LATAM COMPILATION 2015

New times for Latin America

BARCELONA BOGOTA BUENOS AIRES LIMA LISBON MADRID MEXICO MIAMI PANAMA QUITO RIO J SAO PAULO SANTIAGO STO DOMINGO Contents Prologue by José Antonio Llorente 3

Latin America: structural reforms in 5 the face of a business change of cycle

Justice in Latin America as an 39 essential factor for development

The Latin American population in the 59 United States: a “sleeping giant?”

Towards where should the strategic 75 relation between the EU and Latin America and the Caribbean move?

Latin family businesses: more 115 governance, better enterprises by Manuel Bermejo, Director of Executive Education and Professor at IE Business School

The multilatinas by Ramón Casilda, 153 Professor and Iberoamerican businesses consultant

The role of multilateral organizations 191 in the economic and social development of Latin America

LLORENTE & CUENCA 211 Prologue

Currently, Latin America operates in a changing international context in which the Chinese economic slowdown and the negotiations on the Transatlantic Trade and Investment Partnership (TTIP) between the European Union (EU) and the United States and the Transpacific Partnership (TPP) between the EU and the Pacific Rim countries have increased its complexity. Each region needs to take its corresponding position in the world and play its role in order to achieve a comprehensive development.

In order to be competitive in this environment, Latin America must address a plan of structural reforms to put forward solutions and alternatives to the development slowdown affecting the whole region and thus avoid getting stuck in the “middle income trap”. All the reforms must be comprehensive and multidisciplinary, and governments should avoid implementing partial reforms to solve the problem to a degree, instead of completely removing it.

This is the case of the various legal reforms that most Latin American countries have addressed. Considering the efforts that these nations made to carry out these reforms, the results have been disappointing. However, their implementation shows that both the population and the institutions are aware of the need to complete these reforms, which is in itself a first important step towards the development of the region.

The reforms that the region requires should cover all areas of action to foster development in the countries which make up the region. Justice is an important development tool, but not the only one and, thus, a reform in that area would not automatically entail the economic growth of the region and would not cover all the needs of Latin America.

Latin America is ready to identify all the development and seize progress opportunities to stop being the region of the missed chances. It is the time to put on the table the necessary strength and efforts to become competitive and take build on the momentum provided by the Multi-Latin corporations and SMEs that are starting to grow, turning them into regional representatives and relationship facilitators. Innovation shall be the main objective that all countries need to promote. The truth is, the environment will require the region to adapt to a market in which commodities will neither be the only, nor the main source of growth.

Moreover, Latin America must take advantage of the presence of its fellow citizens in the U.S. a country which offers various opportunities for development. Hispanic population is the largest minority in the country and, therefore, the relation between Latin America and the U.S. is crucial.

In the deepening of relations, Europe plays a key role thanks to the existence of cultural ties, a common language and shared values that have enhanced a relation that goes beyond the economic dimension. The relationship between the EU and the Community of Latin American and Caribbean States (CELAC) has to move in a new direction, seeking to generate a greater trust among both regions and thus turn the EU-CELAC relations into a strategic alliance which promotes the development and growth of both regions.

Therefore, Latin America must face this dynamic cycle and advocate for change and innovation, reforms and the deepening of relations as the foundations on which its development and prominence in the international arena should be built.

We need to make the efforts and have the willingness to continue fostering the development and growth of the region. It is every- body’s work.

José Antonio Llorente Founding partner and chairman Latin America: structural reforms in the face of a business change of cycle

Madrid , April 2015 LATIN AMERICA: STRUCTURAL REFORMS IN THE FACE OF A BUSINESS CHANGE OF CYCLE

1. INTRODUCTION

“The party of high oil prices and low interest rates is over. We are 1. INTRODUCTION entering a storm from an economic point of view… Besides the fall in 2. SIGNS OF A CHANGE OF CYCLE oil prices, the United States will soon increase their interest rates. In 3. A NEW REFORMING CYCLE this context, all currencies, included those of the developed countries, 4. CONCLUSIONS are depreciating against the US dollar... There is no doubt: hard times are coming, times of great volatility and tough adjustments where emerging economies will have to make a difference from one another in order to get out as soon as possible and dented as little as possible from the international turbulence”.

This text, written by Leo Zuckermann, analyst of the Mexican newspaper Excelsior, only confirms a feeling that is being gradually extended through Latin America. We are witnessing a cycle change, an end of an era in front of which the Latin American countries must react in order to adapt their economies to the new global and regional scenario. The slowdown and downturn signs are very obvious, caused by lower commodities prices, mainly set off by the economic downturn in China, the increase in external financing costs and prospects of fewer capital inflows. This, added to the own structural problems of the Latin American economies and to the global change that is taking place regarding the transfer of wealth from the Atlantic to the Pacific Ocean, forces the countries of this region to undertake far-reaching reforms in order not to fall behind in relation to the emergence of other regions such as sub-Saharan Africa and many Asian countries, nor lose ground in the reduction of poverty and inequality.

In fact, Latin America is not going through an unknown phase but through an experience which, with its nuances and specific features, had already occurred. Historically, the rise in international prices of commodities the region exports used to create a “virtuous circle” where income increased and trade deficit decreased becoming surpluses. This way, states received greater financial means thanks to those new revenues and expanded the public spending. Along this line, the Argentine economist, Ricardo Arriazu, points out that this initiates “a second stage in which demand (and production) increase in other sectors than automotive and agricultural machinery producers in Argentina’s case), and since production rises, employment and wages grow; at this stage the public sector benefits from a new increase in tax collection and imports start to grow. At the third stage, the process is accentuated due to the capital inflow, attracted by the greater economic growth and the improvement in the fiscal and external accounts. At this stage, public spending expands rapidly because governments feel confident due to the improvements in tax collection and some countries let their currencies appreciate due to the great increase in their reserves”. The boom ends when international prices start to fall and the increase in public and private spending results in

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a deterioration of the internal America had to reinvent itself fiscal accounts and the external again. The commitment to neo- balances and all added to a fall in liberal reforms (the Washington the foreign investment. Consensus), to external openness, the reduction of tariffs, the Latin America’s history is indeed stimulus to trade, the reduction of a succession of serious crises, inflation and deficits (by reducing followed by major adjustments the size of the State through that precede booms linked to privatization) allowed the region the high prices in commodities, to be ready (with its “homework accompanied by speculative done”) to be able to benefit from “bubbles” that end up exploding and strengthen during the in the midst of scandals of boom of the “Golden Decade” corruption and delegitimization (2003-2013). First of all, during a of the State. After the traumatic virtuous six-year period (2003- beginning of the 19th century 2008) followed by, after the fall in (1810-1850) Latin American 2009, a new growth period despite States gradually settled in and the international turbulences the economy developed based (2010-2013). As Rebeca Grynspan, on the growth of international current Ibero-American Secretary trade and on the links with a General, states, “in the last 10 Western Europe that demanded years more than 50 million Latin American export people escaped from poverty. The products for their increasing majority benefited from the labor industrial production and market dynamism –in particular the population growth. The men’s remunerations, from 25 to 1929 crash forced the region 49 years old, in urban areas, in to reinvent itself for the first the region’s services sector– and time and to promote import to a lesser extent through social substitution industrialization, transfers and the demographic which was accompanied by a dividend”. In these years, a whole academic production series of solid economic and giving it intellectual support financial policies, together with (Raúl Prebisch’s ECLAC school the tailwind of the commodities of thought). “super cycle”, enabled Latin America to grow at an average The new system was supported rate of 4,2% since 2003. thanks to the boom of the global postwar period and to However, since 2014, the tailwind the abundance of petrodollars does not blow with such in the 1970s. But the excessive strength and the development indebtedness, the fall in oil prices accumulated in the boom years and the regional economies’ has peaked since the region’s structural shortcomings (huge challenges are different, more deficits and inflation) plunged focused on avoiding the “middle- the region into another serious income countries’ traps”. The crisis, the “Lost Decade” of the 2003-2013 boom prevented the 1980s, as a result of which Latin region’s structural problems from

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being seen more clearly, unlike the region as regards inflation what happened in the 1980s and control, decrease in the tax 1990s, Latin America failed to do and trade deficits as well as the their homework believing that resizing of the State apparatus. the growth would fix them itself That era is history and now new and in this second half of the challenges arrive for the Latin present decade it is time to build American economies that must more diversified, competitive face a new time of structural and productive economies, that reforms in order to adapt to a back innovation and investment more competitive world with in human and physical capital in lower and more volatile levels of order to make further progress growth where commodities are on reducing poverty, destitution not going to be the only nor the and inequality. main locomotive for growth.

2. SIGNS OF A CHANGE OF There is no doubt that Latin CYCLE America emerged strengthened from the boom years, what Latin America is currently is also true, however, is that going through much more the whole momentum for than a change of cycle, is reform that existed in the experiencing a change of era. 1980s and 1990s was lost in The “Golden Decade” (2003- the last fifteen years. It is 2013) brought a time of exports also true that Latin America boom for the region based is facing this new change of on orthodox approaches in cycle in a much stronger way terms of macroeconomy and than in the 1980s because on previous reforms, carried from the “Lost Decade” (1982- out in the 1980s and 1990s, that 1989) to the present time, the granted economic rationality to region managed to reduce its

Latin America: evolution of poverty and destitution, 1980-2014 (as a percentage and in million people)

50 48.4 250 225 43.8 43.9 215 40.5 204 200 186 40 171 33.5 164 165 167 29.6 28.1 28.1 28 150 136 30 22.6 99 18.6 18.6 19.3 100 95 91 Percentage Million people Million 72 67 69 71 12.9 12 62 66 20 11.6 11.3 11.7 50

10 0 1980 1990 1999 2002 2008 2011 2012 2013 2014 1980 1990 1999 2002 2008 2011 2012 2013 2014 Homeless Poor Source: El País newspaper

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indebtedness, strengthened the class. Inequality, measured financial system capitalization by the Gini coefficient, was and made progress in reducing also reduced, but in a less poverty and to a lesser pronounced way. extent, inequality. This nearly uninterrupted growth in the The social structure in Latin last years (except in 2009) was America is now much more accompanied by a profound different from how it was social change: Latin America fifteen years ago. The region’s greatly reduced its levels of economic growth has led those poverty (from 225 million 60 million people to get out of of poor people in 1990 to 164 poverty and join an emerging million of poor people in 2013), and heterogeneous middle class. enabling the emergence of a Although poverty reduction is new and heterogeneous middle still making progress in most of the countries, a significant part of these new middle classes are very vulnerable to an economic Graphic 1: Trends within middle classes, vulnerability and poverty in Latin America and the Caribbean, 1995-2009 downturn and run the risk of falling back into poverty. After all, as stated by Alicia Bárcena, Secretary General of ECLAC: “It is 50 true that millions of people have 45 escaped poverty, but they do not belong to the middle class for 40 their spare capacity, but for their 35 borrowing capacity when buying imported goods”. 30 25 Since the crisis of 2009, the region is facing a new economic 20 cycle marked by slowdown. 15 Latin America thought that 10 the boom was going to be Percentage of the population Percentage indefinite because China and 5 the rest of Asia would grow at 0 8-10% rates for decades, which 1995 2000 2005 2010 has finally not happened. The region has not saved in the way Poor (US$0-US$4 per day) that had been expected and Vulnerable (US$4-US$10 per day) Middle class (US$10-US$50 per day) has backed a social spending of clientelist nature and current expenditure rather Source: World Bank, based on data from SEDLAC (Socio Economic Database for Latin America and the Caribbean) than boosting infrastructure, education or healthcare, which Note: the countries included are: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, explains the protests that have Uruguay and Bolivarian Republic of Venezuela. The poverty tresholds and the incomes are shown un taken place in Brazil, Chile, Peru US$ by days of the year 2005 at the exchange rate of Purchasing Power Parity. or Colombia. Since 2010, growth

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levels over 5% have never been daily income of less than US$ restored and in fact, rates have 2.50) rose up to the 12%. decreased from 4.5% in 2011 to the 2.2% forecast for 2015. After As stated by Alejandro Werner, growing at an average rate of IMF director for the region, in an 4.3% in the period 2004-2011, the interview for the newspaper El economies of the region have País: “Latin America is starting barely expanded at an average in 2015 a period of a change of annual growth rate of 2.1% cycle . Very possibly a change since 2012. of political cycle, but certainly a change of a new economic Another sign of this change of cycle. The growth rate of 1.3% is cycle is that poverty reduction rather low. We came from levels has stopped and has even of 4%. It is the reflection of Latin worsened. During the period America’s adjustments to the 2012-2014, the poverty rate has fall in the prices of commodities, remained at around 28% of minerals and agricultural the population, according to products, after a period of the household surveys of the sustained growth; the negative Economic Commission for Latin effect of the fall in oil prices; America and the Caribbean and the end of the momentum (ECLAC) in 2014. The ratio of for reform carried out in the extremely poor people (with a 1990s. This momentum has not been sustained and its effect is running out. We must Graphic 2: Average projected GDP growth 2014-20191 anticipate the difficulties (Annual average percentage change) on the side of international economy in the commodities environment, accelerate the 5 structural reform in education, continue with the important 4 agenda on infrastructure that has been implemented and continue developing the 3 commodities sector”.

2 The tailwind that marked the "Golden Decade" (2003-2013) is therefore finished and the signs 1 of transformation within the international economic context 0 that were clear by 2014 have 2003-11 2012-13 2014-19 been very obvious in 2015.

Source: IMF (downloaded from http://blog-dialogoafondo.org/?p=3991) LOW ECONOMIC GROWTH

1 Projections based on a model CVAR, assuming that the prices of raw materials remain constant at the average levels of 2013. Simple average of Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Honduras, Latin America has had a low Peru, Paraguay, Uruguay and Venezuela. growth in 2015 that has not

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exceeded the 2.5% rate, clearly The growth forecast was within insufficient to confront the a range between 1% and 1.5% for social challenges of the region. 2014 as against the 2.5% and the According to ECLAC, while the 2.9% respectively recorded in economy of Latin America and 2013 and 2012. “Latin America is the Caribbean would recover slowing down more rapidly than in 2015, it would do it below its most of the emerging world”, says needs since the Gross Domestic the World Bank’s Chief Economist Product (GDP) would reach an for the region, Augusto de la Torre. average growth of 2.2%, whereas in 2014 it reached a 1.1% rate, the HETEROGENEITY IN THE lowest since 2009. REGIONAL SITUATION

Likewise, the Development Center Again, as has been happening of the Organisation for Economic in the last years, the region will Co-operation and Development grow, or slow down, at different (OECD) and the Development paces. Latin America will have Bank of Latin America foresaw grown by 1.5% in 2015 and by 2.4% that the region would continue in in 2016 but the Pacific Alliance 2015 at growth figures far below countries (Chile, Peru, Colombia the 5% rate, and therefore would and Mexico) will have done it continue facing a slowdown at faster, at a 3.6% rate in 2015, than its pace of economic expansion. the Mercosur countries which will collapse into stagnation or Latin America: GDP growth (%) even into crisis, especially Brazil, Argentina and Venezuela. At this juncture, the lower Chinese 5.0 growth has striked the South American countries while Mexico and Central America could benefit 4.0 from the economic upturn in the United States (although, at the 2.6 2.6 2.5 same time, in Mexico’s case the fall 3.0 in oil prices and the rise in interest rates in the United States will 1.6 affect its growth). 2.0 0.9 “A stronger slowdown in China is still a key risk for the commodities 0.0 exporting countries in Latin America and the Caribbean – assures the Director of IMF’s -1.0 Western Hemisphere Department, 2012 2013 2014e 2015e 2016e Alejandro Werner–. The good thing is that Mexico, Central America Latam Mercosur Pacific Alliance and some parts of the Caribbean will benefit from a United States’ Source: BBVA more vigorous recovery”.

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Thus, two countries are on the Uruguay would grow by 3.5% verge of, or are already facing, in 2015. Central America would an economic crisis: Venezuela grow at a 3.5% rate. For its part, and Argentina (in Brazil the Bolivia, Ecuador and Paraguay forecasts show a situation of would be leading the region’s economic stagnation). Another growth at a 4-5% rate. group of countries will have a moderate growth: Chile, FALL IN COMMODITIES PRICES Colombia, Mexico, Peru and The model of growth in Latin America has been based GDP in Latin America since 2003 on commodities Latin America and the Caribbean exports at historically high prices. However, since October 2014, the international oil Mexico price (main export of Mexico, 1.1 2.4 3.5 Venezuela and Ecuador) has Venezuela fallen from 90 to 54 dollars a Colombia 1.3 -3 -1 barrel. In the case of soya, the price is around 250 dollars per ton, far from the 600 dollars 4.7 4.8 4.5 Brazil per ton it reached in 2008 and 2.5 1.4 which explained the economic Ecuador 0.3 boom in the Kirchnerist Argentina. Copper, main export 4.3 4 4 of Chile and Peru, is now Paraguay 2.89 dollars per pound and is recorded at its lowest value Peru since 1 July 2010. 13.6 4 4.5 5.8 3.6 5.1 The IMF ensures that the high commodities prices Bolivia Uruguay are already history for the next 2 or 3 years, which has 6.8 5.2 5 4.4 2.8 2.8 serious consequences for Latin American countries Chile and their tax revenue. The Argentina hydrocarbons expert, Carlos 4.2 2 3.3 2.9 -1.7 -1.5 Miranda Pacheco, in Bolivia’s case, expressed it very clearly in the newspaper Página Siete: North America South America Central America Caribbean “Oil at half of its previous price means that in 2015 we will receive as well half the gas exports earnings of this year, 2.1 2.2 3.1 3.2 0.7 1.6 4.2 3.8 3.9 3.2 3.8 3.3 it will only be 3.2 billion dollars instead of 6.5 billion dollars”. In %: 2003 2004* 2005* Source: La Razón newspaper

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DEVALUATION OF LATIN from being overcome or solved. AMERICAN CURRENCIES The region has lived on income “The economic upswing (on the homework done in The main currencies have lost the 1990s) and on an inertia brought prosperity and their value against the dollar supported by the good global social improvements” and as a whole, Latin American economic context that favored currencies have depreciated its exports and discouraged sharply. In particular, the the implementation of Brazilian case stands out: the structural reforms. José real has lost until March 2015 Juan Ruiz, economist of the around 18% of its value against Inter-American Development the dollar, and is the worst- Bank, states that “in the last performing among the major 50 years, Latin America has currencies. The dollar, which has not been able to converge in become an investment shelter terms of welfare with the most in times of volatility, has also developed countries. Although benefited from the recovery in in relation to 1960 the per capita the United States as well as from income in Latin America in the forecast that the US Federal constant dollars has increased Reserve will raise the short-term 4.5 times, with respect to the interest rates. U.S. citizen, today the welfare gap is 8% bigger than the one These four features described suffered by their parents or indicate a change of a cycle that grandparents. Meanwhile, follows a boom period in which the Asian emerging countries the region stopped doing its turned the last decades into the homework, in contrast to what platform for their take-off to happened in the 1990s. development. Singapore, which in 1960 had a per capita income Generally, it can be stated that equivalent to the one Ecuador in these years there has been an had, has already converged excess of complacency among with the American one. Korea, the Latin American leaders in the 1960s as prosperous as about the economic situation of Brazil, has a 66% of the US their countries. The economic income today and has exceeded upswing brought prosperity the standard of living of the and social improvements, but Spanish citizen. China, with an the traditional and historical income below the twentieth problems Latin America part of the American one, has is carrying (its economic reached 10,000 dollars in two vulnerability, lack of innovation, decades”. poor competitiveness and productivity, the existence of Despite the confirmation of important bottlenecks– low this historical backwardness, investment in human and the complacency and excess of physical capital– or lack of satisfaction invaded the region their production and markets and became a serious obstacle diversification) have been far and a disincentive to undertake

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reforms during the prosperity • In the same vein, although years. Enrique V. Iglesias, former slightly more moderate, Felipe “Latin America did not Ibero-American Secretary Calderón spoke of this being General, warned in 2012 that “the Decade of Latin America”. take sufficient advantage “Latin America is changing, but of the boom period” we must be careful; we went • And they were not only too far with complacency; the politicians but also experts global crisis is striking us; we like Luis Alberto Moreno, are better prepared than ever, president of the IADB, who but it is striking us and we did not hesitate to state must think that Latin America in the newspaper El País must react in order to overcome in 2010 that “beyond the the vulnerability that we will conjuncture, we are going inevitably have –and we have– to have a decade of good in the world we live in. There growth, and as long as there was much talk of why we opted is a good growth there will be for commodities. Well, to have a natural attraction of private commodities is a Providence’s and foreign investment in blessing. It is not a curse. It can Latin America”. become a curse is if we go back to the 19th century’s business Undoubtedly, as stated by the relations. It is important to Executive Secretary of ECLAC, emphasize that we have to Alicia Bárcena, the region erred in exploit with great efficiency and this excess of complacency: “Latin sustain our commodities, which America did not take sufficient also develop the new forms of advantage of the boom period, trade such as value chains. There this is the truth. I think Latin is no need to export whole cars, America could have done much we can export car batteries”. more in order to invest, in order to turn this variable, investment, Indeed, the great sin of into the main bridge between the the Golden Decade was short and the medium term”. complacency. Several examples are very illustrative of how 3. A NEW REFORMING regional leaders “got a big head” CYCLE about prosperity: Augusto de la Torre (World • In 2011 Sebastián Piñera Bank’s Chief Economist for Latin assured that “this 21st America):“Latin America can no century was going to be the longer rely on foreign countries century of Latin America to grow, and lacks alternative and the Caribbean and we tools. The economic slowdown are the ones destined to run will continue if reforms are not and lead with one single aim carried out”. and one single mission: to improve the life, the quality In 2014-2015 this euphoria, of life of our peoples”. excessive sometimes, of the

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last 10 years has led to the fear from a broad consensus and that the current slowdown political commitment (reach an “It is about reforms results in a more profound agreement so that these reforms economic crisis. Furthermore, have a State policy nature with aimed at making the change of the international continuity over time). Secondly, the economies of context (slow growth in the it is about a change of mind these countries more United States, crisis in the EU, and therefore hard. It is about competitive and slower growth in China and reforms aimed at making the the emergence of other more economies of these countries innovative” competitive economic areas like more competitive and innovative Africa or some Asian countries) by boosting productivity. And shows that it is necessary for that, investment in human to change the form of Latin capital (in education) and in American inclusion in the world. infrastructure is essential. As experts point out, “the party is over and the tailwinds have That is why they must have become headwinds” (José Juan their origin in a clear political Ruiz, chief economist of the will because not only difficult Inter-American Development challenges will have to be Bank (IADB)) and now it is addressed but also considerable time to boost a “painful process resistance in order to change the of reforms” but necessary entrenched bad habits. (Alejandro Werner, Director of IMF’s Western Hemisphere In short, it is about unlocking Department). “With the the bottlenecks in the region reduction of the tailwinds that that hamper or slow down its favored Latin American and the development: at the institutional Caribbean during the last years, level, modernizing public and the region will have to resort to administration services; boosting its own resources to stimulate the competitiveness, the growth. And these resources are productivity and the innovation in fact only one: productivity” of the regional economies; concludes the recent report by increasing the investment in the World Bank Latin America terms of infrastructure (the Entrepreneurs: many firms region only allocates 3% of its but little innovation, drawn up wealth to the building of roads, by Daniel Lederman, Julian subway, logistics, drinking Messina, Samuel Pienknagura water supply, electricity and and Jamele Rigolini. telecommunications networks) and of education; strengthening The new cycle of reforms the financial sector where to which the region is faced companies have a poor access up is characterized by its to financing, which prevents comprehensive and global them from taking advantage of nature. They are not only reforms the investment opportunities. or paper over the cracks but a bid As pointed out by the IADB: “in to change the region’s economic Latin America and the Caribbean model. First of all, it must come credit is scarce, volatile and

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expensive. The average credit effectiveness and efficiency and to the private sector, nearly 40% its high levels of corruption. “There is not one of the Gross Domestic Product (GDP), is much lower”. In any case, there is not one single problem in the single problem in the Latin Latin American public In order to adapt to this new and American public administration administration” changing world there are seven but a range of problems and areas on which the region’s shortcomings since it is a countries must emphasize multidimensional issue. and implement this second reforming cycle. First of all, there exists a drawback in the scarcity of DEEPENING INSTITUTIONALISM resources, in short, a fiscal problem. There is a very The reforms package the region heterogeneous situation in the needs in terms of productivity, region: tax collection in Brazil competitiveness, investment in represents 37.5% of its GDP, the human and physical capital and greatest of the region, followed commitment to innovation and by Argentina, with 31.2%. On the diversification must be carried contrary, in Guatemala is only out under the protection of a 14%. However, there is a common strong institutional framework. feature either excessive or Institutionalism is a historical inadequate: the fiscal problem is deficit Latin America is carrying. caused by the low tax collection The region was born in the 19th level (Guatemala or Mexico) or by century devoid of institutions the spending inefficiency despite which took almost half a century the high tax revenue (Brazil and to be created and consolidated Argentina). Latin American and (1810-1850). This state, fragile at Caribbean tax systems are on first and then gradually stronger average the ones that collect the but small (1859-1929), became a least tax revenues in the world: progressively bigger state until in 2013 tax revenue reached it was oversized (1945-1980). The the 21.3%. It is true that the tax strong reduction in the size of the burden has been increased in state after the “Golden Decade” the last years: ECLAC recognizes (1982-1989), with privatizations the significant increase during and the state downsizing the period 1990-2013 when tax since 1989, has resulted in an burden grew by seven percentage administration with serious points in 23 years, from 14.4 to shortcomings when it is time to 21.3% which is currently recorded. promote public policies. A state However, it is still 13 percentage that does not offer security to points below the OECD the citizens, that fails to provide countries average, 34.1%. good services in such areas as education, healthcare and In the words of José Antonio transports and that is burdened Alonso, professor of Applied by a lack of legitimacy among Economics at the Complutense the population due to its low University, “the institutional

