs offer countries an in reducing the distance to the frontier in unmatched opportunity for develop- terms of starting a business, and in 2011 ment; GVC-driven development is neither

48 LATIN AMERICA POLICY JOURNAL spring 2014 49 ECONOMIC DEVELOPMENT Riding Waves of Change

References percent), Panama (4.28 percent), Venezuela (3.88 26 Etipress is a label manufacturing company that percent), Nicaragua (3.26 percent), Honduras (2.99 developed and patented a food label that changes 1 Baldwin, Richard. Global Supply Chains: Why They percent), Argentina (2.61 percent), Uruguay (2.16 color when the food in a container goes bad, replacing Emerged, Why They Matter, and Where They Are percent), and Colombia (1.73 percent). the need for a sell-by date. This project was carried Francisco Monge currently works as Going. The Graduate Institute, Centre for Trade and out in collaboration with the Costa Rican Institute of 12 Deputy Director General of the Ministry of Economic Integration, 2012, 4-5. World Development Indicators. World Bank Web Technology´s Nanotechnology Lab. site, 2014. Foreign Trade of Costa Rica. At the Min- 2 Deardorff, Alan V. “Ricardian Comparative Ad- 27 Saborstudio is a local software startup that was istry, he has also worked as Coordinator vantage with Intermediate Inputs,” North American 13 Argentina, Bolivia, Brazil, Chile, Colombia, accelerated by Carao Ventures, which created the ap- of North America Affairs, Coordinator of Journal of Economics and Finance 16(1): 11-34, 2005. Costa Rica, Cuba, Dominican Republic, Ecuador, El plication Pota-Toss, a location-based game. Salvador, Guatemala, Honduras, Mexico, Nicaragua, WTO Affairs, and Head of the Ministry’s 3 Baer, Werner. “Industrialization in Latin America: Panama, Paraguay, Peru, Uruguay, and Venezuela. Trade Analysis Unit, and he has led several Successes and Failures,”Journal of Economic Education research initiatives on GVCs. Monge led the 15(2): 124-135, 1984. 14 Barro, Robert J., and Jong-Wha Lee. Educational At- market access negotiations for the Associa- tainment Dataset. Educational Attainment by 5-Year 4 Ventura-Dias, Vivianne, Mabel Cabezas, and Jaime Age Group. April 2013. tion Agreement between Central America Contador. “Trade Reforms and Trade Patterns in Latin and the European Union, the Free Trade America,” ECLAC International Trade Series 5: 25-26. 15 Monge, Francisco. Costa Rica: Trade Opening, FDI Agreement between Costa Rica and China, United Nations Publications, 1999. Attraction and Global Production Sharing. World and the Free Trade Agreement between Trade Organization, 2011, 3-15. 5 Booth, John. “Costa Rican Democracy,” World Affairs Costa Rica and Singapore. Since 2009, he 150(1),1987. 16 Treaties in Force. Ministry of Foreign Trade of Costa has served as professor of international trade Rica Web site. at the School of Public Administration of the 6 Bamber, Penny, and Gary Gereffi. Costa Rica in the 17 World Bank. Costa Rica a Cinco Años del CAFTA- Universidad de Costa Rica. Monge earned Medical Devices Global Value Chain: Opportunities for Upgrading. Duke University, Center on Globaliza- DR: Un Enfoque en Temas Específicos. Pending both his PhD in development economics tion, Governance, and Competitiveness, August 2013, publication. 2014 and his master’s degree in economics from 33-41, 55-56; Bamber, Penny, and Gary Gereffi. Costa 18 Ohio State University. He was awarded the Rica in the Aerospace Global Value Chain: Oppor- OECD. OECD Investment Policy Reviews: Costa Rica 2013. OECD Publishing. 2013, 33-49,77-122 2007 Best Dissertation Award and the 2006 tunities for Entry and Upgrading. Duke University, Center on Globalization, Governance, and Competi- 19 Bernie Erven Outstanding Graduate Teach- tiveness, August 2013, 31-33, 44; Fernandez–Stark, Monge, Ricardo, Juan Carlos Leiva, and Juan Anto- ing Assistant Award by the Department of Karina, Penny Bamber, and Gary Gereffi. Costa Rica nio Rodriguez. FDI, Labor Mobility, and Knowledge Agricultural, Environmental and Develop- in the Offshore Services Global Value Chain: Op- Spillovers in Costa Rica. Tecnología en Marcha, 2012. portunities for Upgrading. Duke University, Center ment Economics of Ohio State University. 20 on Globalization, Governance, and Competitiveness, Bamber and Gereffi, Costa Rica in the Medical -De Monge has published on topics such as global August 2013, 19-25, 53-54; Frederick, Stacey, and vices Global Value Chain, 33-41; Bamber and Gereffi, value chains, trade liberalization, develop- Gary Gereffi. Costa Rica in the Electronics Global Costa Rica in the Aerospace Global Value Chain, 31- ment banking, and trade policy. Value Chain: Opportunities for Upgrading. Duke 33; Fernandez–Stark, Bamber, and Gereffi, Costa Rica University, Center on Globalization, Governance, and in the Offshore Services Global Value Chain, 19-25; Competitiveness, August 2013, 40-46, 62. Frederick and Gereffi, Costa Rica in the Electronics Global Value Chain, 40-46. 7 Bamber and Gereffi, Costa Rica in the Medical 21 Devices Global Value Chain, 33-41. Bamber and Gereffi, Costa Rica in the Medical Devices Global Value Chain, 33-41. 8 Hidalgo, Cesar, and Ricardo Hausmann. “The Build- 22 ing Blocks of Economic Complexity,” Proceedings of Author conversation with Mary Helen Bialas, Man- the National Academy of Sciences 106(26): 10570- ager of Education Programs and Academic Relations, 10575, June 2009. Intel, Costa Rica. 2014.

23 9 Haussmann, Ricardo, Dani Rodrik, and Andres Trejos, Alberto, Roberto Arce, Ricardo Matar- Velasco. Growth Diagnostics. John F. Kennedy School rita, and Alejandro Roblero. Desarrollo del Talento of Government at Harvard University, 2005. Humano: La Clave para Competir en la Atracción de Inversión Extranjera Directa. Incae Business School, 10 Salazar, Jorge, editor. Historia de la Educación 2012, 70-80. Costarricense. Editorial Universidad Estatal a Dis- 24 tancia and Editorial de la Universidad de Costa Rica, Doing Business Data: Topics. The World Bank Web 2013, 292. site, 2014.

25 11 The others being Cuba (8.37 percent), Chile (4.44 The Global Innovation Index 2013: Country Rank- ing. Global Innovation Index Web site, 2014

50 LATIN AMERICA POLICY JOURNAL spring 2014 51 ECONOMIC DEVELOPMENT Riding Waves of Change

25 11 The others being Cuba (8.37 percent), Chile (4.44 The Global Innovation Index 2013: Country Rank- ing. Global Innovation Index Web site, 2014

50 LATIN AMERICA POLICY JOURNAL spring 2014 51 ECONOMIC DEVELOPMENT Current Trends and a New Agenda

countries (known as multilatinas); (2) the outstanding: (1) the increased growth in region has started to see the entry, although FDI is concentrated in sectors linked to the very incipient, of foreign investment linked export of commodities based on natural to the venture capital industry, oriented resources (energy, mining, and agricul- toward the identification of dynamic and ture) and also in services; (2) FDI oriented innovative companies and sectors; (3) the toward using Latin American countries as Current Trends and a growth in domestic markets, especially of export platforms in nontraditional sectors the middle class, has been an important remains scarce; and (3) the dynamism of source of attraction for foreign investment FDI is closely linked to the opportuni- New Agenda for Foreign in the area of services, for the purpose ties generated by changes in government of taking advantage of the expansion in policies—in the 1990s by the privatization consumption, as well as physical infrastruc- processes, and currently by the processes of Direct Investment in ture (airports, ports, telecommunications, concessions or public-private investment highways, etc.) and social (health) needs, projects in infrastructure and services and raising the standards of educational de- in the opening up of capital intensive sec- Latin America mand as well as supply; and (4) the specific tors, such as oil, gas, and mining. decision, albeit in incipient form, of some foreign companies to install research and BY MICHAEL PENFOLD development (R&D) centers in countries Characterization of FDI in Latin such as Mexico, Chile, Panama, and Brazil, America which could result in the strengthening of the potential for innovation and increase the technological content of some nontra- Investment Inflows ditional sectors within the Latin American In general terms, Latin America has Abstract exceptions, has achieved a reduction in its economies. shown relatively high foreign investment CURRENTLY, LATIN AMERICA is poverty rates. A central element behind However, the continuities in the figures during the last decade (see Figure in a favorable situation despite the uncer- this great economic dynamism has been behavior of foreign investment are equally 1). FDI inflows have been growing consec- tain conditions of the global economy. The the renewed interest recovered by foreign region’s economic dynamism, a conse- investment increasing its participation in quence of the renewed interest of foreign Latin America. investment, has led to a reduction in its Interestingly, foreign investment in poverty rates. This article will analyze the region shows some positive contrasts thoroughly the behavior of foreign direct in regard to its behavior in the 1990s—a investment in Latin America during the decade that was also characterized by period of 2000 to 2011 as compared to high investment, although marked by the the 1990s, indicating the factors that have privatization processes of numerous state strived changes in the source of invest- assets in a context of fiscal adjustments ment, the impact of political and economic and trade liberalization. With regard to the trends, and potential challenges to achieve contrasts, the following transformations sustainable growth. can be identified: (1) a greater diversification in the origin of the foreign direct Introduction investment (FDI) (which was initially Latin America is currently in a favor- highly concentrated in foreign investment able economic situation despite the uncer- originating from Europe and the United tain conditions of the global economy. In States) toward greater participation from particular, the region shows relatively high Asia, especially China, as well as foreign Figure 1- Inflow of Foreign Direct Investment into Latin America growth rates, coexists in an environment investment originating from Latin Ameri- of democratic opening and, with certain can companies that have expanded to other Source: UNCTAD (2011)

52 LATIN AMERICA POLICY JOURNAL spring 2014 53 ECONOMIC DEVELOPMENT Current Trends and a New Agenda

utively, with the exception of 2008, which from 37 percent in 2000-2005 to almost 28 Mexico had a high performance in the at- lombia, Brazil, and Peru, have promoted a showed a decrease as a consequence of the percent in 2006-2011. traction of investments in manufacturing large inflow of FDI. This is particularly true global financial crisis. By the year 2011, for- Curiously, the emergence of other oriented toward exports, taking advantage for countries like Chile, Peru, Colombia, eign investment inflows in Latin America alternative sources of origination marked of its commercial integration with the and Brazil that consolidated a regulatory had not only recovered but had achieved the dynamism of foreign investment in United States and Canada. In this manner, framework that permits the participation maximum historic levels, exceeding 120 Latin America during this second period. 60 percent of the FDI in Latin America was of private investment in various large-scale billion dollars, with Brazil, Mexico, and The participation of Asia in FDI went concentrated in the service sector and 23 projects. On the other hand, other coun- Colombia attracting the greatest amount of from 11 percent in 2000-2005 to almost 17 percent in the manufacturing sector. The tries, such as Argentina, Bolivia, and Ven- inflows in the last few years. percent in 2006-2011. Furthermore, Latin FDI in industries based on natural resourc- ezuela, which modified their public policies From 2006-2011, a large part of the America began to observe in both periods es barely represented 12 percent. to seek a more strategic control of these annual inflows of FDI in Latin America the expansion of the companies known as By the end of the first decade of the industries by the State, have experienced have been concentrated in a small group multilatinas, which have been dominated millennium, some new sectorial trends disinvestment processes. Despite this, the of countries: Brazil, Mexico, Colombia, by processes of strong expansion of their began to be observed. The proportion of investments in the exploitation of natural Chile, Peru, Uruguay, and Panama. For markets within the region itself, through FDI in the service sector maintained its resources that the first group of countries example, in the cases of Panama and Chile, the extensive use of FDI mechanisms. From importance (although declining), attracting has been able to attract (those with more FDI is close to or higher than 8 percent of 2000 to 2005, the Latin American origina- 43 percent of total flows from 2006 to 2011. open investment frameworks) have been gross domestic product (GDP); it is close tion of FDI represented little more than 10 FDI in the manufacturing sector reached really large. to 3.5 percent and 2.5 percent of GDP in percent of the annual inflows; while from 33 percent between 2006 and 2011, repre- Finally, from 2005 to 2007, the central Brazil and Mexico, respectively. In Colom- 2006 to 2011, these flows reached almost senting a significant increase compared to component of FDI in Latin America was bia, Uruguay, and Peru, there has been a 17 percent of the total amounts received by previous periods of time. The FDI in natu- provided by capital contributions. In effect, significant increase in FDI, comparing the the different countries. In other words, in ral resources also increased significantly, more than 48 percent of the net income importance of the amounts they attracted the period of 2006 to 2011, both Asian and representing in this same period 17 percent of foreign investment was of this nature. from 1996 to 2000 in relation to the high Latin American sources grew strongly in of the total flows of FDI in Latin America. Between 2009 and 2011, this same percent- levels of attraction achieved for the period terms of importance, while the FDI from Interestingly, in the last few years, FDI in age had reduced to 40 percent, increasing of 2006 to 2011; in Uruguay and Colombia, Europe and the United States—which con- natural resources increased to 28 percent of instead the importance of the reinvestment FDI for 2006-2011 reached 5.5 percent and tinued to represent the greatest proportion total inflows toward Latin America. of the profit (which came to represent more 3.5 percent of GDP, respectively. Countries of funds—experienced a clear decrease in Various causes explain these trends. than 50 percent of all the components of like Venezuela, Bolivia, and Argentina, on terms of their relative importance. In the service sector, there has been a clear the net income of FDI). This quantita- the other hand, have shown a significant transition from the specific opportuni- tive change reflects the perception by the fall in the importance of FDI as a percent- Sectorial Behavior ties that were generated by the privatiza- foreign companies in Latin America of a age of GDP throughout the last decades. The sectorial behavior of the FDI has tion processes, especially in the financial fall in the risk levels and a greater desire shown some interesting changes, particu- and telecommunications sector, toward a to finance their expansion in the region Origin of the Investment larly when compared to the 1990s. During growing expansion of the internal markets through reinvestment processes. This is un- The origin of FDI in Latin America that decade, the FDI in Latin America was marked by the growth of the middle classes doubtedly an obvious change and a process has changed significantly upon comparing highly concentrated in the attraction of and the reduction in the poverty gaps. that can have positive long-term effects on the periods of 2000 to 2005 and 2006 to investments in the service sector, mainly This new social and economic reality has the economic and productive performance 2011. In the first period, both the Euro- due to the opportunities generated by the created downscaling opportunities, which of the region. However, FDI in Latin Amer- pean Union and the United States had a privatization processes and the opening have allowed many of these foreign compa- ica continues to respond more to the search very high percentage weight in terms of applied to the financial sectors, telecom- nies to reinvest to increase the expansion for high returns derived from opportunities their participation as originators of FDI. munications sectors, and public service of their services to the various sectors of that arise from changes in the regulatory In particular, the European Union had a sectors (electricity and water). In this same the population, even the lowest-income frameworks (privatizations or opening of clear leadership in the process, represent- period, the FDI also took advantage of sectors. sectors), than the attractiveness itself of the ing almost 45 percent of the origin of the opportunities in the manufacturing sector, Regarding natural resources, the emer- countries with regard to their competitive annual inflows. In the second period, the especially to capitalize on the opportuni- gence of public policies more favorable to improvements. European Union maintained its leadership, ties of the economic opening that certain the entry of foreign capital in sectors such but despite that, it declined in importance markets such as Brazil, Argentina, Mexico, as petroleum and mining, accompanied by with 40 percent of the total amounts. The Venezuela, and Costa Rica represented. the discoveries of new deposits in various investments from the United States fell It should be stated that during the 1990s, Latin American countries including Co-

54 LATIN AMERICA POLICY JOURNAL spring 2014 55 ECONOMIC DEVELOPMENT Current Trends and a New Agenda utively, with the exception of 2008, which from 37 percent in 2000-2005 to almost 28 Mexico had a high performance in the at- lombia, Brazil, and Peru, have promoted a showed a decrease as a consequence of the percent in 2006-2011. traction of investments in manufacturing large inflow of FDI. This is particularly true global financial crisis. By the year 2011, for- Curiously, the emergence of other oriented toward exports, taking advantage for countries like Chile, Peru, Colombia, eign investment inflows in Latin America alternative sources of origination marked of its commercial integration with the and Brazil that consolidated a regulatory had not only recovered but had achieved the dynamism of foreign investment in United States and Canada. In this manner, framework that permits the participation maximum historic levels, exceeding 120 Latin America during this second period. 60 percent of the FDI in Latin America was of private investment in various large-scale billion dollars, with Brazil, Mexico, and The participation of Asia in FDI went concentrated in the service sector and 23 projects. On the other hand, other coun- Colombia attracting the greatest amount of from 11 percent in 2000-2005 to almost 17 percent in the manufacturing sector. The tries, such as Argentina, Bolivia, and Ven- inflows in the last few years. percent in 2006-2011. Furthermore, Latin FDI in industries based on natural resourc- ezuela, which modified their public policies From 2006-2011, a large part of the America began to observe in both periods es barely represented 12 percent. to seek a more strategic control of these annual inflows of FDI in Latin America the expansion of the companies known as By the end of the first decade of the industries by the State, have experienced have been concentrated in a small group multilatinas, which have been dominated millennium, some new sectorial trends disinvestment processes. Despite this, the of countries: Brazil, Mexico, Colombia, by processes of strong expansion of their began to be observed. The proportion of investments in the exploitation of natural Chile, Peru, Uruguay, and Panama. For markets within the region itself, through FDI in the service sector maintained its resources that the first group of countries example, in the cases of Panama and Chile, the extensive use of FDI mechanisms. From importance (although declining), attracting has been able to attract (those with more FDI is close to or higher than 8 percent of 2000 to 2005, the Latin American origina- 43 percent of total flows from 2006 to 2011. open investment frameworks) have been gross domestic product (GDP); it is close tion of FDI represented little more than 10 FDI in the manufacturing sector reached really large. to 3.5 percent and 2.5 percent of GDP in percent of the annual inflows; while from 33 percent between 2006 and 2011, repre- Finally, from 2005 to 2007, the central Brazil and Mexico, respectively. In Colom- 2006 to 2011, these flows reached almost senting a significant increase compared to component of FDI in Latin America was bia, Uruguay, and Peru, there has been a 17 percent of the total amounts received by previous periods of time. The FDI in natu- provided by capital contributions. In effect, significant increase in FDI, comparing the the different countries. In other words, in ral resources also increased significantly, more than 48 percent of the net income importance of the amounts they attracted the period of 2006 to 2011, both Asian and representing in this same period 17 percent of foreign investment was of this nature. from 1996 to 2000 in relation to the high Latin American sources grew strongly in of the total flows of FDI in Latin America. Between 2009 and 2011, this same percent- levels of attraction achieved for the period terms of importance, while the FDI from Interestingly, in the last few years, FDI in age had reduced to 40 percent, increasing of 2006 to 2011; in Uruguay and Colombia, Europe and the United States—which con- natural resources increased to 28 percent of instead the importance of the reinvestment FDI for 2006-2011 reached 5.5 percent and tinued to represent the greatest proportion total inflows toward Latin America. of the profit (which came to represent more 3.5 percent of GDP, respectively. Countries of funds—experienced a clear decrease in Various causes explain these trends. than 50 percent of all the components of like Venezuela, Bolivia, and Argentina, on terms of their relative importance. In the service sector, there has been a clear the net income of FDI). This quantita- the other hand, have shown a significant transition from the specific opportuni- tive change reflects the perception by the fall in the importance of FDI as a percent- Sectorial Behavior ties that were generated by the privatiza- foreign companies in Latin America of a age of GDP throughout the last decades. The sectorial behavior of the FDI has tion processes, especially in the financial fall in the risk levels and a greater desire shown some interesting changes, particu- and telecommunications sector, toward a to finance their expansion in the region Origin of the Investment larly when compared to the 1990s. During growing expansion of the internal markets through reinvestment processes. This is un- The origin of FDI in Latin America that decade, the FDI in Latin America was marked by the growth of the middle classes doubtedly an obvious change and a process has changed significantly upon comparing highly concentrated in the attraction of and the reduction in the poverty gaps. that can have positive long-term effects on the periods of 2000 to 2005 and 2006 to investments in the service sector, mainly This new social and economic reality has the economic and productive performance 2011. In the first period, both the Euro- due to the opportunities generated by the created downscaling opportunities, which of the region. However, FDI in Latin Amer- pean Union and the United States had a privatization processes and the opening have allowed many of these foreign compa- ica continues to respond more to the search very high percentage weight in terms of applied to the financial sectors, telecom- nies to reinvest to increase the expansion for high returns derived from opportunities their participation as originators of FDI. munications sectors, and public service of their services to the various sectors of that arise from changes in the regulatory In particular, the European Union had a sectors (electricity and water). In this same the population, even the lowest-income frameworks (privatizations or opening of clear leadership in the process, represent- period, the FDI also took advantage of sectors. sectors), than the attractiveness itself of the ing almost 45 percent of the origin of the opportunities in the manufacturing sector, Regarding natural resources, the emer- countries with regard to their competitive annual inflows. In the second period, the especially to capitalize on the opportuni- gence of public policies more favorable to improvements. European Union maintained its leadership, ties of the economic opening that certain the entry of foreign capital in sectors such but despite that, it declined in importance markets such as Brazil, Argentina, Mexico, as petroleum and mining, accompanied by with 40 percent of the total amounts. The Venezuela, and Costa Rica represented. the discoveries of new deposits in various investments from the United States fell It should be stated that during the 1990s, Latin American countries including Co-

54 LATIN AMERICA POLICY JOURNAL spring 2014 55 ECONOMIC DEVELOPMENT Current Trends and a New Agenda

Some New Tendencies of FDI in shows that the region has been earning ment of Chinese origin is a global process The Multilatinas Latin America the trust of foreign investors with regard that began more than a decade ago and The emergence of the multilatinas to their future growth decisions, which that reflects the growing economic impor- reflects how globalization has a reverse Venture Capital has had an impact on the expansion of the tance of this country on a global level, it is side: the growing role of originators of FDI Although to a lesser extent than Asia range of activities carried out by multi- a relatively new process in Latin America. from developing countries toward coun- or Eastern Europe, Latin America has seen national companies within the different The presence of Chinese FDI in Latin tries also in the process of development the appearance of new forms of foreign in- industries in which they have established America has basically concentrated on the (south-south) and even also of developing vestment, especially in the form of venture themselves. sectors related to the exploitation of natural countries to developed countries (south- capital funds. This phenomenon has been Additional evidence of the increased resources (petroleum and mining) and north). In fact, of the one hundred biggest mainly concentrated in Brazil and Mexico confidence is the expansion of the spec- incipiently in the agricultural and telecom- companies of the emerging markets, nine and with an incipient presence in Chile and trum of activities of some multinational munications sectors. have their headquarters in Latin America: Colombia. For the year 2011, these funds companies that have chosen to install It is evident that the main driver Cemex, Telcel, Embraer, Votorantim, and had committed close to 6.5 billion dollars R&D centers in certain Latin American behind the Chinese investment is the need Vale Do Rio Doce, among others, represent in investment for the region, which repre- countries. This process is still very new to ensure the provision of certain raw some of the most emblematic multilatina sents close to 5 percent of the total funds and requires an adequate public policy (in materials considered strategic to guarantee companies. invested globally. matters of sector policy as well as science China’s future economic growth (fun- On a global level, the multilatinas went These amounts are scarcely relevant and technology) to be able to stimulate and damentally, energy) and for which Latin from originating 0.5 percent of the global on a global level. Additionally, many of consolidate the economic and scientific America plays a privileged geopolitical amounts of FDI in the period from 1970 these funds operate more as development impact of this type of investment. role. Besides this, in many of these invest- to 1990 to 3.7 percent for the period from capital—oriented toward equity invest- Although the total investment in terms ment processes, especially in the petroleum 2000 to 2009. These amounts currently ment in ongoing companies—than in of R&D in Latin America is comparatively sector, the state companies of China have represent 27 percent of the total FDI flows the financing of risk investments per se. low, it is also true that the public compo- played a preponderant role, financed ad- originated in the developing countries, However, as a recent phenomenon, this nent is the most important and the private ditionally through their development bank- since more than 60 percent are being made process is tremendously significant. For component presents significantly low levels ing institutions. In this sense, the tendency by companies based in Asia. Although the first time, Latin America is beginning of investment. However, certain countries, of a greater presence of Chinese investors compared to Asian companies, the mul- to receive investment oriented toward such as Brazil, Mexico, and Chile, have in Latin America is something new due not tilatinas are far from wielding the global identifying dynamic growth companies as started to show some changes that deserve only to its “origin” but also to the character- leadership of this new process, it is no less well as the identification of new, innova- to be highlighted. The private sectors in istics of the companies that have driven this true that their growth is significant and has, tive projects. This is a fundamental boost Chile and Mexico are financing almost 50 process (i.e., state companies) and to their among Mexican and Brazilian companies, for business development that permits the percent of the total investment in R&D. high sectorial focus (i.e., raw materials). its most distinguished examples. injection of dynamism to the growth of In Brazil, this amount is a little more than In terms of relative importance, the Contrary to the dynamic observed medium companies with high potential. 40 percent. Among these amounts, the region has become the second geographical in the case of FDI from China in Latin However, the sustainability of this process increase in private financing reflects the destination for China for FDI. Of the total America, the sectors in which the mul- will depend on the capacity of the countries decisions of various multinational compa- amounts, during the last decade, China has tilatina companies show greater activity not only to attract risk capital but also to nies—Siemens, General Electric, Cargill, invested close to 26 billion dollars, which are more diversified. In particular, invest- strengthen their capital markets, as well and Procter & Gamble among others—to represents close to 11 percent of its total ments in food and beverages, engineering as their national and regional innovation open their R&D centers in some of these flows. Very few of these investments have and construction, steel and metallurgy, systems and the existence of a greater flow Latin American nations. This tendency been carried out by private companies, transport, petroleum, and mining stand of business projects that are attractive for undoubtedly reflects one of the most posi- while the rest involve companies with state out. Furthermore, this is a process in this type of investor. tive aspects of the recent dynamic of FDI participation. In terms of the amounts of which there is a growing participation of in the region, since it permits the leverage the transactions, the FDI promoted by the medium-sized companies that attempt to Research and Development of innovation processes based on techno- state companies represents more than 80 emulate the internalization patterns of the One of the most outstanding charac- logical transfers with a higher productive percent of the total invested amounts. Most large Latin American companies through teristics of the recent behavior of FDI in impact in the economic development of of these transactions are concentrated in which they tend to be integrated as suppli- Latin America is related to the fact that the these countries. sectors related to raw materials, especially ers. This expansion in the size range of the most significant component in net income petroleum and mining, and most recently investors (from large to medium and their is being provided by the reinvestment of China as Investor some operations in the agriculture sector greater diversification) is probably showing profit. As mentioned previously, this reality Although the growth of the invest- are observed. that the FDI originating from the multila-

56 LATIN AMERICA POLICY JOURNAL spring 2014 57 ECONOMIC DEVELOPMENT Current Trends and a New Agenda

tinas is having a growing regional integra- semination and adoption, demands that tion impact. stimulate competitive solutions for the business challenges being faced are gener- The New Agenda of FDI in ated. Latin America The emergence of the multilatinas as a Michael Penfold is currently Director The trends that have been described new investment channel is undoubtedly an- for Public Policy and Competitiveness at show some notable changes in the behavior other matter that arises from this analysis, CAF Development Bank of Latin America of FDI in Latin America. These changes especially for its regional integration effect and Associate Professor at IESA. Under his are accentuated when compared with the as well as its greater sectorial diversifica- tenure (2008 to present), he has led the rapid 1990s. In general terms, Latin America tion. Some of the multilatina companies, expansion of CAF's flagship programs for continues to increase its attraction for especially the largest ones, have advanced private-sector development and institution FDI as a result of the consolidation of its to compete not only regionally but also building from five to sixteen member coun- economic and commercial liberalization globally. However, there is evidence that tries. His work has also succeeded in raising processes. Simultaneously, Latin America the investment of Latin American firms funds in Asia and Europe to help channel achieved greater diversification in the ori- is not only limited to major companies, resources into the projects of the different gin of FDI, and the presence of new types but is also being expanded to the medium member countries focusing on foreign invest- of investment as well as activities more companies of the region. In this sense, a ment, entrepreneurship, corporate gover- oriented toward innovation objectives are new agenda must include the most rigor- nance, and competitiveness. During his time also evident. These processes have been the ous analysis of the profile of these medium at CAF, Penfold has also spearheaded the result of the appearance of venture capital companies and the characterization of their bank’s efforts to set up knowledge manage- funds as well as the decisions of multina- internationalization strategies. ment processes that document best practices tional companies to install R&D centers in Finally, Latin America observes in in public policies and actively sharing it with some specific countries, in the context of an incipient manner the appearance of policy makers throughout the region. He growing domestic markets characterized new forms of foreign investment (venture holds a PhD, MPhil, and MA in political by a larger middle class. However, foreign capital) as well as new related activities science from Columbia University, where investment has shown growth in primary (research and development). This leads us he studied as a Fulbright Fellow. His area of sectors and a decrease in the manufactur- to assume that innovation will be one of expertise is in comparative political economy ing sector. Therefore, there are some chal- the central elements of a certain type of with a special interest on political institu- lenges that deserve to be mentioned as part foreign investment in the region, especially tions and democratization and its impact on of a new development agenda. in those countries that show competitive economic development. His most recent book A second matter is the need to stimu- improvements in their institutional frame- (coauthored with Javier Corrales), Dragon in late a greater link between competitiveness works. Based on this it becomes imperative the Tropics: The Political Economy of Revo- and the investment attraction agenda on to document the characteristics and the lution in Venezuela, was awarded 2011 Best a country level and also of the territorial experience of the venture capital funds and Book in the Western Hemisphere by Foreign localities. This link necessarily requires the the type of investments that they are carry- Affairs. In 2011, he was listed by Foreign attraction of a greater number of investing out. Furthermore, it is also necessary to Policy as one of the top twenty most influ- ments—especially in the manufacturing better understand the various business cas- ential young intellectuals in Latin America. sector and with a greater export focus— es that led to the installation of some R&D His research has been published in numerous that generate sufficient demand to sophisti- Centers in order to understand the success books and academic and professional jour- cate the competitive agenda of the coun- factors and the public policy requirements nals in both Spanish and English, including tries and drive the territorial development that were demanded by the companies. Harvard Business Review Latin America, of the localities. This process is irrevocably These types of findings are fundamental Latin American Politics and Society, Journal related to the productive consolidation of to be able to promote adequate regulatory of Democracy, Americas Quarterly and business clusters (new and old) located frameworks that make the region more Foreign Affairs among others. throughout the entire territory, so that competitive and to identify potential in- given increases in the levels of association novative sectors in which greater FDI levels between the various actors, the attraction could be attracted. of new investments and technological dis-

58 LATIN AMERICA POLICY JOURNAL spring 2014 59 ECONOMIC DEVELOPMENT Current Trends and a New Agenda tinas is having a growing regional integra- semination and adoption, demands that tion impact. stimulate competitive solutions for the business challenges being faced are gener- The New Agenda of FDI in ated. Latin America The emergence of the multilatinas as a Michael Penfold is currently Director The trends that have been described new investment channel is undoubtedly an- for Public Policy and Competitiveness at show some notable changes in the behavior other matter that arises from this analysis, CAF Development Bank of Latin America of FDI in Latin America. These changes especially for its regional integration effect and Associate Professor at IESA. Under his are accentuated when compared with the as well as its greater sectorial diversifica- tenure (2008 to present), he has led the rapid 1990s. In general terms, Latin America tion. Some of the multilatina companies, expansion of CAF's flagship programs for continues to increase its attraction for especially the largest ones, have advanced private-sector development and institution FDI as a result of the consolidation of its to compete not only regionally but also building from five to sixteen member coun- economic and commercial liberalization globally. However, there is evidence that tries. His work has also succeeded in raising processes. Simultaneously, Latin America the investment of Latin American firms funds in Asia and Europe to help channel achieved greater diversification in the ori- is not only limited to major companies, resources into the projects of the different gin of FDI, and the presence of new types but is also being expanded to the medium member countries focusing on foreign invest- of investment as well as activities more companies of the region. In this sense, a ment, entrepreneurship, corporate gover- oriented toward innovation objectives are new agenda must include the most rigor- nance, and competitiveness. During his time also evident. These processes have been the ous analysis of the profile of these medium at CAF, Penfold has also spearheaded the result of the appearance of venture capital companies and the characterization of their bank’s efforts to set up knowledge manage- funds as well as the decisions of multina- internationalization strategies. ment processes that document best practices tional companies to install R&D centers in Finally, Latin America observes in in public policies and actively sharing it with some specific countries, in the context of an incipient manner the appearance of policy makers throughout the region. He growing domestic markets characterized new forms of foreign investment (venture holds a PhD, MPhil, and MA in political by a larger middle class. However, foreign capital) as well as new related activities science from Columbia University, where investment has shown growth in primary (research and development). This leads us he studied as a Fulbright Fellow. His area of sectors and a decrease in the manufactur- to assume that innovation will be one of expertise is in comparative political economy ing sector. Therefore, there are some chal- the central elements of a certain type of with a special interest on political institu- lenges that deserve to be mentioned as part foreign investment in the region, especially tions and democratization and its impact on of a new development agenda. in those countries that show competitive economic development. His most recent book A second matter is the need to stimu- improvements in their institutional frame- (coauthored with Javier Corrales), Dragon in late a greater link between competitiveness works. Based on this it becomes imperative the Tropics: The Political Economy of Revo- and the investment attraction agenda on to document the characteristics and the lution in Venezuela, was awarded 2011 Best a country level and also of the territorial experience of the venture capital funds and Book in the Western Hemisphere by Foreign localities. This link necessarily requires the the type of investments that they are carry- Affairs. In 2011, he was listed by Foreign attraction of a greater number of investing out. Furthermore, it is also necessary to Policy as one of the top twenty most influ- ments—especially in the manufacturing better understand the various business cas- ential young intellectuals in Latin America. sector and with a greater export focus— es that led to the installation of some R&D His research has been published in numerous that generate sufficient demand to sophisti- Centers in order to understand the success books and academic and professional jour- cate the competitive agenda of the coun- factors and the public policy requirements nals in both Spanish and English, including tries and drive the territorial development that were demanded by the companies. Harvard Business Review Latin America, of the localities. This process is irrevocably These types of findings are fundamental Latin American Politics and Society, Journal related to the productive consolidation of to be able to promote adequate regulatory of Democracy, Americas Quarterly and business clusters (new and old) located frameworks that make the region more Foreign Affairs among others. throughout the entire territory, so that competitive and to identify potential in- given increases in the levels of association novative sectors in which greater FDI levels between the various actors, the attraction could be attracted. of new investments and technological dis-