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weakness is reflected in the • More effective states: Since fragility of the fiscal covenant the 1990s, the different “The great challenge on which the State is based. If governments of the region citizens question the legitimacy have developed several for Latin American of public institutions is difficult initiatives in order to boost countries is to build for them to feel encouraged the professionalization of the an administrative to contribute with taxes to its administrative systems and apparatus and a maintenance. As a consequence, the civil service. Despite the the tax burden is generally low; progress achieved, there is fiscally sustainable and the evasion levels, high, and public still a strong backwardness technically competent spending is often regressive. This in three areas: regarding public service” does nothing but to accentuate, in the adaptation of the a sort of a vicious circle, the lack legal and administrative of legitimacy of the institutions, systems, the one related to making it impossible for the State its modernization in order to to fulfil the tasks entrusted to reach international standards it as a provider of public goods and on the effectiveness of to society. The tax reforms the public policies promoted promoted in the region over the from the State. 1990s did not solve the problem, since by putting tax systems According to Carlos Santiso to rest on tax figures related to “countries must forge spending (instead of to income) effective governments. An they dissolved the most direct effective government is the contractual relationship between one that achieves results citizens and State”. that meet its citizens’ needs. It manages according to the When tax reforms are raised results and takes evidence- (to increase the tax collection based decisions. Where to base as well as the tax burden) start? First, putting statistics it should also be taken into at the forefront of policies account that it is not only about design to base them on a greater collection but also greater and better evidence. about a better management. Government statistics are The great challenge for Latin not sufficiently used as American countries is to build information base in the an administrative apparatus development of policies and and a fiscally sustainable and government programs are technically competent public rarely accurately evaluated. service. As pointed out by Carlos Second, an effective State Santiso, Head of the Institutional requires a strong strategic Capacity of the State Division of focus –not a strong State–. the IADB, state apparatuses must The roles of president have three fundamental features and prime minister, even to gain legitimacy among the though they are strong, citizens: they must be more are often technically effective, more efficient and more weak. Chile, Paraguay transparent. and Uruguay have made

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significant steps in order one of the major challenges. to reinvent their “centers Where to start? Two main “Where to start? of government”, which areas: the professionalization improve the coordination of the civil service and the Two main areas: the and monitoring of the reduction of bureaucracy. professionalization government programs”. The reduction of bureaucracy of the civil service and the simplification of and the reduction of • A more efficient procedures play a major role administration: Latin for people when they need to bureaucracy” American countries have turn to governmental entities not managed to fully to obtain a service or exercise implement genuine systems a right. In this regard, of professionalized civil governments are using service. Although it is true technological innovations that most of them have in order to improve legislated in this regard and the management of have laws on civil service information and streamline in accordance with the the administrative latest developments on this processes, for example, by subject, the implementation means of service portals leaves much to be desired and shared services. and is far from what the regulation says. • Greater transparency in light of a more empowered Santiso suggests in this society: The corruption regard that “countries cases that have striked have to promote efficient Latin America in 2015 have governments. An efficient highlighted the serious government is the one transparency problems that reduces the citizens’ affecting the institutions costs in its interactions of the region and which with the public sector and are behind the citizens’ provides services of a certain disaffection towards parties quality at less cost. Efficient and the administration in governments require the general. extension of solutions based on e-governments Institutional weakness is promoting the use of still, together with inequality information technologies and corruption, one of the in an increasingly young main Achilles’ heel that and connected society. This prevents the region from also involves improving having a better quality the quality of regulations democracy. According to the and simplifying the Latinobarómetro, trust in administrative bureaucracy. the main institutions of the Promoting a fiscally representative democracy sustainable and technically (parliaments with only competent public service is 29% and parties with 24%)

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continues to show low countries implement reforms levels of support, a true that raise its productivity in the “This low productivity reflection of the serious next 10 years, each country will crisis of representation that increase its annual growth by takes place essentially is currently affecting a high almost 2 points. The growth rate in smaller companies” number of countries in the would accelerate by 1.8 points and region. instead of growing at an annual 3% rate, we will come back to Therefore, Carlos Santiso growing at a 4.8% rate during the stresses that “the countries next 10 years”. must promote open governments. An open Another of Latin America’s government is the one that Achilles’ heel is its low is transparent, acts with productivity as compared integrity and prevents with the one of the developed corruption. The relationship countries. In other words, its between State and citizens inability to raise productivity by is being radically changed finding more efficient ways to use by technological innovation, labor improving not only their whose speed often exceeds physical but also their human the governments’ capacity capital. This low productivity to adapt to it. Open takes place essentially in governments actively smaller companies and affects, support a greater access to particularly, the service sector, information and promote where the majority of the its effective use to prevent population works. As the Inter- corruption and improve American Development Bank management. Where points out “low productivity is to start? There are two often the unintended result of a priorities: to strengthen great number of market and state accountability and integrity failures that distort investment systems and improve specific incentives, prevent the efficient transparency policies. To companies’ expansion and strengthen and modernize promote the survival and growth the control and audit of inefficient companies. These institutions is a defining market and state failures are challenge for the region and more pronounced in low income is at the same time a key economies –and Latin America mechanism for governments is no exception– and they are an to give account of the important factor that explains results they achieve, thereby their relatively low levels of improving the quality of productivity”. public management”. As shown in the following INCREASE IN PRODUCTIVITY chart, the productivity rates not only have not improved in José Juan Ruiz (chief economist the last three decades but they of the IADB): “If Latin American have stagnated (Brazil), have

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decreased (Mexico) and only in objective of the region’s strategy exceptional cases (Chile) have for sustainable development”. increased. In fact, as we see in the following The Inter-American chart, the so-called Asian Development Bank points out tigers, from 1978 onwards, have that “over the last 50 years been able to better close the the growth of the working productivity gap with respect to population and of the region’s the United States. In this regard, capital stock has been higher Latin America has been left than the one, for example, in the behind since it has not boosted United States, and the levels of the necessary structural reforms education have also improved. to reduce the difference with the But the steady increase of the US economy. relative productivity gap has led the current Latin American Indeed, the economic boom of and Caribbean citizens to have, the “Golden Decade” was not as compared with the United accompanied by an improvement States, a lower relative per of productivity by means of capita income level than the one investment in R&D&I (research, experienced by the generation of development and innovation). their parents and grandparents. The region’s countries, in the Therefore, to create conditions vast majority middle-income in order to improve productivity countries, can no longer compete growth rates is a primary with emerging economies through a decrease in wages but through the improvement 120,000 of productivity. As pointed out by Mario Pezzini, Director of the OECD Development Center, 100,000 “new actors have emerged, who have some technological capacity and also a large population in 80,000 rural areas available for work for a low wage. Productivity and low wages, with this, those 60,000 countries gained competitiveness and are a tough competition for others who do not have these 20,000

Dollars 2013 PPP per employee PPP per 2013 Dollars conditions. The solution left is to increase the capacity for innovation. In Latin America 0 there are countries that are 1971 1974 1953 1977 1983 1956 1992 1962 2013 1959 1989 1995 1998 1965 1986 1968

1950 implementing policies in this 1980 2001 2010 2007 2004 regard. There are examples of China South Corea Brazil Chile Mexico US Russia this in Argentina, Colombia, Mexico, Chile, and Dominican Source: América Economía Republic. There is greater

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attention to this subject and a better use of the existing investment is starting but production factors, promoting there is a lack of exchange of public policies offering better information, of knowing what to incentives, combating the do and what not to do in order to informal economy characterized progress on solid bases”. by its low productivity or improving the general quality of There are several factors that the education system. affect this low productivity although the IADB suggests that Latin America, if it does not “the main cause of the region’s want to be surpassed by other disappointing performance, regions, must focus on a high and the fundamental factor value-added production not on which policies need to be only based on commodities focused, is the low productivity exports and the cost-price with which production factors being its only comparative are used”. Improving the advantage. Increasing productivity and reaching a productivity requires faster growth involves, among improving the logistics system other things, creating a better and boosting an appropriate environment that establishes infrastructure for the global the appropriate conditions to market. In fact, the region will improve productivity, making have to find its own engines for growth, increasing productivity in economic sectors other than Graphic 1.3: Productivity gap with respect to the United States commodities. 51 As recalled by José Juan Ruiz, 50 Eduardo Fernández-Arias and 48 Ernesto Stein, economists of the 45 Research Department of the IADB, in the book Rethinking 40 Productive Development, “Latin America had less physical and 35 human capital than the developed 33 countries. Less machinery, less years of schooling. Although this 30 explanation was correct, was 27 partial: over the last 50 years the Percentage of TFP EE.UU. Percentage 25 region has accumulated physical capital, created employment 20 and improved its human capital quicker than the United States. If 960 1974 1972 1982 1978 1976 1962 1988 1994 1964 1970 1998 1986 1968 1996 1966

1980 the convergence only depended 2010 1990 1 2002 2004 2008 2006 2000 on the accumulation of factors, Typical country from Latin America Typical country Latin American citizen would have closed their welfare gap Source: IADB by 25% with respect to their

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American neighbor. But quite the MORE COMPETITIVE IN A GLOBAL opposite happened. Therefore, WORLD “The increase in the inference must be that the main problem is the efficiency This low productivity is productivity in Latin with which the production intrinsically linked to the region’s America requires factors are combined; what we low levels of competitiveness. structural measures and economists call the total factor A competitiveness that has reforms in the medium productivity. In that area, the worsened over the “Golden region’s achievements were Decade” because the economic and long term” more than disappointing: while boom and the emergence of Asia reduced by two thirds middle classes have led in its relative productivity gap many countries of the region regarding the United States, to the real exchange rates Latin America doubled it, appreciation, the increase in turning the convergence of the wages, the rise in the level of accumulation of factors into net taxation, factors that have led to welfare divergence. The levels of a loss of competitiveness in the inequality, the informality in the economies of the region. labor market –more than half of the Latin American workforce The Global Competitiveness works in the informal economy–, Report 2013-2014 of the World the size of companies, the Economic Forum (WEF) precisely shortcomings in education and indicated a general stagnation of health, the lack of infrastructure, the competitiveness in the region: the public safety, the institutional Chile (34th) remained leader weakness, the corruption are, in the regional ranking, above among others, relevant factors Panama (40th), Costa Rica (54th) that contribute to the fact that the and Mexico (55th). The worsening continent is not growing further”. of Brazil stands out, which has lost eight ranks (56th). Likewise, Thus the increase in it also stands out how Venezuela productivity in Latin America also drops eight positions and is requires structural measures and the worst positioned country of reforms in the medium and long the area, at 134th place, due to its term and it is associated with high inflation and public deficit an increase in the investment rates. Peru (61st) and Colombia in physical and human capital, (69th) remain stable thanks to the in particular in three areas: solid macroeconomic indicators, infrastructure, technology and while Ecuador (71st) climbs education. Productivity is the fifteen places, as a result of the first step in order to be more improvements in infrastructure, competitive and this depends education quality and innovation. on the labor quality (education Uruguay (85th) and Argentina and training), the infrastructure (104th) represent the sharpest (modernizing infrastructure, drops in the competitiveness transport and communications) ranking, they drop eleven and and the technology (promoting ten positions, respectively, due innovation). to the deterioration of their

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macroeconomic prospects, which competitiveness at Latin American affect, above all, the access to level, which has strong institutions, foreign financing. low levels of corruption, an efficient government and The lack of Latin American macroeconomic stability, has competitiveness stems from a series of handicaps such as a weak functioning of the the weakness of the education institutions, insufficient system, which does not provide infrastructure and inefficiency companies with a workforce with in the allocation of production the necessary training. factors. These shortcomings, which all the Latin American economies So what Latin America needs show, are the result of insufficient to do in order to integrate into competition and a gap in training, this emerging and global world technology and innovation, “that that is now arising is to increase prevents many companies and the levels of productivity and nations from moving towards competitiveness. To that end, higher value-added activities”. public institutions, in strong Even Chile, leader in terms of public-private partnerships, must create an enabling environment for innovation and Global Competitiveness Report 2012-2013 business venture, must invest Despite its progress in competitiveness in the last years, Latin America still faces great challenges, according to the report by the World Economic Forum, which ranks Switzerland as the country in in physical and human capital the first place globally, and Chile as the best in Latin America and support the exports and Top 10 globally Top 10 Latin America markets diversification.

3. Finland To ensure that Latin America is

4. Sweden more productive and competitive it is necessary to reduce one 10. Japan 8. U. Kingdom 6. Germany of the main obstacles in the 5. Netherlands 7. EEUU 1. Switzerland 9. Hong Kong regional economy, informality. An 53. Mexico 40. Panama informal sector which is around 90. Honduras 69. Colombia 2. Singapur 50% of the working population 57. Costa Rica 48. Brazil and restricts the quality and 74. Uruguay effectiveness of the State and 86. Ecuador 33. Chile hinders its capacity for tax 61. Peru collection and its actual presence in the region. It also affects the Latin American Panorama effectiveness of macroeconomic policies and hampers the growth

In Argentina, place The quality of transport Venezuela is the last Uruguay, one of the of small businesses, most of 94, stands out the and education, which country of the region worst falls (drops which have low productivity deterioration of its does not correspond (126) due to its weak 11 positions), shows macroeconomics, the to a labour market macroeconomic inflationary pressures and are linked to a low level of weak government increasingly sofisticated, management and high and high public debt effectiveness and the with problems of Mexico inflation education in employment and a almost null employment and Brazil flexibility poor access to financing.

Source: La Razón newspaper Figures speak for themselves in * forecast Source: IMF, infographics adaptation of La Razón newspaper this regard: more than 127 million

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people (47% of the Latin American figure is 58%, in Brazil the workforce) in the region have informality rate is 37.8% and in an informal job, which means Uruguay, 32.5%. that they fall outside the labor legislation, do not pay social Elisabeth Tinoco, Regional security contributions and do Director of the International not pay taxes. Informality affects Labour Office of the ILO, points some sectors more than others out that “the economic growth and has an impact especially on rate of 3-4% from the year 2000 areas such as the construction onwards had a recent impact industry, agriculture and domestic on the creation of formal workers. The reduction of the employment. But now, with a informal sector in these years slowdown that could be intuited has been significant but it is still from long time ago, the informal insufficient and runs the risk of sector is back. People manage to increasing in view of the current eat by doing the most unusual slowdown: the informal sector jobs. It is the need for survival. dropped from 65% in 2000 to 47.7% The policies governments in this decade. The countries with have promoted in order to the highest rates are, according generate formal employment to the ILO, Guatemala, 77.7%, El are threatened by the economic Salvador, 72.2%, and Honduras downturn. That is the great fear”. 74.9%. Whereas in Mexico the Latin America and informal labour In this regard, Latin American In Latin America and the Caribbean 127 million people are affected by poverty and inequality, as a countries must start taking steps result of informal labour, according to figures of the International Labour Organization (ILO) to reduce the informal sector along the lines that the IADB Informality rate for urban employed workers More than will be necessary to has suggested: by means of an in the region halve the current emphasis on institutional policies 50 informality rate 47.7% Sectorial distribution years (47.7%) in the region that create incentives to work 31% 11.4% 5.2% or employ in the formal sector, informal formal domestic labour designing a tax system that generates a “tax discrimination” Informality among rich and poor people and favors the formal sector with Countries worst hit by informality a lower burden. And also social % Share of the Share of the security programs that benefit 30% population with 73.4% population with Honduras 10.7 higher incomes lower incomes the workers paying taxes and Peru 68.8 carry out an improvement in Paraguay 65.8 access to credit. El Salvador 65.7 Informal workers by sector Colombia 56.8 78% Mexico 83% HIGH INCREASE OF THE 54.2 Self- Domestic 71.3% Ecuador 52.1 employment work Construction INVESTMENT IN PHYSICAL D. Republic 50.0 CAPITAL 56.1 Uruguay reduced its Trade, 36.6% informality from 40% 59% restaurants 50.9% Manufacturing José Antonio Llorente (Founding in 2005 to 25% in 2012 Microenterprises and hotels Mining industry Partner and Chairman of *Informal work is an employment relationship which is not subject to national legislation LLORENTE & CUENCA): “The Source: América Economía with data by ILO future growth and economic

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development of Latin American serious shortcomings of the countries is to be found in the region in terms of electricity, “A better infrastructure investment in infrastructure. transportation infrastructure Investing in infrastructure (roads, railways and ports), raises the quality of life is investing in a country’s etc. This deficit is due to the of the population” development, especially if we are insufficient investment effort, talking about Latin America… over all these years, both it is essential to understand with regard to the public and that the region not only must private sector. increase its investment in infrastructure, but must do it in As the following chart shows, a more efficient way”. the majority of Latin American countries are below the global There is a widespread average regarding infrastructure: consensus in the academic only Panama (30th place), Chile literature referred to the fact (45), Mexico (66) and Guatemala that investment in education are on the top of the ranking: and infrastructure is essential to achieving improved levels In the 1980s, the region’s of competitiveness and investment in infrastructure productivity. In this regard, the was more than 3% of the GDP promotion of investment in and this amount was mainly infrastructure becomes a crucial funded by the State (these were factor to make this necessary the days of interventionist states qualitative leap the countries and the import substitution of the region require in order to industrialization). This trend be successfully linked with an changed in the 1990s, following increasingly more competitive the wave of neo-liberal reforms, world. Ensuring the region’s and dropped to 2%, with the current and future economic private sector leading this kind growth depends, largely, on the of investments. Already in the decisions taken within the field first decade of the 21st century of infrastructure. investment was reduced to 1% and since 2007 has risen over 2% As the Development Bank of and is again around 3% with a Latin America (CAF) points out, similar involvement between the generally, a better infrastructure State and the private sector. raises the quality of life of the population, increases the But the amount invested in economic growth, facilitates infrastructure, which already the regional integration and was insufficient to provide diversifies the production a sustainable basis to the system. To which the Inter- boom the region has been American Development Bank experiencing during the “Golden adds that the rapid growth Decade (2003-2013)”, is still very in the region’s economy and low to make the qualitative leap in foreign trade in the last Latin America needs in order ten years has shown the to raise its competitiveness and

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productivity. In this regard, of life cannot be improved, since the Uruguayan economist it supports the economic growth Ernesto Talvi stresses that and business competitiveness. “governments should try to If there is no competitiveness, internally generate a boost to growth will not be sustainable their economies stimulating over time”. those sectors in which there is a deficiency in the region, such One of the keys to as infrastructure and energy…we increasing productivity and will have to get to work and do competitiveness in global our homework properly”. markets involves promoting the appropriate infrastructures Along these lines, Juan Sosa, enabling access to any attractive Vice-President for Infrastructure market, whatever it is and of the Development Bank of wherever it is located, from Latin America (CAF), points out an advantageous position. that the region only allocates Sustainable development and 3% of its GDP to the building Latin American countries’ of roads, subway networks, to progress is intrinsically linked the promotion of logistics, of to infrastructure development drinking water supply, electricity because this investment not or telecommunications only brings social improvements networks: “Latin America is (regarding the quality of life now facing a unique chance to of the population), but also develop and make a qualitative generates business and trade leap in the next decades. opportunities for companies. Without infrastructure, quality The main deficiencies the region shows concern roads, railways, The lack of infrastructure in Latin America affects commercial development water and sanitation networks, Latin America and the Caribbean: Ranking for infrastructure in general, 2013-2014 followed by ports and airports of 148 countries evaluated as well as the energy and 24 telecommunications sectors. 6 30 “There is a lack of rails, airports, 45 5 57 ports, buses and subway 66 69 77 stations, energy plants that need 4 88 97 99 101 to be developed. Governments 104 107 114 116 117 120 are starting to realize that if they 3 137 139 want their economies to continue 2 145 growing they need to support the sector and this is a huge 1 opportunity”, says Lawrence Lam, director of Samcorp. 0 To sum up, in order to reduce the Chile Peru Brazil Haiti Bolivia Panama Mexico Jamaica Barbados Uruguay Colombia Paraguay gap in the area of infrastructures Guatemala Costa Rica Nicaragua Honduras ArgentinaVenezuela Dom. Republic (both in new investments and maintenance expenses Trinidad and Tobago Source: World Bank (2014), Global Competitiveness Report, 2013-2014 thereof) two actions need to be

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promoted, which, according to of “strategic partnerships” the Executive President of the between the private and “The State must increase Development Bank of Latin public sector is decisive”. America (CAF), Enrique García, its investments” would be related to: In this regard, as held by the CAF, the State must • Doubling investment from increase its investments the current 3% of the GDP and also deploy a group (Latin American average) up of public policies aimed to at least 6%, following the at better targeting of example of Asian countries, subsidies, allocating whose current average greater resources to capital in infrastructure is the maintenance of 10% of GDP. infrastructures, framing the sector’s policies in “an A recent report by the integrated sustainable World Economic Forum development paradigm”, gave Latin American as well as strengthening countries an average mark public institutions. of 3.6 points out of 10 in infrastructure compared INCREASE OF THE INVESTMENT with the 5.4 points average IN HUMAN CAPITAL of the OECD countries, where the roads and railway Jorge Familiar (Vice President sectors are the weakest of the World Bank): “In a region together with the electric where the access to education power sector. Therefore, up to secondary level is almost ECLAC has also estimated universal, the main challenge that the investment level is quality. And in order to raise required by Latin America quality, what happens in the to reduce the infrastructure classrooms or, more specifically, gaps regarding the emerging the skills of the people countries from East Asia is responsible for teaching is what equivalent to an investment is essential”. of 7.9% of the annual GDP at least until 2020. This Besides physical capital, amount is equal to US$ 286.3 investment in human capital billion a year. (quality education) is equally decisive to achieve a productive • Creating partnerships with development and to build a the private sector, which is globally competitive economy essential when facing the based on innovation. Academic infrastructure challenge research, especially the one because the Latin American carried out by the IADB, states lack the necessary concludes that education, when resources, and sometimes aimed at the student for him or sufficient knowledge, and her to acquire, throughout their therefore the promotion academic and even working life,

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skills and capacities applicable regarding coverage, quality and to their work environment, access (rural vs. urban areas), increases workers’ productivity, between more or less developed raises their income level, departments and between contributes to the general well- different social strata. To take being of society and encourages only one example, in Colombia the introduction of innovation a study by the Fundación and new technologies. para la Educación Superior y el Desarrollo, Fedesarrollo, Education not only has this concludes that “education in economic component but Colombia, apart from having another of a clear social aspect. on average a poor quality, Investing in quality education perpetuates inequalities and contributes to encouraging equal does not allow education to fulfil opportunities and social cohesion its fundamental role of being by means of an inclusive one of the important factors of economic development. In fact, social mobility”. the major problem of education in Latin America is inequality Since the 1980s, Latin America since deep inequalities persist has made significant progress

Public spending on education and health had a significant increase. How are results assured?

Latin America and the Caribbean (21 countries): Latin America and the Caribbean (21 countries): Public expenditure on education Public expenditure on health As a percentage of GDP and in dollars of 2005 As a percentage of GDP and in dollars of 2005

5.5 300 4.5 250

5.0 4.0 4.5 250 3.5 200 4.0 200 3.0 3.5 150 3.0 2.5 150 2.5 2.0 100 Dollars of 2005 Dollars 2.0 of 2005 Dollars 100 1.5 Percentages of GDP Percentages 1.5 of GDP Percentages 1.0 50 1.0 50 0.5 0.5 0.0 0 0.0 0 91-92 93-94 95-96 97-98 99-00 01-02 03-04 05-06 07-08 09-10 92-93 94-95 96-97 98-99 00-01 02-03 04-05 06-07 08-09 10-11

Percentages of GDP In per capita terms

Source: ECLAC

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in education coverage with a The Instituto Nacional de public investment that doubled Evaluación Educativa (INEEd) “The main problem in real terms. In 2010, according of this country emphasizes to ECLAC, the total spending that the higher budget on of education in Latin on education was 5.3% of the education in the last decade America is not only a GDP in Uruguay, while in has not resulted in an improved matter of quantity but countries like Mexico, Chile quality of education. Although of quality” and Argentina it was above 6%. investment has grown from The result of allocating around 4.5% of the GDP in 2004 to 4.7% to education has been a 6.2% in 2012, the problem of great increase in coverage: the education in Uruguay remains enrolment rate in primary and unsolved: “In the next decade basic education is almost 100% –says the report by the INEEd– and the youth and adult literacy the country must continue rate is 90%. to increase the investment in education, but should do it in In any case, public investment an increasingly more efficient in education in Latin America way, carefully analyzing the is behind the one of developing allocation of resources among countries in other regions and different education policy behind the one of the OECD alternatives. Likewise, it should countries, which is around link a sustained effort of 12% of the GDP. Besides, those improved wages to reforms in unquestionable advances in the approach and conditions of Latin America in the area on the teaching work”. education regarding coverage have been insufficient in pre- Another spotlight in order to primary education, to which only improve education quality in 62% have access, in secondary Latin America is the quality of education (between the ages of 12 the teachers. Mariano Jabonero and 15 years), to which only 70% Blanco, director for Education have access, and middle school, of the Fundación Santillana, between 15 and 17 years, to which points out that “the quality of the only 40% have access. education system is never better than the quality of its teachers… Anyway, the main problem of attracting the best teachers to the education in Latin America is profession and ensuring them not only a matter of quantity an excellent and appropriate but of quality. In this regard, training, rigorously evaluating the ECLAC holds that what is teaching staff in exercise of their important is not just spending duties, holding them accountable more but doing it better, more for their performance, and effectively and efficiently. lastly motivating and paying At a regional level there are them consequently, is the model many examples. One of them that has been successfully is Uruguay, the country that implemented for many years invests the most in education. in the countries that are global

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leaders in education, as proved teachers, as well as carrying by their excellent results in out external standardized “Democratizing PISA tests and similar ones. evaluation tests and widely Conditions that are not fulfilled disseminate its results. A education, requires in almost no country of Latin process to which the need to in Latin America America, which explains such redefine the relationships profound changes” negative consequences as the with teacher unions is not ones described in the mentioned indifferent, unions, possibly report, like, for example, the loss the most powerful in the of teaching time observed in the world until now, that have daily activities in classrooms: coexisted with such unfair due to a lack of pedagogical and and inefficient systems, and educational skills, the average of that have often clashed with the teachers of the visited schools educational transformation use less than 65% of their time in and improvement policies. The teaching and learning activities, recent experiences in Mexico, spending the rest of the time Peru or Ecuador to modify the in roll calling, bringing order, balance of power relationships administrative tasks or simply between teacher unions and wasting it”. democratic governments, show that changes are possible”. Improving the quality of the education teachers give involves Additionally, the commitment irretrievably clashing with to quality education involves the strong interests created increasing the number of and the established corporate school hours reducing half days powers (teacher unions that, and promoting full working like the Mexican ones, refuse to days (eight hours), improving change). The educational reform infrastructure (classrooms, work promoted by Enrique Peña material…) and turning education Nieto in Mexico has clashed into a big national project with precisely with particularly the agreement of all actors radicalized unions, capable around a State policy, protected of mobilizing hundreds of against the ups and downs of thousands of teachers and of politics and clientelism, with the paralyzing a country and even aim of improving the quality and prevent these reforms from relevance of education. being implemented in areas like Oaxaca and Guerrero. In this regard, and following the IADB, the successful models, “To ensure, says Jabonero, the ones that should be an more and better learning for inspiration for Latin America, everybody, in other words are those which: truly democratizing education, requires in Latin America • Promote continued training: profound changes in the “Countries have also processes of selection, training, understood that the education evaluation and payment of process does not end with a