58 LATIN AMERICA POLICY JOURNAL spring 2014 59 ECONOMIC DEVELOPMENT The Economic Legacy of Hugo Chavez

government spending another 9.1 percent.2 2012, making it the second most violent While real gross domestic product (GDP) country in the world and Caracas the sixth per person grew only 3.1 percent and real most dangerous city on the planet.4 Public wages fell 0.2 percent, private consumption infrastructure is also a big problem: the per head increased 5.6 percent. Poverty overall quality of life and the country’s rates dropped from 53.9 to 25.4 percent, competitiveness have been affected by the extreme poverty from 22.5 to 7.1 percent, congested and outdated state of the nation’s and the Gini coefficient of inequality fell network of roads, ports, airports, electric- from 0.46 to 0.39. These results would ity, water, and sewage systems, among prove instrumental to the government’s others. Institutions are crumbling as well: phenomenal success at the polls (see Ap- Venezuela ranks 134 out of 148 countries pendix I and II).3 in the 2013-2014 World Economic Forum’s The Economic Legacy of By October 2012, however, expansion- Global Competitiveness Report and 180 ary policies had reached their limits. The out of 185 in the 2012 Doing Business recipe was simply not sustainable. When index. Out of the 214 countries included in Hugo Chávez oil prices stumbled as a result of the 2008 the World Bank’s 2011 Worldwide Gover- financial crisis, the authorities decided to nance Indicators, Venezuela ranks 162 in finance their way through, a strategy that voice and accountability, 191 in political BY MIGUEL ANGEL SANTOS AND RICARDO VILLASMIL continued unabated after oil prices re- stability and absence of violence, 184 in bounded to their precrisis levels but failed government effectiveness, 196 in control of to continue their upward trend. Various corruption, and 211 (fourth to last) in rule sources of financing have been tapped since of law. then: foreign public debt increased from $38 billion to $103 billion, and domestic Political and Economic Background Abstract cided to finance an unprecedented boom in debt went from $17billion to $39 billion It is tempting to see Hugo Chavez and ALTHOUGH IT IS too soon to assess private consumption through expansionary between 2009 and 2012. The authorities his Bolivarian Revolution as a historical late Venezuelan President Hugo Chavez’s macroeconomic policies. Ever-expanding also resorted to printing money. After mishap, a political cyclone that destroyed political legacy, we argue that taking an fiscal spending was coupled with inter- growing 14 percent and 19 percent in 2009 what not too long ago stood as one of the economic perspective allows for three im- est rate, price, and exchange controls, as and 2010, respectively, money supply (M2) strongest and most successful democracies portant conclusions to emerge: (1) his rise well as general subsidies and massive cash grew 51 percent in 2011 and 60 percent in South America. To be sure, Chavez had to power can be largely explained by the transfers to the poor. They supplemented in 2012, partly as a result of Central Bank all the characteristics of a messianic leader. abysmal economic performance of his pre- this mix with left-wing revolutionary loans to the national oil company, Petróleos His oratory skills, charisma, and indisput- decessors; (2) the consolidation of his rule rhetoric, a systematic dismantling of checks de Venezuela, S.A (PDVSA), and to other able talent to stir up the base emotions of is partly the result of spectacular increases and balances on executive power, and State-owned enterprises. Finally, arrears the masses made him an indispensable in private consumption generated by wildly aggressive administrative, legislative, and ballooned in 2012 as other sources proved ingredient of any attempt to explain not expansionary policies in the context of judicial actions against private property, insufficient. Most of these arrears are not only the highly controversial appeal of his price and exchange rate controls; and (3) media outlets, and opposition leaders. documented or consolidated in any report Bolivarian Revolution, but more impor- Chavez passed away leaving his political Year after year, the administration of coming from official sources; estimates of tantly, the all but absolute control of the heir holding the bag of financial excess and Venezuelan President Hugo Chavez man- their tally have to be obtained from the Venezuelan State he managed to muster his countrymen at large the much heavier aged to survive the ominous predictions of corresponding chambers and other private throughout his fourteen-year rule. legacy of paying the price of his political mainstream economists as domestic and associations. The problem with such an interpreta- success. external constrains kept pushing forward. In addition to these hard-pressing tion, however, is that it fails to take into The figures are quite revealing. Between financial matters, Venezuela faces other sig- account the fertile soil that his violent and Introduction 2005 and 2012, the compounded annual nificant and immediate challenges. Accord- vindictive message found when he decided One could say that they painted them- growth rate of oil exports was 14 percent ing to public opinion polls, personal securi- to run for president in 1998, after his failed selves into a corner. Buttressed by the larg- and that of the stock of foreign debt was ty is the most pressing concern. Intentional coup attempt in 1992. Had this rabble- est and most prolonged run in oil prices in 16.8 percent.1 They both allowed the value homicides have soared from a rate of 20 rouser tumbled into the spotlight two or Venezuelan history, the country rulers de- of imports to grow 17.4 percent and real per 100,000 population in 1999 to 73 in three decades earlier, he would have at best

60 LATIN AMERICA POLICY JOURNAL spring 2014 61 ECONOMIC DEVELOPMENT The Economic Legacy of Hugo Chavez

become the leader of a small political fringe rible news for a country where oil earnings and fiscal policy; set a fixed and overvalued equipment production, pharmaceuticals, group. represent about 50 percent of government currency; and imposed foreign exchange, and paper. Usually this came as a result of In the early 1970s, Venezuela was, by income and 90 percent of export revenues. price, and interest rate controls. In order an expropriation and in association with all accounts, the richest and most promis- Traditional parties, long since out of to better capitalize the political returns of political allies in a given private company’s ing country in Latin America. An astonish- touch with the day-to-day lives of common the consumption boom generated by these workforce, but also resulted from new ing feat, to be sure, for a country that only Venezuelans, underestimated Chavez as policies, they diverted the proceeds of the ventures with political allies such as Iran, fifty years before stood as one of the most well as the appeal of his rhetoric, paving his oil price boom from PDVSA, the budget, China, and Belarus. One important indica- backward nations in the Western Hemi- way to the presidency in 1998. The first five and from the Central Bank into FONDEN, tor of this policy is that between 2005 and sphere. It was precisely at that time that years of his rule were particularly difficult a newly created investment fund managed 2012, the government share of total im- a new setting of civil and political order from an economic point of view, partly with absolute discretion by the president.6 ports went from 17 percent to 44 percent. combined with the discovery and subse- as a result of increasing but still relatively The Venezuelan economy responded quent exploitation of huge oil deposits, low oil prices and also due to the very low to this distorted set of incentives by aban- 2012: The Final Showdown allowing for the possibility of channeling levels of private investment. From a politi- doning domestic production in favor of Whenever his political survival has growing fiscal revenues into much-needed cal perspective, however, it was during this import and consumption-related sectors. been at stake, Chavez has never been will- public goods and services. Although not time that Chavez’s acute gambling instinct Year after year, oil price increases allowed ing to leave loose ends. Back in 2006, in always wisely spent, sustained increases in allowed him to induce a politically inept for large increases in imports to cover for spite of leading the polls by a wide margin, government spending during the next fifty and arrogant opposition into a costly series shortcomings in domestic production, thus he engineered an increase in nominal pub- years allowed Venezuela to become one of of mistakes that resulted in him taking per- keeping the expansion in private consump- lic expenditure of 51.7 percent (29.2 per- the top economic and social performers sonal control of the key powers of the State: tion from getting bogged down in bottle- cent in real terms), augmenting liquidity in Latin America and the world.5 Incomes the Armed Forces after the coup attempt necks. by 61.7 percent and dollar imports by 20.1 grew eightfold in per capita terms, life of 2002, PDVSA after the national strike of As a result of the government’s poli- percent. Booming oil prices and spare ca- expectancy increased from thirty-one to 2003, 20 of 22 governorships and 270 out of cies, significant qualitative changes in the pacity allowed for 9.9 percent GDP growth, sixty-five years, and literacy rates went 337 municipalities through the opposition’s economy also took place in terms of the with real private consumption increasing from 32 percent to 77 percent. After 1958, partial boycott of the regional elections of share and the role of the public sector 14.4 percent per capita, paving his way the country turned itself into a model of 2004, and finally, the National Assembly as in the provision of goods and services. to a crushing victory (62.8 percent). The democracy in a region marred by guerilla a result of the boycott of the 2005 elections. Starting in 2004, the government took ag- circumstances in 2012 were different. Six warfare and brutal military dictatorships. This accumulation of power in the gressive steps toward enlarging its relative years of high public expenditure and so- By the early 1980s, however, the magic hands of the president is without precedent scope and size through more regulations, cialism had depleted spare capacity, leading had vanished. Between 1978 and 1998, in the country’s contemporary history. takeovers, and outright expropriations. to frequent shortages in different industries income per head fell 20 percent in real Between 1958 and 1998, the main political Between 2004 and 2010, the government that have been addressed through imports. terms, making Venezuela the worst per- parties alternated in power in contested expropriated 779 private businesses.7 The Foreign debt had increased fourfold, leav- former in the region and sending the share elections. The Parliament, the Attorney authorities took control of companies and ing monetization, internal debt, and arrears of the population living under poverty General’s office, and the Supreme Court, sectors they deemed as strategic, such as oil as the only financing options. In the con- from 23 percent to 57 percent. Although albeit imperfectly, did provide checks and service contractors and steel and cement text of a close presidential race, the need to the causes behind such a drastic reversal balances on the Executive’s power. Presi- production, and enlarged its presence in compensate for his diminished presence on of fortune are still hotly debated, an angry dent Chavez’s will, in contrast, has become, banking as well as in food production and the campaign trail seemed to complete the and frustrated population saw little more over time, all but uncontested. distribution and retail of basic consumer recipe for a perfect storm. than widespread corruption in the political goods.8 Even in sectors where it did not The oil price boom that began in system behind this turn of events. Hugo 2005-2012: The Macroeconomics possess a large share of total production, earnest in 2005 marks the last fiscal surplus Chavez could not have picked a better time of Populism the government heightened its control by (4.1 percent) to date. From then onward, to burst into the political scene. At the time As oil prices began to increase in 2004, setting producer and consumer prices, the consolidated fiscal balance9 has reg- of his coup attempt, the population was the administration learned quite rapidly wages, the size of the workforce, and im- istered an expanding deficit, a tendency emerging from the adjustment phase of an the political benefits of stimulating private port quantities. It also prohibited exports, that deepened throughout 2009-2012 as oil International Monetary Fund (IMF)–spon- consumption. In a surprisingly faithful and fixed shipment size and frequency for prices recovered from the financial crisis to sored reform package that had taken the remake of the set of policies described by each destination according to estimated later surpass the hundred dollar per barrel population largely by surprise. By 1998, Rudiger Dornbusch and Sebastian Edwards demand in order to prevent hoarding. The barrier. This unlikely result was caused by a the country was in tatters: oil prices had in The Macroeconomics of Populism, the government also ventured into a wide array number of factors: plummeted below ten dollars a barrel, ter- authorities decided to loosen monetary of industries such as automobile and farm

62 LATIN AMERICA POLICY JOURNAL spring 2014 63 ECONOMIC DEVELOPMENT The Economic Legacy of Hugo Chavez become the leader of a small political fringe rible news for a country where oil earnings and fiscal policy; set a fixed and overvalued equipment production, pharmaceuticals, group. represent about 50 percent of government currency; and imposed foreign exchange, and paper. Usually this came as a result of In the early 1970s, Venezuela was, by income and 90 percent of export revenues. price, and interest rate controls. In order an expropriation and in association with all accounts, the richest and most promis- Traditional parties, long since out of to better capitalize the political returns of political allies in a given private company’s ing country in Latin America. An astonish- touch with the day-to-day lives of common the consumption boom generated by these workforce, but also resulted from new ing feat, to be sure, for a country that only Venezuelans, underestimated Chavez as policies, they diverted the proceeds of the ventures with political allies such as Iran, fifty years before stood as one of the most well as the appeal of his rhetoric, paving his oil price boom from PDVSA, the budget, China, and Belarus. One important indica- backward nations in the Western Hemi- way to the presidency in 1998. The first five and from the Central Bank into FONDEN, tor of this policy is that between 2005 and sphere. It was precisely at that time that years of his rule were particularly difficult a newly created investment fund managed 2012, the government share of total im- a new setting of civil and political order from an economic point of view, partly with absolute discretion by the president.6 ports went from 17 percent to 44 percent. combined with the discovery and subse- as a result of increasing but still relatively The Venezuelan economy responded quent exploitation of huge oil deposits, low oil prices and also due to the very low to this distorted set of incentives by aban- 2012: The Final Showdown allowing for the possibility of channeling levels of private investment. From a politi- doning domestic production in favor of Whenever his political survival has growing fiscal revenues into much-needed cal perspective, however, it was during this import and consumption-related sectors. been at stake, Chavez has never been will- public goods and services. Although not time that Chavez’s acute gambling instinct Year after year, oil price increases allowed ing to leave loose ends. Back in 2006, in always wisely spent, sustained increases in allowed him to induce a politically inept for large increases in imports to cover for spite of leading the polls by a wide margin, government spending during the next fifty and arrogant opposition into a costly series shortcomings in domestic production, thus he engineered an increase in nominal pub- years allowed Venezuela to become one of of mistakes that resulted in him taking per- keeping the expansion in private consump- lic expenditure of 51.7 percent (29.2 per- the top economic and social performers sonal control of the key powers of the State: tion from getting bogged down in bottle- cent in real terms), augmenting liquidity in Latin America and the world.5 Incomes the Armed Forces after the coup attempt necks. by 61.7 percent and dollar imports by 20.1 grew eightfold in per capita terms, life of 2002, PDVSA after the national strike of As a result of the government’s poli- percent. Booming oil prices and spare ca- expectancy increased from thirty-one to 2003, 20 of 22 governorships and 270 out of cies, significant qualitative changes in the pacity allowed for 9.9 percent GDP growth, sixty-five years, and literacy rates went 337 municipalities through the opposition’s economy also took place in terms of the with real private consumption increasing from 32 percent to 77 percent. After 1958, partial boycott of the regional elections of share and the role of the public sector 14.4 percent per capita, paving his way the country turned itself into a model of 2004, and finally, the National Assembly as in the provision of goods and services. to a crushing victory (62.8 percent). The democracy in a region marred by guerilla a result of the boycott of the 2005 elections. Starting in 2004, the government took ag- circumstances in 2012 were different. Six warfare and brutal military dictatorships. This accumulation of power in the gressive steps toward enlarging its relative years of high public expenditure and so- By the early 1980s, however, the magic hands of the president is without precedent scope and size through more regulations, cialism had depleted spare capacity, leading had vanished. Between 1978 and 1998, in the country’s contemporary history. takeovers, and outright expropriations. to frequent shortages in different industries income per head fell 20 percent in real Between 1958 and 1998, the main political Between 2004 and 2010, the government that have been addressed through imports. terms, making Venezuela the worst per- parties alternated in power in contested expropriated 779 private businesses.7 The Foreign debt had increased fourfold, leav- former in the region and sending the share elections. The Parliament, the Attorney authorities took control of companies and ing monetization, internal debt, and arrears of the population living under poverty General’s office, and the Supreme Court, sectors they deemed as strategic, such as oil as the only financing options. In the con- from 23 percent to 57 percent. Although albeit imperfectly, did provide checks and service contractors and steel and cement text of a close presidential race, the need to the causes behind such a drastic reversal balances on the Executive’s power. Presi- production, and enlarged its presence in compensate for his diminished presence on of fortune are still hotly debated, an angry dent Chavez’s will, in contrast, has become, banking as well as in food production and the campaign trail seemed to complete the and frustrated population saw little more over time, all but uncontested. distribution and retail of basic consumer recipe for a perfect storm. than widespread corruption in the political goods.8 Even in sectors where it did not The oil price boom that began in system behind this turn of events. Hugo 2005-2012: The Macroeconomics possess a large share of total production, earnest in 2005 marks the last fiscal surplus Chavez could not have picked a better time of Populism the government heightened its control by (4.1 percent) to date. From then onward, to burst into the political scene. At the time As oil prices began to increase in 2004, setting producer and consumer prices, the consolidated fiscal balance9 has reg- of his coup attempt, the population was the administration learned quite rapidly wages, the size of the workforce, and im- istered an expanding deficit, a tendency emerging from the adjustment phase of an the political benefits of stimulating private port quantities. It also prohibited exports, that deepened throughout 2009-2012 as oil International Monetary Fund (IMF)–spon- consumption. In a surprisingly faithful and fixed shipment size and frequency for prices recovered from the financial crisis to sored reform package that had taken the remake of the set of policies described by each destination according to estimated later surpass the hundred dollar per barrel population largely by surprise. By 1998, Rudiger Dornbusch and Sebastian Edwards demand in order to prevent hoarding. The barrier. This unlikely result was caused by a the country was in tatters: oil prices had in The Macroeconomics of Populism, the government also ventured into a wide array number of factors: plummeted below ten dollars a barrel, ter- authorities decided to loosen monetary of industries such as automobile and farm