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secondary school diploma, promote the investment in not even with a university education like South Korea “Education and work degree. It just never ends. or New Zealand did, which Education systems in the has turned them not only training have followed labor market promote lifelong into developed countries but separate paths in learning, thus ensuring also ones with high levels Latin America and the an encouragement for of social cohesion. This Caribbean” production. In these systems, guarantees governability workers are permanently and the social and economic moving between the labor stability of a country. As market and the education or Alieto Aldo Guadagni, former training system throughout secretary of Industry and their working life cycle”. Commerce of Argentina, points out, “chronic poverty • Associate knowledge and cannot be reduced without skills acquisition with the education that prevents the labor market needs: “Latin transmission of poverty from America and the Caribbean generation to generation. have made no progress Economic growth in the towards continued training 21st century does not nor have they paid enough depend on the abundance attention to the school and of natural resources, but training integration in the on the quality of human labor systems. Initiatives have capital accumulated by disproportionally focused education and also by on expanding education child health policies. In our systems and creating isolated country we are walking work training niches with a for a long time now limited coverage, leaving little through the path of social room to review and improve inequality, strengthening their quality assurance the intergenerational mechanisms and the reproduction of poverty relevance of the skills taught, and annulling our former to better meet the production rising social mobility. Our sector’s demands. Latin education system does American countries seem to not only not promote and have simply assumed that ensure equal opportunities, a population with a higher foundation of social number of years of study is a justice, but it can neither synonym for a better trained contribute to a booming population. Education and economic growth due to its work training have followed poor quality”. separate paths in Latin America and the Caribbean”. INNOVATION DEFICIT

In conclusion, if Latin Competitiveness and Innovation America wants to take Division of the IADB: “The region the train of progress must resigned itself to exporting

31 LATIN AMERICA: STRUCTURAL REFORMS IN THE FACE OF A BUSINESS CHANGE OF CYCLE

its native wealth without the 0.57% of 2000. However, there transforming it, and nor was is still a long way to go in Latin it concerned about creating America to reach, or at least to another kind of innovative show similar figures, the 2.8% products for export. This is its in the United States, the 3.7% in greatest risk”. South Korea, the 3.9% in Finland or the 4.3% in Israel. Deficit in productivity and competitiveness the region faces Alongside undeniable progress runs in parallel with the deficit there are as well undeniable in innovation Latin America is shortcomings. In these years suffering. Although it is true that the region has made progress the spending on research and in sectors like biotechnology development (R&D) has increased and value-added production in the last fifteen years (the of certain commodities. This region is, after Asia, the world’s is Chile’s case, which has second with the highest growth developed technology based on in investment in R&D) it is also these exports (wine, salmon, true that it is still far away from etc.), cold exports, commodities the OECD and Asia countries. packaging and has even developed a technological In Latin America investment in leadership in copper mining. R&D is around 0.8% of the GDP But there are more cases since (according to 2011 data from the innovation has arrived in Latin IADB), which is an advance with America along very different regard to the 0.48% of 1990 and paths. From traditional sectors Innovation is an engine for economic growth, and Latin America has not (wine, nuclear technology yet assimilated the idea and aeronautics industry) to Expenditure on R&D in Latin America is systematically less than the one of developed countries undertakings with a shorter and those with better performance globally (Israel, Finland and South Corea) are precisely the ones which have managed to match other developed countries in the last 30 years. history (fine fruits, software, electronics, salmon and caviar). Expenditure on research and development as a percentage of GDP But all this progress is, for now, 3.9% exceptional because there is no comprehensive policy of support and investment in R&D. As the president of the IADB, Finland the Colombian Luis Alberto 3.7% 2.8% Moreno, points out, “there is a huge shortfall in innovation in Latin America. There is

USA 4.3% no doubt that winds have Korea changed, we had tailwinds with 0.8% a very important consumption Latin America from China, good prices and low interest rates. All this is Israel changing and this means that Source: Instituto Mexicano de la Competitividad we have to do greater internal

32 LATIN AMERICA: STRUCTURAL REFORMS IN THE FACE OF A BUSINESS CHANGE OF CYCLE

efforts, we have to row more on spending. This means that, for our own and innovation is one instance, the region’s companies of the ways to better row”. are the ones that introduce the least new products in Besides the insufficient international markets or that spending on innovation, no country, nor the region as this kind of investment is a whole, approaches the more very focused on a handful of developed countries in terms countries. Brazil, Mexico and of the number of patents. The Argentina account for more example of Latin America and than 90% of Latin American South Korea only in the last investment in research and decade is quite clear: Latin development according to the America did not reach three report El Estado de la Ciencia thousand patents and South 2013 (The State of Science 2013), Korea exceeded sixty thousand. published by Red de Indicadores de Ciencia y Tecnología (RICYT). As shown in the following chart Brazil is the regional leader prepared by ECLAC, countries investing 1.2% of its GDP in R&D, like Singapore or the one from while Argentina reaches 0.64% the example, South Korea, and Mexico, 0.45%. As compared register twenty times more with these figures, El Salvador patents than Latin America. and Guatemala are the countries with the lowest investment in Thus, the region is facing a R&D, in the range of 0.03 and chronic lack of innovation that 0.04%. This report indicates goes hand in hand with the that in 2011, Latin America and failures regarding improvement the Caribbean invested US$ 44 in physical and human billion in R&D, 3.2% of global capital. A higher investment in innovation would result Patents in the Republic of Korea and Latin America and the Caribbean in a better design of science, Latin America, the Caribbean and the Republic of Korea: number of patents technology and innovation filed by the US Patent and Trademark Office (USPTO), 1963-2010 policies for them to have a greater impact on economic and Latin America and 70000 social development processes. In 60232 the Caribbean addition, investing in innovation 60000 Korea would contribute to giving 50000 support to a sector in which Latin America is certainly leader, 40000 the entrepreneurship sector. Finally, this lack of innovation 30000 hinders competitiveness and 20000 17345 growth and has an impact on the creation of quality jobs. 10000 2087 2945 1104 12 1270 73 1201 738 The studies by the IADB have 0 1963-1970 1971-1980 1981-1990 1991-2000 2001-2010 shown that the investment in Source: ECLAC R&D in Latin America and the

33 LATIN AMERICA: STRUCTURAL REFORMS IN THE FACE OF A BUSINESS CHANGE OF CYCLE

Caribbean is systematically lower under-invest in innovation…It is than the one of the developed clear that the business sector in countries and that the nations Latin America and the Caribbean that have managed to converge suffers a lack of investment in with developed countries in the innovation beyond what could last 20 or 30 years are the ones be expected given the region’s that make a greater investment financial development and effort in innovation both from accumulation of human capital”. the public and the private sector. The IADB recalls that “the private The region’s commitment sector finances a significant must focus on giving a strong part of the effort in R&D. While boost to innovation not only business investment in R&D in as a public policy but also the developed countries accounts coordinated with the private for more than 60% of national sector. As Gabriel Sánchez investment, in Latin America and Zinny points out (president of the Caribbean this figure is lower Kuepa, initiative to introduce than 35%. These data suggest an new technologies in Latin important deficit in investment American education) there is in R&D in the region, especially in a need to promote “innovation the private sector”. and entrepreneurship by creating government agencies The IADB concludes that or public-private institutions “evidence suggests that Latin that give venture capital to America and the Caribbean new projects. This is the case of Inadem in Mexico, Start-Up Graphic 3.1: Innovation landscape in Latin America and the Caribbean in Chile, based in Santiago, Expenditure on R&D as percentage of GDP and source of funding Innpulsa in Colombia. Public- Israel private partnerships are Finland fundamental in this area and South Korea Sweden will be the ones that eventually Denmark United States allow the much-needed boost Germany to innovation so that Latin OECD France America progress towards its United Kingdom Spain next stage of development”. Italy Latin America DIVERSIFICATION OF EXPORTS Brazil Argentina AND MARKETS Costa Rica Mexico Chile The lack of diversification of Uruguay Ecuador the exported products as well Panama as of the markets to which Colombia Bolivia Latin America exports, is one Peru El Salvador of the historical problems Paraguay of the region. An example 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 case regarding the high Companies Other sources concentration of export market Source: RICYT is Mexico: 78% of its exports

34 LATIN AMERICA: STRUCTURAL REFORMS IN THE FACE OF A BUSINESS CHANGE OF CYCLE

go to the United States. An exports, seemed to be in the example case regarding the last decade a solution for concentration of exported the diversification of the products is Venezuela (95% region in contrast to the of its income comes from oil traditional Latin American export). Even in Chile, country exports connection towards in which the share of products the United States. In ten other than copper in exports years, trade between Latin increased between 1985 and America and China increased 1997, since 1997, however, from US$ 15 billion to US$ copper started to increase its 241.5 billion, with an average weight due to the boom in growth of 30%. Furthermore, the metal price (more than Latin American exports to 40% of Chilean exports are China are concentrated in linked to mining products). In a few products. Thus, soya 2003, exports based on natural represents around 53% of resources accounted for 49% of Argentine sales and 45% of the the export basket of the region Uruguayan ones, according while a decade later the rate to ECLAC data. In Brazil, the rises up to 60%. concentration in iron reaches 45% of its sales and soya, 24%. Besides, exports to Asia Oil represents 94% of Ecuador’s account for almost 50% of the exports, 78% in Venezuela and total while at the beginning of 53.8% in Colombia. In Peru, the last decade it amounted to the concentration in copper barely 34%. accounts for 38% of its exports and in Cuba, nickel represents Regarding the export markets, the 71%. In total, 14 countries of China’s emergence as the the region target 75% of their place towards which to direct total exports to China.

The map of Chilean exports Total exports (by millions of dollars) Exports of goods (by percentages) 55 2003 2013 100,000 55 16 54 54 21 17 49 80,000 54 16 53 1 60,000 53 34 1 40,000 52 27 18 50 20,000 51 Asia Asia 0 50 2009 2010 2011 2012 2013 Europe Europe North America North America Copper No copper % no copper (right scale) South, Central America and Caribbean South, Central America and Caribbean

Source: Government of Chile Africa Others

35 LATIN AMERICA: STRUCTURAL REFORMS IN THE FACE OF A BUSINESS CHANGE OF CYCLE

This has therefore been another 4. CONCLUSIONS of the unfinished issues of “It is time to seek the Golden Decade. The IADB Latin America is the region points out that “in a ten-year of the opportunities and the product diversification, perspective, the export basket missed opportunities. A region we cannot depend only of Latin America and the that although it has progressed on commodities” Caribbean is more concentrated politically, economically and on primary commodities and its socially since its independence derivates and therefore is more 200 years ago has not been vulnerable to the weakening able to reach the locomotive of of those markets: in 2003, the development and modernization. exports of these products It is a region where political covered on average the 49% of democracy and freedoms prevail the export basket of the region, almost fully, but with signs of while in 2013 the rate reached an institutional weakness in the 60%”. Reports by ECLAC many countries. It is an area of point out that export growth in the world where the economy Latin America has occurred in has been strengthened since an intensive way but not in an the 1990s and where there is a extensive way and has therefore more balanced society thanks obtained meager results from its to the emergence of numerous strategy of diversification of the and heterogeneous middle exports on the basis of the free classes. But it is also a society trade agreements. From 1990, all and an economy which are still countries, except for Venezuela vulnerable to the changes in the and Uruguay, at least doubled international environment: the the actual value of their exports, falls in the prices of commodities at a 7% or higher rate. bring to light the weak spots of its economic structure and entail Alicia Bárcena, Secretary that wide social sectors might fall General of ECLAC, indicates back into poverty. A reflection that “the key product by João Pedro Brügger Martins, diversification for closing wider economist of the investment gaps within society is still fund Leme, about Brazil sheds pending. If a wave of better some light on the matter at a prices arises, we must enable regional level: “there is the feeling these profits to be invested that, once again, we missed the in other forms of capital and opportunities and did not take not to be spent only in current advantage of them, neither with expenditure. It is time to the boom in the commodities seek product diversification, prices nor with the World Cup, we cannot depend only on and the situation is not expected commodities. The time has to change with the Olympic come to take this issue very Games in Rio next year”. seriously in order to reduce structural gaps; we must focus In the current juncture of change on investment”. and volatility in the international

36 LATIN AMERICA: STRUCTURAL REFORMS IN THE FACE OF A BUSINESS CHANGE OF CYCLE

economic environment, the practices that are fomented by region cannot miss a boat on corruption and clientelism (an “Reforms that, to be which, for now, it has not even example for this is the protests jumped. A boat that leads and mobilizations against the effective, have to start to the economic and social educational reform promoted by from a broad political modernization and that, in order Enrique Peña Nieto in Mexico). consensus” to get on board, requires facing important challenges which stem From this basis, the basis of from the historical problems political-social consensus is the region suffers, in the words from which profound and of the OECD, and which it has long-term reforms can be not managed to solve neither in undertaken in order to improve the good nor in the bad times: institutional quality (a stronger low productivity, “black beast” in State, not bigger), based on words of Ángel Gurría, Secretary- a suitable tax pressure for General of the OECD (in two the public services citizens decades it only registered an demand. Changes emphasizing increase of 1.6% as compared on the diversification of their with the 3% of countries like production structures and South Korea); inequality, informal boosting innovation and employment, which affects knowledge, in order to try to be 47% of the workers; the low tax less dependent on commodities collection weakening the State exports. Structural reforms and its institutions; and the lack that promote productivity and of investment in infrastructure competitiveness since Latin (2.5% of the GDP as against the American countries are playing 6% of Asian countries) which in an increasingly competitive greatly increases export costs. global market. Combating the current exports stagnation The effort that is now required requires diversifying not only involves boosting an ambitious the local economy, but the comprehensive reform. A change markets to which products that affects institutionalism, are sent in order to avoid politics, society and economy. possible shocks in sectors like Reforms that, to be effective, the one oil is suffering now. have to start from a broad The commitment must be to political consensus between all increasing the participation in or the majority of political and global value chains in order to social forces. This is essential access to international flows for its success because it gives of knowledge and technology. the reformist strategy stability Furthermore, the diversification and continuity and because of export markets is very it protects them in the face important: join traditional of a possible resistance that ones (U.S.A. and EU), not only might arise to those changes. emerging markets (Asia), and A resistance that is going also promote interregional to be very high due to the trade, which only represents entrenchment of some social 19% of the total trade. And

37 LATIN AMERICA: STRUCTURAL REFORMS IN THE FACE OF A BUSINESS CHANGE OF CYCLE

to achieve this it is crucial to ago. Besides, it has the capacity invest in infrastructure and to jump on the bandwagon of “Future is built from the construction industry, modernity. Now we just need sectors which not only generate to have political will, strength the present” employment, but also create and value to undertake the production chains. tough reforms needed to avoid the current stagnation. And in Future is built from the present. addition to all this, to square Latin America is stronger a very complex circle: “to do politically, economically, socially more with less” to have a more and financially than 35 years efficient spending.

38 Justice in Latin America as an essential factor for development

Madrid , May 2015 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

1. INTRODUCTION

The analysis of justice in Latin America requires considering 1. INTRODUCTION three fundamental aspects that have an overall effect, although 2. LINK BETWEEN JUSTICE AND to a different degree, on the entire region. These aspects include DEVELOPMENT the existing institutional blockage of justice, the efforts towards 3. INSTITUTIONAL BLOCKAGE OF reform that have taken place by all Latin American nations in their JUSTICE IN THE REGION respective justice systems, the limited results of these reforms and 4. PROMOTING JUSTICE REFORMS the lessons learned in order to undertake new reform initiatives. 5. JUSTICE REFORMS, THEIR SCALE AND RESULTS In the last 30 years, significant budget allocations have been set 6. MISTAKES MADE AND LESSONS aside for justice reforms, which have taken place in nearly all LEARNED Latin American countries. This shows a significant change in 7. CONCLUSIONS awareness regarding the importance of justice, an area that has been traditionally marginalised in the region. However, despite these efforts, the results have fallen short.

The analysis of these matters originates from the importance of justice as a "tool" for development, both in a general manner as well as in a purely economic perspective. In the last instance, the justice system's correct operation is an essential pillar for any democratic system as well as for the economy of a democracy. To do so, the state must have the authority to ensure that the legal system is the only criteria for regulating social relations, in general.

The existence of an independent, reliable and efficient judicial system provides the best setting possible for investments and growth. However, these characteristics must be accessible to all citizens. The aim is to establish a justice system that does more than simply favour economic growth and development. Justice cannot be created only for businesses; it must exist for all citizens. In fact, investments and growth cannot be assured if the rules and the justice system do not guarantee the protection of the basic rights for all citizens. This is the only way for the judicial system to be legitimate and therefore have enough credibility so that laws are followed and so it can exercise its role as a comptroller of other state bodies, therefore guaranteeing the best return possible for economic growth and development.

In the past, the link between justice and the economy has never been quite as clear as it is nowadays. There is currently a general consensus between economists and jurists regarding this link, to such a degree that it is understood that a nation's economic and social development does not depend merely on its natural resources or its economic policies. Although economic growth can occur without a solid and efficient judicial system, as some authors have defended, the economy will not be able to reach its full potential and growth will not be solid. In other words, full development

40 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

is not possible without unlimited budget or doubling guaranteeing the development the number of professionals “It is useless to carry of institutional capabilities, who work in the justice system modernising legislation, are not necessarily solutions out a reform without reforming the judicial system, either. The issue is not always an accurate diagnosis of protecting and defending basic (or merely) a matter of quantity. the causes” citizen rights, fighting against Experience has shown that it corruption, reforming criminal is useless to carry out a reform justice systems, access to justice without an accurate diagnosis and the methods for controlling of the causes that hinder the violence, and guaranteeing system's operation. In fact, citizen safety and coexistence. this is one of the main reasons behind the failures or the limited Increased awareness of this results obtained from reforms. link is evident because for years international development This failure does not show organisations, including that it is impossible to reform multilateral development banks, justice, but rather that reforms have considered governance and must have a better design. a stronger rule of law as areas Hopefully the region will of interest and for analysis. not give up on the effort to The role of agencies and of improve justice, especially international cooperation has because of the accumulated been important for the reform experience and knowledge that process in the region, and it has should be taken advantage of. also been partly responsible Initiatives are present, along for the limitations and the with awareness regarding the failures of these reforms. These need to strengthen the state agencies, along with Latin and its institutions. This is a American governments, carried fundamental starting point. out a wave of reforms in the 1990s, and although progress However, this has not always was made, these efforts were been the case, and the interest limited and even failed. The shown since the 1980s in the general conclusion is that if region's justice systems is there have been improvements, unprecedented. Historically, they are not in proportion to judicial power has been a the efforts put forth. footnote in Latin American history. Unlike other regions, However, the goal is not to place Latin America's political, blame but rather to highlight economic, social and cultural the complexity of these reforms. histories have taken place The most obvious solutions are independently from the not always the best alternatives. operation of its judicial powers. Investing additional resources However, regardless of their and hiring more judges are results, reforms have shown that not necessarily the measures unlike the past, it is understood to fix justice issues. Having an that it is no longer possible

41 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

to continue ignoring judicial isolated manner. The potential power since it plays an essential for having justice operate role. Its decisions affect the better does not only depend on stability and development of the judicial bodies and their our economies, the ability to institutional strength. Justice “This overall well-being control political corruption, the will improve visibly if other is what guarantees a defence of human rights, and state structures are also solid. solid and sustainable levels of insecurity. In summary, judicial power is important Based on this extensive economic impact” in terms of basic aspects for perception of justice and the development of Latin development, by considering America. This new perception cases such as Chile, Costa Rica can continue promoting the and Uruguay it is possible to willingness to resolve the justice reveal the degree to which issues that currently exist. it is essential to consider institutional strength in 2. LINK BETWEEN JUSTICE general as well as the strength AND DEVELOPMENT of justice as an element that is extremely important for It is not a matter of stating guaranteed development. These that economic development three countries are prominently and growth depend on how positioned compared to the justice operates, but rather that rest of the region in terms of it is a fundamental element their civil liberties, democratic that supports and favours quality of life, institutions, and the amount and clarity of legal and judicial systems. It is development, and additional not a coincidence that they also factors must be involved in stand out in terms of economic order for this to be possible. growth and development indicators. In fact, these nations In addition, development clearly receive the most praise should not be understood in in the region in terms of: a narrow manner and based on restricted indicators that • Civil liberties, covering are merely closely tied to judicial independence and the market and to business the rule of law. opportunities. The concept of development must be • Perception of corruption – interpreted with regard to the international transparency–. general population's well- being and quality of life. In • Governance –World Bank–. fact, this overall well-being is what guarantees a solid • Democratic development – and sustainable economic IDD–. impact, to which justice makes an essential contribution. • Legal structure and secure However, justice should not property rights –Fraser be interpreted in a narrow or Institute–.

42 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

• Democracy, market and • Uruguay, with regard to transparency –CADAL–. Police fees –CEJA–.

• Institutional quality –CIIMA • Costa Rica and Chile, in “This data confirms – ESEADE–. terms of access to judicial the democratic quality, information via the Internet institutional strength Chile is superior in other –CEJA–. measurements, such as: and operation of the This data confirms the democratic judicial system” • Protected property rights quality, institutional strength -Heritage Foundation and and operation of the judicial Wall Street Journal (Uruguay system, while making it possible also stands out in this to verify the improvement in the aspect). development indicators of the aforementioned nations: • Competitiveness –World Economic Forum–(Uruguay • Growth in GDP, income, and Costa Rica as well). electrical consumption, energy usage and number of • Economic freedom –Fraser Internet users (World Bank). Institute– (accompanied by Costa Rica). • Lower child mortality rates, improved life expectancy • Doing business –World at birth, increased direct Bank–. foreign investment levels, and higher average annual In the judicial system growth for actual and per measurements, Uruguay and capita GDP (UNCTAD). Costa Rica stand out in terms of: • Chile's progress in the • Faith in justice – measurement of human Latinobarómetro–. development (UNPD) was evident, as well as that of • Judge and defence counsel Costa Rica and Uruguay, fees –CEJA–. due to lower economic inequality and the • In terms of case resolution smaller gap between the fees and budget allocation population's 10% wealthiest per capita to public and 10% poorest. prosecutor's offices, Chile and Costa Rica spend the In summary, the data and its most resources per capita on links show that as these three Advocacy –CEJA–. countries benefit from greater consistency and institutional • Costa Rica has the highest predictability than the rest of proportion of lawyers for the region, their potential for every 100,000 residents – well-being and overall positive CEJA–. quality of life for residents in

43 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

a sustained manner is much empirical verification, and if higher, as proven by reality1. this is done using specific cases, “The coincidence in the it will not always match reality. Aside from the statistical data, However, there is no doubt that link between justice and the opinions of professionals the degree of legality is a very development appears who are (and are not) directly important factor. from all perspectives” involved in justice agree in establishing the correlation However, the coincidence in between development and the link between justice and justice. Judicial system development appears from all agents, professionals and perspectives as well as from the political leaders all confirmed judicial world. In this regard, the importance of justice Enrique Mendoza Ramírez, for development, and that who was President of Peru's improving the justice system's Judicial Power, believes that operation would affect “it is not possible to measure a development2. The evidence nation's level of development if obtained gives shape and the quality of justice services is essence to the road towards not taken into consideration.”4 development built by nations There is no doubt that Latin that, through work, consistency American societies need stable and following rules, helped and reliable judicial systems bolster the trust of their in order to make predictable societies and public sectors. progress towards development.

Most specialists agree, and many 3. INSTITUTIONAL factors must be considered BLOCKAGE OF JUSTICE IN in order to understand the THE REGION development of a specific reality. For this reason, there is a In order to analyse the main issues certain level of simplification in of justice, it is recommended to supposing, as Julio H. G. Olivera provide data that highlights the has done, that a country's main issues that affect justice, even economic growth rate depends to a different degree, throughout on its degree of legality, and the region. he believes that in a global economy, resources shift from SOCIAL PERCEPTION OF JUSTICE countries with low legality to those with high legality3. A distinction must be made This statement would require between the social image of

1 The corresponding data is available in Luis M. Palma, Justicia y desarrollo en América Latina, (Justice and Development in Latin America) the Belgrano theses, University of Belgrano, 2013, 2 Ibid., the author, interviewed a sample of professionals located in Argentina. 3 Ibid. 4 Peru & Lex: Investments and Justice, Lima, 2014.

44 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

justice and the state of justice. • Nearly two-thirds (63.5%) The population's perception stated that judges behave does not always match the differently with the wealthy institutional reality, but it and the poor. is an important indicator since citizen views provide • Only one-fourth of those information regarding justice's surveyed (26.3%) perceived level of legitimacy and that judges did not accept credibility. The lack of prestige bribes. “Faith in the judicial and faith on behalf of the system has remained population has become part of • Almost 90% believed that stagnant at 37%” the definition of justice. lawyers were too expensive. According to the • 17.4% believed that the top Latinobarómetro, this goal of lawyers was to earn assessment is among the worst, money (as opposed to defend along with that of the police, individuals) and that they compared to other institutions. would delay proceedings in This source states that since order to charge more money. 2003, the population's faith in police has risen to match • About 80% agreed that justice levels, while faith in the lawyers were corrupt. judicial system has remained stagnant at 37% since 20045. • Approximately 90% believed In the eyes of citizens, justice that Chile had justice for is slow, expensive, corrupt, the wealthy and a different and associated with power. justice for the poor. This means that according to this perception, justice is This perception of justice by not independent, impartial or underprivileged sectors could accessible to all. be applied to most countries in the region. In fact, it could even This depiction basically coincides be worse since Chile is one of with the characterisation that the nations where institutions describes populations with have one of the highest levels of limited resources. Based on a faith and trust. survey carried out in poor, urban sectors of Chile, it was verified However, the fact that poor that their access to justice people believe that wealthy depended primarily on wealth individuals have better justice and that they believed that does not mean that the wealthy discrimination and corruption are much more satisfied with acted against them6: the justice system. This problem

5 Latinobarómetro, 2003-2006. 6 Corre, Jorge and Barrios, Luis (eds.), Justicia y marginalidad. Percepción de los pobres. (Justice and marginalization. Perception of the poor) Corporación de Promoción Univer- sitaria, Santiago, 1993.

45 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

affects their investments Rare instances of cases that directly. Alejandro Werner are resolved quickly or when Wainfeld, Director of the the accused are powerful IMF's Western Hemisphere groups that have also held “The rich and powerful Department, confirmed that high-level positions in the cannot always rely on corruption and conflicts of state administration are not justice” interest hinder productive necessarily good examples of investments in Mexico. judicial rigour and competence. According to this high-level In reality, many cases involve representative, "The fact that the application of selective we have a justice system that is justice. Accused individuals inefficient, unpredictable and immersed in a fight for power slow clearly makes us much between influential groups less competitive against other will lose, and this explains countries equipped with a why they are accused and justice system that is much more then convicted quickly and agile, impartial and focused on expeditiously. Therefore, trials resolving commercial conflicts7." are a reflection of the power relationship between strong, Although these are only a few opposing interests, instead of examples, they seem to properly a potential example of rigour, depict the social perception effectiveness and the application that exists regarding the justice of the principle of equality for all system. This is a problem that citizens before justice, regardless currently affects society as a of their social, economic and whole, although in a different political condition8. manner. Another aspect that must be mentioned is the This lack of faith in justice access to justice due to a lack results in a number of serious of resources as one of the main implications. One is the search issues of justice throughout for justice outside the law. This the region. However, the rich includes cases in which popular and powerful cannot always justice is applied, without any rely on justice. The issue is type of guarantee or presumed much more complex and it innocence for the "supposed" cannot be resolved only with criminal, that usually result money. For the wealthy and in lynchings. Aside from these the business class, impartiality, types of dramatic cases, a corruption and slowness can concept worth mentioning is the also be a problem. search for alternative formulas

7 “Conflictos de interés y corrupción en México inhiben las inversiones, alerta Alejandro Werner (Conflicts of interests and corruption in Mexico inhibit investments, alerts Ale- jandro Werner)”, 15/02/15, http://www.sinembargo.mx/13-02-2015/1248829. 8 “Frühling, Pierre, Violencia, corrupción judicial y democracias frágiles. Reflexiones sobre la actual situación en Centroamérica (Violence, judicial corruption and fragile democra- cies. Reflections on the current situation in Central America)Cuadernos del Presente Imperfecto 6, Guatemala: F&G Editores, 2008, pp. 341-343).

46 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

for resolving conflicts that also crimes committed. According avoid the involvement of state to data provided by the Justice justice since it is considered Studies Centre of the Americas ineffective and slow. Apparently (JSCA), during the one-year the Mexican business world is period between 2005 and 2006, a fairly good example. "Twelve the number of pending cases years ago we supposedly quadrupled the number of cases created a bankruptcy law that accepted in countries such as was the best in the world and Argentina, Brazil, Costa Rica, reflected the best practices on Ecuador and Mexico9. an international level. Then “Between 2005 and we had issues that could have Within this statistic, there are 2006, the number been handled in the courts, countless issues that are related such as Comercial Mexicana to limited judicial access and of pending cases and Cemex corruption matters. independence, followed by a quadrupled the number Nobody wanted to go to court long list of problems, such as of cases accepted” and everyone said “we'll work an inadequate administration it out on our own because if of the staff members, resources we enter the judicial system, and cases that reach justice; we're going to be held up'". The insufficiently trained and relative efficacy of legislating skilled civil servants; improper laws is just as interesting if incentives; and a lack of the judicial system does not operational transparency. Since operate properly. the 1990s, attempts at reform have been unable to avoid the This opinion damages the collapse of a power that has not legitimacy of the justice achieved independence, that system and of the state, with still has not democratised its the corresponding risk of this governance system, that has not dynamic on economic and social been able to control abuse in development. how state powers are exercised, and that does not provide THE STATE OF JUSTICE guaranteed access to justice for everyone, as has been the case There is data that reaffirms of the Andean region10. These citizen perceptions. This is internal issues are combined confirmed by statistical data. with a lack of coordination with One of the obvious symptoms other institutions whose efforts of the problems that exist is directly affect investigations and made apparent by the low rate therefore the ability to clarify of cases solved in relation to the events. As a result, in many cases

9 La Seguridad Pública en las Américas: retos y oportunidades (Public security in the Americas: challenges and opportunities) OEA, 2008, p. 30. https://www.oas.org/dsp/docu- mentos/Observatorio/FINAL.pdf. 10 VV.AA, La reforma judicial en la región andina. ¿Que se ha hecho, ¿Dónde estamos? ¿Dónde vamos? (Judicial reform in the Andean región. What has been done? Where are we? Where are we going?). Lima: Comisión Andina de Juristas, 2009.

47 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

the relationship between the established by law for the actions public prosecutor's office and of those who govern is weak. security forces is based primarily on distrust and obstruction In order to understand today's rather than on coordination and issues, the reforms, their collaboration11. concerns and objectives must be analysed since this will provide As a result, judicial decisions are information regarding their “Justice is the power late, inconsistent, unpredictable, limitations. This step is essential with the least authority” uncertain, and insufficient in for a proper diagnosis that delves terms of reasoning. Specialists into the causes that hinder the agree that the justice system does correct operation of justice. not provide what is expected of justice, which is access for the 4. PROMOTING JUSTICE entire population in conditions of REFORMS basic equality, a reasonable period of time for resolving the conflicts In this point, which considers that are submitted and impartial the state of justice and its main decisions that impose appropriate issues, it can be assumed that solutions. However, these issues part of the state of justice can be are anything but new; they have explained by a lack of attention existed for a long time. to this power and its absolute isolation. This has been the case Any attempt to understand the historically, but not in the last reasons behind this situation 30 years. In fact, after this time, must accept that they are not ambitious reforms have taken new, they affect the system's place throughout the region. structures and are related to the judicial power's lack of The origin of this drive independence with regard contains a convergence of to formal as well as informal different processes, but the authority. Ultimately, justice judicial system holds a relevant is the power with the least position in all of them, which authority and it is influenced by is why it has been necessary to third parties. The consequences undertake the reforms. Firstly, of the problem not only affect the economic transformation the citizens that are directly that began in the mid-1980s and impacted by the judicial system, that deregulated markets and but also the social system as a modernised the economy must whole as well as the initiatives be considered. The second factor and the projects of any nature is the democratisation process that are undertaken since the and the importance of human authority aimed at resolving rights. The third factor, increased conflicts and executing the limits insecurity, appeared during

11 Frühling, Pierre, Violencia, corrupción judicial y democracias frágiles. Reflexiones sobre la actual situación en Centroamérica, ( Violence, judicial corruption and fragile democra- cies. Reflections on the current situation in Central America), pp. 344-347.

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this time (in the 1990s). The last and finance matters, and the factor is the emergence of new search for alternative conflict “Market economies concessions and social demands resolution systems. increase judicial of an ethnic, cultural and gender nature, which also turned to DEMOCRATIC TRANSITIONS conflicts” justice for acceptance. Along with the demands STATE WITHDRAWAL AND involved in market MARKET GROWTH deregulations, democratic transitions are another factor To a greater or lesser degree, that has pressured judicial all the countries in the reforms. Defending human region began an economic rights becomes a central transformation process with issue, and the way in which the state's withdrawal. The human rights violations were intervening state, which was so resolved in past dictatorships characteristic during the second is an additional reason to half of the 20th century, began highlight judicial power. It to dismantle itself. This means is understood that judicial that as it ceases to be the largest power is an important pillar for investor, the largest employer defending the rule of law and for and the entity that controls protecting basic citizen rights. prices, social and economic conflicts are no longer resolved In line with this approach, in executive courts and in the main concern from judicial districts. this perspective is the democratisation of judicial Open market economies are power by increasing the established, and differences adherence of judges to and conflicts are resolved democratic values as well as in the market; beyond this their independence. area, the judicial system must resolve them. This aspect CITIZEN INSECURITY gives the judicial system a more important role along Since the 1990s, increased with additional pressure to criminal violence and the guarantee its correct operation. establishment of organised Market economies increase crime has been another judicial conflicts because of important reason for promoting deregulations as well as more criminal justice reforms. This and increasingly complex matter has been a constant business transactions. As a concern, and ultimately it has result, this area has requested become a priority for all citizens. the creation of more courts, This social pressure has required higher judicial budgets, efficient all the governments in the budget management, additional region to pay close attention to judicial training in commerce the need for these reforms.

49 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

ACKNOWLEDGING DIVERSITY 5. JUSTICE REFORMS, THEIR SCALE AND RESULTS “The justice system. Justice has also gained importance by having to Once the issues have been stated Overall, the level of resolve complex conflicts and the factors that play a role in ignorance and of related to matters that have increasing awareness of the need knowledge regarding inspired debates throughout to undertake justice reforms the justice system is society. The progressive have been considered, the wave acknowledgement of diversity of reforms taking place is clear rather shocking” from individual, social, ethnic proof of the understanding of and cultural perspectives this power's importance. has resulted in crimes that must ultimately be resolved THE SCALE OF REFORMS. THEIR by the courts. Matters of SCOPE AND REPERCUSSIONS discrimination against women or the rights of gays and of The scale of the changes, indigenous people have given the efforts put forth and the the concept of justice a special resources invested are proof importance and presence, as of the importance given to the opposed to its traditionally sector. Since the 1980s, changes socially insignificant power12. have been made to the legal framework, organisation and In effect, the convergence of the budgets of the justice systems highlighted matters removes of nearly all the countries in justice from its historical the region. Numerous reform isolation, as it had always programmes with virtually held a secondary position in unlimited funds from foreign Latin America. This trend agencies were designed. Also, has progressively shifted in since then, judges and public the last 30 years. It has even prosecutors have continued been the focus of the media's to exchange national, regional attention, although the issues and international experiences and problems addressed have through debates focused on been handled with a good important matters, such as the dose of sensationalism but role of judicial power and the without thoroughness or rigour. institutions related to its efforts. However, for quite some time, The material resources that universities have not focused courts began to have access to, on studying the justice system. were just as important, and their Overall, the level of ignorance modernisation, computerisation and of knowledge regarding the and general improvements were justice system is rather shocking. visible and tangible.

12 For information on the causes that have boosted the importance and visibility of justice, while favouring its reform, please refer to Jorge Correa Sutil, Acceso a la justicia y reformas judiciales en América Latina. ¿Alguna esperanza de mayor igualdad?, (Access to justice and judicial reforms in Latin America. Any hope of greater equality?)http://www. cejamericas.org/Documentos/DocumentosIDRC/117Accesoalajusticiayreformasjudicial es.pdf.

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Analysing some of the reforms offices. In the same decade, gives us a more accurate idea of Argentina, Guatemala, Costa their scale and scope. As part of Rica, Colombia, Peru, El Salvador, their transitions to democracy, Uruguay, Venezuela, Chile, Argentina, El Salvador, Panama, Honduras, Ecuador, Bolivia, Peru, Costa Rica, Colombia, Nicaragua and Paraguay approved Paraguay and Ecuador changed legislation for this matter. “Access to justice was their constitutions to create also addressed” "Councils of Magistrates" In addition, most of the countries aimed at governing their in the region did not ignore judicial branches. At that time, the importance of providing Guatemala, Honduras, Chile continued education to their and Nicaragua discussed similar judges and in training those who constitutional reform projects. aspired to be judges. Judicial A similar number of countries Schools were created for this reformed their constitutions purpose, and the efforts put to guarantee that a minimum forth by Costa Rica, El Salvador, amount of state budgets would Guatemala, Honduras, Panama, be allocated to judicial power, Bolivia, Colombia, Chile, Paraguay establishing that the magistrate and Uruguay deserve a special bodies would administer the mention13. money in question. This was the case of Costa Rica, El Salvador, Lastly, access to justice was Guatemala, Honduras, Panama, also addressed. To ensure that Bolivia, Paraguay and Ecuador. it was available and universal, The efforts made to regulate programmes for improving free judicial careers so they are only legal assistance were discussed, based on professional merits and the role of "Public Defender" have been just as important. was established or considered. Most Central American nations In addition, programmes and modified their constitutions projects for alternative conflict for this aspect: El Salvador resolution systems were and Panama in 1991, Honduras implemented in all the countries in 1992, Costa Rica in 1993 and throughout the region and Guatemala in 1985. Argentina judicial offices were modernised. did the same in 1994. Other countries, such as Colombia ISSUES ANALYSED AND in 1991 and Paraguay in 1992, ACHIEVEMENTS ATTAINED changed their systems for appointments, and Chile and However, despite everything, Peru made similar modifications there is full awareness that the in 1998 and 1992, respectively. link between the effort made and the results obtained is not Changes have also been made proportional. The results have to criminal proceedings and to been limited. The main issues strengthen public prosecutor´s that were focused on were the

13 Ibid., about these reforms.

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independence of judicial power A number of cases can be as well as the efficacy of justice mentioned, such as Colombia “Increasing human and and its accessibility. The main and partly Chile and Peru. In improvements were noted in the these cases, computerisation material resources is not independence of judicial power, was introduced as a tool for necessarily the solution” while the two other matters increasing efficacy. However, remained far behind. increasing human and material resources is not • Independence: Considerable necessarily the solution if the progress has been made. same management issues Major steps have been taken are repeated. In other words, in terms of establishing improving efficacy is not formulas that hinder the necessarily a matter of adding interference of other powers. more human or material However, the independence resources if the issues that of judges is a matter that truly hinder efficacy are remains primarily unresolved. not resolved. In reality, the aim is to organise the justice Some countries, but not administration according to all, have adopted systems rational criteria. This is not that are more transparent always a matter of quantity, for defining the profile of a but rather of quality. judge, public prosecutor or public official, along with Another issue is the mechanisms for transparency resistance of judges and throughout the process. public prosecutors since Selection criteria continue certain reforms could to be based primarily on modify the structure and personal relationships instead distribution of power within of professional merits. In the organisation, thereby the same sense, evaluation lowering the position of methods are just as necessary, these agents. In addition, but Colombia seems to be the applying partial and case that stands out the most. insufficient changes has made it impossible to reach • Efficiency:A number of a level of efficiency that is processes were carried unacceptable in many cases. out for this purpose in the 1980s and 1990s. The • Access to justice: This is a main issue is that they pending matter that reforms addressed management have not been able to resolve. matters without taking into The economic, social, cultural consideration other reforms. and ethnic inequalities that In the 1990s, aside from exist in the region also affect this compartmentalisation, justice. A significant portion efficacy was considered to be of the population faces an issue that only affected considerable inconveniences administrative matters. in order to access justice

52 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

(distance, a lack of resources, 6. MISTAKES MADE AND language issues14), but LESSONS LEARNED “A multi-cause even if these matters are overcome, justice fees and A main issue that explains perspective must be discrimination are additional the limitations and even the used to perform a barriers that make it difficult failures is the lack of knowledge complete analysis” to implement the ancient in this area and the fact that it principle of 'equality before has not always been addressed the law'. However, this issue properly. In any case, a single goes beyond justice; it affects cause does not exist that the basic characteristics explains the limited results of society. The solution of reforms. A multi-cause to this issue does not lie perspective must be used to in the justice system, and perform a complete analysis. therefore any reforms that are applied for this matter The existence of reform failures will not be able to resolve does not mean that there the problem of inequality are no solutions available for and discrimination that justice issues, regardless of their is present in all orders of gravity. This is why the design society15. and application of reforms must be examined. This information In this area, it is worth is essential since errors can highlighting that despite the be avoided by examining the importance of the progress changes that were intended to that has been made, it is be implemented and how they not enough. The current were carried out so mistakes are benefit is that the level of not repeated. accumulated experience and knowledge is much higher Everything indicates that failed than in the 1990s, making reforms are primarily due to a it possible to undertake lack of a proper diagnosis of the pending reforms with more issues to be resolved, the correct criteria and precautions. It is selection of appropriate solutions, important to continue with insufficient aptitudes for matters that have already executing them, and the inability been undertaken, but to overcome opposition to change. with a different focus and All these limitations have affected approach. reforms to a certain degree and they explain the limited results.

14 The fact that Peru has redacted a sentence in Aymara is good news (although symbo- lic). This would be an example of accessibility to justice in multi-ethnic and multi-cul- tural nations. El País, 21/03/2015, http://internacional.elpais.com/internacional/2015/03/21/ actualidad/1426967054_237944.html. 15 For information on progress and limitations of reforms, refer to Luis Pásara, Reformas del sistema de justicia en América Latina: cuenta y balance, (Reforms on the judicial sys- tem in Latin America: account and balance) http://www.juridicas.unam.mx/inst/evacad/ eventos/2004/0902/mesa11/278s.pdf

53 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

In this regard, the lessons agents that have carried them learned are essential since they out and the funds available. The “The specific reality of provide additional possibilities combination of these factors for establishing a reform that shows the complexity of a reform: each country must be adapts to reality. The most considered” advisable alternative would be to • What is the best reform?: identify items that can feasibly The first matter is to consider be undertaken. In general, prior the best reform since the reforms have focused on objectives most obvious one is not for the justice system that are always the most suitable. not viable for resolution through Classic solutions, such as new the system in question. Social laws, higher budgets, more justice, real equality or resolving courts or mass judicial purges all conflicts have repeatedly been have not had spectacular the objective of judicial reforms results, and at times they have throughout the region. Strictly even been counter-productive. speaking, these aspects are not the It has been confirmed that responsibility of the justice system higher salaries, on their own, but rather of policies. do not lead to better results since they do not guarantee Realistic objectives are those sentences that are less corrupt that address conflict resolution or more appropriate. As far between individuals as well as as the threat of purges, these the constitutionality and the can result in more abuse by legality of government actions. individuals attempting to gain Any attempts beyond this, to the illegal benefits before leaving degree that the justice system's their posts. capabilities are exceeded, will undoubtedly lead to failure and Beyond opposing or frustration. In summary, the aim hindering change due to is to adapt expectations and to individual interests, as has establish objectives that are much occurred in many instances, more modest and in line with it is not enough for everyone existing possibilities. To do so, the to agree that a reform is specific reality of each country necessary; instead, everyone must be considered. With regard involved must agree on what to this specific reality, the strength should be changed. Once of the State in each case will be this consensus has been an essential element in designing reached, it must also remain. more ambitious reforms and it will Aside from starting the be increasingly possible to execute reform, this consensus must those reforms successfully. continue in order for the reform to be applied. Certain With this generic approach, it participants may decide to would be advisable to focus on leave the alliance once they more specific matters related to have reached their objectives, the approach for the reforms, or their decision to abandon the nature of the issues, the may be due to the fact that

54 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

continuing with the process reference for this was the will interfere with their experience of other nations, “Evaluations must direct interests. primarily European countries and the United States. continuously take place” A basic criterion for defining a reform is to make a good The process of overcoming diagnosis. Problems cannot this approach, which was be resolved if their causes implemented by national have not been identified. For and international agents, this reason, comprehensive commenced in the 1990s when and thorough analyses are people began to understand essential, and they must that isolated solutions could not be performed by the not provide suitable results. interested parties (or at least Issues were usually caused by not alone). Many actions have multiple factors that should been undertaken armed with be addressed concurrently. As only basic knowledge and a result, in the wave of reforms without a strategy, resulting that took place in the 1990s, in categorical failures. international agents began to adopt increasingly complete However, in addition to and integrated strategies. It identifying issues and their was not enough to change causes, evaluations must laws. It was also necessary continuously take place in to address staff training, order to detect potential appointment systems based and unforeseen reactions on recommendations instead to the changes made. This of merits, administrative will allow making the systems that were vulnerable necessary adjustments to corruption, poorly for reaching the proposed equipped facilities, etc., but reform objectives. A certain in an integrated manner degree of flexibility is and in accordance with the needed in order for the specific circumstances of each project to be adapted to new country. circumstances. The alternative of applying • Focus of reforms: A basic a systematic focus, as has matter for an appropriate been done in recent years, diagnosis is based on the has generated results. focus used to address However, structural issues the issues. The focus must continue to be has traditionally been addressed since they have mechanistic. Using this not been resolved. Using this approach, the aim was to approach, more laws have resolve the justice system's been modified, but without issues by introducing isolated focusing on their quality. innovations through the Investments have been made approval of new laws. The in infrastructures, equipment

55 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

and training programmes, available. In any case, access but appointment systems are to additional resources and “All of this highlights still controlled by personal higher budgets thanks to contacts and subjective external funding resulted the complexity of criteria, disciplinary and in a considerable waste judicial reforms” evaluation systems do not of resources. It is easier exist or are not applied, and to build new offices, buy the number of unresolved computers and hire staff cases continues to grow. The than to change the existing judicial system has continued staff. This method does not to be purged, but vacancies are resolve issues, but there is no filled with recent graduates resistance from the sector who are not properly trained. and the results can be seen quickly although with a All of this highlights the short duration. Structural complexity of judicial obstacles remain and become reforms. There is clearly more serious since there are more than one way to more employees and offices create the best reforms. reproducing the same issues Effective institutional change that have existed in the past. works through a series of Beyond budgets, without interrelated mechanisms and rationalised expenses, control depends on their combined mechanisms or transparent influence as opposed to their usage, instead of resolving individual impact. Reality issues and regardless of makes it clear that despite the resources available, all the efforts, it seems that corruption practices may they are not enough and that become increasingly common. a specific diagnosis for each case is needed. • Human Resources: Once it is clear that the availability of • Budget: In the 1990s, resources is not always the international agencies issued solution, as has been shown blank cheques. Assistance in the field of justice, an from US-AID, Europe and essential aspect is the training Japan, loans from the World available to the individuals Bank and the Inter-American who comprise the justice Development Bank, and system. In this case, there are higher budget allocations for major shortages. There is a justice in each Latin American significant lack of education republic have made it clear and training for the staff that the issue is not just a performing justice duties. matter of money, but rather of However, the limitations are how it is spent. more extensive because even if it were possible to replace Today it seems that unlimited those workers, candidates funds, although not yet fully with additional training are under control, are no longer not available.

56 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

Selection systems must be to the weakness of national improved, but this will not agents. There are many cases “It is important to be enough if universities do in which reform initiatives not provide the right training have been driven by contemplate the and education. If universities international agencies. With mistakes made and the are unable to prepare the time, there is a certain degree lessons learned” professional staff needed for of national appropriation of reform processes, then those justice reform processes in reforms cannot be carried out. most countries. This means that although international • Consensus: Consensus is agencies play a major role needed to design as well as in providing funding and to apply reforms. Despite technical assistance, they no identifying the best reform longer fill that original role. possible, if there is a lack of agreement, then it may These initiatives have be difficult to execute. It is enabled reforms in certain recommended to involve countries, and agencies multiple entities and to have even protected local avoid exclusions. This is a groups that pushed to basic matter, and if it is not implement changes. In followed, then excluded reality, no changes would sectors may place obstacles have been possible without and resist the proposed their presence. However, this changes in order to boycott does not mean that their the process. The essential mistakes should be ignored. participants of a reform Transferring institutional include judges, public designs without considering prosecutors and lawyers. the special characteristics Latin America's experience and adaptability of each has made it clear that these case, wasting resources are the main agents who without a clear strategy, oppose change. However, it is and carrying out activities useless to attempt a reform aimed at boosting their own without their involvement image rather than improving since they play major real issues are some of the roles. Together with them, matters that have occurred politicians must strengthen repeatedly. Actions that were rules and approve budgets, easier to carry out when civil society organisations national agents did not and international show a great deal of interest cooperation agencies. in assuming the necessary roles and responsibilities. • International agencies: Their distinction is justified 7. CONCLUSIONS due to their importance in Latin American justice Following the description of the reform processes, as opposed current state of justice and of

57 JUSTICE IN LATIN AMERICA AS AN ESSENTIAL FACTOR FOR DEVELOPMENT

the failed reform attempts that impunity that currently exist, have taken place in the region, it and this would affect insecurity, is worth asking whether a reform but because violence and crime that would resolve all the issues in are driven by other factors, question can be designed. In other improving justice would only words, can justice be reformed? have a partial improvement, “The positive effect The answer is definitely "yes". without resolving the issue. of a justice system that operates well As stated earlier, it is important to Development should be contemplate the mistakes made understood in the same manner. on development is and the lessons learned. This is The positive effect of a justice undisputed” essential in order to begin an system that operates well on appropriate diagnosis, and even development is undisputed, if there is not enough data, the but since development does reality is that the deficiencies not depend only on the justice that have been detected must system (although it is an be resolved in order to carry out essential pillar), justice alone will improvement projects. not generate economic growth.

Beyond all the factors mentioned, The best approach is the realistic rhetoric must also be omitted. one. Reforms must be delimited The extraordinary expectations by their results in order to avoid attached to executing additional disappointments, reforms have only resulted in which ultimately affect the disappointment and scepticism credibility of new initiatives. It towards new initiatives. The is unrealistic to expect a justice importance of justice and the system with magnificently need for reforms must be made trained professionals if clear, but this does not mean universities are unable to that reforms are the solution to educate them at that level, economic and/or social problems or a justice system without because, regardless of how justice corruption if corruption exists operates, it has no control over in the rest of society. It is also those matters. important to understand that the justice system's operation In this regard, it is surprising that depends on institutions that the solution to the top concerns go beyond their authority of Latin American citizens, such and jurisdiction, and if these as security and development, are institutions do not operate the responsibility of the justice properly, this will ultimately system. Although the justice affect justice. Therefore, it is system's operation is an essential advisable to consider existing element for both matters, this limitations when establishing does not mean that they can be reform objectives. This may resolved through justice reforms. result in greater achievements The operation of criminal justice than those attained to date. would lower the high levels of

58 The Latin American population in the United States: a “sleeping giant?”

Madrid , April 2015 THE LATIN AMERICAN POPULATION IN THE UNITED STATES: A “SLEEPING GIANT?”