62 LATIN AMERICA POLICY JOURNAL spring 2014 63 ECONOMIC DEVELOPMENT The Economic Legacy of Hugo Chavez

• Oil revenues measured in do- transfer automatically to the regional and The Aftermath mestic currency plunged as the local governments (Situado Constitucio- As we write these lines, Venezuela has government continued to use nal).10 As the opposition regional strong- just completed the first year of its transi- the exchange rate as an anchor holds starved, a number of funds were tion post-Chavez. Under the rule of his against inflation created to collect deviated public revenues. heir, Nicolás Maduro, the country had a Miguel Angel Santos was the head • A nationwide election held every These funds, not subject to any mechanism gloomy year. Preliminary estimates of the of the Macroeconomic Policy Team for year from 2007 to 2010 forced for accountability, became a vehicle for consolidated fiscal balance indicate that presidential candidate Henrique Capriles the government to maintain high discretionary public expenditure. The most 2013 closed with a 15 percent of GDP in the Venezuelan elections of 2012. He fiscal expenditure prominent of these funds was FONDEN, deficit, financed by printing money and has more than twelve years of executive • The exhaustion of demand-driv- which has received from inception to 2012 issuing domestic debt in equal shares. The experience doing business development and en growth, with the industrial a total of US $94 billion. Accountability is monetary base grew by 71 percent, pushing corporate finance in Latin America, work- apparatus out of spare capacity almost nil, both on the uses and remain- consumer prices up by 56.1 percent and ing for large family holdings, multinational and little investment, rendered ing balance. According to internal sources, food prices by 80.1 percent. As the govern- companies, and investment banks. He is an public expenditure ever more FONDEN has always been administered ment continued to rely on price controls, Adjunct Professor at the Center of Finance inefficient directly by President Chavez and his imme- shortages became rampant. of Instituto de Estudios Superiores en Ad- diate entourage, and questions regarding The parallel exchange rate depreciated ministración (IESA) in Caracas and writes The consolidated fiscal balance in the destination of the funds or the actual by 85 percent, going from 12 units of do- a weekly column at El Universal, Venezuela’s 2009, 2010, and 2011—the three years balance of its holdings have never been mestic currency per dollar to 80. Interna- oldest nationwide newspaper. Angel holds prior to the presidential election—shows a welcomed. tional reserves are roughly enough to cover two MSc degrees, in economics and finance deficit of 8.8 percent, 10.4 percent, and 12.6 Figures for consolidated fiscal bal- four months of imports, and 90 percent of and in specialized economic analysis, both percent of GDP, respectively (see Appendix ance, including FONDEN, Chinese Fund, them are composed by gold reserves held from Universitat Pompeu Fabra, and has III). The fiscal outlook by year end 2012 Fondo Independencia, and other funds, are at the Central Bank. The foreign exchange also earned the right to use the Chartered was even worse. None of the three factors not public. The Ministry of Finance only cash balance has been depleted, and the Financial Analyst (CFA) designation. mentioned above would change. Oil prices provides a financial summary compris- economy now lingers on the flow. Short- He is a currently an Edward S. Mason stabilized, and oil production and export ing the joint fiscal accounts of the central ages of electricity and basic goods are Fellow at the John F. Kennedy School of volumes were stagnant. The government government and PDVSA. According to rampant. Government at Harvard University and a quadrupled its stock of foreign debt in six internal sources, fiscal deficit reached 13.3 PhD in economics candidate at Universidad years, and sovereign risk remained above percent of GDP and 18 percent of GDP in de Barcelona. 1,000 basis points. There were only three 2012 (see Appendix IV). A fiscal summary possible ways to finance the expanding of Chavez’s last year in power follows: Ricardo Villasmil was head of Public fiscal gap: (1) printing money, (2) issuing Policy of during Henrique Capriles’ bid domestic debt to gather idle liquidity in the • Consolidated public expenditure for the Venezuelan presidency in 2012. He banking system, and (3) arrears. for 2012 is totaled at 51.2 percent is Professor of development economics at The situation was much worse than the • Only 52.7 percent of public The authors would like to thank Ricardo Universidad Católica Andrés Bello and of one portrayed by official statistics. Start- expenditure is executed by the Hausmann and Richard Cooper for their macroeconomics at the Instituto de Estudios ing in 2005, the government gradually but central government thoughtful comments, as well as Emily Superiores de Administración (IESA), as steadily pursued a strategy of fragmenting • The fiscal deficit is estimated at Conrad for superb editing. The usual dis- well as a private strategy consultant. He is a the fiscal accounts (revenues and expenses 18.0 percent of GDP claimers apply. 2014 Mason Fellow from Harvard University alike) into different pockets, draining • 48 percent of the financing (8.7 and holds a PhD in Economics from Texas resources from the central government percent of GDP) is expected to A&M University and an MBA from IESA budget and public scrutiny. This move was come from Central Bank eased by the implementation of a series of • 37 percent (6.9 percent of GDP) increasingly complex schemes that were will come from domestic debt passed by Congress and dutifully executed issues by the Central Bank. The money funneled • The remaining sources are away was deemed “extraordinary income” Chinese Fund (1.4 percent of and therefore not subject to the 20 percent GDP) and PDVSA (1.3 percent earmark the central government must of GDP)11

64 LATIN AMERICA POLICY JOURNAL spring 2014 65 ECONOMIC DEVELOPMENT The Economic Legacy of Hugo Chavez

64 LATIN AMERICA POLICY JOURNAL spring 2014 65 ECONOMIC DEVELOPMENT The Economic Legacy of Hugo Chavez APPENDIX I 1998-2012 AND SOCIAL INDICATORS ECONOMIC BASIC Statistics. of Institute National and Central Bank, Ministry Finance, of Venezuelan Source: APPENDIX II 1998-2012 AND SOCIAL INDICATORS ECONOMIC BASIC Statistics. of Institute National and Central Bank, Ministry Finance, of Venezuelan Source:

66 LATIN AMERICA POLICY JOURNAL spring 2014 67 ECONOMIC DEVELOPMENT The Economic Legacy of Hugo Chavez APPENDIX I 1998-2012 AND SOCIAL INDICATORS ECONOMIC BASIC Statistics. of Institute National and Central Bank, Ministry Finance, of Venezuelan Source: APPENDIX II 1998-2012 AND SOCIAL INDICATORS ECONOMIC BASIC Statistics. of Institute National and Central Bank, Ministry Finance, of Venezuelan Source:

66 LATIN AMERICA POLICY JOURNAL spring 2014 67 ECONOMIC DEVELOPMENT The Economic Legacy of Hugo Chavez APPENDIX III RESTRICTED - FINANCIAL SUMMARY PUBLIC SECTOR Ministry Finance Source: of APPENDIX IV NONFINANCIAL PUBLIC SECTOR CONSOLIDATED estimates. Authors’ Source:

68 LATIN AMERICA POLICY JOURNAL spring 2014 69 ECONOMIC DEVELOPMENT The Economic Legacy of Hugo Chavez APPENDIX III RESTRICTED - FINANCIAL SUMMARY PUBLIC SECTOR Ministry Finance Source: of APPENDIX IV NONFINANCIAL PUBLIC SECTOR CONSOLIDATED estimates. Authors’ Source:

68 LATIN AMERICA POLICY JOURNAL spring 2014 69 ECONOMIC DEVELOPMENT

References Rest of the economy” are less certain. Some internal resources pointed out that oil shipments to China 1 All rates mentioned in this section are compounded were registered at full price in income, and as they are annual growth rates (2005-2012). not collected they are registered as PDVSA contribution to the financing of the fiscal deficit. 2 Throughout this document, official statistics are used unless otherwise noted.

3 Chavez managed to win thirteen out of fourteen ma- Rethinking Growth in Latin America jor referendums or elections between 1998 and 2012, with four presidential elections among them. The only loss he sustained was that for his proposed Constitu- During the last decade, most of Latin America has undergone a tional Reform of 2007. period of political, economic, and social changes, resulting in overall progress and economic development. As a region, Latin America 4 Honduras takes first place. Robberies, kidnappings, and other violent crimes are also on the rise, but the has achieved remarkable results in poverty reduction, health and data is not as reliable. Data on homicides has been educational outcomes, and public policy innovation, painting an taken from United Nations Office on Drugs and optimistic scenario for upcoming years, powered by new approaches Crime (2012). Venezuelan data for 2012 comes from and visions. However, inequality remains the most present, complex Observatorio Venezolano de Violencia. challenge. At the same time, the region-wide economic slowdown, 5 Using Angus Maddisson’s Historical Statistics, we mainly driven by global trends, will require innovative, cost-effective find that out of fifty countries with GDP per capita policy solutions to maintain the trend toward sustainable develop- data from 1922 onwards, Venezuela tops the chart ment. with an average growth rate of 6.16 percent per year between 1922 and 1957, and is surpassed only by the former USRR between 1922 and 1977 (4.09 against This section offers a mix of experience, opinion, and analysis, 4.38 percent). exploring some of the factors that drove our recent progress and 6 FONDEN: Fondo Nacional para el Desarrollo highlighting mistakes to be avoided when crafting new policies. Endógeno (National Fund for Endogenous Develop- Mauricio Macri, Head of Government of the Autonomous City of ment). Created 20 July 2005. Buenos Aires, shares his experience, claiming that cities have the resources and flexibility required to implement the innovative public 7 Observatorio Venezolano de la Propiedad, CEDICE. policies needed to promote progress, placing citizens as a central 8 The public share of banking assets, for instance, went player in any growth strategy. from 10 percent in 2005 to 35 percent in 2012, mostly as a result of takeovers of private banking institutions. Two interviews contribute to the debate on institutional reform and 9 The Ministry of Finance reports the “restricted fiscal public safety. Alejandro Ordóñez Maldonado, Colombia’s controver- sector” fiscal balance as the aggregate of the central sial Inspector General, explains his dual role overseeing compliance government and PDVSA. with the law and enforcing the Colombia Code of Ethical Conduct 10 In 2011, Congress passed the Bill for the Special for civil servants. Furthermore, former Argentinian Ministry of Contribution Due to Extraordinary and Exorbitant Security and current Ambassador to the Organization of American Prices in the International Oil Market (the authors’ States, Nilda Garré, offers a candid opinion on public safety issues spontaneous translation of Ley que Crea la Contri- related to urban crime and drugs, proposing alternatives to counter- bución Especial por Precios Extraordinarios y Precios Exorbitantes en el Mercado Internacional de Hidrocar- act these problems through public policy. Finally, Guillermo García buros). This instrument places a cap of US $70 on the analyzes the energy reform in Mexico and its potential implications price of an oil barrel used to calculate the royalties on international law. (recurrent revenues). As the price of the Venezuelan oil basket remained above $100 per barrel throughout 2011 and 2012, this change had a significant negative Amanda Beaujon impact on the Situado Constitucional. Content Editor 11 The Chinese Fund most likely represents the net financing obtained from the Chinese Development Bank (i.e., the line of credit not netted out by oil

shipments). The figures comprised in PDVSA “Other: POLITICS & INSTITUTIONS

70 LATIN AMERICA POLICY JOURNAL spring 2014 71 ECONOMIC DEVELOPMENT

70 LATIN AMERICA POLICY JOURNAL spring 2014 71 POLITICS AND INSTITUTIONS The Role of Cities in the Promotion of Growth

discussions related to growth, namely the geopolitics and the logic of the so-called relationship between urbanization process- national interest, which is often restrict- es and structural conditions that increase ing and selfish in nature—cities have been inequality. In this context, our region is able to build a more pragmatic and positive both the most urbanized in the world, with agenda made up of common interests over 80 percent of its population living in and aimed to solve the problems of their cities, and the most unequal in terms of citizens. income gap and access to educational and Thus, such international effort of local The Role of Cities in the economic opportunities. governments should be architected not in According to the Inter-American competition with the authority of sover- Development Bank, currently between 60 eign states but, rather, fundamentally as a Promotion of Growth percent and 70 percent of regional gross complement. A new dimension of architec- domestic product (GDP) is generated in ture of global governance and multilateral My Experience in Buenos Aires and Great urban areas. And according to reports from networks of cities emerges along with the Opportunities for Argentina UN-Habitat, the top forty cities in Latin international regimes created by countries America produce more than 30 percent of after the Second World War—all because the regional income. Of that percentage, the main challenge of the twenty-first almost half comes from four cities: São century forces us to think globally and act BY MAURICIO MACRI Paulo, Mexico City, Buenos Aires, and Rio locally. de Janeiro. The challenge of rethinking the public We live in a multicentered world, agenda of growth in the twenty-first centu- where cities are no longer emerging actors ry should combine national and local strat- of globalization but, rather, the pro- egies for economic expansion, with policies tagonists. Such a role is supported by the aimed to correct inequality of income and IN A WORLD where changes occur main goal should be to provide this citizen development of institutional capacity to improve quality of life, as well as measures at a rapid pace, it is increasingly important with the tools to achieve realization and project itself internationally in order to find of territorial and social integration. to understand that decisions aimed at pro- happiness. cooperation with other cities to achieve This has been one of our top manage- moting growth should be made in a very Argentina finds itself today before a common goals and confront common ment guidelines in the last six years, since different scenario than years past. Today's historic opportunity. We celebrate thirty threats. Such cooperation includes the we established the government of the challenges are not the same ones as before: years of uninterrupted democracy, and we sharing of best practices for the develop- Autonomous City of Buenos Aires. With urban planning, inequality, sustainable live in a favorable global context for Argen- ment of sustainable mobility and making an eye always on improving the quality local development, and regional economies tines to project to the world our ability to commitments to reduce greenhouse gases of life of our people, we seek to promote have become central issues on the agenda learn, engage, and innovate in the produc- to mitigate the effects of climate change. dynamic activities, which are integrated to of growth in Latin America, especially for tion of goods and the provision of services. Global talent migrates to cities like the twenty-first century economy, while countries with large territories and federal We have a huge potential not only in the Bangalore, San Francisco, or Shanghai, and improving opportunities for access to pub- governance systems like Argentina. wealth of our land but also, and above all, not necessarily to contribute to the wider lic services such as education and health. This new reality requires that we con- in the talent of our people. This allows us social, political, and institutional construc- We have accomplished our goals so far by sider new questions and propose creative to be optimistic and to trust that if we fully tion representing India, the United States, favoring historically neglected areas of the solutions. The challenge of the future is to develop regional economies and maximize or China. Innovation and entrepreneur- city, which are mainly concentrated in the articulate a development agenda between the creative and hardworking energy of the ship proliferate in local environments like south. the different levels of government, under- Argentine people, we will be able to gener- Tel Aviv, London, or even Buenos Aires stood not only from an economic growth ate genuine development and growth in all itself more than any other city in Israel, the The Transformation of the South as perspective but also from a human growth of our cities. United Kingdom, or Argentina. This phe- an Axis of Growth in Buenos Aires perspective. We know that in order to nomenon happens thanks to the impact of We are transforming the city of Buenos improve the quality of the lives of people, it Latin America, The Most Urbanized, territorial, institutional, and human capital Aires. The southern neighbors once again is not enough to improve economic growth But Unequal, Region in the World factors, which are determinants for the have the same opportunities as the rest of levels. It is essential that this new agenda In Latin America, two realities generation of growth. the city, with new proposals that generate has the citizen as the protagonist, and its converge with huge implications for Unlike federal politics—ruled by jobs and better living conditions.

72 LATIN AMERICA POLICY JOURNAL spring 2014 73 POLITICS AND INSTITUTIONS The Role of Cities in the Promotion of Growth

In terms of housing, we are working of a public bank in a villa (shantytown). use. There is still much to do, but there is so that increasingly more people can fulfill With the opening of the branch, more than every reason to think local leaders are at the dream of owning their own home. 10,000 residents have modern technol- the forefront of sustainable growth. We delivered more than 2,900 homes and ogy available to access banking services as Old cleavages, such as the countryside over 7,600 ownership documents. We well as personalized attention to apply for versus the city or agriculture versus indus- Mauricio Macri is Chief of Government of also launched home loans through Banco loans. In addition, we are developing the try, which unfortunately are still present the City of Buenos Aires, Argentina. He was Ciudad, with the lowest interest rates in new headquarters of the bank in the Parque in the discourse of antiquated political elected in 2007 and reelected in 2011. He is the market for residents to purchase their Patricios neighborhood, which will employ sectors, have lost prevalence in light of the a candidate to the Argentinean presidency in homes. Health care is also increasingly 1,500 people and will be built with cutting- new challenges posed by the pursuit of the 2015 election. Before becoming Chief of present. We made a reality the first stage of edge design and environmental standards. sustainable development. They only im- Government, he served as House Represen- the Hospital of Lugano, with the construc- Finally, with the Metropolitan Design poverish the discussion on growth in our tative at the National Congress. He holds a tion of a High-Resolution Care Center for Center in the neighborhood of Barracas, region. The work we have ahead in Latin degree in civil engineering from the Univer- some 180,000 citizens. the Usina del Arte Cultural Center in La America is to go beyond this threshold, by sidad Católica Argentina. Prior to his career In the field of education, after twenty Boca, the Museum of Humor in Costanera building consensus on a vision of improve- in politics, he was president of Boca Juniors years of delay, we completed the megas- Sur, and both the Museum of Modern Art ment and empowerment. This way we can for eight years, leading the club to its most tructure of the Saavedra Educational Com- and Polo Circo in Buenos Aires, culture balance, once and for all, a historic debt successful decade in history. plex, which includes preschool, primary, and art fill the south of the city, offering of democracy: a federal system according and secondary education and will benefit thousands of young people tools to be to the realities of the twenty-first century, more than 2,500 students. By settling a inserted into the dynamic world of creative always focusing on improving the future we historic debt, we built sixteen schools that industries and talent. provide to our children. 5,500 children will be able to attend near their homes. We have made expansion Cities: Protagonists of Sustainable work in sixteen schools, which allowed the Growth addition of another 1,600 youths to the Like in the Mediterranean system public education system. many centuries ago, in recent decades the In terms of public transit, we are mak- cities of Latin America have consolidated ing it increasingly easy, convenient, and themselves as spaces where culture and in- safe to move around town. We opened two novation give shape to mostly urban mod- Subte stations of the H line and connected ern civilizations. They represent the new it to the B line, the line most used in the frontier of human development, concen- city. We also built three new bus rapid tran- trating the bulk of world food consump- sit (Metrobus) corridors, which improved tion, energy use, and production activities. the way 250,000 people travel every day, The urbanization phenomenon has reducing commuting time by 15 percent. It had a significant environmental cost. has a total length of 23 kilometers and two Currently, more than 70 percent of global branches where twenty bus lines run. emissions of greenhouse gases originate in We created a Technology District, a cities. This reality, however, is being chal- before and after for those living south of lenged by a growing environmental com- the city. Every company that settles in that mitment of a significant portion of local district becomes a new opportunity for leaders worldwide. neighbors. Already more than 160 com- While national governments have panies have settled in the district, creating failed again and again to assume multilat- more than 9,500 new technology-related eral commitments to reduce greenhouse jobs and revitalizing the commercial activ- gases, mayors and governors from around ity in the area. the world are becoming increasingly as- We opened a new bank branch of sertive in the implementation of public Banco Ciudad in the impoverished neigh- policies for sustainable mobility, electricity borhood of Los Piletones, the first branch consumption reduction, and clean energy