1. INTRODUCTION

This report aims at describing the Latin American community and 1. INTRODUCTION analyzing its weight and its level of economic, political and social 2. DEMOGRAPHIC PROFILE OF influence, as well as its contribution to the American society. THE LATINO “GIANT”

3. THE POWER OF THE LATINO The census in the United States published in 2010 considers the COMMUNITY AS CONSUMERS “Hispanic or Latino" origin as the cultural heritage, nationality, AND VOTERS lineage or country of birth of a person or of his/her parents or ancestors prior to his/her arrival to the United States. The people 4. CONCLUSION: THE who consider themselves as Hispanic, Latino or Spanish can be of LATINAMERICANIZATION OF any race. The term “Hispanic or Latino” refers to a Cuban, Mexican, THE UNITED STATES Puerto Rican, Central American or South American person or a person of other origin or Spanish culture, regardless of race1.

Since 1970, its remarkable growth has transformed the “face” of the United States, given that its presence as a strong minority has changed at least the country’s ethnic and cultural identity, which has traditionally been considered as white-European. However, the future predictions about Latinos point to these changes going beyond those of physical appearance, since they are expected to reach considerable levels of economic and political power in just a few years. Nevertheless, in order to understand the present and future Latino potential, it is necessary to dispel some stereotypes which reflect a simplified image that does not correspond to the reality of the prejudiced Latino community. Defining it will highlight the diversity concerning its demographic, social and political configuration. This will shed light about their current contribution to the American society and their extraordinary potential.

One of the most common generalizations is to assume that the Latino community is homogeneous. The American society does not know the differences between the various nationalities, their traditions and cultures. These differences are emphasized not only by the newly arrived immigrants but also second and third generation immigrants living in the US. Yet, this diversity is not limited to the various nationalities and their respective traditions; it also includes a whole social universe which covers great fortunes, wealthy and middle class and poor sectors. In most cases, social gaps are linked to the academic background, which also explains to a great extent this diversification of the economic and social stratification. Nonetheless, in the eyes of the Americans, this diversity boils down to the Latino category, identified as a Spanish-speaking and catholic population. At most, a Latino can be identified as a Mexican person occupying the least qualified posts in the service sector.

1 http://www.census.gov/prod/cen2010/briefs/c2010br-04sp.pdf.

60 THE LATIN AMERICAN POPULATION IN THE UNITED STATES: A “SLEEPING GIANT?”

In line with these stereotypes, Latinos. It should also be taken special attention should be paid into account the fact that these “Far from being asleep, to the terms repeatedly used dimensions give the Latinos a to describe this community, specific importance as voters, this population is well which is often considered as although not all the electorate awake and very active” a “sleeping giant”, both in the votes, as well as clients and media and in academic articles. consumers. This occurs to the In terms of size, this community extent that, for some time can rightly be defined as a giant, now, it has become the “object but this word should also be of desire” of not only political used to describe its potential. parties but also of many Since 2002, the Latinos are companies. Thus, far from the largest minority in the being asleep, this population is United States. According to well awake and very active. the 2010 census, their number increased to 54 million people. The power obtained by their This spectacular growth has status of consumers and occurred at an extraordinary voters creates a dynamic of pace, since a significant interest which leads to the emigration flow started in Latino community and the 1970 and it has been growing Spanish language constantly exponentially ever since. being in the spotlight. The efforts made by entrepreneurs However, the adjective and politicians to attract this “sleeping”, is more questionable. enormous social group make It is used to express the low this community visible as well political participation of the as its singularity and language, members of this community, whether the members of this both as voters and electors, group wish this visibility in relation to their electoral or not. This is an undesired universe. The exercise of effect for some sectors that their voting right would are in favor of the integration undoubtedly provide them of the immigrant population. with more pressure and power This possibility appears more opportunities. Yet, even if this and more distant, although is true, everything suggests bilingualism state policies leave that it is a matter of time which much to be desired. will be solved as the integration process (in terms of training Therefore, the initiatives of and social promotion of its the Latino community and members) progresses. This the interests of the American does not mean though that society, far from blurring the there is not a robust network Latino features, empower of organizations and social and and perpetuate them, thereby political activism representing increasing their projection. the main demands of the newly-arrived legal or illegal emigrants and the US-born

61 THE LATIN AMERICAN POPULATION IN THE UNITED STATES: A “SLEEPING GIANT?”

2. DEMOGRAPHIC PROFILE The aforementioned OF THE LATINO “GIANT” transformation of the foreign “The transformation population structure was radical The 2010 census reported and rapid. Europeans’ rate of the foreign an increase in the Hispanic fell from 75% in 1960 to 15% in population structure population of 15.2 million 2000, accounting for 4.4 million was radical” people between 2000 and 2010, compared to the previous 7.3 which represents more than million. And although the Asian 50% of the 27.3 million-growth sector has also undergone a of the total population of the significant development and US. This implies an increase represents a quarter of the total of the Hispanic population with 7.2 million people, Latinos of 43%, four times the remain as the largest force. country’s growth rate (9.7%)2. China, the largest source of that This demographic growth is region and the second as regards unprecedented in US history nationalities, provides 1.4 million, and it also seems that its future six times less than Mexico, prospects are also notable, which is the main source. In since, according to the figures, order to find such a high rate in 2010 they represented 16% of a single nationality, we must of the total population and the look back at the 1890 census, percentage is expected to rise when 30% of the immigrants to 21% by 2020. came from Germany.

This phenomenal growth Nonetheless, the official can mainly be explained by sources that count the Latino the decisive change in the population do not take into migration policy in 1970, when account those people living immigrants did not represent and working illegally in each more than 5%3. Since then, state. The Pew Research the new and less restrictive Center estimated that, in measures adopted led to a real 2011, there were 11.2 million demographic revolution from undocumented people in the a quantitative point of view country, which represents and a change in the origin 3.5% of the country’s of immigrants, as there is an population. The majority of important migration flow from people without documents Latin America and Asia, to such are Mexican, who constitute an extent that the country’s about half of the illegal ethnic structure has been immigrants in the country. modified. The main characteristic of this population is that, even though

2 http://www.census.gov/prod/cen2010/briefs/c2010br-04.pdf. 3 In this sense, the repeal of the laws of National Origins, in force since the beginning of the 20th century, was crucial. These laws established a system of nationality-based quotas, which favored the Western countries and limited immigration.

62 THE LATIN AMERICAN POPULATION IN THE UNITED STATES: A “SLEEPING GIANT?”

they represent 3.5% of the US conducted by the Brookings population, they account for Institution (2001), the non- “The non-Hispanic white 5.1% of its work force. Hispanic white population has become the new minority in population has become However, a trend announced the country’s 100 largest cities. the new minority in the many years ago was confirmed They fell from 52% in 1990 to country’s 100 in 2012: illegal immigration 44% in 2000. largest cities” has dropped after more than a decade. This trend can be GEOGRAPHICAL DISTRIBUTION explained by various factors occurring at the same time. In 2010, 37.6 million (75%) In order to understand this, Hispanics lived in the eight the American economic crisis, states with over a million since 2009, must be taken into Hispanic inhabitants consideration, in contrast with (California, Texas, Florida, the economic prosperity of New York, Illinois, Arizona, the region, and the increase of New Jersey and Colorado). security measures in the US As regards the main states, border and the ageing of the percentages were significant. Mexican population. In California, they amount to 14.0 million (28% of the All this notwithstanding, total Hispanic population), 9.5 and despite this drop, the million (19%) in Texas and, 4.2 US has become after Mexico, million in Florida (8% of the the second most important Hispanic population of the community in the world US). Their presence in some as regards the Hispanic metropolitan regions such as community. New York and Chicago is also noteworthy. This population evidences the importance of this group in the However, during the last decade, following years and, given their they have expanded throughout youth and their high birth rate, the country, beyond the areas there is no doubt that, beyond where they traditionally settled. the migration flows, their Hispanic population has growth will be sustainable increased in all 50 states. for many years. Hence, in California, since the 90s, it is Illegal population should also the birth rate that ensures be counted, even though the the growth of the Latino difficulties this process entails. population and not migration They are concentrated in flows. Of equal significance is certain areas, mainly six states the fact that, in certain areas, –California, Texas, Florida, New they no longer are a minority York, New Jersey and Illinois– and have exceeded the non- where 60% live. Hispanic white population. In fact, according to a study

63 THE LATIN AMERICAN POPULATION IN THE UNITED STATES: A “SLEEPING GIANT?”

GROWTH OF THE DIFFERENT By states, they represent the LATIN AMERICAN biggest Hispanic group in 40 “Mexicans represented NATIONALITIES states, more than half of which are located in the South and around 75% of the The national diversity is Western regions of the country, growth of the total a characteristic of this two of them in the North East Hispanic population” group, although it has and in the 12 states of the been overshadowed by the country’s central region. “Hispanic” category. However, Latin American people Puerto Ricans, who constitute prefer to be identified by the second largest group, their nationality rather than represented 9% of the Hispanic being included in the Latino population in 2010, below category. Mexicans have the 10% registered in the always been the traditional year 2000. The Puerto Rican and majority group, well population increased by 36%, ahead of the Puerto Ricans, from 3.4 million to 4.6 million. Cubans, Salvadorians and Puerto Ricans were the largest Dominicans. It should be noted, Hispanic group in six out of however, that a diversification nine northwestern states and process regarding this issue in one western state (Hawaii), is taking place, whereby with 44,000 people. other nationalities have been incorporated into this The Cuban-born population migration flow. These “new increased by 44%, from 1.2 Latinos” have also undergone million in 2000 to 1.8 million significant growth and in 2010. Cubans represented thus the diversity of the around 4% of the total Hispanic Latino community has also population, both in 2000 and in grown, and that makes their 2010, and they were the biggest homogenization in the Latino Hispanic group in Florida, or Hispanic group even more reaching 1.2 million. questionable. As regards other nationalities, As regards majority groups, they have been gradually the Mexican group has been diversified, as noted, although and still is the largest one, Central Americans have accounting for 63% of the acquired a growing presence total Hispanic population in for reasons of geographical the United States. This group proximity. Since the year increased by 54% and recorded 2000, three groups of Hispanic the greatest growth, going origin surpassed the 1-million from 20.6 million in 2000 to mark: Salvadorans (1.6 million), 31.8 million in 2010. Mexicans Dominicans (1.4 million) and represented around 75% of the Guatemalans (1.0 million). 15.2 million growth of the total Hispanic population between The community of Salvadoran 2000 and 2010. origin (3% of the total Hispanic

64 THE LATIN AMERICAN POPULATION IN THE UNITED STATES: A “SLEEPING GIANT?”

population) increased population, since they have significantly between 2000 gradually spread across the “The Latino population and 2010, with a growth rate of United States although, 152%. As regards Guatemalans, at the same time, their has a national presence they notably increased traditional settlements have and is a structural between 2000 and 2010, been consolidated. Thus, element of the American with a growth rate of 180%, the Latino population has demography” representing 2% of the total a national presence and is Hispanic population in 2010. a structural element of the American demography5. As for Hispanics of South American origin, they SOCIAL BACKGROUNDS AND experienced a growth of 105%, LEVEL OF EDUCATION from 1.4 million in 2000 to 2.8 million in 2010. This population Generally speaking, a large accounted for 5% of the part of the immigrant Hispanic population in 20104. community usually belongs to the more vulnerable sectors On the basis of the of the population and fill demographic information poorly paid, unskilled jobs provided, many different that the nationals do not conclusions can be drawn: want. This is the case of the Latino population, since they • Since 2000, the census traditionally represented highlights the spectacular a lower level of education, growth experienced by the compared to other immigrant Latino population, both for groups, which has resulted in a grounds of immigration and higher rate of unemployment, birth, becoming the largest lower income and significant minority of the country. poverty rates.

• Since 1970, there are new Nevertheless, this situation flows that increase the does not apply to the entire pre-existing volume and Latino population and this is diversity and explain less and less the case as second this exponential growth generations enter the education experienced in recent years. system. The Latino social world has a diverse spectrum • Likewise, new trends are of education level, income and emerging concerning employment status. the distribution of this

4 All demographic data provided have been obtained from the 2010 census, http://www. census.gov/prod/cen2010/briefs/c2010br-04sp.pdf. 5 As regards these characteristic features, see, Mª Jesús Criado, Inmigración y pobla- ción latina en los Estados Unidos: un perfil sociodemográfico, (Immigration and Latin population in the USA: a socio-demographic profile) Instituto Complutense de Estudios Internacionales-Fundación Telefónica. (2007).

65 THE LATIN AMERICAN POPULATION IN THE UNITED STATES: A “SLEEPING GIANT?”

It is therefore not surprising jeopardizes the image that that long-term immigrants one US sector has in relation “Cubans are the group or US-born Latinos are in to Latinos, whose members, a different situation than according to these figures, with the best level of newcomers. The progressive are presumed to have a education and income” improvement of the second lack of interest and even generation and previous ones, lack of capabilities for self- also born in the US, makes it improvement. And due to possible for them to have better this image, the difficulties training opportunities, which and obstacles inherent to translates into better wages marginality and poverty are and salaries. Yet, Salvadoran not taken into account. In and Guatemalan immigrants, fact, early school dropout in addition to Mexicans, as is often due to the need to noted above, are the ones with work in order to earn a salary. the lowest level of education Yet, we should again stress of all minorities and thus, the the difference in relation to groups of the lowest social second generations, in which classes, followed by Dominicans, both the school performance Peruvians and Ecuadorians. and the level of education are higher. It is no coincidence that At the other end of the newcomers have the worst spectrum, Cubans are the school performance, thereby group with the best level proving the precarious living of education and income. A conditions of the immigrant greater proportion of them population and the limitations have secondary and university of the education system to education. In addition, other integrate them. South American groups, such as the Colombian community, have However, within the group a similar level of education. The of newcomers, we should difference is that, while Cubans distinguish the dreamers, who, acquire their education in the despite being a group of illegal US, other South Americans young people, have a high level were provided a good education of education, even university in their countries of origin, education. In many cases, they except for Caribbeans or have even studied in the US Central Americans. and then stayed illegally in the country after their visas However, it should also be expired, being permanently at noted that, in spite of all the risk of deportation. President improvements made, school Obama is well aware of the failure and early dropout contribution these young (before graduating from people, trained in the US, can secondary education) rates make and that, due to their among the Latino population irregular situation, they will widely surpasses those of not be able to launch their other minorities. This issue business initiatives despite

66 THE LATIN AMERICAN POPULATION IN THE UNITED STATES: A “SLEEPING GIANT?”

the potential benefits for and social status. Therefore, the American economy and many of the stereotypes about “Special attention competitiveness that can the Hispanic population in the be derived from them. This US have been refuted by reality, should also be paid to group is included in President since it is formed not only by an increasingly strong Obama’s reform agenda. newly arrived, destitute and thriving middle class” low-skilled people but also by Beyond this particular group, a whole social and economic the level of education is world that, depending on the reflected in the social status case, has been settled in the and the salaries. In fact, the country for a long time. aforementioned educational profile explains to a great 3. THE POWER OF THE extent why Latino immigrants LATINO COMMUNITY AS have low-skilled jobs but are CONSUMERS AND VOTERS not the only ones. Besides the Hispanic elite that has This population’s spectacular managed to settle in the quantitative growth and the US and whose names are progressive improvement of its published in the ranking list of social status and purchasing the most influential Hispanic power make it a priority area for people in the US6, special entrepreneurs and parties. For attention should also be paid to some years now, the demands an increasingly strong thriving of this community have middle class, represented by reshaped the national market, second generations with a which is a real market with an higher level of education. extraordinary potential, but, at the same time, they have also All the above-mentioned forced a change in the political factors suggest a general agendas of both the Republican change in the Latino and Democratic Party. population though which more training and social promotion Latinos are now more present opportunities can be expected, in the American society thanks as we have seen in the last to this interest in the Latino decade. This assumption is population. In other words, based on the decline of the the advertising and electoral immigrant population since campaigns seeking clients or 2007 and the natural growth of voters, far from hiding it, make the Latino population already both Latinos and the Spanish settled in the United States. language more visible. However, This social group has more this is not always promoted by resources and opportunities the state administration, which, to provide the necessary in many states, encourages the education to their children and only English policy instead of thus, to improve their economic bilingualism.

6 See Time magazine 2005.

67 THE LATIN AMERICAN POPULATION IN THE UNITED STATES: A “SLEEPING GIANT?”

LATINO BUSINESSPEOPLE AND The Hispanic community ENTREPRENEURS not only contributes to “Most of the Hispanic the national economy and The dimensions of the generates employment but it companies are small and Latino community have not also offers new alternatives to small businesses are gone unnoticed neither for traditional businesses. On the creating two out of three Latino nor for American other hand, Palomarez stated jobs in the US” entrepreneurs, who have noted that, to the sectors that were the existence of a market that traditionally promoted by tends to consolidate with the Latinos, such as construction, growth of a young middle class. services, agriculture and transport, we can now add the The evolution undergone by the IT industry. The main cause Latino society’s business sector, of this situation is related to which has experienced a strong the average age of the Latino growth since the nineties, entrepreneur (26) compared proves its dynamism. Most to the overall average (43). Hispanic companies are small According to Palomarez, “since companies and their success we are younger, we have a is evidenced not only by their better grasp of technology”. constant employment creation but also by the development This statement is confirmed of an entire Hispanic business by the official data and by culture that boosts the economy different representatives of of the country. According to the Latino entrepreneurship. Javier Palomarez, President María Contreras-Sweet, of the United States Hispanic Director of the Small Business Chamber of Commerce Administration (SBA), who also (USHCC), “most of the Hispanic corroborates the “growth and companies are small and small strengthening of Latino-owned businesses are creating two out companies”, recalled that more of three jobs in the US”. He also than 3 million Latinos own pointed out that while small small businesses in the country businesses went into decline which represents an injection and stopped creating new jobs of “500,000 million dollars per during the crisis, between 2008 year” into the economy. and 2010, Hispanics created 581,000 new businesses during One aspect of special interest the same period. Last January should also be noted: these 2015, small businesses created initiatives promote the 46,000 of the 257,000 new jobs in development of a special the country. Thus, the general business culture, since the unemployment rate was 5.7%, Latino community is creating while the Latino rate was its own companies, the 6.7%. Hispanics “are probably number of which is three one of the most important times higher than the national communities for job creation in average. Again, the reality the country”. contradicts the stereotype

68 THE LATIN AMERICAN POPULATION IN THE UNITED STATES: A “SLEEPING GIANT?”

of the Latino community of the community is clearly existing in the American demonstrated through its “Hispanic society has society. This community is not purchasing power. Hispanic only composed of low-income society has become a key become a key engine for people and it does not lack engine for consumption. Its consumption” initiative and ambition. The purchasing power was set at image shown by these figures one trillion dollars in 2010 and is very different from the it is expected to reach 1.5 trillion generalization of the Hispanic dollars by 2015. If the Latinos immigrants that supposedly who live here were considered have no ambition and are not as an independent economy, eager to surpass themselves7. it would be the ninth largest economy in the world. This This diversity is evidenced by potential is seriously taken the example of the Mexican into account by American population, which has serious companies and entrepreneurs, education issues and a worse who are now aware of the economic situation than other importance of penetrating the groups. However, according Hispanic market. In addition to a study published by the to the middle class, there is Fiscal Policy Institute in 20128, also a large group of people Mexican entrepreneurs own between the middle class and many more small businesses the low-income population, in the United States than any who also have a considerable other group of immigrants. As purchasing power and are reported by this study, “this the focus of interest for many should not be surprising given entrepreneurs9. the fact that Mexicans are the largest immigrant community Due to these market in the country, although opportunities, entrepreneurs the image of immigrants as are forced to enhance their business owners is not always means to attract customers and the prevailing perception.” satisfy their specific demands. That is why the specificities CONSUMERS and particular demands of the Latino market are This capacity to progress currently analyzed in the initial and to improve the welfare advertisements, mainly those

7 The aforementioned data can be found at: http://www.univisionsandiego. com/2015/02/13/la-cultura-empresarial-latina-impulsa-la-creacion-de-empleos-en-ee- uu/, 13/2/15. 8 Report Dueños inmigrantes de pequeños negocios. Una importante y creciente parte de la economía (Immigrant owners of small businesses. A significant and growing part of the economy) 9 In order to characterize the Latino market, please see Nielsen Report: State of the Hispanic Consumer: The Hispanic Market Imperative, http://www.nielsen.com/us/en/ insights/reports/2012/state-of-the-hispanic-consumer-the-hispanic-market-imperative. html, 17/04/12.

69 THE LATIN AMERICAN POPULATION IN THE UNITED STATES: A “SLEEPING GIANT?”

of money transfer companies, Quite on the contrary, they want translated into Spanish. to attract their attention and, for “Since the mid-twentieth this purpose, they directly speak The search for their favorite to them in Spanish. century, there is a products of consumption shows higher concern for the interest existing in this This growing interest is not Latino voters” market and its development. surprising considering the Not only that, the willingness extraordinary dimensions to attract these new clients is of the Latino voters and also making the companies their progressive growth. look for the most appropriate Of the 55 million Hispanics, locations and environments. who represent 17% of the US This explains the proliferation population, 25.2 million have of latinos malls, where their the right to vote. This electorate favorite clothing brands and is constantly growing at the sizes are carefully selected same pace as the Latino youth according to their tastes10. population. Thus, according to Arturo Vargas, Director of the VOTERS National Association of Latino Elected and Appointed Officials, Since the mid-twentieth “every month, around 50,000 century, there is a higher young Latin American citizens concern for Latino voters, yet reach the age of 18 and become Bill Clinton’s 1996 campaign part of the potential electorate”. was a significant turning point The experts emphasize that for the Democrats’ strategies this growth is not related to the and messages addressed to the newly arrived immigrants but Latino community11. Ever since, to second and third generation no candidate, either Democrat Latinos, US citizens by birth, or Republican, has been able who grew up in the US and to totally disregard the Latino whose parents or grandparents population and their concerns. are Latin American.

10 In this sense, the existence of companies which advise American companies in order to attract the Latino consumer is very interesting. This is the case of the effort made by the entrepreneur José de Jesús Legaspi, founder of The Legaspi Company, who has worked in these initiatives since 1977 and teaches American suppliers how to adapt to Hispanic consumer’s tastes and sizes. “Hispanics have smaller feet. American manufacturers think that they do not like their shoes because they do not buy them, yet the problem is that they never have small sizes and that is why Hispanic consumers never buy their shoes”. Legaspi tries to make Macy’s, Marshall’s or Forever 21’s shopkeepers understand that Latinos wear smaller sizes and, unlike the American clients, “they like to buy when someone assists them and tells them the characteristics of the product they are interes- ted in”. He also states that “we work with suppliers to help them intellectually recognize how the Latino consumer is, for them to be able to develop their marketing sense and to better reach the Hispanic market”. 11 The drafting of the document Latino Communications Strategy, 1994-1996, produced by Andy Hernández, and the creation of an office where all the material addressed to the Hispanic audience is prepared (elaboration of press kits, briefings, notes and translation of documents) for the Democrat Committee, shows the importance that the Hispanic vote is slowly acquiring.

70 THE LATIN AMERICAN POPULATION IN THE UNITED STATES: A “SLEEPING GIANT?”

Considering the dimensions across the whole territory of this electorate, nowadays it and even has a significant “The power given to the does not seem unreasonable to importance in certain states. imagine the next US President Of the 50 states, only 9 are in Latino community, could being Hispanic. In fact, he dispute, since the others are be even stronger if the might already have been born already decided given their participation rate of the and would become president in historical political inclination 12 Latino electorate 20 years’ time . towards one party or the other. And among these 9 states, 15% was higher” This electorate has become more to 20% of the voters are Latin significant than ever before, given Americans, which translates the importance it has acquired into 3 million votes, as notes in the electoral campaigns. Antonio González, President Each party has a group or office of the William Velázquez responsible for this community; Institute. The weight of the they develop websites, organize largest minority will mainly be weekly auditions in Spanish and felt in Nevada, Colorado, New have a great interest in appointing Mexico and Florida, as was seen Latino representatives to run for in 2004 when President George elective offices, since this is the W. Bush and, later, President only way to attract these voters. Obama won the elections.

Furthermore, the concerns All these figures show the of the Latino community are power given by the number included in their speeches; both of voters to the Latino groups consider themselves to community, which could be logical option for Hispanic be even stronger if the voters (one, because of their participation rate of the Latino traditional protection of the electorate was higher. Despite rights of minority groups its rising trend, the rate of and the other, because they electoral participation and the represent the traditional family number of eligible persons are values normally attributed low. Even though 11.2 million to Hispanics) and criticize Latinos voted in the 2012 and dismiss the efforts made elections, they only accounted by their opponent, who they for 48% of the total electorate. accuse of devoting all their Yet this participation rate energy and resources in a mere was even lower than that marketing campaign. of 2008 (49%). As regards the candidates, the number This competition stems from of representatives of the the willingness to win votes Latino community is still not throughout the country, since significant and although the the Latino population is spread elections held on November 4,

12 El País, 19/10/14, http://internacional.elpais.com/internacional/2014/10/19/actuali- dad/1413733870_041970.html, La República, 29/01/09, http://www.larepublica.pe/26-01-2009/ aseguran-que-el-primer-presidente-hispano-de-eeuu-ya-ha-nacido.

71 THE LATIN AMERICAN POPULATION IN THE UNITED STATES: A “SLEEPING GIANT?”

2014 had a higher percentage that this community is of Hispanics (29 seats in the decisive for the electoral “The affirmation of the Congress and 3 seats in the results and thus an “object of Senate, which represents 8% desire” for the Democrat and Latino identity cannot of the US Congress), it is still Republican parties. be reversed” far from the percentage they represent among the American 4. CONCLUSION: THE population. LATINAMERICANIZATION OF THE UNITED STATES Nevertheless, in addition to the growing number of citizens Despite the figures recorded of Hispanic origin entitled to not so many years ago, in the vote, the number of candidates early 2000s, it was doubted for posts at any level, (local, whether the Latino community state or even federal), is also itself was going to survive, increasing. “This scenario together with the Spanish strengthens the idea that, language as its identifying election after election and trait. The data presented year after year, the Hispanic in these pages as well as influence is ever growing both this society’s initiatives and in the society and, of course, in progresses may probably have politics”13. revealed that this possibility is apparently no longer possible. The overview of the topics The affirmation of the Latino addressed highlights the power identity cannot be reversed of the Latino community and it has definitely become stemming from its size and its a structural element of the capacity: American society, with all the changes it implies. • Its growing purchasing power facilitates the The dynamic triggered within creation of a permanently the Latino community is growing specific especially interesting, since it market, in which Latino constantly recreates and feeds entrepreneurs are very its existence and its importance. active. Consequently, the The Latinos themselves are not middle and professional the only ones taking part of this class are active as well. dynamic, a large part of the rest of the society is also involved. • Its political presence is still Their ambition to attract growing, but at a slower consumers and voters gives pace, which does not mean more and more importance

13 D. Ureña and I. Royo, El papel del voto hispano en las elecciones de noviembre en EEUU, ( The role of the Hispanic vote in the USA´s Election in November) ARI, 51/4014, Real Instituto Elcano, http://www.realinstitutoelcano.org/wps/portal/web/ rielcano_es/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_es/zonas_es/eeuu- dialogo+trasatlantico/ari51-2014-urena-royo-papel-del-voto-hispano-elecciones-de- noviembre-eeuu-2014#.VQAk9PmG9E4.