74 LATIN AMERICA POLICY JOURNAL spring 2014 75 POLITICS AND INSTITUTIONS The Role of Cities in the Promotion of Growth

74 LATIN AMERICA POLICY JOURNAL spring 2014 75 POLITICS AND INSTITUTIONS Fighting Corruption in Columbia

in the world? What is its role within the society—where issues such as coherence Colombian State? and good example are no longer part of Ordóñez: The Inspector General’s Office the equation—contributes to perpetuate was established as an entity without paral- the paradigm of bad reputation given to lel, the only one in the world where the public servants. Exercising authority is "to following three functions converge. First is serve" and not "to benefit from" power for the preventive function, which is con- personal gain. This ethical crisis fosters a sidered the primary responsibility of the breeding ground where one loses sight that Fighting Corruption in Inspector General's Office. This function public service is an apostolate in the inter- is performed through overseeing public est of the general population, and sacrific- servants’ behavior and raising awareness ing it for individual benefit puts us in a Colombia to those that might not be compliant with state of corruption. the laws. This function is exercised without In such context, to really tackle cor- Interview with Alejandro Ordóñez intervening as coadministrators or interfer- ruption, one should attack the causes that Maldonado, Colombian Inspector General ing with the public agencies’ management. generate it by ensuring the enforcement The second function is that of judicial of existing anticorruption rules, which are intervention. In the context of due pro- usually dispersed in multiple regulatory cess, the Inspector General’s Office seeks bodies. There is a need to create a simple, BY JUAN PABLO REMOLINA to guarantee the rights of the parties in easy-to-understand, and comprehensive conflict. structure of analysis that draws on the Finally, the third function is the purpose of the anticorruption laws. In the disciplinary. The Office is responsible for case of Colombia, the Inspector General’s conducting investigations on disciplinary Office is working on initiatives such as the offenses against all public servants at the Open Government Index [OGI] and the ACCORDING TO THE 2013 Cor- in the international press for its disciplin- national, departmental, and municipal lev- Integrity Index [INTEGRA], consisting of ruption Perceptions Index, Latin America ary sanction against the mayor of Bogota, els, as well as individuals exercising public concrete tools that measure and promote obtained a 39 point average score1 (on a deposing him from his post and banning functions or those who manage public compliance. scale where 0 is highly corrupt and 100 him from public office for fifteen years.3 funds. Last but not least, working to develop is very clean), indicating that the region Since Alejandro Ordóñez was elected as In addition to these three functions in good citizens is necessary on the premise suffers from a serious corruption problem. Inspector General in 2008, the number a single state agency, the Office has a nature that the good citizen is ethical and that Most of the Latin American countries have of disciplinary sanctions reached historic of autonomy and independence in deci- the citizen exercises the civic virtues. Such similar legal frameworks to fight against levels: 828 mayors, 49 governors, and 23 sion making and broad competence in the work is being accomplished through a proj- corruption, but only one, Colombia, has congressmen.4 Moreover in the preventive protection of judicial assets. Other compe- ect called Culture of Lawfulness. an institution with the scope and authority and judicial intervention functions, the tencies include guaranteeing the protection of the Procuraduría General de la Nación PGN has also shown significant changes, of the rights of individuals, ensuring the LAPJ: Do you believe that the Inspector (PGN). The closest translation of PGN into becoming a principal player in Colombian proper exercise of the functions entrusted General’s Office has been successful in the English is Inspector General´s Office; how- public affairs. to public servants, and protecting public fight against corruption? What are its main ever, it is not completely accurate. The PGN In the summer of 2013, Juan Pablo assets. For these reasons, the Inspector achievements? is an independent body from the executive Remolina from the Latin America Policy General’s Office is suia generis institution Ordóñez: The main concern of the Inspec- branch, tasked with overseeing compli- Journal had the opportunity to interview in the world. tor General’s Office during the past five ance with the law as well as enforcing and Alejandro Ordóñez. Ordóñez shared with years has been to develop a clearly defined promoting the Colombian Code of Ethical us the special features of the PGN, concrete LAPJ: Corruption is a major problem faced strategy to combat corruption from two Conduct for civil servants.2 The PGN tools for fighting corruption, his main by nations. How to fight corruption? perspectives. The first approach involves achieves its mission through disciplinary, challenges, and also his opinion about the Ordóñez: The inability of states to enforce punitive, a forceful and unrelenting effort preventive, and judicial intervention. peace process in Colombia. the rules, according to Jakob de Haan in his to appropriately sanction corruption. The The disciplinary function of the PGN work "The Determinants of Corruption," is second approach is preventive, aimed at is the most known. In December 2013 LAPJ: Why is it said that the Inspector the most significant cause of corruption. erecting administrative, procedural, and and early 2014, the PGN raised attention General's Office is suia generis institution In addition, the ethical crisis in today's social barriers designed to contain poten-

76 LATIN AMERICA POLICY JOURNAL spring 2014 77 POLITICS AND INSTITUTIONS Fighting Corruption in Columbia

tial risks of corruption. Such an approach ing to create a change in attitude, both in Alejandro Ordoñez is the Colombian In- has been developed through four specific public servants and common citizens. spector General. Ordoñez was elected by the instruments. In addition, there is ongoing effort to Senate in 2008 and reelected in 2012. He is First is the OGI, a system of monitor- strengthen the disciplinary sphere in order a prominent lawyer from Bucaramanga city. ing and control for compliance of strategic to ensure efficient and effective investiga- Juan Pablo Remolina is a student in the He has an extensive career at the judicial regulations to fight corruption in territorial tions that will, in cases that require it, ap- master in public administration program at branch. He passed from being the president governance. The IGA aims to generate early propriately punish corrupt officials. the John F. Kennedy School of Government of the administrative court in Santander warnings of administrative irregularities, to at Harvard University, expected to graduate to be the president of the State Council, the promote compliance, to share best practic- LAPJ: How do you see the fight against cor- on May 2014. He is from Bucaramanga, Co- highest administrative court in the country. es, to encourage various forms of monitor- ruption in Latin America? lombia. Remolina’s interests are governance Ordoñez has been professor at several uni- ing and control, and particularly to avoid Ordóñez: According to the Corruption and territorial development. He earned versities. In May 2012, Ordoñez received a disciplinary action in local authorities. Perceptions Index of 2012, published by a bachelor’s degree in government and honoris causa master’s degree from Salerno Second, the Culture of Lawfulness Transparency International, Latin Ameri- international relations from the Externado University in Italy as recognition for his Project is aimed at the Colombian citizen can countries except Chile and Uruguay University in Bogota, Colombia, and a mas- efforts against corruption. Ordoñez is also to observe its ethical structure and begin to obtained a score less than 50. Such a ter’s degree in public affairs from the Paris known for his strong conservative convic- understand that the fight against corrup- scenario makes clear the need for a contin- Institute of Political Studies (Sciences Po). tions. tion is also an educational and cultural ued effort in the fight against corruption, process because, before becoming public implementing measures to ensure greater Remolina has worked in the public sector at servants, we are educated to become good transparency and lower levels of impunity. the Colombian Ministry of Finances and at citizens. This reality shows an opportunity to the Colombian Inspector General´s Office Third, the Anticorruption Observatory improve, joining forces from all areas, aim- (Procuraduría General de la Nación). At is a space for analysis, engineered to evalu- ing to build strong institutions that work the Inspector General’s Office, he worked on ate and adjust public policies, by creating to meet the needs of [their] members, and anticorruption and transparency issues. In strategies that bring us closer to solving preventing the access of corrupt individuals the private sector, Remolina has worked in various social problems. The observatory to public resources. Paris at Accenture–Science Po Think Tank aims to raise the level of discussion on the of Public Performance and at the Royal LAPJ: One solution to the phenomenon concept of corruption, fostering a place to Bank of Scotland. In the nonprofit sector, of corruption in Colombia is to achieve deepen the analysis of punishable human he cofounded and is currently the executive lasting peace, which largely depends on behavior, but focusing on prevention. director of the Public Policy Institute for the a successful peace process. Why so much Fourth, the Integrity Index (INTEG- city of Bucaramanga, capital of the state of criticism of the peace process efforts cur- RA) allows for the analysis of the results Santander, Colombia. Previously, Remolina rently taking place in Havana? of the probability of compliance in the ad- was a professor of public management at the Ordóñez: The Inspector General’s Office ministrative function by public entities in Externado University in Bogotá. References has the duty to protect the rights of victims their own governance processes (planning, of armed conflict and to guarantee the 1 finance, human talent, contractual, internal Salas, Alejandro. “CPI 2013: Traffic Lights in the compliance with the existing regulatory Americas—Lifesavers or Urban Decorations?” Space control, and mission management). Like- framework, within which the instruments for Transparency blog, Transparency International, 3 wise, INTEGRA also permits the analysis on human rights and international human- December 2013. of a set of variables that "explain" the itarian law have been ratified by Colombia. 2 factors that influence the probability level Remolina, Juan Pablo. The Open Government Index The concern of the Inspector General’s Initiative: A Colombian Tool for Preventing Institu- obtained for the different observed entities. Office about the peace process is to be able tional Corruption. Edmond J. Safra Working Papers, No. 34, 9 January 2014. LAPJ: What remains to be done? to safeguard justice that applies to those Ordóñez: The fight against corruption is who have seen their rights violated by the 3 See The Economist. “The Bumptious Functionary,” a daily task, one for which one cannot insurgents. Building peace without justice Economist, 14 December 2013; and Neuman, Wil- not only violates the rights of the victims, liam. “Mayor Ousted in Colombia After Claims of spare any effort. Convinced with the idea, Bungling,” New York Times, 9 December 2013. we persist in strengthening the preven- but rather goes against international instru- tive sphere, working to consolidate those ments ratified by Colombia, in which case 4 Celis, Teresita. “Procurador Alejandro Ordóñez already established instruments, and seek- the country could be subject to interven- Sostiene el Récord de Sanciones Impartidas a Alcaldes tion by the International Criminal Court. y Gobernadores,” La Republica, 10 December 2013. 78 LATIN AMERICA POLICY JOURNAL spring 2014 79 POLITICS AND INSTITUTIONS Fighting Corruption in Columbia tial risks of corruption. Such an approach ing to create a change in attitude, both in Alejandro Ordoñez is the Colombian In- has been developed through four specific public servants and common citizens. spector General. Ordoñez was elected by the instruments. In addition, there is ongoing effort to Senate in 2008 and reelected in 2012. He is First is the OGI, a system of monitor- strengthen the disciplinary sphere in order a prominent lawyer from Bucaramanga city. ing and control for compliance of strategic to ensure efficient and effective investiga- Juan Pablo Remolina is a student in the He has an extensive career at the judicial regulations to fight corruption in territorial tions that will, in cases that require it, ap- master in public administration program at branch. He passed from being the president governance. The IGA aims to generate early propriately punish corrupt officials. the John F. Kennedy School of Government of the administrative court in Santander warnings of administrative irregularities, to at Harvard University, expected to graduate to be the president of the State Council, the promote compliance, to share best practic- LAPJ: How do you see the fight against cor- on May 2014. He is from Bucaramanga, Co- highest administrative court in the country. es, to encourage various forms of monitor- ruption in Latin America? lombia. Remolina’s interests are governance Ordoñez has been professor at several uni- ing and control, and particularly to avoid Ordóñez: According to the Corruption and territorial development. He earned versities. In May 2012, Ordoñez received a disciplinary action in local authorities. Perceptions Index of 2012, published by a bachelor’s degree in government and honoris causa master’s degree from Salerno Second, the Culture of Lawfulness Transparency International, Latin Ameri- international relations from the Externado University in Italy as recognition for his Project is aimed at the Colombian citizen can countries except Chile and Uruguay University in Bogota, Colombia, and a mas- efforts against corruption. Ordoñez is also to observe its ethical structure and begin to obtained a score less than 50. Such a ter’s degree in public affairs from the Paris known for his strong conservative convic- understand that the fight against corrup- scenario makes clear the need for a contin- Institute of Political Studies (Sciences Po). tions. tion is also an educational and cultural ued effort in the fight against corruption, process because, before becoming public implementing measures to ensure greater Remolina has worked in the public sector at servants, we are educated to become good transparency and lower levels of impunity. the Colombian Ministry of Finances and at citizens. This reality shows an opportunity to the Colombian Inspector General´s Office Third, the Anticorruption Observatory improve, joining forces from all areas, aim- (Procuraduría General de la Nación). At is a space for analysis, engineered to evalu- ing to build strong institutions that work the Inspector General’s Office, he worked on ate and adjust public policies, by creating to meet the needs of [their] members, and anticorruption and transparency issues. In strategies that bring us closer to solving preventing the access of corrupt individuals the private sector, Remolina has worked in various social problems. The observatory to public resources. Paris at Accenture–Science Po Think Tank aims to raise the level of discussion on the of Public Performance and at the Royal LAPJ: One solution to the phenomenon concept of corruption, fostering a place to Bank of Scotland. In the nonprofit sector, of corruption in Colombia is to achieve deepen the analysis of punishable human he cofounded and is currently the executive lasting peace, which largely depends on behavior, but focusing on prevention. director of the Public Policy Institute for the a successful peace process. Why so much Fourth, the Integrity Index (INTEG- city of Bucaramanga, capital of the state of criticism of the peace process efforts cur- RA) allows for the analysis of the results Santander, Colombia. Previously, Remolina rently taking place in Havana? of the probability of compliance in the ad- was a professor of public management at the Ordóñez: The Inspector General’s Office ministrative function by public entities in Externado University in Bogotá. References has the duty to protect the rights of victims their own governance processes (planning, of armed conflict and to guarantee the 1 finance, human talent, contractual, internal Salas, Alejandro. “CPI 2013: Traffic Lights in the compliance with the existing regulatory Americas—Lifesavers or Urban Decorations?” Space control, and mission management). Like- framework, within which the instruments for Transparency blog, Transparency International, 3 wise, INTEGRA also permits the analysis on human rights and international human- December 2013. of a set of variables that "explain" the itarian law have been ratified by Colombia. 2 factors that influence the probability level Remolina, Juan Pablo. The Open Government Index The concern of the Inspector General’s Initiative: A Colombian Tool for Preventing Institu- obtained for the different observed entities. Office about the peace process is to be able tional Corruption. Edmond J. Safra Working Papers, No. 34, 9 January 2014. LAPJ: What remains to be done? to safeguard justice that applies to those Ordóñez: The fight against corruption is who have seen their rights violated by the 3 See The Economist. “The Bumptious Functionary,” a daily task, one for which one cannot insurgents. Building peace without justice Economist, 14 December 2013; and Neuman, Wil- not only violates the rights of the victims, liam. “Mayor Ousted in Colombia After Claims of spare any effort. Convinced with the idea, Bungling,” New York Times, 9 December 2013. we persist in strengthening the preven- but rather goes against international instru- tive sphere, working to consolidate those ments ratified by Colombia, in which case 4 Celis, Teresita. “Procurador Alejandro Ordóñez already established instruments, and seek- the country could be subject to interven- Sostiene el Récord de Sanciones Impartidas a Alcaldes tion by the International Criminal Court. y Gobernadores,” La Republica, 10 December 2013. 78 LATIN AMERICA POLICY JOURNAL spring 2014 79 POLITICS AND INSTITUTIONS From Michoacán to Buenos Aires