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to Latinos and the Spanish states. Within this tendency, language. Hence, in addition to bilingualism is not considered “The use of the the more or less firm willingness as a solution either and thus, in of this community to maintain some states, bilingual education Spanish language its traditions and language, has even been banned. This is now compulsory there is a spontaneous social position completely contradicts for governmental dynamic resulting from the candidates to popularly- institutions” the relevance acquired by elected posts, who promote Latinos that has also been the Spanish language and the instrumental in promoting the standardization of its use by latinamericanization of the speaking Spanish with their United States. potential voters.

This process is contrary to the Indeed, the use of the Spanish idea of the Anglo-Saxon nation language is now compulsory united under the cultural for governmental institutions, assimilation. Although some despite the resistance, given people still support it, it does the demand for services of the not seem realistic to maintain Latino taxpayers. Therefore, the cultural assimilation hospitals, firefighters and processes carried out with the public security forces promote previous waves of immigrants, and encourage, in one way or since the language diversity has another, the linguistic skills of traditionally been considered their members14. as a threat for the unity of the nation. This is the reason In short, considering the why the previous waves of evidence of the reality and immigrants (Germans, Italians the generalization of a or Polish) lost their linguistic multicultural view, there heritage. Since the nineties, seems to be no future for the effort made to establish assimilationist approaches. the only English system, has However, this does not mean resulted in the prohibition that, since Latinos are voters, of the use of languages taxpayers and consumers, other than English in public segregation and discrimination administration in half of the have disappeared from society.

14 The doctors of the New York-Presbyterian Hospital, for instance, linked to Columbia University and located at the heart of Washington Heights, where a large Dominican community is concentrated, take an intensive course on basic terms and knowledge related to this area. They continue their training with other courses during the year. In Texas, police officers must pass a Spanish language course, paid by the institution, in order to obtain the rank of senior-officer. In Phoenix (Arizona), in July 2002, the first immersion programme was launched in a fire station with the objective of increasing the bilingual staff. This process also concerns the field of education. In Dallas (Texas), where Hispanics represent 57% of the school district, 30% of whom had limited English proficiency, a Spanish language training (worth one million dollars) was approved in October 2002 for teachers who had prior knowledge of Spanish.

73 THE LATIN AMERICAN POPULATION IN THE UNITED STATES: A “SLEEPING GIANT?”

The existence of the Latino All these difficulties make community will surely even more necessary to find “Bridges for dialogue and depend on the willingness of a solution. This reform is its members to be identified undoubtedly important, since it reciprocal knowledge as such and to preserve its aims at regularizing the status should be built” distinctiveness. In any case, of 11 million people unlawfully they clearly have the power present in the country. to project themselves as Nonetheless, this reform would a community and hold an not be enough, although it now important position in the seems to be the solution to all American society. According to problems. Even if it was entirely many observers, “the future of approved, the integration of the United States is Hispanic”15, 50 million Latinos who live in and this is evidenced by the the US must still be carried current reality. Nonetheless, out. For this purpose, bridges not everything depends on for dialogue and reciprocal the Latino population; it must knowledge should be built, also be considered whether the leaving any simplistic prejudices society is prepared to welcome behind. In order to achieve this this population from an integration, a dialogue between economic, political and cultural compatriots must be developed, point of view. as they must know each other and recognize each other as A reform of the migration such. Latinos and their children policy is pending to be carried should therefore continue out since 2013. At the time, learning English as well as the the Congress approved, with history of the United States. the support of both parties, But, at the same time, the white a revision of the migration majority will have to learn to system. However, due to live in a diverse world, such different reasons, the process as their own national reality, has not progressed. Since where they will have to take into January this year, in an attempt consideration the perspectives to change this situation and of their Spanish-speaking16 to fulfill an electoral promise, fellow-citizens. Therefore, the President Obama decided to challenge exists both for the introduce a partial reform Latino community and for the through presidential decrees. whole American society. However, this is still only an attempt, since the judicial power has blocked it again.

15 Daniel Ureña, El futuro de Estados Unidos será Hispano, (The future of the USA is Hispanic) 20/03/2014, http://www.elmundo.es/opinion/2014/03/20/532b5084268e3eb20a8b4 58d.html. 16 As regards this integration proposal, W. Carrigan y C. Webb, La reforma de la inmigra- ción y la historia hispana en estados Unidos, (The immigration reform and the Hispanic history in the USA) 1/03/15, http://internacional.elpais.com/internacional/2015/03/01/ac- tualidad/1425166727_525835.html

74 Towards where should the strategic relation between the EU and Latin America and the Caribbean move?

Madrid, May 2015 TOWARDS WHERE SHOULD THE STRATEGIC RELATION BETWEEN THE EU AND LATIN AMERICA AND THE CARIBBEAN MOVE?

PRESENTATION

The EU-CELAC Summit took place in Brussels on 10 and 11 June and PRESENTATION BY JOSÉ ISAÍAS RODRÍGUEZ brought together the most senior figures from the 28 Member States of the European Union and from the 33 countries that make up the TOWARDS WHERE SHOULD THE Community of Caribbean and Latin American States (CELAC). STRATEGIC RELATION BETWEEN THE EU AND LATIN AMERICA AND THE CARIBBEAN MOVE? The relationship between Europe and Latin America is deeply rooted in the history of the two continents which, despite their 1. LATIN AMERICA AND EUROPE, distance and the great ocean that lies between them, are much A SHARED WESTERN “VIEW” closer than they are with others connected by land. 2. THE RELATION BETWEEN THE EUROPEAN UNION AND LATIN AMERICA IN VIEW OF Cultural ties, common languages and, above all, a set of values CHINA’S EMERGENCE AND THE shared by their respective societies, have woven connections that, RENEWED PRESENCE OF THE even with the dizzying development of the world around them, UNITED STATES (TPP AND TTIP) show the importance of a Western vision of the world of which 3. THE MAJOR AXES OF THE they form part. REACTIVATION OF THE NEW TRANSATLANTIC LINK In the game of chess that is played on the board of the planet, 4. PROPOSALS TO STRENGTHEN A Latin America and Europe must play the role that is theirs as a STRATEGIC ALLIANCE result of being leading players in the development of societies 5. CONCLUSIONS founded on democracy, the rule of law, the social market economy, BIBLIOGRAPHY inter and intra-generational solidarity and that defend a policy of progress and welfare for their citizens.

Economics, that science invented in Europe, also greatly influences European-Latin American relations. The EU is the largest foreign investor in CELAC and its second largest trading partner. This economic relationship is not based on the extraction of the greatest possible profit per se and in the short term, but instead is structured around quality, social responsibility, job creation, technology transfer and the promotion of research and innovation, all of that with an approach seeking continuance over time.

The importance of summits lies in the generation of ties and strategic visions. However, if they are not followed up and the commitments made by the parties in their "Final Declarations and Conclusions" are not implemented, we will be in the interminable territory of the game "snakes and ladders" in which we will be unable to progress up a ladder without being sent back down by a snake.

The history of European-Latin American Summits suggests a certain diminishing marginal utility, or in other words, it is as if one more unit of summit at the margin produces effects contrary to those expected. There is a certain mental fatigue, a lack of ideas and of political will. There is too much rhetoric, complacency, passivity and a lack of the vision required to understand that we need strengthen the ties between Europe and Latin America, if

76 TOWARDS WHERE SHOULD THE STRATEGIC RELATION BETWEEN THE EU AND LATIN AMERICA AND THE CARIBBEAN MOVE?

we really want to occupy the position that corresponds to both regions in a world where "nothing is, everything changes".

In the Europe-Latin America relationship, expectations were created which, later, clashed with the reality of the disagreements that are to be found in any negotiations involving economic interests. That has left a feeling of scepticism which is enhanced, at the same time, by the mutual impression generated by thinking that both are looking for other dance partners on the international stage.

The crisis, which has been impregnating Europe with its penetrating perfume for longer than, in principle, some imagined, has affected not only the internal EU but also, undoubtedly, its external relations. Latin America has not been unaffected and, in this regard, we have seen a change in direction which, in my opinion, is mutual. Asia and the Pacific area are now top-level trading partners for South America, while the EU has strengthened its position as privileged partner of Mexico, Central America and the Caribbean. Our old and beloved Europe, in addition to continuing to look to its own market, also has its eyes on Asia. This questions the strength of the European-Latin American relationship in the exponential dynamic of globalisation.

Indeed, two major agreements currently occupying the cross- ocean negotiating space are likely to change the balance of world trade. I am referring to the “Transatlantic Trade and Investment Partnership” (TTIP) between the EU and the USA, and the “TransPacific Partnership” (TPP) between the USA and countries bordering the Pacific. In one way or another, they will affect EU-CELAC relations, as well as the internal processes of regionalisation in Latin America.

We don't have a crystal ball allowing us to clearly see the future impact of the changes arising from these mega-agreements. However, asymmetries must appear as a result of the heterogeneity of what we could call "Latin Americas". Nevertheless, and without needing to be a fortune teller, we can say that we have arrived at a moment to give a new impetus to strengthening the ties between the European Union and Latin America. It is unavoidable to reach an approach offering convergence around the values shared in the bi-regional relationship, in order to find solutions to the challenges facing them both.

There is a need to modernise the language that surrounds the European-Latin American relationship; there is a need to convey more credibility and understanding to the public about what it is intended to achieve and, as the British say, with tangible things;

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there is a need to give continuity to the commitments made which should contain elements of ambition, realism and perseverance; there is a need to respect the differences between the two regions, managing them without impositions; there is a need to have a civil society which, in both Europe and Latin America, plays an increasingly important role; there is a need to align our policies on topics debated in international forums.

The philosopher Flavius Philostratus (third century BC) said: “Men know what is happening, the gods what is coming and the wise men what is looming”. Belonging to the first of these groups, I am aware that we have done a lot to construct the ties between Latin America and Europe. However, I am also aware of everything that we still need to do to deepen and develop these. The EU-CELAC Summits must be the time to strengthen the ties and must represent a turning point in the development of both regions.

José Isaías Rodríguez Vice-President of European Affairs at LLORENTE & CUENCA

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TOWARDS WHERE SHOULD THE STRATEGIC RELATION BETWEEN THE EU AND LATIN AMERICA AND THE CARIBBEAN MOVE? 1. LATIN AMERICA AND Against China’s emergence EUROPE, A SHARED with its full commercial and WESTERN “VIEW” foreign investments potential, the relation between Europe The link between Europe and and Latin America and the Latin America and the Caribbean Caribbean is supported, firstly, “The common history is giving signs of fatigue for on its belonging to the same and those shared values over a decade. The challenge cultural area and the identical are the base of a relation” of the current leaders on both identity matrix, the Western one. sides of the Atlantic involves This is one of the most singular reviving and giving it a renewed aspects of its identity and where dynamism. European and Latin its legitimacy is based in order American political leaders have to become an international actor the necessary capacity to achieve with strong aspirations to have this. A capacity that makes global influence. reference to the historical links that characterize the relation and As stated once by the former which have not only survived, Ibero-American Secretary General, and grown, for over 500 years, Enrique V. Iglesias, the link but which also make reference to dates back to “whole centuries of the new and multiple common intense relations between America elements that exist currently and and Europe. It is not possible to which have been emerging over understand Latin America and the last half century, especially, the Caribbean without including since the 1990s. the heritage of the European tradition. Just as Latin America Undoubtedly, the task is not and the Caribbean cannot been easy because the world has understood without Europe, it is become, progressively, much also not possible to understand more volatile and complex. On Europe without the deep flow of this new global stage, where resources, ideas and fresh airs that geopolitical, geostrategic and has circulated towards the other geo-economic balances are side of the Atlantic”1. This link, this changing rapidly, China in culture and this shared western particular and Asia in general “view”, is a connecting link that are already a reality that has does not exist with regard to the come to stay and that unbalances emerging Asia. and conditions the Euro-Latin American relation. However, The common history and those this link contains, in itself, its shared values are the base of a own strengths that are neither relation which has by no means temporary nor artificially created. become stagnant, but which has

1 Adrián Bonilla (coordinator): De Madrid a Santiago: Retos y Oportunidades. Balances y perspectivas de las relaciones entre la Unión Europea y América Latina y el Caribe. (From Madrid to Santiago: Challenges and Opportunities. Balances and perspectives of the relations between the European Union and Latin America and the Caribbean). Flacso. San José, 2012 downloaded from http://segib.org/es/node/8329.

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evolved. The English influence multilateralism, of peace and of in the Caribbean made up the international cooperation. “A common history idiosyncrasy of an important part of the Caribbean nations. A common history and shared and shared values are The French and Spanish culture values are substantial grounds for substantial grounds for and political ideas –from the fighting and striving for keeping fighting” Cadiz Constitution of 1812 to the the relation alive, as well as for great Spanish thinkers of the 19th deepening it. But, the truth is that and 20th centuries– nurtured the there are many other ingredients new nations that were formed that complete this bi-directional in the 19th century in Latin relation, especially since the America. Despite the political and 1980s-1990s, and that have been cultural predominance of the extended until today. To the United States –another vertex institutional relation formalized of this western tradition– in the in 1999 have been added economic 20th century, Latin America and and commercial links –European the Caribbean continued to look investments in Latin America to Europe in many aspects, even and the Caribbean and the after the Second World War. new ones that arrive in Europe led by Multilatinas– and social In the words of Enrique V. links –the European support Iglesias: “We took from Europe in the form of development the three great messages where cooperation and the migrations we coincide: first, the western by Latin Americans to Europe democracy which had its both and now, since the 2008 crisis, by theoretical and practical roots Europeans to Latin America–. in the European continent…we were influenced by the welfare As Federica Mogherini, High state, which was born in Europe Representative of the European (…) and we were influenced by the Union for Foreign Affairs and way of integration”2. Indeed, the Security Policy, recalls, “here successive Euro-Latin American again, deep economic ties bind statements, as well as the political our peoples on both sides of the and institutional leaders of the bi- Atlantic. The EU is the second regional relations, have constantly trade partner and the first foreign stressed their support to that set investor in the Community of of values rooted in the Western Latin American and Caribbean tradition, in the history and in the States (CELAC in Spanish) with a Latin American and European considerable stock of investments identity itself. Values based on of 464 million euros, which means democracy –validity of human a higher figure than the sum of rights and on the rule of law–, on EU investments in China, India social cohesion, on the defense of and Russia together. I believe that

2 Adrián Bonilla (coordinator): De Madrid a Santiago: Retos y Oportunidades. Balances y perspectivas de las relaciones entre la Unión Europea y América Latina y el Caribe. (From Madrid to Santiago: Challenges and Opportunities. Balances and perspectives of the relations between the European Union and Latin America and the Caribbean). Flacso. San José, 2012 downloaded from http://segib.org/es/node/8329.

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it is fair to define EU investments link also has to be enlivened by as quality and socially responsible being aware of how the world has investments, with added value in changed, how the international terms of job creation, technology role of the European Union and transfer, research and innovation. Latin America and the Caribbean “The link also has to Sustainable development and itself has transformed and how be enlivened by being corporate social responsibility the society, the economy and the aware of how the world are at the core of our trade international trade are not what agreements, which we hope they were, not in 1989 or 2001, but has changed” to be able to expand to more since 2008 with the beginning countries in the region. But trade of the sub-prime crisis that has and economy are in general hit the western world: first the two-way streets. Latin American United States (2007-2009), then and Caribbean investments in the EU (2009-2014) and now Latin EU countries grow every year America and the Caribbean with and Brazil is now the second the 2009 crisis and the slowdown investor in EU countries after of the years 2014-2015. the United States, which contributes to the creation of It is very opportune to think our own jobs and grow”3. about which path should follow the relations between the EU The European Union is the second and the CELAC and, at the same trade partner in the region and time, propose a specific roadmap since 1999 the trade in goods has to preserve what has been more than doubled: it reached progressed, avoid the deadlock the figure of two billion dollars in the relation is suffering and 2010. The European Union is also find paths along which to walk the main foreign investor with together, doing it at a faster pace 385 billion dollars accumulated in and more efficiently. foreign direct investment in 2010 (more than 43% of the total direct 2. THE RELATION BETWEEN investment in the region). It has THE EUROPEAN UNION been historically a commitment AND LATIN AMERICA to promote quality and long-term IN VIEW OF CHINA’S investments that generate, for EMERGENCE AND THE their part, quantitatively and RENEWED PRESENCE OF qualitatively significant jobs. THE UNITED STATES (TPP AND TTIP) All this network is what needs to be preserved and fed now. Not HISTORY OF A TRANSATLANTIC doing it ex novo, but from an RELATION (1970-1999) already built base (the bi-regional history itself and the experiences The recent history of the during the last years). But the relation between the EU

3 Federica Mogherini, Un año transcendental (A momentous year). Published in the newspaper El Espectador, on 27 January 2015. Downloaded from http://www.elespecta- dor.com/noticias/elmundo/un-ano-trascendental-articulo-540403

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and Latin America and A long-term strategic vision the Caribbean can be and mutually beneficial divided into three clearly for both parts is the great differentiated periods. A treasure that the Euro-Latin period of “prehistory” of the American relation built up in “Spain and Portugal institutionalized relation the 1980s and 1990s, and it is, became the main engines (1974-1994), a boom time of the probably, what is now most for the transatlantic transatlantic link (1994-2006) at risk. As the professors of and the current situation of the Complutense University rapprochement” stagnation and deadlock of the of Madrid, Christian Freres relation (since 2006). and José Antonio Sanahuja, point out, “the then EU • The prehistory of the policy towards Latin America institutionalized relation responded to a strategic (1984-1994): This “prehistory” and long-term design; and of the relation begins in was relatively well adapted the 1970s with meetings in to the Latin American which the objective was to needs while responding to bring relations closer and European interests. It was strengthen commercial ties able, therefore, to define an between Europe and Latin agenda of common interests: America. It was the meetings in the 1980s, the peaceful between the parliaments of resolution of the Central both regions which, in 1974, American crisis; in the 1990s, gave rise to the biannual the diversification of external conferences between the links and the international European Parliament and impact of both regions”4. the Parlatino. A much more institutionalized Those steps taken in the approach between the 1970s, and continued in European Union and the 1980s, opened the Latin America took place door to a much more deep already in the 1980s, with and institutional relation the San José Dialogue, in in the 1990s. Since then, 1984, which contributed to Spain and Portugal became the peacekeeping efforts the main engines for the in Central America and, at transatlantic rapprochement the same time, built bridges as clearly viewed in the between the two regions “Joint declaration of intent” thanks to the political on the intensification of dialogue between the then relations with the countries EEC and the Rio Group. of Latin America, attached

4 Christian Freres and José Antonio Sanahuja, Hacia una Nueva Estrategia en las Relaciones Unión Europea – América Latina (Towards a new strategy in the relations European Union – Latin America). Downloaded from https://www.ucm.es/data/cont/ docs/430-2013-10-27-PP%2001-06.pdf

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to the Treaty of Accession MERCOSUR, Mexico and of both countries to the Chile in order to achieve then European Community the signing of fourth (EC). The Euro-Latin generation framework “A policy of exclusive American dialogue became agreements that would cooperation for Latin institutionalized with allow to lay the ground for America and the the “Rome Declaration” the forthcoming signing of of December 1990. If until partnership agreements. Caribbean was proposed” that moment, the EC had In 1995, the Commission signed with those countries laid down those new non-preferential trade general guidelines for agreements, the so-called the cooperation with “first generation” agreements, Latin America in a from that moment on Communication to the the “third generation” Council and the European agreements (advanced Parliament entitled: cooperation frameworks “European Union-Latin with political dialogue) were America. The present encouraged. situation and prospects for closer partnership (1996- The next strategic step in 2000)”5. There, for the first the relation took place in time, a policy of exclusive the mid-1990s (1994) when cooperation for Latin the EU developed a new America and the Caribbean relation strategy with was proposed. The regard to Latin America, in Commission underlined, which the establishment of already then, the strategic a “bi-regional partnership” interest of the relations was regarded as a final with Latin America, based objective, based on the on historical and cultural existing “third generation” factors, proposing a strategy agreements and which for the strengthening of looked towards the future, the relations EU-Latin in particular to the new America in the political and “fourth generation” economic fields. agreements that were to be signed in the future. The project, in the 1990s, had, therefore, objectives and a • The golden time of the clear narrative that had full relation (1994-2006): The validity in its pillars. In this European Council in 1994 regard, José Antonio Sanahuja urged the Commission thinks that “since the mid- to start talks with 90s, relations between the

5 European Commission (1995). European Union-Latin America. The present situation and prospects for closer partnership 1996-2000. Communication from the Commission to the Council, COM (95) 495 final. Brussels. This document may be consulted at http://eur- lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:51995DC0495&from=FR

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EU and Latin America and subsequently broadened, the Caribbean have been not without resistance “Political relations based shaped by an interregionalist from the EU, to the Andean strategy devised by the Community of Nations on the peacekeeping Commission and the Council, (CAN) and Central American and stability” under the leadership of the countries. And the Cotonú former Vice-President of Agreement in 2000 included, the European Commission as part of the redefinition of in charge of the relations the EU´s relations with the with Latin America, Manuel ACP countries, a possible Marín, and the German economic partnership Presidency of the Council. agreement with Caribbean This strategy was based on countries”6. the “cartography” of Latin American regionalism The European Commission and on the redefinition of proposed this strengthening European regionalism from of the political relations the mid-90s, and for at based on the peacekeeping least a decade and a half, it and stability in the has defined a relationship region, the support for model to be achieved, while democratic processes, the providing a narrative, a story promotion and protection and ambitious, long-term of human rights, and the and strategic goals for the intensification of the bi-regional relationship.”” economic and free trade …the aim was to establish integration. As a logical a framework of high-level consequence, since the political dialogue and mid-1990s, both sides went to create a network of a step further and gave an partnership agreements, important boost to dialogue, including free trade organizing the first Summit agreements, which would between Heads of State go beyond the traditional and Government of Latin model of “north/south” America and the Caribbean economic relations between and the European Union, both regions. Although the held in Rio de Janeiro in strategy started with a more June 1999. After that would limited proposal –the trade come the subsequent agreements would limited to summits of Madrid (2002), Mexico, Chile and Mercosur–, Guadalajara (2004), Vienna the proposal of signing (2006), Lima (2008), Madrid partnership agreements was (2010) and Santiago de Chile

6 José A. Sanahuja, La Unión Europea y CELAC: Balance, perspectivas y opciones de la re- lación birregional (The European Union and CELAC: Assessment, prospects and options in the bi-regional relation) in Adrián Bonilla and Isabel Álvarez (editors) Desafíos estra- tégicos del regionalismo contemporáneo: CELAC e Iberoamérica (Strategic challenges of the contemporary regionalism: CELAC and Ibero-America). Flacso. San José, 2013.

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(2013) which became the »» In 1997, the European first summit CELAC-EU. As Union reached stated by Enrique V. Iglesias with Mexico its “the importance of the first “Association summits lies in the linking Agreement” with a Latin capacity, but also in the American country that possibility of thinking about institutionalized the the region strategically (…) political dialogue and a region with the capacity expanded cooperation. of joining Europe. The This agreement came “Seven summits EU- appropriateness was mutual into force in 2000. Since Brazil have been held” since European countries 2009, with the signing of benefit from a very big a Strategic Partnership market”7. In a parallel and between the EU and complementary way, political Mexico, this country, dialogue processes were together with Brazil, established between the EU became two fundamental and the Andean Community references of the relations (CAN), MERCOSUR, Chile between the EU and and Mexico, in addition to Latin America and the a high level dialogue on the Caribbean. drugs problem. »» The Union concluded To sum up, by 2004, twenty with Chile an years after the beginning of Association Agreement the process, a broad network in 2002, which is based of relations between the two on three pillars: a regions was created based chapter on political on three pillars: political dialogue, another on dialogue, intense economic cooperation and a third and commercial relations and one, in which a free development cooperation. trade area of goods and This period (1994-2004) was services is proposed. the most brilliant of the transatlantic link since »» With Brazil, a Framework some major advances were Cooperation Agreement achieved, among the most was signed in 1992 and important ones were the in 2007 a Strategic “Association Agreement Partnership was with Mexico in 2000” or the established. Since that “Association Agreement with year, seven summits EU- Chile in 2002”: Brazil have been held.

7 Adrián Bonilla (coordinator): De Madrid a Santiago: Retos y Oportunidades. Balances y perspectivas de las relaciones entre la Unión Europea y América Latina y el Caribe. (From Madrid to Santiago: Challenges and Opportunities. Balances and perspectives of the relations between the European Union and Latin America and the Caribbean). Flacso. San José, 2012 downloaded from http://segib.org/es/node/8329.

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»» With Central American possibly the result of an countries, a Political excessive rhetoric, given Dialogue and the lack of follow-up of the Cooperation Agreement agreements reached and “A new model to in 2003 and an the overlap and duplication strengthen the link” Association Agreement of the frameworks of this in June 2012 were signed dialogue”. The changes –the first one between at a global level (China’s regions concluded by the emergence as a global actor) Union– which provided and inside both regions as main objectives the (the European institutional creation of “a privileged and economic crisis political partnership together with the increase based on common in the autonomy of Latin values, principles and American countries thanks objectives” and aimed at to the boom time they “strengthening human have experienced), have rights, reducing poverty, transformed the relation fighting inequalities, and can even be regarded as preventing conflicts an “end of a cycle”. At least, and promoting good in the way they established governance, security, the Euro-Latin American regional integration relations since the 1990s. and sustainable development. Therefore, since 2006, the idea that has been »» The relations between constantly pursued with a the European Union very dissimilar success is and the Caribbean the one of finding a new are structured on the model to strengthen the link. Cotonou Agreement, Thus, for example, in 2008 signed in 2000 by 79 the European Union, which countries of Africa, historically had opted for the Caribbean and the negotiating trade agreements Pacific, and the Economic bloc by bloc, took on a new Partnership Agreement strategy opening up the EU-CARIFOUM, signed possibility of negotiating in 2008. with individual countries –the only exceptions until • Loss of momentum of then had been Mexico the relation (2006-2015): and Chile because both However, since 2006, many countries were not included analysts and authorities on within any sub-regional both sides of the Atlantic bloc–. The EU opted for do not stop insisting on breaking with its traditional an idea, repeated since policy in the interest of then: the one that there pragmatism as explained exists “certain exhaustion, by the German chancellor,

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Angela Merkel: “In the EU we This change of strategy, know from experience that which has constantly “The traditional strategy, at the beginning we were six achieved success, has also members, then 15, today 27, been highly controversial bloc by bloc, has not and in the future we will be for changing one of the been abandoned” more. We cannot always wait pillars of the relation for the last one, sometimes between both actors. In we must also be able to move this regard, Jean Grugel, forward with a single group professor of International of countries being already Development and head willing to do it”8. Like this, an of the Department of era was concluded and since Geography at the University 2008 bilateral agreements of Sheffield, points out with Colombia and Peru that “for years the EU has or strategic partnership promoted a cooperation agreements with Brazil have strategy based on the support been signed. to the processes of regional integration, contributing Nevertheless, the traditional with resources and strategy, bloc by bloc, has not technical assistance to their been abandoned. Among the strengthening. This highly achievements of the Madrid normative approach has Summit in 2010, the renewed given rise in the last years impetus which resulted in to a more pragmatic vision subsequent years in the of the European economic signing of the Association interests in the region. The Agreement with Central EU has proceeded to work America (plus Panama), in 2012, with those countries more stands out and was the first likely to deepen economic of this kind concluded by the relations. This has led to EU in its relation with Latin the questioning of what America. Furthermore, new until now was conceived as initiatives were launched such a differentiated European as the EU-LAC Foundation or approach that included the Latin America Investment other dimensions in the Facility (LAIF), a fund of negotiations. The strategy 125 million euros aimed at has designed a complicated channeling a larger amount of and diffuse multi-level resources for interconnection, scenario of economic energy infrastructure, relations given that the renewable energies, transport, relations of the EU with other environment, social cohesion regional blocs, the relations works and promotion of with individual countries and small and medium-sized the relations of the member enterprises. States, in turn, with third

8 Quoted by El Mundo newspaper, 16 May 2008, downloaded from http://www.elmundo. es/mundodinero/2008/05/16/economia/1210920888.html

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Latin American countries cooperation in the have been combined”9. fight against drugs and continuing the structured All this attempt to renew the and global ongoing European general strategy dialogue on migration “in regarding Latin America an open and constructive had its origin in a first trial way”, according to the to renovate the foundations comprehensive approach “Of developing and of the link towards Latin of the EU on migration. consolidating the EU- America: in 2009 the European LAC mechanism of Union submitted its proposal »» The second focus aimed of a different model in its at consolidating the coordination” relations with Latin America regional integration and and the Caribbean for the interconnectivity. next five years, defined as “a partnership of global actors”, »» Consolidating bilateral and whose objectives focused relations and taking on “new political guidelines diversity more into and recommendations” in account was the the solution of issues like third aim of the new climate change, economic and model, which insisted financial crisis, energy security on taking advantage and migration. The model of the existing included four main aims: strategic partnerships, existing Partnerships »» The first one, intensifying Agreements (Chile and and focusing bi-regional Mexico) and bilateral dialogue on priority areas Cooperation Agreements. –macroeconomic and financial issues, security »» The fourth aim and human rights, considered “adapting employment and social and adjusting the affairs, environment, cooperation programs climate change and with Latin America energy, higher education in order to generate and technology and sustainable growth with innovation–. low-carbon emissions, create employment, It also included the achieve a better income proposal of developing distribution and mitigate and consolidating the the effects of the EU-LAC mechanism economic and financial of coordination and crisis”.

9 Jean Grugel, Entre las expectativas y las posibilidades: las relaciones económicas Unión Europea-América Latina tras treinta años (Between expectations and possibilities: the economic relations European Union-Latin America thirty years later), downloaded from http://issuu.com/pensamientoiberoamericano/docs/8_03_grugel.

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From the Summit held in • Transformations within Santiago de Chile in 2013, the global scenario: “Since 2001, the two documents emerged: the Santiago Declaration, »» Change of the international which reaffirms the political international scenario has changed will to work together, and environment: Since significantly” an Action Plan, which 2001, the international includes two new paragraphs scenario has changed focusing on gender issues and significantly and the investments and undertaking world in which Europe for sustainable development, and Latin America move in addition to the two has little to do, not only existing ones, adopted after with the one of the start the Madrid Summit in 2010: of the institutionalized science, environment, regional relation (the Cold War integration, migration, in the 1980s), but it is education and employment also very different from for social inclusion and the the unipolar world of global problem of drugs. the 1990s. The current international scenario is CAUSES OF THE CRISIS IN THE experiencing a dynamics RELATION marked by a profound restructuring of the Beyond the efforts of reactivating international balances in the bi-regional relation –which the geopolitical, economic were set in the Action Plan 2010- and commercial areas due 2012, drawn up in the Madrid to China’s emergence and Summit– the truth is that the some loss of prominence link, does not seem to have of the United States and been able to escape from its the EU –which among stagnation. Especially because of academics is referred to as the structural problems the bi- a “transfer of power from regional relation itself is suffering the West to the East”–. as well as for the transformations that are taking place at a global Furthermore, Enrique V. level, the changes that have Iglesias points out “three occurred inside both blocs, all of intertwined factors are which affects and has an impact eroding the strength on the Euro-Latin American link. of the multilateralism, as happened after the Those changes are different in Second World War (…) The magnitude and scale and could first factor is the transfer be summarized in two great of power of the last years transformations: the one of the from the West to the East. international scenario in general This also involves moving and the one experienced by the from the predominance two blocs in particular (the EU and of institutions and Latin America and the Caribbean): regulations which make

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up the pillar of the West, the region by moving in to conversations and 20 years from being the non-written negotiations seventeenth destination that have a long tradition of Latin America and within the Eastern life the Caribbean’s exports “China is now the main and customs. The second to becoming currently trade partner” factor is that the WTO has the third one, receiving been involved in issues around 10% of the total of interest which has not exports of the region. been able to conclude. For instance, it has not An illustrative example been able to conclude the of this process is that Doha Round. Few believe since the 2008 crisis the that its completion will be EU has lost its first place feasible. The third factor is as Chile’s trade partner the profusion of bilateral accounting for only and regional agreements 16% of its trade now. that are taking place China is now the main in the world in general trade partner due to the and in Latin America in Free Trade Agreement particular”10. signed in 2005, which has been accompanied »» Emergence of new by an increase in the relevant international demand of commodities, actors: All these especially mineral changes are linked to the and agricultural ones, emergence of new actors from Asia. However, who have affected and the EU is still the main altered the global balance investor (accumulated and also the relation investment), which between Europe and reflects that commercial Latin America and the relations are stable with Caribbean. The emergence improvement prospects of the region Asia-Pacific in the future. has turned China into the main trade partner Susanne Gratius, for some countries of the professor of Political area, especially several Science and International of the South American Relations at the ones –for example, Brazil–. Autonomous University China has transformed of Madrid and associate the global insertion of researcher at FRIDE,

10 Enrique V. Iglesias, Nuevos acuerdos regionales: riesgos y oportunidades en María Sal- vadora Ortiz (Compiladora), Las Américas y la Unión Europea ante los nuevos escenarios en las relaciones comerciales y políticas (New regional agreements: risks and opportuni- ties, in María Salvadora Ortiz (Compiler), The Americas and the European Union in the face of new scenarios in the commercial and political relations). Flacso. San José, 2014, downloaded from http://segib.org/sites/default/files/las-americas-y-la-ue.pdf.

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recalls in this regard that increases the region’s “for Latin America, the autonomy”11. new international context, marked by the rise of Furthermore, the boom China and the relative of the Foreign Direct decline of the United States Investment (FDI) of “The region can opt for and the EU, new options the EU towards Latin a closer relation with its of global insertion are America in the 1990s traditional partners” open. Thus, the region can lost momentum with opt for a closer relation the beginning of the with its traditional 21st century due to the partners from the North channeling of these (US and the EU) and/or resources towards intensify the relations the new EU member with China and other countries and to the Asian countries whose crisis itself Europe is share in Latin America’s suffering. In addition, imports have increased the Latin American from 2% in 2000 to 14% in lack of competitiveness 2010, exceeding the share in relation to Asia of the EU in the region. discourages the arrival of According to ECLAC data, European investments the United States was the –in the last fifteen years most damaged by the Latin America and the trade diversion towards Caribbean is the only Asia, since between 2000 region in the world that and 2010 saw its share in is losing weight as a Latin American imports receptor of European reduced from 49% to FDI–. It is estimated that 32%, and in sales, from the EU directed around 58% to 40%. Therefore, 60% of its FDI towards China has emerged, not the Eurozone itself and only as an alternative to the one targeted towards the EU –which has kept developing countries does its commercial position not go to Latin America stable–, but also to the and the Caribbean but US. This reduces the towards other European asymmetric dependences countries outside the EU, on Washington and, Asia and Africa. Even the although it creates new EU’s destination of FDI risks –the sustained towards Latin America is Chinese demand of very concentrated: Brazil commodities and the and Mexico absorb three deindustrialization–, quarters of the total.

11 Susanne Gratius, Europa y América Latina: la necesidad de un nuevo paradigma (Europe and Latin America: the need for a new paradigm). FRIDE, Madrid, 2013 available at http:// fride.org/publicacion/1104/europa-y-america-latina:-la-necesidad-de-un-nuevo-paradigma.

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»» Readjustment of the European introspection. relation between Actually, the alienation “The EU’s destination Latin America and the between the EU and Caribbean and Europe: Latin America is a long of FDI towards Latin China’s rise has coincided process which is rooted America is very with the crisis in the in the enlargement of concentrated” United States (2007-2009) the EU towards the East, and in the EU which has countries with little links continued until now. with Latin America and The crisis in the EU – the Caribbean, region, institutional, in the last in addition, which they decade, and economic viewed as a competitor since 2008– has caused regarding agricultural Europe to lose much of production. its charm and appeal in the eyes of Latin America With respect to the as a role model and, for second factor, the one its part, Latin America of a greater regional has gained it during autonomy, as stated the known as “Golden by Sanahuja, “it is not Decade” (2003-2013), in about, as in the past, economic autonomy – a performance of the majority are already external actors –either middle-income countries– the United States and/ and has tried to gain own or the European Union– specific weight in the involving themselves, geopolitical area as well helping, collaborating as with the creation of –not to use other less bodies such as CELAC. politically correct terms–, to resolve the region’s In relation to the first problems. Now the region factor, the economic crisis is very aware of the fact in the EU has caused that these problems are the fall in European of a different nature and, investments, in trade, specially, has a very clear in remittances from the will to try to solve them EU and in the Official by itself, with a different Development Assistance relation with those (ODA). Besides, this has external partners”12. been accompanied by a change of priorities in the • The structural problems EU: the crisis in Ukraine of the relations: The and the Greek crisis have transatlantic relationship accentuated the period of also suffers from internal

12 José Antonio Sanahuja, La UE y la CELAC: revitalización de una relación estratégica (The EU and the CELAC: revitalization of a strategic relation). EU-LAC Foundation. Hamburg, 2015, consulted at http://eulacfoundation.org/sites/eulacfoundation.org/files/ Published%20version_ES.pdf.

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and structural problems Europe never fully understood which could be summarized our needs”13. as the excess of expectations regarding what could be This can be seen, for “The relationship’s achieved thanks to this example, in the economic stagnancy has become relation, and the underlying and commercial fields, in the norm” disagreements in economic which Latin America is far matters. These are two from becoming the strategic hindrances which have not partner for the EU, as it was been able to be solved despite contemplated in 1999. This did all these years of relations, not happen for three reasons: turning it all into a big burden. »» Low commercial The relationship’s stagnancy exchanges: In the field of has become the norm trade, the exchange levels over the last few years, between both regions especially because of the are low: in 2009, they widespread feeling that barely reached 5.9% of there is a big gap between the European commerce the expected outcomes and with the rest of the the goals actually achieved world. This situation during the last thirty years has deteriorated with of institutional relations. the Eurozone crisis and What these unfulfilled the emergence of China, high expectations have all of which has further eventually brought about is weakened the dialogue of the beginnings of scepticism Europe as a trade partner on both sides. In the words of for Latin America and Julio María Sanguinetti, the the Caribbean. As the former president of Uruguay, UNECLAC remarks, “Europe is right to feel like this the EU is far from towards Latin America, which reaching the commercial has always looked divided, importance of the United sometimes very frustrating, States, Latin America’s and still quite complex, and main trade partner, to which staying grounded which accounts for about in reality is so difficult (…) In 35% of the foreign trade Latin America, on the other of the region. Moreover, hand, there also exists a kind the relationship between of skepticism towards Europe Europe and Latin because, back in the day, the America is extremely agrarian policies divided us… unbalanced: over 90% of

13 Julio María Sanguinetti, Ni escepticismo ni utopía (Not skepticism nor utopy) Adrián Bonilla and María Salvadora Ortiz (Compilators) at Balances y perspectivas de las rela- ciones entre la Unión Europea y América Latina y el Caribe (Balances and perspectives of the relations between the European Union, Latin America and the Caribbean). Flacso. San José, 2012, consulted at http://eulacfoundation.org/sites/eulacfoundation.org/files/ pdf/De%20Madrid%20a%20Santiago.pdf.

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the European products or manufactured which the region imports products with a low level are industrial goods, of elaboration. half of those with a high technological content. Therefore, the crisis of the On the other hand, 60% EU and its reorientation of what Latin America towards the East, as well and the Caribbean sell to as the changes in Latin Europe are commodities America during this decade, have caused a change of the mutual Graphic 1 Latin America and the Caribbean (16 countries): participation of the priorities. Europe is not main destinations in the total of transactions, 2000-2020 (in percentage) as important for Latin America anymore, even Exports 60 though the EU is still European Union its main investor. Their United States relations have branched 50 China out, and now Asia and 38.6 the Pacific region lead 40 the commerce with 28.4 Brazil, Chile, Colombia 30 and Peru, while Central 19.3 America and the 20 13.8 Caribbean have increased their interdependence 10 13.6 with the United States. 7.6 The external economic 0 relations of the EU – dominated by Germany– 2011 2017 2012 2013 2014 2018 2015 2016 2019 2001 2010 2002 2020 2003 2007 2004 2005 2008 2006 2009 2000 are increasingly focused Imports towards Asia. In 2011, 50 40% of the EU imports European Union came from this continent, United States while Latin America did 40 China not even reach 6% trade, 33.1 according to data from that same year. 30 26.1 Jean Grugel points out 20 16.2 that, in this sense, “bi- 14.7 regional negotiations 10 14.0 always run aground at 9.5 the same point: economic aspects. They have 0 become the Gordian knot of the bi-regional 2011 2017 2012 2013 2014 2018 2015 2016 2019 2001 2010 2002 2020 2003 2007 2004 2005 2008 2006 2009 2000 relationship, and the Source: ECLAC modest advances in

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the economic relations EU, having so much have always entailed trouble in finding a strong critics about how spokesperson to channel small their relevance the relationship, has was in comparison to progressively lost interest the economical bonds in Latin America, focusing that both regions have more in its relations “Only 5 out of 33 Latin with other areas of with USA and China, American countries are the world. This has while expanding to the big partners for Europe” led to questioning the East. Andrés Malamud, relationship, in a period assistant researcher in of growing economic the Institute of Social globalization, where Sciences of the University inter-regional agreements of Lisbon, points out are seen with suspicion in that in this sense the terms of the World Trade old maxim still applies: Organization (WTO) “What number should rounds of negotiation”14. I dial if I want to speak with Latin America?” This »» A very focused Henry Kissinger clever relationship: Only 5 out joke about Europe could of 33 Latin American be perfectly applied to countries are big the New World. Latin partners for Europe. America is purportedly Argentina, Brazil, Chile, linked by its language, Colombia and Mexico history and culture on top represent 75% of the of its geography, and so commerce from and a coherent international to the EU. Meanwhile, behavior is expected by 5 European nations some. This is what the (Germany, Spain, France, European leaders must Great Britain and Italy) have anticipated when take up almost 60% of they summoned the first the Latin American sales. summit between the EU, Latin America and Besides, the relationship the Caribbean in Río de has historically been Janeiro in 1999. This was burdened by the Latin followed by five others, American heterogeneity, and yet today Latin which has never (not even America is just as far from after the creation of the having a common phone UNECLAC) managed number –even less so, if to speak in unison. The you count the Caribbean

14 Jean Grugel and Borja Guijarro, Entre las expectativas y las posibilidades: las relaciones económicas Unión Europea-América Latina tras treinta años (Between expectations and possibilities: the economic relations European Union-Latin America thirty years later). University of Sheffield, 2011.

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as part of the region–. The years two new initiatives careful observers realized have started up with the this at the very beginning, aim of promoting two big but it is only recently that commerce and investment the EU authorities seem agreements which may to have acknowledged it. change the global layout Ever since, it has decided of commercial relations. “What number should to keep on with the One of them is the TTIP I dial if I want to speak routine of the biannual agreement, which would with Latin America?” summits”. link the United States to the European Union, and »» The next commercial the other has been built mega-agreements: around the Pacific area The outlook we have for the last years. It is not analyzed so far faces possible to ignore the huge a new challenge in repercussions that these the second half of changes in international this decade due to the relations will have over reconfiguration of global global commerce and commerce. The two the investment in Latin biggest transoceanic America”15. commercial agreements being negotiated right Thus, the biggest mystery now –the Transatlantic now is how these two Trade and Investment mega-agreements will Partnership (TTIP) affect Latin America, between USA and especially given that the Europe, and the Trans region does not fall within Pacific Partnership (TPP) the TTIP. Opinions are between USA and the divided in this respect. Pacific countries– are not Some analysts see the only going to transform glass half full. This is the commercial layout the case of José Ignacio of the world, but their Salafranca, former effects are also going Spanish deputy at the to reach Latin America European Parliament, and affect the relations for whom “the European between the UNECLAC Union has agreements and the EU. with Mexico and Central America, and because of As Enrique V. Iglesias this the region will not points out, “in the last suffer a negative impact

15 Enrique V. Iglesias, Nuevos acuerdos regionales: riesgos y oportunidades (New regional agreements: risks and opportunities) at María Salvadora Ortiz (Compiler), Las Américas y la Unión Europea ante los nuevos escenarios en las relaciones comerciales y políticas (The Americas and the European Union facing new settings in the trade and political rela- tions) Flacso. San José, 2014. At http://segib.org/sites/default/files/las-americas-y-la-ue.pdf

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from the negotiations of since it mainly exports this agreement between commodities, where an the European Union eventual diversion of and the United States. trade would be low. Even Quite the opposite: this so, it could damage the agreement will probably countries which hold favor the demand of bilateral agreements commodities from other with USA and the EU regions and will benefit but which are not big “The region does not the export of products commodity exporters, fall within the TTIP” from Latin America such as Mexico or towards this greater the Central American transatlantic market. The countries. European Commission analysts assure that, From a geopolitical independently from the perspective, the effects beneficial effects that both are even more difficult parts will experience, other to predict: while the areas of the world will countries that constitute also be positively affected, the Pacific Alliance are with an impact of over 100 partly integrated in the billion euros per year”16. TTP –three out of the four member countries Other analysts remain (Mexico, Chile and Peru) more cautious regarding are participating in the the potential effects of TTP negotiations–, others these agreements on Latin like Brazil could become America. Such is the case isolated. According to of Federico Steinberg, Steinberg, “Latin American analyst and researcher at countries could lose policy the Elcano Royal Institute, space, which would create who describes these flexibility problems in results as “uncertain”, since their development and they may stimulate global export diversification commerce on the one strategies. In order for hand, but they may also Latin America to really disarticulate the regional be able to take advantage markets on the other, of this new commercial shattering the integration situation, a higher degree processes even further. of integration would be needed in the Latin Following Steinberg, it American market, so that may be concluded that the region can benefit Latin America as a whole from the economies of could experience an scale and be integrated in increase in its exports, the global supply chains

16 Ibidem.

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beyond the exportation of Caribbean, as useful elements commodities”17. to find solutions to the main problems and challenges that Something does look clear: both parts currently face. the effect will not be even, given how heterogeneous For this reason, in this reflection the region is, and also developed here, the following “The time has come given the heterogeneous measures and reforms are to reactivate, rethink nature of the relations and proposed in a comprehensive and reconsider the commercial bonds that manner to motivate the the different countries relationship. Reform measures bonds between Europe, from this region keep with that refer on the one hand, to Latin America and the USA and the EU. the change of the relationship Caribbean” format and, on the other hand, 3. THE MAJOR AXES OF THE to the development of an agenda REACTIVATION OF THE NEW which, dealing with the challenges TRANSATLANTIC LINK that both societies face and are affected by, give more legitimacy In this way almost forty to such relationship: years from the beginning of institutionalised relations and • Changes in the format of the with a history of five hundred relation EU-CELAC years the time has come to reactivate, rethink and reconsider • Gaining social legitimacy the bonds between Europe, Latin America and the Caribbean. On CAMBIOS EN EL FORMATO DE LA the whole, there is an academic RELACIÓN UE-CELAC consensus –and a political one– on the need for such changes. The summits EU-CELAC should gain effectiveness and their results To reactivate that relationship it must have not only continuity is necessary to address it from a over time but also a specific pragmatic point of view and start weight regarding its societies. For gaining ground in the short-term this reason, it is necessary: to achieve the main goal. This final goal– the philosophy that • Transform the format of should permeate all the project the summits: The aim is that and the changes undertaken– is the European Union-CELAC none other than managing to re- meetings have a more efficient launch the bi-regional association format, with less protocol, sustained on shared, perceived more depth in contents and and heartfelt values, both by the give rise to short and concise EU and by Latin America and the documents on a specific

17 Federico Steinberg, América Latina ante el TPP y el TTIP (Latin America facing TPP and TTIP). Elcano Royal Institute. Madrid, 2014. File 44/2014 - 30/6/2014, consulted at http://www. realinstitutoelcano.org/wps/portal/rielcano/contenido?WCM_GLOBAL_CONTEXT=/elca- no/elcano_es/zonas_es/comentario-steinberg-america-latina-ante-tpp-y-ttip

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topic relevant for both parts. at the same time, should Meetings that allow a direct not be so short-sighted and and honest dialogue between narrow-minded that they the main leaders. make the relation something pointless– which is the risk So that the summits gain that exists nowadays. “The aim is that the credibility and legitimacy European Union-CELAC amongst the population it As José Antonio Sanahuja meetings have a more is necessary to turn these points out there is a “fatigue meetings into something in the relation that is only efficient format” closer to the citizens, with possible to renew recreating tangible achievements, follow- the narrative and renewing up mechanisms between the the plan and the objectives. A summits and conclusions far plan and objectives that are removed from unattainable based on the premise that the utopias and excessively relationship should be between ambitious agendas. equals, mutually beneficial and contribute to the sustainable • Design a new plan and a development in diversity”. renewed narrative: The Summits came into being in • Building with political 1999 with a clear aim and a commitment a relationship spirit which, over time, has based on clarity and with disappeared. In the words a strong leadership: The of the former president former should be provided of Uruguay, Julio María by the leaders of both sides Sanguinetti:“We have been of the Atlantic. The former swinging between utopia, the president Sanguinetti himself idealisms of the foundational points out that “it is necessary meetings and the pessimism to provide the crisis with a that that has installed itself dose of willingness not to turn progressively”. this into a utopia, but to move forward on those matters that In the face of this situation are achievable. The point is to the rhetoric that sustains this focus on what we can do and relation and the objectives move forward”18. to be achieved have to be renewed. Objectives that The latter, continuity should not be so ambitious requires a solid institutional that their non-attainment framework. Work is needed, a lead to despondency –as has lot of continuity work between occurred recently-but that, summits. For this reason there

18 Julio María Sanguinetti, Ni escepticismo ni utopía (Not skepticism nor utopy) Adrián Bonilla and María Salvadora Ortiz (Compilators) at Balances y perspectivas de las rela- ciones entre la Unión Europea y América Latina y el Caribe (Balances and perspectives of the relations between the European Union, Latin America and the Caribbean). Flacso. San José, 2012, consulted at http://eulacfoundation.org/sites/eulacfoundation.org/files/ pdf/De%20Madrid%20a%20Santiago.pdf

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is a team of civil servants, led have strong political and by a strong political leadership, economic interests in so that each summit is not Latin America and believe an eternal return, but a that this transatlantic chance for continuity and link should be reinforced. “Continuity requires effective monitoring of those Moreover, there is a a solid institutional agreements reached in each challenge that must not framework” meeting. be avoided: to convince the countries from In that sense, more than Eastern Europe inside the ever, the problem of the EU that Latin America relationship between the is much more than a EU and Latin America and competitor in commercial the Caribbean is a doubly and agricultural matters. political problem: On the Latin American »» Of leadership on both side, the leadership can sides: In Europe, on the only be the result of one hand, because it the concerted action of has moved its attention the two main regional towards the East and powers, Mexico and towards Asia, and Brazil, as articulators of because it is currently the region and of the concerned about the transatlantic relationship. situation in Greece, and its implications for the The serious problem is viability of the European that these leaderships are project. On the other far from being reached: hand, in Latin America, the Mexico-Brazil axis the heterogeneity, the does not exist and, what internal divisions (the it is worse, it would be far axis of the Atlantic from the possibility of and the Pacific) and being achieved, as they the geopolitical do not even coordinate confrontations (Mexico- their initiatives in the Brazil) have made it G-20 Summits. And impossible for this region in Europe, with the to speak with one voice. influence of Spain and Portugal reduced, it is The Latin American Germany who should project should be resumed see this relationship in a with force in Europe more global way without together with, not only just being focussed on Spain and Portugal, but its important relations also with the important with Brazil. European hubs which in the United Kingdom, »» Of lack of political France and Germany imagination: “Politics

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are important” and new narrative based on the politicians on both linking these two regions sides are those that trying to build a socio- should recreate the economic sustainable project, filling it with model, with a fluent new life and finding political dialogue new paths through within a framework of “Latin America is much which the relationship intensified commercial more than a competitor should be channelled, relations through a in commercial and avoiding the dead-end network of association road, only in appearance agreements with sub- agricultural matters” dead-end, in which regional entities. One they are at present. The of the roots of the relationship currently current deadlock in has an important deficit the relationship is the of “political capital” and fact that the narrative that is where investment of 1999 is no longer should go in the short- sufficient to explain the term. bi-regional relationship. The evolution of In fact, as Félix Peña, international trade professor at the National makes that narrative University of Tres de of 1999 still necessary Febrero (UNTREF) of but not sufficient: an Buenos Aires, points important part of the out, “the possibility of agreements are already demonstrating the validity endorsed with Central and efficiency of the America, the Caribbean, system of the interregional Colombia, Ecuador and Summits will depend, Peru; and will be signed to a great extent, on the sooner or later with interest that the political MERCOSUR. leaders of the EU show in reaffirming the idea and This new narrative in updating the goals”. In should strengthen the reality the intention to relationship within build a strategic relation itself: have more between the EU and confidence, a more Latin America and the honest, direct and Caribbean has existed very political dialogue since 1999, which at the with very fluent, moment of truth, has open and transparent never been fully developed, communication nor given a real content, channels that help nor a global vision. understand the concerns of each of the parts. A In 1999 the bi-regional dialogue on a political relation acquired a level with a more

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strategic vision to which updating and deepening political capital must be the existing relations added. A political capital and closing agreements that should come from with Brazil and the both parts and not only other members of from the EU. The agenda MERCOSUR”. must be fine-tuned and should not aspire to • Encourage a greater all-inclusive proposals, participation of civil “This new narrative but learn how to manage society: The relationship should strengthen the those matters on which between Latin America and relationship within itself” they disagree on the the Caribbean and Europe basis of an agile and goes beyond economic, fluent communication. commercial, historical and cultural matters. Nowadays, The most evident it is a crossroad of relations case of that lack and networks on both of communication sides of the ocean. These between both parts professional and academic (EU-CELAC) is found organizations, NGO, etc. in the negotiations have a lot to say and a lot between the EU and the to give opinions about, and USA. As Rafael Estrella, it is necessary to take them vice-president of the into account to enliven the Real Instituto Elcano relation and give it a useful and president of the content for the societies on Ibero-American Network which they operate. for International Studies (RIBEI), points It is necessary to open the out “an effort will be relationship to the new required to explain to actors of the civil society these countries and, in and to build the appropriate particular, to Mexico, mechanisms so that a but also to the other direct dialogue with official countries, that this is levels can exist. This new not a northern bloc relationship should, also, that is strengthened base itself on specific and in order to weaken the tangible results which be southern bloc, quite the understood by society, rather opposite. That is why it than on impossible, long will be important that and pompous declarations the European Union give of intentions or ambitious credit to this message, agendas out of touch with this speech, with reality which, moreover, practical facts and with never end up materializing a wider vision not only themselves in the way that of the political dialogue, they were planned from the but even beyond this, beginning.