In El Salvador, the involvement of par- but also in the United Nations General ticular organizations, such as the maras,2 Assembly.4 On the same vein, I believe that introduces a specific aspect that needs to earmarking those funds to specific edu- be studied independently. I may oversim- cational or health-related purposes would plify, but I would say that, with differences, have largely contributed to the inclusion of drug and human trafficking are, in general, vulnerable groups. major concerns for every Latin American country. LAPJ: On the other side, a great fraction of From Michoacán to Latin American citizens, excluding many LAPJ: What is your opinion on the recent academic researchers, has reacted in a decriminalization of cannabis in Uruguay?3 negative way to marijuana decriminaliza- Buenos Aires Garré: Uruguay has acknowledged the tion. Opposition groups are very vocal and problem of drug trafficking and has -ad have a strong determination to prevent Nilda Garré’s Insight into dressed this issue in a well-thought and re- the scalability of these types of programs. sponsible way. The government of Uruguay What would it take for the public opinion Regional Security Challenges has not only heard academic and experts’ to progressively accept this line of thought recommendations on the topic, but has also after decades of the war on drugs? taken direct action through a cutting-edge Garré: There is a need to have a responsible BY MARTIN MAXIMINO legislative initiative. Over the last decade, and informed debate. As the main respon- attempts to reduce drug trafficking have sible for the security of its citizens, the state focused primarily on the supply of drugs, should simultaneously launch intelligent rather than on the demand. Today, we need prevention campaigns and design reha- to pay special attention to the demand: bilitation programs for addicts. But in who is consuming, why they are consum- the particular case of cannabis, there is a THIS INTERVIEW was conducted sociation between the governments, the ing, what are the limits and control that cultural component in society that should in December 2013 at the headquarters of police, and violent criminal groups in Latin the state is responsible for, why should the be changed. As shown by recent studies, the Argentine Mission to the Organization America. quality of cannabis be regulated by the by no means will a greater availability of of the American States (OAS) in Washing- Garré not only exposes the corrupt state, etc. Right now, not only is the price marijuana increase the amount of ad- ton, DC. Nilda Garre’s opinion comes at a alliances that may exist between politicians higher, but also the quality is lower. The dicts. Moreover, there is still no conclusive point at which the traditional approach to and police forces around the issue of drug question that remains to be answered is not evidence about whether marijuana per se reducing drug trafficking is being revisited, trafficking, but also explains how these only whether Uruguay’s initiative will work generates an addiction. Finally, it is not by both scholars and policy makers. Garré partnerships may hinder, from within, or not, but also if it is scalable to countries clear whether marijuana has a foot-in-the- offers expert opinion on this topic and processes of reform and modernization in such as Argentina or Brazil. door effect, leading to the consumption of clearly discusses two strategies: one that she an informative and revealing way. In any case, what is clear is that the other illegal substances. is optimistic about (decriminalization of war on drugs, as historically conceived LAPJ: What would happen to the tradi- marijuana in Uruguay) and the other one LAPJ: Which do you think are the most by the United States, has been lost in tional mission, structure, and values of she has categorically rejected on a practical important and most urgent challenges con- Latin America. The securitization of the the police forces in Latin America if drugs and normative basis (laws allowing the Air cerning public safety in Latin America? drug problem has not brought any visible were decriminalized? Force to shoot down aircrafts suspected of Garré: Latin America is extremely diverse. solutions. On the contrary, the number of Garré: In the case of South America, a part carrying drugs). Particularly, I think that the reality of drug-related homicides has increased, and of the federal police forces would be wor- On the other hand, she states that insecurity in Central America is consider- figures show that many of the financial ried, to some extent, because this would police reform is one of Latin American ably different from what happens in South investments to declare the well-known imply the end of their corrupt business that democracies’ biggest debts. According to America. There are two realities, not only war on drugs have not affected the levels is linked to drug trafficking. As in many her, there is an urgent need for comprehen- in the levels of violence—for instance, of drug trafficking. This strategy is anach- law enforcement agencies in the world, one sive police overhaul, not only to promote the number of homicides per 100,000 in ronistic and exhausted. Even [Colombian] part of the police has partnered with drug human rights and gender policies within Honduras . . . versus the levels of homicides President [Juan Manuel] Santos has ex- 1 traffickers. In Argentina, this is a parallel the security forces, but also to address and in Argentina, Uruguay, or Chile —but also pressed this on several occasions, not only business and generates more illicit revenue eradicate the extended and rooted as- in the complexity of the actors involved. in the Organization of American States than historical illegal activities that were 80 LATIN AMERICA POLICY JOURNAL spring 2014 81 POLITICS AND INSTITUTIONS From Michoacán to Buenos Aires

protected by the police, such as clandestine tina. Some politicians are trying to convey smugglers take notice that our country is ing feeling of someone breaking into your gambling or prostitution. a message to society that has nothing to shooting down suspicious airplanes, they house at night. The existence of media that I believe this new approach to fight- do with real crime reduction and is mostly will start implementing new techniques to overinform about crime and insecurity is ing drug trafficking by decriminalizing guided by opportunistic notions of public enter drugs through land and water. Not one of the key factors behind fear of crime. personal consumption involves massive safety. I believe what they are trying to say to mention that current studies show that Moreover, the existence of news channels retraining of police officers, mainly to is, “If we are government, we will take the drugs enter our country first by land, then that inform 24/7 create the opportunity move away from the traditional view under toughest measures, the most difficult ones, by sea and rivers, and finally. in very small to watch a violent episode at least three which there is always “a war against some- to end crime.” In my opinion, it is irrespon- amounts, by air. times, even if you do not watch television one” rather than an intelligent approach sible to design public safety policies on this At the end of the day my question is, regularly. using sophisticated investigative, scientific, basis. why are Latin American countries that According to recent research, fear of and strategic planning tools. In the specific In general, punitive measures (i.e., have passed laws to shoot down suspicious crime is affected by a variety of causes, and case of Argentina, there is also a general a tough hand on crime) as this one are civil aircrafts not using them (e.g., Colom- crime may not be a particularly salient view among police officers that involves presented as if they were a magical solution bia, Peru, Brazil, and Venezuela)? one. In other words, crime is often an ad- treating drug consumers as if they were bad that would reduce crime in a few months, ditional variable to explain fear of crime, people per se. but they rarely do. Previous examples of LAPJ: Increasingly, the feeling of insecu- but it is certainly not the only one, even The police “build statistics” that are mano dura, or iron fist, in Latin America rity, or fear of crime, as a field of study less the most important one. For example, functional to their inefficiency with the show that these types of measures have has attracted the attention of several Latin the Latinobarometro Report 2010 found drug issue. Seizures receive media cover- only led to questionable short-term results American academics. Do you think that that people who have been victims of a age, but arrests of small consumers gener- with no significant impact on crime and, these topics should be a priority within crime do not necessarily identify it as ally involve the least important node of in some cases, an increase in violence. the security policies or that governments their country’s main problem. By the same the drug trafficking chain—and the most Take for instance the increase in convic- should only address actual crime inci- token, people who have not been victims vulnerable. tion times for violent crimes in Argentina: dence? of a crime may identify crime as the main This discussion seems anachronistic in it introduced complex inconsistencies Garré: In the specific case of Argentina, problem in the country. light of the ruling of Argentina’s Supreme within the penal code, prisons started to be Chile, and Uruguay, the three countries Court (in August 2009, the Supreme Court overpopulated, and there was no significant have low levels of homicides (relative to LAPJ: During your tenure as Minister of unanimously declared it is unconstitu- crime reduction. This argument is even the rest of Latin America) but experience Security of Argentina, you emphasized tional to punish marijuana consumers if clearer when we talk about an organized the highest levels of feeling of insecurity, the concept of Democratic Security, which that action does not harm third parties). and complex crime such as drug traffick- according to several studies. These coun- involved stressing the importance of com- Even though Argentina’s national law (Law ing. tries could be considered cases of extremely munity feedback through regular meetings 23.737) explicitly bans personal consump- On the normative side, this policy scared societies with relatively low levels of with neighbors, as well as with social and tion of drugs, the Arriola case overruled would be unconstitutional in Argentina homicides. I speak of homicide, not only political organizations. What was the main the ban for drug users and urged all the (against Article 18). Argentina has signed because it involves the loss of lives but also purpose of this policy? state powers to implement policies against and ratified numerous international trea- because it has the lowest underreporting Garré: Society should be directly involved illegal drug trafficking and to adopt preven- ties that have been granted constitutional rate across different types of crimes and in public safety, because citizens start feel- tive health measures while focusing its status, including the American Convention allows for fairly precise comparisons across ing responsible about it, but mainly because policies on drug trafficking networks rather on Human Rights and the Convention on countries. But it is not, by any means, a they become agents of change, rather than than on drug users. International Civil Aviation, which strictly comprehensive indicator of violence. passive observers of the security policy. forbid these sort of initiatives. Shooting In general, I believe fear of crime could The state is the main party responsible for LAPJ: Current proposals to prevent drug down a suspicious airplane would simply be associated with certain types of property security, in normative and practical terms, trafficking by some politicians in Argentina imply death sentence without previous crimes that usually take place in urban but there is a need for community partici- include bringing down aircrafts that enter judgment and the right to a defense. In oth- settings, affect the life of citizens in a direct pation in the design, implementation, and the country’s air space illegally. What is er words, it would imply denying the right way, and receive large media coverage. evaluation of public safety policies. First, your opinion on this particular policy? to due process of a democratic society. These include thefts, home burglaries, and to make an accurate and precise diagnos- Garré: That is a rather absurd idea, advo- On the practical level, the underlying vehicle crime, to mention only some of tic of what is happening, particularly in cated by people that only want to impact principle of this policy is not consider- them. I believe these sort of crimes, rather their neighborhoods. Second, to enhance the public opinion in order to take political ing the fact that crime displaces, not only than complex criminal activities, interrupt prevention strategies, because citizens often advantage of the terrible problem that inse- geographically but also tactically and everyday life and are particularly shocking know what are the flaws and strengths of curity poses to the government in Argen- operationally. Simply put, when drug to citizens—take for instance, the disturb- current policies.

82 LATIN AMERICA POLICY JOURNAL spring 2014 83 POLITICS AND INSTITUTIONS From Michoacán to Buenos Aires protected by the police, such as clandestine tina. Some politicians are trying to convey smugglers take notice that our country is ing feeling of someone breaking into your gambling or prostitution. a message to society that has nothing to shooting down suspicious airplanes, they house at night. The existence of media that I believe this new approach to fight- do with real crime reduction and is mostly will start implementing new techniques to overinform about crime and insecurity is ing drug trafficking by decriminalizing guided by opportunistic notions of public enter drugs through land and water. Not one of the key factors behind fear of crime. personal consumption involves massive safety. I believe what they are trying to say to mention that current studies show that Moreover, the existence of news channels retraining of police officers, mainly to is, “If we are government, we will take the drugs enter our country first by land, then that inform 24/7 create the opportunity move away from the traditional view under toughest measures, the most difficult ones, by sea and rivers, and finally. in very small to watch a violent episode at least three which there is always “a war against some- to end crime.” In my opinion, it is irrespon- amounts, by air. times, even if you do not watch television one” rather than an intelligent approach sible to design public safety policies on this At the end of the day my question is, regularly. using sophisticated investigative, scientific, basis. why are Latin American countries that According to recent research, fear of and strategic planning tools. In the specific In general, punitive measures (i.e., have passed laws to shoot down suspicious crime is affected by a variety of causes, and case of Argentina, there is also a general a tough hand on crime) as this one are civil aircrafts not using them (e.g., Colom- crime may not be a particularly salient view among police officers that involves presented as if they were a magical solution bia, Peru, Brazil, and Venezuela)? one. In other words, crime is often an ad- treating drug consumers as if they were bad that would reduce crime in a few months, ditional variable to explain fear of crime, people per se. but they rarely do. Previous examples of LAPJ: Increasingly, the feeling of insecu- but it is certainly not the only one, even The police “build statistics” that are mano dura, or iron fist, in Latin America rity, or fear of crime, as a field of study less the most important one. For example, functional to their inefficiency with the show that these types of measures have has attracted the attention of several Latin the Latinobarometro Report 2010 found drug issue. Seizures receive media cover- only led to questionable short-term results American academics. Do you think that that people who have been victims of a age, but arrests of small consumers gener- with no significant impact on crime and, these topics should be a priority within crime do not necessarily identify it as ally involve the least important node of in some cases, an increase in violence. the security policies or that governments their country’s main problem. By the same the drug trafficking chain—and the most Take for instance the increase in convic- should only address actual crime inci- token, people who have not been victims vulnerable. tion times for violent crimes in Argentina: dence? of a crime may identify crime as the main This discussion seems anachronistic in it introduced complex inconsistencies Garré: In the specific case of Argentina, problem in the country. light of the ruling of Argentina’s Supreme within the penal code, prisons started to be Chile, and Uruguay, the three countries Court (in August 2009, the Supreme Court overpopulated, and there was no significant have low levels of homicides (relative to LAPJ: During your tenure as Minister of unanimously declared it is unconstitu- crime reduction. This argument is even the rest of Latin America) but experience Security of Argentina, you emphasized tional to punish marijuana consumers if clearer when we talk about an organized the highest levels of feeling of insecurity, the concept of Democratic Security, which that action does not harm third parties). and complex crime such as drug traffick- according to several studies. These coun- involved stressing the importance of com- Even though Argentina’s national law (Law ing. tries could be considered cases of extremely munity feedback through regular meetings 23.737) explicitly bans personal consump- On the normative side, this policy scared societies with relatively low levels of with neighbors, as well as with social and tion of drugs, the Arriola case overruled would be unconstitutional in Argentina homicides. I speak of homicide, not only political organizations. What was the main the ban for drug users and urged all the (against Article 18). Argentina has signed because it involves the loss of lives but also purpose of this policy? state powers to implement policies against and ratified numerous international trea- because it has the lowest underreporting Garré: Society should be directly involved illegal drug trafficking and to adopt preven- ties that have been granted constitutional rate across different types of crimes and in public safety, because citizens start feel- tive health measures while focusing its status, including the American Convention allows for fairly precise comparisons across ing responsible about it, but mainly because policies on drug trafficking networks rather on Human Rights and the Convention on countries. But it is not, by any means, a they become agents of change, rather than than on drug users. International Civil Aviation, which strictly comprehensive indicator of violence. passive observers of the security policy. forbid these sort of initiatives. Shooting In general, I believe fear of crime could The state is the main party responsible for LAPJ: Current proposals to prevent drug down a suspicious airplane would simply be associated with certain types of property security, in normative and practical terms, trafficking by some politicians in Argentina imply death sentence without previous crimes that usually take place in urban but there is a need for community partici- include bringing down aircrafts that enter judgment and the right to a defense. In oth- settings, affect the life of citizens in a direct pation in the design, implementation, and the country’s air space illegally. What is er words, it would imply denying the right way, and receive large media coverage. evaluation of public safety policies. First, your opinion on this particular policy? to due process of a democratic society. These include thefts, home burglaries, and to make an accurate and precise diagnos- Garré: That is a rather absurd idea, advo- On the practical level, the underlying vehicle crime, to mention only some of tic of what is happening, particularly in cated by people that only want to impact principle of this policy is not consider- them. I believe these sort of crimes, rather their neighborhoods. Second, to enhance the public opinion in order to take political ing the fact that crime displaces, not only than complex criminal activities, interrupt prevention strategies, because citizens often advantage of the terrible problem that inse- geographically but also tactically and everyday life and are particularly shocking know what are the flaws and strengths of curity poses to the government in Argen- operationally. Simply put, when drug to citizens—take for instance, the disturb- current policies.

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A timely warning by society allows the inefficient and their missions, values, and Defense and later as Minister of Security, tina, both a reform in police education and state to intervene with the required public activities should be modified, shifting away you introduced strong policies related to the promotion of community participation agency to prevent crime, which is often from the traditional policing model toward gender and the protection of human rights have been key: the first one, to eradicate not the police. The police on [their] own an evidence-based policing one. My opin- within the military and the federal police rooted practices and beliefs that were will not solve the problem of insecurity. ion about the police forces in Argentina is forces. What were the main obstacles to deeply antidemocratic and were inherited Surprisingly, the police [are] only one of that the investigative and the operational implement these policies, and what were from the National Security Doctrine; the the many agencies, often the less efficient structures should be clearly divided. Cur- your strategies to overcome them? second one, to prevent police abuse and and most violent one, to help reduce crime. rently, the police investigational skills are Garré: Gender and human rights are help provide evidence in court when of- There is an urgency to design policies that low: either voluntarily or as a result of two key topics for development and are ficers are held accountable. involve a pluralistic approach to security, ill-informed procedures, officers tend to included in almost every international con- The case of gender is somewhat dif- including the Health, Education, Labor, contaminate the crime scene. In Argentina, vention and treaty, as well as in many Latin ferent, because it does not threaten the and Social Development Ministries, just to we implemented training courses to reduce American countries’ domestic legislation. police’s ideology or the officer’s professional mention the most important ones. the level of destruction of evidence and in- These are clearly two pillars that have been aspirations. During my tenure as Minister Over the last decades, there has been crease the preservation of the crime scene. neglected, mainly due to traditional and of Defense, we created Gender Commis- a general belief that the police own the There are also new technologies (e.g., the cultural practices that have been in place sions within the Air Force, the Navy, and know-how and proficiency to design and Federal Biometric Identification System for within the police forces for decades—and the Army, and we also decided to include deliver public safety services, under the Security [SIBIOS] and the Automatic Sys- in some forces, for centuries. In this sense, men in those spaces, because we believed assumption that “security knowledge is tem of Ballistic Identification [SAIB]) that there is a natural resistance to these initia- that the problems of women are issues that owned by the police” (the same happened help clarify crimes and find the perpetra- tives, particularly in the sort of institutions should concern the society as a whole, in the Ministry of Defense, where expertise tors, but this sort of change requires politi- that were created to maintain public order as opposed to only the women that are would be attributed to the military, rather cal commitment. In short, Latin American and impose social discipline. victims of discrimination or violence. In than to civil authorities). Political authori- police structures and activities need to be In the particular case of human rights, particular, we addressed domestic violence ties used to delegate the handling of public revisited to provide an effective service there are two issues that need special at- within the military and we found out that, safety policies to the police, reducing politi- to society. Some early efforts in Central tention. First, the lack of political oversight for decades, there had been a large number cal oversight of security. America have moved toward these goals, over the police and the military has given of cases of violence against women in the The tacit pact between politicians and and South American governments have way to high levels of institutional violence forces. But make no mistake; this is not a police is a very well-known strategy to lead also shown some significant initiatives. by the police, often in the form of illegal matter of relevance to women only, it is a security agencies, but rarely an effective However, I believe there is still much repressive activities to maintain public or- problem of the entire society. one in the long term. I think this corrupt to do in terms of the involvement of com- der. This included, for example, the exercise Within the police, resistance would agreement between police and politicians munity in the control of police activities. It of violence on public demonstrators—in not be communicated formally, but exist- to guarantee mutual benefits has destroyed is not enough to have the Bureau of Inter- many cases deadly—through the use of ing informal values suggested that there and eroded the symbolic component of nal Affairs controlling the police—I would firearms, but also through the criminaliza- was resistance. But the police understood being a police officer. Today, the majority say it is rather useless; the community tion of minorities and poor people. The that the political commitment with these of police officers enter the institution with should be an active actor in the oversight of police forces in Latin America were mostly policies was unambiguous; for instance, we that symbolic component and have high police activities. guided (some still are) by a repressive and appointed the first female commissioners expectations, not only with regard to their Public safety is a service to the com- reactive content in their activities, rather in some of the most critical police precincts own professional life but most importantly munity, and current police structures often than a preventive one. and a woman as Head of the Internal Af- to their intention to serve others. Once in- don’t reflect that. There is a need to shift Second, the human rights topic also fairs Bureau, so the higher ranks eventually side the police, some of them are corrupted away from the traditional policing system. pertains to the corporatist protection of the cooperated with the administration. by internal mechanisms and perverse Police forces need to be more coordinated police and the military members that were incentives. Others are outraged by corrup- and provide a useful service to society, and involved in past coup d’etats in the region, LAPJ: In federal countries such as Ar- tion, report it, and are not willing to be a they are not delivering that today. The lack or in some sort of illegal activities such as gentina, Mexico, and Brazil, the primary part of a dishonest organization. of strategic planning is visible and hinders torture or kidnapping of political and social responsibility of public safety lies in the the opportunities for lasting and sustain- leaders during the military dictatorships. States or Provinces. What strategies were LAPJ: What is your opinion on the current able reforms. These members fear being brought to jus- implemented under your tenure as Min- structure and functioning of police forces tice for their acts, and hence react and tend ister to overcome the problems of coordi- in Latin America? LAPJ: Going back to the guidelines of to promote internal resistance to change. nation and integration between different Garré: In general terms, the police are Argentina’s security policy, as Minister of To overcome this resistance in Argen- jurisdictions?

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Garré: If when we look at the region we ficers accountable and demand hard work not publish these figures, and, hence, mul- see anachronisms and obsolescence in and commitment in everyday activities. tilateral organizations step in and have a public safety policies, within countries this On the other side, we were conscious that critical role in gathering, systematizing and is also true. In the case of Argentina, the their welfare is an obligation of the govern- publishing the data. In some other cases, lack of coordination is visible and hinders ment that should not be delegated. We multilateral organizations develop very the impact of national policies at the local need to take care of them. The work of the successful models of police education and Since 2013, Nilda Garré is the Argentine level. My opinion is that there are two police involves high levels of stress, long training, particularly in the fields of gender Ambassador to the Organization of Ameri- major problems. The first one is that there periods of standing and walking, working and human rights. can States (OAS) in Washington, DC. are Provinces in which police forces receive extra hours to improve their salaries, bad The need to share visions and experi- Before that, she was appointed Minister of outdated operational training. In some nutrition, and lack of exercise and sport ences is critical to security. There has got Security (2010-2013) by Argentine Presi- subnational contexts, police forces are still activities (as opposed to the military). to be international cooperation, in terms dent Cristina Fernandez de Kirchner, and militarized and often affected by a bias to We created and equipped mobile medical of intelligence, training, and coordination, Minister of Defense (2005-2010) by former “make the war to criminals.” The second cabinets to reach out to police officers (so particularly in light of the complexity of President Nestor Kirchner. She was the first problem I see is that this approach to that they did not have to commute to the transnational crime. Regarding this topic, woman in Argentina's history to serve in security generated a complex phenomenon Police General Hospital) and assessed their Argentina is prioritizing South American either post. of institutional violence and police abuse, health and psychological condition to have spaces over global and Latin American As head of both Ministries, Garré initiated a particularly on the underprivileged—in- an initial diagnostic. What we found out ones, because national authorities believe set of reforms in the military and the federal cluding recent cases of torture and rape to was surprising, to say the least. The levels of there are common topics to be addressed in police forces by including a strong gender arrested citizens in Argentinian Provinces. overweight, cholesterol, and diabetes were a targeted way. and human rights approach, promoting the Therefore, I think local authorities should extremely high (on average), and they wore involvement of community councils in the have strong political determination to end no glasses even in the absence of short- and oversight of police performance, and incor- this vicious cycle and expel from the forces long-sight vision. Moreover, their dental porating cutting-edge technological resources any officer that incurs any type of abuse of health [had] serious problems, even though to fight crime. authority. we are speaking of relatively young people. In the year 2000, Garré was appointed When I was appointed Minister of We implemented a health program for Deputy Interior Minister. She has also a vast Security in 2010, what we found in the sub- police officers, and we renewed the Police’s legislative experience, as a result of having national police forces (in terms of training, Central Hospital because we knew this been elected Deputy at the House of Repre- technology, transparency, criminal intel- was also a key element in public safety. We sentatives of the National Congress in four ligence, and operations, to mention some incorporated new bulletproof vests (with occasions. She also served briefly as Argen- critical aspects), was discouraging. There a special design for women, for the first tine Ambassador to Venezuela in 2005. was an absolute lack of coordination with time in the country’s history), we provided the national government. The first measure health guidelines, we conducted regular Originally from Argentina, Martin Maxi- we took was to create an Interior Security health checks, and we tried to shift the mino is a master in public policy candidate Council (COSEIN, for its name in Span- culture of sedentary lifestyles within the (2015) at the John F. Kennedy School of ish) where we could speak directly with the forces. Government at Harvard University. He public officers responsible for the security holds a bachelor’s degree in political science of the Provinces in regional meetings. We LAPJ: Thinking about the future of the from Universidad de San Andrés. During his also signed several protocols, we provided Organization of American States, in what undergraduate studies, he was an exchange cutting-edge technological resources, and specific ways do you believe that the OAS student at the Institut d'Études Politiques revised training programs to improve co- could contribute to increase the levels of (IEP) de Paris, in France. ordination between the Provinces and the security in the region? Upon graduating, Maximino joined Poliar- National Government. Garré: I believe the provision of public quia Consultores, a polling firm specialized safety should be guided by accurate and in campaign management and public opin- LAPJ: Regarding the protection of the of- comprehensive diagnoses of Latin Ameri- ion research. After that, he worked at the ficers’ well-being, what did you find when ca’s current situation. In this sense, the OAS National Ministry of Security in Argentina you were appointed, and what was your provides the reports and statistics to have for almost three years, first as an Advisor to strategy to overcome these problems? a clear sense of what is exactly happening. the Secretary for Planning and later as Head Garré: Our vision was to hold police of- For different reasons, many countries do of the Department of Imagery Intelligence.

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86 LATIN AMERICA POLICY JOURNAL spring 2014 87 POLITICS AND INSTITUTIONS The Energy Reform in Mexico

As a graduate student, his policy area of References concentration is social and urban policy, 1 focusing primarily on criminal justice topics Garré refers to the number of annual intentional homicides per 100,000 inhabitants, as recorded by the in Latin America. He is particularly enthu- World Bank in 2012-2013, in order to illustrate and siastic about public initiatives that lie at the compare the level of violence of Honduras (92) and El intersection of public safety, technology, and Salvador (69)—two of the most violent countries in public opinion. the world—to the cases of Argentina (5.5), Uruguay (6), and Chile (4).

2 Themaras (the Central American term for gang) is the rising form of organized violence that is the scourge of El Salvador, Honduras, Guatemala, and The Energy Reform southern Mexico—increasingly expanding into Co- lombia, Brazil, and other South American countries. 3 On 10 December 2013, the General Assembly of in Mexico Uruguay approved a law that made the country the first in the world to fully regulate the cultivation, Lessons and Warnings from International Law trade, and consumption of cannabis for medical, industrial, as well as recreational purposes.

4 In 2013, President Santos addressed the General Assembly of the United Nations and referred to the BY GUILLERMO J. GARCIA SANCHEZ Single Convention on Narcotic Drugs of 1961, saying: “Right here, in this same headquarters, fifty-two years ago, the convention that gave birth to the war on drugs was approved. Today, we must acknowledge, that war has not been won. And I say this as the president of the country that has suffered more deaths, more bloodshed, and more sacrifices in this war, and Abstract is to analyze some of the contents of this the country that has also achieved more results in the THE ARTICLE ANALYZES some reform and to make a cautious warning on fight against this scourge and the mafias that underpin it.” See Trotta, Daniel. “Colombian President Tells of the contents of the Mexican energy some of the international legal implications U.N. the Drug War Has Not Been Won.” Reuters, 24 reform of 2013 and warns on the interna- that the path that Mexico has chosen to September 2013. tional legal implications that the path that follow could bring to its economy and to its Mexico has chosen to follow could bring international relations. Concretely, the ar- to its economy and international relations. ticle argues that the legislative process that Concretely, it argues that in order to avoid will implement the energy reform in the falling into the same mistakes made by upcoming months needs to attend to two other Latin American countries in the re- elements regarding Mexico’s international gion, Mexico must consider its obligations legal obligations: the provisions contained contained in international treaties signed in the 2012 Agreement Between the United with the United States on transboundary States of America and Mexico Concerning resources as well as its obligations in bilat- Transboundary Hydrocarbon Reservoirs in eral investment treaties that protect foreign the Gulf of Mexico (the 2012 Treaty)2 and investors from certain government acts and the obligations contained in several bilat- policies. eral investment treaties (BITs) signed by In December 2013, the international Mexico that protect foreign investors from media reported, to the surprise of many, certain government acts and policies. Oth- that the Mexican Congress approved an en- er states in the region have gone down this ergy reform that will radically transform a path before and for a diversity of reasons seventy-year-old state-oriented policy that have ignored the international obligations was an essential part of Mexico’s national to which they agreed, triggering numerous identity.1 The central theme of this article disputes and conflicts that eventually cost

88 LATIN AMERICA POLICY JOURNAL spring 2014 89 POLITICS AND INSTITUTIONS The Energy Reform in Mexico

millions in damages and compensations. mission on Hydrocarbons, and the Energy to be an “efficient,” “equitable,” “safe,” or treaty only mentions one type of contract: Mexico has the chance to learn from the Regulatory Commission have joint powers “environmentally responsible” exploitation, licenses. But the Mexican legislation, as mistakes of its peers in the region and even to execute and regulate different aspects of hence it leaves open to interpretation how explained above, contains several options, to be institutionally creative in the way it the agreements (article 27 and transitory these principles might develop in the life of and each one, according to the reform, assumes its international obligations in provisions 6 and 10). the treaty. This has several risks in light of must maximize in the long term the gov- the future; otherwise, the story of States the energy reform: for example, by not de- ernment’s profit from the exploitation of repenting years later will repeat itself, to the The 2012 Treaty Between Mexico termining the understanding of each prin- these resources. Balancing the rights of the detriment of Mexico’s national finances. and the United States ciple and by not hierarchizing them, the State, the rights of the contractors, and the In December 2013, just a couple of operators of the agreement, or an arbitrator provisions of unification in the treaty is go- The Energy Reform of 2013 days after the Mexican Congress adopted if a dispute arises, will have to interpret ing to be a hard task and must be addressed Before addressing the international law the energy reform, the U.S. Congress ap- each one and balance them in case there is in the secondary legislation if the Mexican aspect of the reform, it is important to un- proved as part of the Bipartisan Budget Act conflict. What if the unitization agreement State wants to avoid a dispute with the derstand the essence of the constitutional of 2013 the integration of the Agreement is efficient but not safe or environmentally United States on the issue. amendment.3 The most important aspect Between the United States and Mexico responsible? What if it is equitable but Finally, the dispute resolution mecha- in relation to this article is the fact that Concerning the Transboundary Hydro- inefficient? And even more important for nisms of the treaty are far from efficient. the energy reform amended the Mexican carbon Reservoirs in the Gulf of Mexico.4 the sake of the energy reform, what if the For instance, the treaty created a Joint Constitution to open up the possibility for With this act, the treaty that took more domestic legislation in Mexico defines ef- Commission to determine many elements the Mexican State to sign contracts with than twenty years to negotiate and was ficiency in terms of government revenues of the life of the treaty, including resolving private parties, including multinationals, signed in 2012 entered into force between and not in terms of profitability to the disputes regarding its interpretation. This, for the exploration and exploitation of hy- both countries and regulates the resources private contractors? The answers cannot be however, does not make the Commission drocarbon resources (article 27). Before the that, according to international law, both obtained from the language drafted in the a strong and independent body; in fact, reform, only Petróleos Mexicanos (Pemex), States are entitled to exploit.5 The treaty, treaty and hence are left subject to interpre- it’s the opposite. The members of the Joint the State-owned petroleum company, could in essence, will change the way the energy tation. Commission are designated by the parties, conduct these activities on behalf of the relations between Mexico and the United Second, to achieve the above-men- but there are no qualification requirements State. The Constitution still prohibits the States can develop in the future since tioned principles, Mexico and the United regarding them; the Commission is com- signing of concession agreements, but in it opens the possibility of exploiting an States agreed that the treaty would design posed of four members, two designated the transitory articles, it allows the State to estimate of 172 million barrels contained “cooperative agreements based primarily by each State, and does not contain any sign a variety of contracts that were forbid- in deep water reservoirs.6 Furthermore, on principles of unitization.” Articles 6 and procedure in case its decisions are locked. den before. For example, the reform affirms it places the security of the hydrocarbon 7 of the treaty establish the process to sign In the case the Commission is unable to that the State can sign joint profit and pro- resources located in the Gulf of Mexico un- and the content of the unitization agree- reach an agreement in many aspects of duction contracts, service contracts, and der the protection of an international treaty ments. In essence, they must be negotiated the treaty, the issue is thrown back to the licenses with private companies (transitory and fosters a joint development between by the licensees from each side of the bor- parties or to an arbitrator—only if it’s a provision 4). The transitory provisions Mexico and the United States to exploit der treating the reservoir as a unit, which technical issue it is resolved by an expert. also mention that the State can pay the them efficiently, equitably, and in a secure entails that the States must share the costs Finally, the Commission does not have an private party: cash, in the case of service way. There are many aspects of the treaty and the profits of its exploitation equitably. independent budget and each State has to contracts; a percentage of the profit, in the that are interesting for the development of In addition, the unitization contracts pro- financially support its designated members. case of joint profit agreements; a percent- international law in the matter, but for the posed by the licensees must be approved Hence, as opposed to being an independent age of the production, for joint production sake of this article, four points are relevant by each of the State agencies. This raises and strong body that could make unbiased agreements; and an onerous transfer of the and need to be stressed to avoid future several questions in the face of the energy decisions on the benefit of the treaty’s life, hydrocarbons once they have been extract- conflicts between both States. reform. The regulatory framework of the the Joint Commission is closer to a bina- ed, for the license agreements; or a combi- First, the treaty’s heart and soul is reform must include a chapter that deals tional political commission that tries to co- nation of all of the above. The decision on located in its preamble, where it states the with the contracts in the borderline with ordinate policies but has almost no power which contract will be adopted according principles that will guide the life of the legal the United States. The way things stand over the parties. Mexico and the United to the reform depends on the one that will framework of the treaty to archive “safe, today, it is unclear the type of contractual States have done better in the past when it maximize the government’s income in the efficient, equitable and environmentally relationship that the Mexican government comes to creating this type of organism. In long term. In terms of the authorities in responsible exploitation of transboundary could have with private companies in fact, in a very similar situation, the case of charge of implementing the reform, the hydrocarbon reservoirs.” The treaty does those areas that could respect the agree- transboundary rivers, both States signed an Secretary of Energy, the National Com- not expand on what the parties consider ment signed with the United States. The agreement back in 1944 where they created

90 LATIN AMERICA POLICY JOURNAL spring 2014 91 POLITICS AND INSTITUTIONS The Energy Reform in Mexico millions in damages and compensations. mission on Hydrocarbons, and the Energy to be an “efficient,” “equitable,” “safe,” or treaty only mentions one type of contract: Mexico has the chance to learn from the Regulatory Commission have joint powers “environmentally responsible” exploitation, licenses. But the Mexican legislation, as mistakes of its peers in the region and even to execute and regulate different aspects of hence it leaves open to interpretation how explained above, contains several options, to be institutionally creative in the way it the agreements (article 27 and transitory these principles might develop in the life of and each one, according to the reform, assumes its international obligations in provisions 6 and 10). the treaty. This has several risks in light of must maximize in the long term the gov- the future; otherwise, the story of States the energy reform: for example, by not de- ernment’s profit from the exploitation of repenting years later will repeat itself, to the The 2012 Treaty Between Mexico termining the understanding of each prin- these resources. Balancing the rights of the detriment of Mexico’s national finances. and the United States ciple and by not hierarchizing them, the State, the rights of the contractors, and the In December 2013, just a couple of operators of the agreement, or an arbitrator provisions of unification in the treaty is go- The Energy Reform of 2013 days after the Mexican Congress adopted if a dispute arises, will have to interpret ing to be a hard task and must be addressed Before addressing the international law the energy reform, the U.S. Congress ap- each one and balance them in case there is in the secondary legislation if the Mexican aspect of the reform, it is important to un- proved as part of the Bipartisan Budget Act conflict. What if the unitization agreement State wants to avoid a dispute with the derstand the essence of the constitutional of 2013 the integration of the Agreement is efficient but not safe or environmentally United States on the issue. amendment.3 The most important aspect Between the United States and Mexico responsible? What if it is equitable but Finally, the dispute resolution mecha- in relation to this article is the fact that Concerning the Transboundary Hydro- inefficient? And even more important for nisms of the treaty are far from efficient. the energy reform amended the Mexican carbon Reservoirs in the Gulf of Mexico.4 the sake of the energy reform, what if the For instance, the treaty created a Joint Constitution to open up the possibility for With this act, the treaty that took more domestic legislation in Mexico defines ef- Commission to determine many elements the Mexican State to sign contracts with than twenty years to negotiate and was ficiency in terms of government revenues of the life of the treaty, including resolving private parties, including multinationals, signed in 2012 entered into force between and not in terms of profitability to the disputes regarding its interpretation. This, for the exploration and exploitation of hy- both countries and regulates the resources private contractors? The answers cannot be however, does not make the Commission drocarbon resources (article 27). Before the that, according to international law, both obtained from the language drafted in the a strong and independent body; in fact, reform, only Petróleos Mexicanos (Pemex), States are entitled to exploit.5 The treaty, treaty and hence are left subject to interpre- it’s the opposite. The members of the Joint the State-owned petroleum company, could in essence, will change the way the energy tation. Commission are designated by the parties, conduct these activities on behalf of the relations between Mexico and the United Second, to achieve the above-men- but there are no qualification requirements State. The Constitution still prohibits the States can develop in the future since tioned principles, Mexico and the United regarding them; the Commission is com- signing of concession agreements, but in it opens the possibility of exploiting an States agreed that the treaty would design posed of four members, two designated the transitory articles, it allows the State to estimate of 172 million barrels contained “cooperative agreements based primarily by each State, and does not contain any sign a variety of contracts that were forbid- in deep water reservoirs.6 Furthermore, on principles of unitization.” Articles 6 and procedure in case its decisions are locked. den before. For example, the reform affirms it places the security of the hydrocarbon 7 of the treaty establish the process to sign In the case the Commission is unable to that the State can sign joint profit and pro- resources located in the Gulf of Mexico un- and the content of the unitization agree- reach an agreement in many aspects of duction contracts, service contracts, and der the protection of an international treaty ments. In essence, they must be negotiated the treaty, the issue is thrown back to the licenses with private companies (transitory and fosters a joint development between by the licensees from each side of the bor- parties or to an arbitrator—only if it’s a provision 4). The transitory provisions Mexico and the United States to exploit der treating the reservoir as a unit, which technical issue it is resolved by an expert. also mention that the State can pay the them efficiently, equitably, and in a secure entails that the States must share the costs Finally, the Commission does not have an private party: cash, in the case of service way. There are many aspects of the treaty and the profits of its exploitation equitably. independent budget and each State has to contracts; a percentage of the profit, in the that are interesting for the development of In addition, the unitization contracts pro- financially support its designated members. case of joint profit agreements; a percent- international law in the matter, but for the posed by the licensees must be approved Hence, as opposed to being an independent age of the production, for joint production sake of this article, four points are relevant by each of the State agencies. This raises and strong body that could make unbiased agreements; and an onerous transfer of the and need to be stressed to avoid future several questions in the face of the energy decisions on the benefit of the treaty’s life, hydrocarbons once they have been extract- conflicts between both States. reform. The regulatory framework of the the Joint Commission is closer to a bina- ed, for the license agreements; or a combi- First, the treaty’s heart and soul is reform must include a chapter that deals tional political commission that tries to co- nation of all of the above. The decision on located in its preamble, where it states the with the contracts in the borderline with ordinate policies but has almost no power which contract will be adopted according principles that will guide the life of the legal the United States. The way things stand over the parties. Mexico and the United to the reform depends on the one that will framework of the treaty to archive “safe, today, it is unclear the type of contractual States have done better in the past when it maximize the government’s income in the efficient, equitable and environmentally relationship that the Mexican government comes to creating this type of organism. In long term. In terms of the authorities in responsible exploitation of transboundary could have with private companies in fact, in a very similar situation, the case of charge of implementing the reform, the hydrocarbon reservoirs.” The treaty does those areas that could respect the agree- transboundary rivers, both States signed an Secretary of Energy, the National Com- not expand on what the parties consider ment signed with the United States. The agreement back in 1944 where they created

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a commission with the rank of an “interna- government.12 These are considered as any making a mistake or of being too ambigu- tional organization” that has a joint budget other investment in the foreign country. ous regarding the policies adopted and the to technically determine apportionment of The risk with the energy reform now is that legislation implemented could provoke inland water between both countries.7 This if the secondary legislation is not drafted several claims and years of costly litigation binational organization has been relatively in an efficient way, clearly establishing the with the U.S. government or with foreign Guillermo J. Garcia is a Mexican lawyer efficient in its tasks and has been able to type of acts that the government can take— investors. This story has been told before in trained and specialized in international law work even under pressure of governors, such as forcing a unification agreement in the region, there is no need to replicate it affairs. He holds a bachelor’s degree in law mayors, and farmers on both sides of the the borderline, for instance—international in Mexico if things are done appropriately. and a bachelor’s degree in international rela- border.8 disputes could arise in the future. For On the contrary, if Mexico is able to draft a tions both from ITAM University in Mexico, example, if a petroleum company agrees modern secondary law that integrates more where he achieved the highest honors and The Protection of Foreign Investors to invest in Mexico under certain terms, deeply the energy relation with the United several awards for his research on inter- in Mexico and the government decides to correct the States and foreign companies in an ef- national legal solutions on transboundary Mexico has signed more than thirty agreement to regain control of the produc- ficient, equitable, and secure way, the future hydrocarbon resources between the United bilateral investment treaties and several tion of the field or it modifies the legal con- of the North American regions could be States and Mexico. Before being admitted free trade agreements that contain a sec- text in which the investment was done in secured and it could serve as an excellent to Harvard Law School’s doctoral degree tion on the protection of investment, like the future, then Mexico could face claims model for other relations. For example, it on juridicial science program, he obtained Chapter 11 of NAFTA, where in essence in an international investment arbitral is a fact that transboundary resources are a master’s degree in international law from the State agrees to give foreign investors a tribunal. This has happened in the past to also located with the borders of other parts the Fletcher School of Law and Diplomacy particular set of rights and legal resources.9 other countries in the region. It is not un- of the Gulf, like the borderlines between in 2011. His professional experience includes In general, these include the right to a fair common to find stories of Latin American Mexico, the United States, and Cuba, or the practice as an associate in an international and equitable treatment, principles on the governments that decide to open particular borderline between Guatemala and Mexico. law firm specialized in international invest- procedure and calculation of compensa- sectors of the economy that were previ- Furthermore, the shale gas reservoirs in ment arbitration, lobbying the Mexican tion for expropriations, nondiscrimination, ously fully controlled by the State and then the borderline between Mexico and the Congress for the introduction of political national treatment, and full protection change their minds years later when they United States could also benefit from the reforms, presenting briefs before the Inter- and security of their investment.10 Most realize that the reforms are too aggressive experience that the exploitation of the American Court of Human Rights, advising importantly these treaties give the right to and that they left the government on the fields according to the treaty of 2012 could the Mexican Ministry of Foreign Affairs, and the foreign investor to initiate mandatory wrong side of the equation. Any amend- bring. clerking for a Justice of the Supreme Court of arbitration proceedings against the governments to the legislative and contractual If things are done in an inappropriate Mexico. His current line of research includes ment if the investor considers that his or context when the foreign investor arrived manner and Mexico is forced to modify comparative constitutional law, internation- her rights have been violated due to state to the State can be translated into claims legal contexts after the investments are al adjudication, and the impact of interna- action or inaction. Mexico has been found of breaches of a BIT and hence the State done or if the agreements in the borderline tional law in Latin American democracies. guilty in the past for certain acts against would have to pay damages and compensa- end up in claims tribunals, then the politi- foreign investors and has paid a substantial tion for modifying its policies. Examples cal turmoil in Mexico when the news of the amount of money in damages and compen- of the above can be found in the case of arbitrations are out will force the State to go sation.11 Nevertheless, one of the industries Ecuador when it modified its fiscal law back to nationalistic rhetoric that can only that was excluded from these treaties was on the exploitation of hydrocarbons13 and bring more tension to the region. Rather the hydrocarbon sector. This is so because Venezuela when it modified its national than being an example of the development it was considered that only Pemex would hydrocarbons law to strengthen the control of a secure energy region, Mexico will develop activities in these areas and that of the State over the exploitation of the oil become one more case of a wrongly imple- foreign investment was expressly forbidden fields in the Orinoco Belt.14 mented opening to foreign investment and in this area. a consequent fall back into nationalistic With the entry into force of both the Conclusion policies that not only keeps the State from treaty of 2012 and the energy reform of If the purpose of the 2012 treaty and using its resources efficiently but that trans- 2013, questions will emerge regarding the the 2013 energy reform is to expand the lates into litigation that could eventually protection of the investors that will be sub- investment in the hydrocarbon sector of cost millions of dollars of national income ject to both regimes. In principle, interna- Mexico, then a deep study and understand- in damages and compensation. tional foreign investment law protects the ing of the international law implications of contracts signed by the investors with the these innovations is necessary. The risk of

92 LATIN AMERICA POLICY JOURNAL spring 2014 93 POLITICS AND INSTITUTIONS The Energy Reform in Mexico a commission with the rank of an “interna- government.12 These are considered as any making a mistake or of being too ambigu- tional organization” that has a joint budget other investment in the foreign country. ous regarding the policies adopted and the to technically determine apportionment of The risk with the energy reform now is that legislation implemented could provoke inland water between both countries.7 This if the secondary legislation is not drafted several claims and years of costly litigation binational organization has been relatively in an efficient way, clearly establishing the with the U.S. government or with foreign Guillermo J. Garcia is a Mexican lawyer efficient in its tasks and has been able to type of acts that the government can take— investors. This story has been told before in trained and specialized in international law work even under pressure of governors, such as forcing a unification agreement in the region, there is no need to replicate it affairs. He holds a bachelor’s degree in law mayors, and farmers on both sides of the the borderline, for instance—international in Mexico if things are done appropriately. and a bachelor’s degree in international rela- border.8 disputes could arise in the future. For On the contrary, if Mexico is able to draft a tions both from ITAM University in Mexico, example, if a petroleum company agrees modern secondary law that integrates more where he achieved the highest honors and The Protection of Foreign Investors to invest in Mexico under certain terms, deeply the energy relation with the United several awards for his research on inter- in Mexico and the government decides to correct the States and foreign companies in an ef- national legal solutions on transboundary Mexico has signed more than thirty agreement to regain control of the produc- ficient, equitable, and secure way, the future hydrocarbon resources between the United bilateral investment treaties and several tion of the field or it modifies the legal con- of the North American regions could be States and Mexico. Before being admitted free trade agreements that contain a sec- text in which the investment was done in secured and it could serve as an excellent to Harvard Law School’s doctoral degree tion on the protection of investment, like the future, then Mexico could face claims model for other relations. For example, it on juridicial science program, he obtained Chapter 11 of NAFTA, where in essence in an international investment arbitral is a fact that transboundary resources are a master’s degree in international law from the State agrees to give foreign investors a tribunal. This has happened in the past to also located with the borders of other parts the Fletcher School of Law and Diplomacy particular set of rights and legal resources.9 other countries in the region. It is not un- of the Gulf, like the borderlines between in 2011. His professional experience includes In general, these include the right to a fair common to find stories of Latin American Mexico, the United States, and Cuba, or the practice as an associate in an international and equitable treatment, principles on the governments that decide to open particular borderline between Guatemala and Mexico. law firm specialized in international invest- procedure and calculation of compensa- sectors of the economy that were previ- Furthermore, the shale gas reservoirs in ment arbitration, lobbying the Mexican tion for expropriations, nondiscrimination, ously fully controlled by the State and then the borderline between Mexico and the Congress for the introduction of political national treatment, and full protection change their minds years later when they United States could also benefit from the reforms, presenting briefs before the Inter- and security of their investment.10 Most realize that the reforms are too aggressive experience that the exploitation of the American Court of Human Rights, advising importantly these treaties give the right to and that they left the government on the fields according to the treaty of 2012 could the Mexican Ministry of Foreign Affairs, and the foreign investor to initiate mandatory wrong side of the equation. Any amend- bring. clerking for a Justice of the Supreme Court of arbitration proceedings against the governments to the legislative and contractual If things are done in an inappropriate Mexico. His current line of research includes ment if the investor considers that his or context when the foreign investor arrived manner and Mexico is forced to modify comparative constitutional law, internation- her rights have been violated due to state to the State can be translated into claims legal contexts after the investments are al adjudication, and the impact of interna- action or inaction. Mexico has been found of breaches of a BIT and hence the State done or if the agreements in the borderline tional law in Latin American democracies. guilty in the past for certain acts against would have to pay damages and compensa- end up in claims tribunals, then the politi- foreign investors and has paid a substantial tion for modifying its policies. Examples cal turmoil in Mexico when the news of the amount of money in damages and compen- of the above can be found in the case of arbitrations are out will force the State to go sation.11 Nevertheless, one of the industries Ecuador when it modified its fiscal law back to nationalistic rhetoric that can only that was excluded from these treaties was on the exploitation of hydrocarbons13 and bring more tension to the region. Rather the hydrocarbon sector. This is so because Venezuela when it modified its national than being an example of the development it was considered that only Pemex would hydrocarbons law to strengthen the control of a secure energy region, Mexico will develop activities in these areas and that of the State over the exploitation of the oil become one more case of a wrongly imple- foreign investment was expressly forbidden fields in the Orinoco Belt.14 mented opening to foreign investment and in this area. a consequent fall back into nationalistic With the entry into force of both the Conclusion policies that not only keeps the State from treaty of 2012 and the energy reform of If the purpose of the 2012 treaty and using its resources efficiently but that trans- 2013, questions will emerge regarding the the 2013 energy reform is to expand the lates into litigation that could eventually protection of the investors that will be sub- investment in the hydrocarbon sector of cost millions of dollars of national income ject to both regimes. In principle, interna- Mexico, then a deep study and understand- in damages and compensation. tional foreign investment law protects the ing of the international law implications of contracts signed by the investors with the these innovations is necessary. The risk of

92 LATIN AMERICA POLICY JOURNAL spring 2014 93 POLITICS AND INSTITUTIONS

References ARB/08/10); Burlington Resources, Inc. v. Republic of Ecuador (ICSID Case No. ARB/08/5). 1 See, for example, The Economist. “Reforms in GUIDELINES FOR SUBMISSIONS Mexico: Oil’s Well that Ends Well,” Economist, 14 14 ConocoPhillips Petrozuata B.V., ConocoPhillips December 2013. Hamaca B.V., and ConocoPhillips Gulf of Paria B.V. v. Bolivarian Republic of Venezuela (ICSID Case No. TheLatin American Policy Journal (LAPJ) at the John F. Kennedy School of Govern- 2 The text of the Agreement Between the United States ARB/07/30). ment at Harvard University is now accepting submissions for its fourth edition, to be of America and the United Mexican States Concern- published in the spring of 2015. ing Transboundary Hydrocarbon Reservoirs in the Gulf of Mexico signed in Los Cabos on 20 February 2012, can be found on the Bureau of Ocean Energy TheLAPJ is a student-managed publication that collects perspectives from academics and Management (BOEM) Web site. practitioners on contingent policy issues and gives them a platform to engage in construc- tive dialogue with each other in the search for best practices and collective learning. The 3 The complete text of the energy reform in Spanish LAPJ aims to present Latin American perspectives about Latin America, to a Latin Ameri- can be found on the Web page of the Office of the President of Mexico. can and US audience.

4 See “Statement by NSC Spokesperson Caitlin Our mission is to initiate respectful, thought-provoking debate between consolidated and Hayden on the U.S.-Mexico Transboundary Hydro- emerging leaders across Latin American and their American counterparts. We envision carbons Agreement.” White House press release, 19 a region where collaborative efforts between countries improve the quality and scope of December 2013. policy making. 5 For a complete study of the international legal sources of the rights of both countries, see Garcia Sanchez, TheLatin American Policy Journal is inclusive, nonpartisan, independent, and opinion- Guillermo. La Explotacion de Recursos Trasnfornter- ated. izos en el Golfo de Mexico. Tesis Licenciatura, ITAM, 2009; see also Wood, Duncan. US-Mexico Cross Border Energy Cooperation: A New Era in the Gulf of Mexico. The Wilson Center Mexico Institute, March What to Submit 2012. We strongly encourage submissions from writers of all backgrounds, including scholars, 6 Hurwitz, Ken. “US-Mexico Offshore Agreement Holds Promise but Faces Challenges,” Offshore, 22 policy makers, civil servants, journalists, advocates, and organizers. January 2014. We are accepting pieces in the following formats: 7 “Treaty Between the United States of America and Mexico for the Utilization of Waters of the Colorado ARTICLES and Tijuana Rivers and of the Rio Grande. Signed At Original and in accord to the theme of this publication Washington, February 3, 1944. Treaty Series 994.” • • 6-10 double-spaced pages (1,800-2,500 words) 8 For more information on the commission, see the • All figures, tables, and charts must be submitted as entirely separate files International Boundary and Water Commission • Include a 100-150-word abstract (IBWC) Web site.

9 For a complete list of the international investment COMMENTARIES, INTERVIEWS, OR SHORT ESSAYS treaties, see the Web site of the Secretaria de Econo- • 3-6 double-spaced pages (900-1,800 words) mia de Mexico. BOOK REVIEWS 10 See, in general, Dolzer, Rudolf, and Christopher Schreuer. Principles of International Investment Law. • 3-6 double-spaced pages (900-1,800 words) Oxford University Press, 2008. • Include full citation for book, including publisher and year of publication • Book reviews should critically assess recent books that innovate beyond the fron- 11 For a complete list of the cases, see the Web site of tier of current thinking about Latin American politics and policy the Secretaria de Economia de Mexico.

12 Dolzer and Schreuer, Principles of International ARTWORK Investment Law. • Original and unpublished visual artwork • High-resolution digital images (3000+ dpi) in .jpg files 13 See, for example, Repsol YPF Ecuador, S.A. and Others v. Republic of Ecuador and Empresa Estatal • A description of the image title, author, year, and medium Petróleos del Ecuador (PetroEcuador) (ICSID Case No.

94 LATIN AMERICA POLICY JOURNAL spring 2014 95 POLITICS AND INSTITUTIONS

94 LATIN AMERICA POLICY JOURNAL spring 2014 95 LANGUAGE Articles can be submitted in English or Spanish. They will be professionally translated. Selection Criteria The best pieces will be chosen based on the following criteria: • Relevance of the topic to Latin American policy issues and timeliness to current policy debates • Originality, sophistication, and style of argument(s) • Contribution to scholarship and policy making on Latin American issues

All submissions must comply with the following in order to be considered: • Work must be original and unpublished • Citations should be formatted as endnotes according to LAPJ guidelines • Include a cover letter with the author’s name, address, e-mail address, daytime phone number, and a brief biography (maximum of 300 words) • Authors are required to cooperate with editing and fact checking, and to comply with journal-mandated deadlines • Authors who fail to meet these requirements may not be published

Submissions will be considered for the print or online versions of the Latin America Policy Journal. Process

Articles will be published on a rolling basis on the LAPJ Web site. Please e-mail your sub- mission to [email protected] by 15 December 2014.