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GAINING SOCIAL LEGITIMACY opportunities is behind the surge of social mobilizations It is not just necessary to change and protests which the the philosophy that permeates region has experienced in the the summits or even the actual current decade (Chile, Brazil, dynamics and functioning of Argentina, Mexico, etc.). “Open the relationship them, but, in addition, the link to the new actors of the should gain in social legitimacy. In Europe, meanwhile, the civil society” long economic crisis has To progress in that legitimacy had social and economic and for this relationship to consequences and also take roots in both societies it is political ones: the party necessary to promote projects systems, on which the which are important for the different democracies of population of both regions. To the area were based, until tackle in a coordinated way cross- now very solid, are suffering cutting problems which affect profound changes. The old both societies and which refer to forces that dominated the institutional matters– deepening political panorama enter of democracy–, change and into crisis in the presence of transformation of the productive the rise of radical and even matrix and impulse to social populist forces which pick up development (fight against the social discomfort towards poverty and inequality). politics and politicians –the cases of France and Greece • Improvement of the quality are paradigmatic in that of democracy: The EU respect–. In addition, in and Latin America and the different degrees and in Caribbean suffer, in different various ways, corruption is an degrees, a crisis of their important element present democratic models especially on both sides of the Atlantic. because of the increasing A phenomenon which has disaffection of the citizenship a very strong element of towards the political parties, corrosion and illegitimacy their representatives and for the system and which the institutions. In Latin encourages disbelief and America, the new agenda of disregard towards the the emerging middle classes democratic model. is not being channelled in a proper way by the different Thus, it consists in a States of the region, or by challenge shared by the the political parties. The EU and by Latin American lack of response to the and the Caribbean. The requests for better public interchange of experiences services –transport, health between both areas is vital for service, education and public the mutual learning of what safety– and for greater should and what should not inclusion and equality of be done. The European Union

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has been capable of building politics more efficient and efficient, autonomous and effective so as to boost public solid institutions –at least services –education, health in comparison with what care, transport and public “The interchange of occurs in Latin America–. safety– which the emerging experiences between In addition, it has a middle classes demand. both areas is vital” Welfare State model that, although with problems • Change in the productive and questioned, continues matrix: Latin America and to work and respond, on the the Caribbean have a serious whole, to the demands of the deficit in their current society on issues concerning productive matrix which public services and the is not based on innovation fight against delinquency. and has not gained in The contribution in both productivity, efficiency and fields of the EU would be competitiveness. In addition, very important and would it has not diversified either provide the region with a its markets or its export distinguished role in the products (except cases like Latin American scenario. those of Mexico and Brazil). In matters of security, the The rise of commodities European experience in makes the region very the fight against the lack of exposed to economic public safety and against fluctuations. organized crime is vital for Latin America where 12 of the The road to avoid this 18 Latin American countries situation, with the consider that insecurity is the consequent risk of main problem. vulnerability, depends on opting for productive In addition the European modernisation that allows experience can be very the region to diversify its valuable when it comes productive structure and to creating an efficient its exportations to move bureaucracy for the towards a productive model management of public with greater added value affairs, just when social and technological content. demands and those of the As Santiago Mourao, who emerging middle classes was managing director of require better public services the European Department and a transparent and of the Ministry of Foreign non-corrupt management. Affairs of Brazil, points out, The strengthening of “our relationships have to institutionalism depends on be structured in a relation improving the capacities of whose main vector is science, the State –broadening the technology, innovation and fiscal basis– in order to make education. With clear goals public expenditures and social (…) the clear goal here is to

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improve competitiveness as problem in Latin America it is what we need, this is the and emerging in Europe, biggest challenge that we thus itself becoming face”19. a space in which both regions can collaborate. An The increase in productivity, inequality which is social especially of the SME´s, is a but also generational –youth common deficit in Europe unemployment is a serious and Latin America. Europe problem on both sides of the “The rise of can learn from Latin America Atlantic– as well as of gender commodities makes the in respect of ability for –worse employability of region very exposed to entrepreneurship and has women implies worse salaries a lot to offer in innovation, and fewer possibilities to economic fluctuations” development, competitiveness access decent jobs–. and productivity in the promotion of the role of the Once the cycle of super prices SME´s as growth engines, as of commodities within the well as in higher education. so-called “Golden Decade” (2003-2013) is finished, Latin In that sense, the EU is a America is facing an economic partner for Latin America cycle change. To avoid the and the Caribbean of great slowdown it is necessary to relevance for: start a new period of changes which try to build a more »» Promoting investment, competitive, productive quality employment and innovative economy. creation and technology The great challenge on both transfer. sides of the Atlantic is that of social inequality and that »» Promoting an economic of promoting politics which cooperation focussed on support social cohesion. The higher education and on central axes which should R&D programmes. establish the social cohesion strategy in Latin America, »» Supporting small and where the EU can play and medium-sized an important role, are three, enterprises with which are focussed on exporting ability. building a system of universal social protection based on • To fight against inequality: two strong pillars: solid Inequality is a historical institutions and a progressive

19 Santiago Mourão, La integración UE-CELAC en el marco de un escenario cambiante (EU- CELAC integration in the framework of a changeable scenario), in Adrián Bonilla (coord.): De Madrid a Santiago: Retos y Oportunidades. Balances y perspectivas de las relaciones entre la Unión Europea y América Latina y el Caribe (From Madrid to Santiago: Challenges and Opportunities. Balances and perspectives of the relationship between the European Union and Latin America and the Caribbean). Flacso. San José, 2012 downloaded from http://segib.org/es/node/8329.

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fiscal system. In this sense, the basis of shared values the European experience can on global matters. That be an example when building the EU-CELAC be, in the in Latin America a universal international sphere, an actor Social Protection System, that works in a coordinated sustainable from a political way in subjects such as the and fiscal stance. protection of Human Rights “Latin America is and democratic principles –a facing an economic Moreover, the cooperation value of the Western world–. cycle change” policy of the EU should be adapted to the challenges Both regions face a changing of those middle-income world with new challenges. countries that at present Together they will be are most of the countries stronger to face all those of Latin America and the challenges. Separately, Caribbean, creating a wider divided and fractioned, agenda that contemplates they will be able to propose not only the fight against very little in comparison poverty and destitution – with the dynamic emerging typical in Central America powers. As Jorge Valdez, and the Caribbean, as well executive director of EU- as in areas of the Andean LAC Foundation, points region– but also development out, “China is a reality; Asia, and social cohesion. The in reality, is the future. The challenge for most Latin challenge hereto is: are we American countries resides going to face that challenge in finding solutions to the together or separately. And I vulnerabilities inherent to believe that this is what can the “trap of those middle- lead to this development of a income countries”. A trap shared global vision between that can be summarized in Latin America and the the fall of productivity and European Union”20. competitiveness with regards to other emerging economies 4. PROPOSALS TO and with regards to the most STRENGTHEN A STRATEGIC developed countries. ALLIANCE

• Greater international For the sake of clarity and with prominence: It is necessary a desire to be very specific and to build a relationship in direct, in this report five proposals which both parts are seen are made to give a new boost to as strategic partners on the Euro-Latin American relation.

20 Jorge Valdez, Introduction, in Bases renovadas para la relación Unión Europea, América Latina y El Caribe (Renewed basis for the European Union, Latin America and the Caribbean relationship). Actas del Seminario EU-LAC/GIGA, 17 & 18 September 2012, Hamburg consulted at http://eulacfoundation.org/sites/eulacfoundation.org/files/ac- tas_seminario_eu-lac-giga_2012_0.pdf

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CHANGES IN THE STRUCTURE OF more evident; a Euro-Latin THE RELATIONSHIP American request to develop the approved declarations. • The creation of a permanent forum of chancellors The role that the Ibero- with annual meetings to American General Secretariat provide political content (SEGIB) plays in the Ibero- and strategic approach to American Community of this relationship: The main Nations is the one that “China is a reality; Asia, goal is to maintain an open, should be played by an in reality, is the future” constant and transparent organization like the EULAC dialogue between both Foundation not only as partners with a constant a forum of reflection but communication. In the also as a coordination tool present situation to rebuild between actors to give follow- confidence between the up, continuity and strategic two sides of the Atlantic meaning to the relationship. makes reference to “putting one’s cards on the table” • Diversification of the in anything affecting the relationship: Even though negotiations that the EU the dialogue and the maintains with the USA and bi-regional link have to those which are conducted continue, the relation must by different countries of diversify and structure itself Latin America, especially in in different levels that some what refers to how these new experts define as “variable alliances and agreements can geometry”. affect the bi-regional relation. The new design of the Without mutual confidence, relation diversifies the nowadays very weakened types of links between the and undermined, any effort two regions. As professor to promote this relationship Sanahuja points out “the again would lack content bi-regional Association and would end up being has to be based on the unfeasible. combination of common strategic frameworks and • Promotion of the EULAC an architecture of “variable Foundation not only as geometrics” with universal a centre of academic vocation –open to all–, which reflexion but also as a tool according to the subject to give continuity to the allows changing groups initiatives of the summits of countries to be made to during the period between cooperate more intensely and summits: The need for an make progress in different effective and autonomous bi- matters of the bi-regional regional executive structure agenda, or, given the case, for of the Summits is more and a political dialogue which

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in the wider bi-regional Susanne Gratius, professor framework is not feasible”21. of Political Sciences and International Relations in A relationship that should the Autonomous University be developed in three of Madrid and associate differentiated levels to gain researcher in the Foundation flexibility and agility and for International Relations “The new design of the to adapt itself to the Latin- and Foreign Dialogue relation diversifies the American and Caribbean (FRIDE), points out that types of links” reality: “the tools of cooperation should adjust themselves »» Strategic alliances with to these three groups of the two big regional countries instead of this powers –Mexico and current practice of “coffee for Brazil– and with three everyone”. Cooperation for countries with strong development in both ways. specific weight– With regards to the future, it Argentina as member does not make much sense of the G-20; Chile as the to expect the Latin American most developed economy countries with a medium of South America and as and high income to maintain member of the OECD; an important position and Colombia as fifth in the European official regional economy–. development assistance flows. Although under the »» Privileged dialogue with umbrella of the “South- small and medium sized South cooperation”, Brazil powers –Venezuela, and other Latin American Ecuador, Bolivia, Peru and powers belong to a group of Uruguay–. new donors. The triangular cooperation between the »» Maintenance of the EU and the new Latin traditional North-South American powers in third cooperation with the two countries inside and outside big regional blocs that the region will be the future include those countries cooperation formula. In a with lower development near future, Brazil could also levels: the Caribbean and be an important investor in Central America. European countries”22.

21 José Antonio Sanahuja, La UE y la CELAC: revitalización de una relación estratégica (The EU and the CELAC: revitalization of a strategic relation). EU-LAC Foundation. Hamburg, 2015, consulted at http://eulacfoundation.org/sites/eulacfoundation.org/files/ Published%20version_ES.pdf. 22 Susanne Gratius, Europa y América Latina: la necesidad de un nuevo paradigma (Europe and Latin America: the need for a new paradigm). FRIDE, Madrid, 2013 available at http://fride.org/publicacion/1104/europa-y-america-latina:-la-necesidad- de-un-nuevo-paradigma.

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NEW PILLARS OF THE RELATION but about diversifying cooperation, adapting it to • A new agenda of the needs of middle-income cooperation with middle- countries which need to income countries: The world be more competitive and has changed profoundly in productive by means of a “Cooperation for the last fifteen years and decisive commitment towards development in the cooperation policies of innovation and investment in both ways” the EU have not done so at physical and human capital. the same rhythm, as they have not been sufficiently In this sense the flexible and agile. The strengthening of the Latin EU lacks an agenda and America Investment Facility a strategy to carry out (LAIF) is considered one of the cooperation relations the most useful tools as the with these middle-income investments that it promotes countries as are most of the are directed towards strategic Latin American nations now. sectors such as energy, European cooperation has environment and transport, been historically focussed all of them key sectors for on cooperation with the improving the quality of poorest countries, but has development. .It depends on not managed to adapt a commitment to unblock itself to the changes in several of the bottlenecks the region. Middle-income of the regional economy: countries need another type both the social and physical of cooperation especially structure at the same time, to avoid the so-called “trap and encourage the creation of the middle-income of SME´s. Instruments such countries”. as LAIF adapt themselves better to the new challenges This new agenda should that the majority of the be more focussed on countries of the region face social cohesion policies up to, more characteristic of –quality employment– middle-income countries. This and on the development type of investment also looks of competitiveness and for sustainable development productivity through and the preservation of the innovation –support to environment with regards technological transference to climate change. The and promotion of the environmental objectives creation of a common space are very present in the LAIF of higher education–. It is since European investment not about abandoning the is a world leader in subjects North-South Cooperation related to protection of with the areas of highest the environment, climate poverty levels –Central change and corporate social America and the Caribbean– responsibility.

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As a recent report of the Apart from the subject of EULAC Foundation points cooperation, the common out “cooperation policies agenda must treat, from a cannot be limited to classic dialogue between equals, “This new agenda should international help and to topics which concern both be more focussed on the North-South relation parts: the construction of a social cohesion policies” pattern in which, to a large governance at a global level, extent, they are based on, or shared problems such and they go beyond the as the fight against climate simple transfer of resources change, the preservation of of the North-South official natural resources like water development assistance and the efficient use of and its efficiency agendas. alternative energies; the fight They consist more in global against drug trafficking and development policies than organised crime, and against in help policies, and the insecurity in urban areas latter, to be effective, will (maras and youth gangs), as have to be replaced in wider well as the management of international cooperation migratory flows. frameworks, capable of mobilising the collective • A fluid relationship with action and ensuring the civil society: The summits provision of global and/ and the Euro-Latin American or regional public goods. link cannot live turning The same can be said their backs on society, but about the emerging South- they should legitimate their South cooperation of Latin existence in it and include it America and the Caribbean, in their own functioning. which should be placed in a multilateral framework, and For that reason, to begin with, not only answer the national a powerful webpage of the or regional agendas, so that Summit should exist that they play a more relevant allows citizens to come closer role in global development to the advances of the process, governance and in the even involving the different definition and achievement sectors of civil society. It is of the objectives and goals society that should enliven of sustainable development and give meaning and content which will be defined from to this link. 2015 onwards, once the cycle of millennium development How? Implementing “from the goals ends”23. bottom” the presence of the

23 José Antonio Sanahuja, La UE y la CELAC: revitalización de una relación estratégica (The EU and the CELAC: revitalization of a strategic relation). EU-LAC Foundation. Hamburg, 2015, consulted at http://eulacfoundation.org/sites/eulacfoundation.org/files/ Published%20version_ES.pdf.

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different networks of that civil This space can also constitute society, including the business itself as a “virtual hub” which and academic spaces. facilitates the contact between businessmen, academics and In order to give shape to this social organisers on both business and academic space sides of the Atlantic to carry “The construction and to the different social out common alliances and of a governance at a organizations it is necessary projects and insert the two global level” to build a structured, regions in the production of institutionalized and formal value chains. framework on solid pillars which already exist: the ones 5. CONCLUSIONS of a common history and a common identity and above The future of the relationship all based on the benefits that between the European Union and come from investment in Latin America and the Caribbean human and economic capital is at stake during the EU-CELAC on both sides of the Atlantic. Summits. The relation, to gain legitimacy and not forget the How would this business purpose for which it was created, contribution to the formation should leave the current and of a Euro-American space be already too long standstill –with consolidated? a few moments of renewed euphoria such as in 2010– carrying Through a more fluent and out a set of structural reforms and bi-directional relationship changes which, at the same time, with society, creating joint require important consensus areas of academic reflection, between actors, as well as political sharing experiences and imagination and boldness giving answers, within the between the leaders of both sides business framework, to the of the Atlantic. social demands and increasing the level of coordination and It consists in changes which, in alliances between companies short, transform the relationship from both sides of the Atlantic. from top to bottom, from the summit to the plain. From the The institutional relationship “top”, re-politicizing –adding should contribute to the political capital– the link, creation of platforms which removing red tape from it and help develop the Euro-Latin introducing a strategic approach, American business and at the same time as opting for academic link which, should a more fluent, clear and direct also accept not only big relation. From the “bottom”, companies, but also those converting the link and its small and medium sized institutions and mechanisms in enterprises and be aware tools that can be seen as useful of the needs and demands and necessary for both societies coming from civil society. and for the citizens that integrate

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them. Only in this double way practical effects in the day to the EU-CELAC association will day life of the citizens on both gain the legitimacy that, to a large shores. In those subjects that are extent, has gradually lost over the truly central for development, last years. which concern both sides of the Atlantic and which have as a final History is important and it objective the improvement of the lays the foundations from an quality of life. “Changes which, in ideological and identity point short, transform the of view of what it wants to As José Ortega y Gasset said relationship from top attain, but history is not enough referring to the Argentineans to reinforce the roots which but which nowadays is a to bottom” should sustain the relationship. comparable thought to the Euro- The world has change, and Latin American relationship: is going to keep changing in “Argentineans! Get to the heart of many spheres: geopolitics the matter; get to the heart of the counts on new emerging actors matter! Leave behind previous (China) which coexist with the personal questions, suspicions, traditional powers (USA and narcissisms. Do not boast about the EU); the commercial links the magnificent leap that this have become more diversified country will take the day that its and complex, and these middle- men decide for once and for all class societies are much more to, bravely, open their hearts to difficult to govern. things; to take responsibility for and to show concern for them The EU-CELAC link should directly and without further react and find answers from a delay, instead of living on the pragmatic stance in the face of defensive and of having their these changes. It is necessary eminent spiritual powers, their to have a global and strategic curiosity, their perceptiveness, vision in order to give itself total their mental clarity, all hijacked meaning. However, many of the by personal complexes, restricted proposals must touch ground and paralyzed”24. so that they have visibility and

24 J.R. Lucks, Literatura y reflexión (Literature and reflection). Struo Ediciones. Buenos Aires, 2007 p. 185.

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BIBLIOGRAPHY Gratius, Susanne. Europa y América Latina: la necesidad de Alonso, José Antonio. Hacia una un nuevo paradigma (Europe nueva estrategia UE-América and Latin America: the need for Latina: apuntes para un debate a new paradigm) at http://fride. (Towards a new EU-Latin America org/download/WP_116_Europa_y_ strategy: notes for a debate). http:// America_Latina.pdf www.fundacioncarolina.es/es-ES/ publicaciones/cuadernoscealci/ Malamud, Andrés. La Unión Documents/ForoUE-ALC.pdf. Europea, del interregionalismo con América Latina a la Ayuso, Anna; Freres, Christian. asociación estratégica con Memorando Opex nº 138/2010: la Brasil (The European Union, cooperación con América Latina: from the inter-regionalism with hacia una estrategia europea Latin America to the strategic comprometida con la calidad association with Brazil). (Memorando Opex no. 138/2010: cooperation with Latin America: Malamud, Carlos. Las Relaciones towards a European strategy entre la Unión Europea y commited to quality). http:// América Latina en el Siglo www.falternativas.org/opex/ XXI: Entre el Voluntarismo documentos-pex/memorandos/ y la Realidad (Relations memorando-opex-n1-138-2010-la- between the European cooperacion-con-america-latina- Union and Latin America in hacia-una-estrategia-europea- the 21st century: Between comprometida-con-la-calidad. Voluntarism and Reality) at http://eulacfoundation.org/ Del Arenal Celestino. La sites/eulacfoundation.org/ triangulación España-Unión files/pdf/Las%20relaciones%20 Europea-América Latina, entre%20la%20Union%20 sinergias y contradicciones Europea%20en%20el%20 (Spain-European Union-Latin siglo%20XXI%20entre%20el%20 America triangulation, synergies voluntarismo%20y%20la%20 and contradictions) at http:// realidad.pdf dialnet.unirioja.es/servlet/ articulo?codigo=3622843 Ortiz, María Salvadora. América Latina y la Unión Europea: Freres, Christian; Sanahuja, Posibilidades de integración. Caso José Antonio. Hacia una Nueva Mercosur-UE (Latin America and Estrategia en las Relaciones the European Union: Integration Unión Europea – América Latina Possibilities. MERCOSUR-EU (Towards a new strategy in the Case) at http://eulacfoundation. relations European Union – Latin org/es/content/am%C3%A9rica- America) at https://www.ucm. latina-y-la-uni%C3%B3n-europea- es/data/cont/docs/430-2013-10-27- posibilidades-de-integraci%C3%B3n- PP%2001-06.pdf caso-mercosur-ue

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Roy, Joaquín. Después Sanahuja, José Antonio. La UE y de Santiago: Integración la CELAC: revitalización de una Regional y Relaciones Unión relación estratégica (The EU Europea-América Latina and the CELAC: revitalization (After Santiago: Regional of a strategic relation) at http:// Integration and Relations eulacfoundation.org/sites/ between the European Union eulacfoundation.org/files/ and Latin America) at http:// Published%20version_ES.pdf. aei.pitt.edu/43449/1/santiago- roy_130515_EU_Center_web.pdf

114 Latin family businesses: more governance, better enterprises by Manuel Bermejo

Madrid, April 2015 LATIN FAMILY BUSINESSES: MORE GOVERNANCE, BETTER ENTERPRISES

PRESENTATION

Human beings are born, grow, live and die. These are stages of our PRESENTATION BY ALEJANDRO ROMERO lives, phases which we cannot skip; they are part of our existence. The same can be said of enterprises. Companies are similar to a LATIN FAMILY BUSINESSES: living being as they too go through various stages of development, MORE GOVERNANCE, BETTER although each enterprise is different and the duration of the ENTERPRISES BY MANUEL BERMEJO, DIRECTOR OF EXECUTIVE aforementioned phases may vary. EDUCATION AND PROFESSOR AT IE BUSINESS SCHOOL As regards family businesses, there are several particular features 1. INTRODUCTION: FAMILY that are inherent to this type of companies, which lead to several BUSINESS AND CORPORATE specific stages during its life cycle: founding, growth and handover. GOVERNANCE 2. AN ETHICAL APPROACH TO A family business arises from an idea, an illusion, a dream of its THIS ISSUE founder. It becomes, from the moment of its inception, a key part 3. THE FAMILY BUSINESS OF THE in the life of the latter. 21ST CENTURY 4. THE TEN RULES TO MANAGE Just like that father who has his son in his arms for the first time, FAMILY/BUSINESS RELATIONS the wish of the founder when he creates the company is to see the 5. ORGANIZING CORPORATE enterprise grow, evolve and strengthen. In business terms, this is GOVERNANCE translated into business growth, expansion and internationalization. 6. A KEY PROCESS: SUCCESSION 7. FAMILY GOVERNANCE: FAMILY COUNCIL However, this is not all that he desires, as the founder also wants his descendants to take over the operation of the company so that 8. BUSINESS GOVERNANCE: BOARD OF DIRECTORS it lasts forever. 9. CONCLUSION. THE PARADIGM SHIFT IN FAMILY BUSINESS: In this context, the question that must unavoidably be asked is: FROM AN ABSOLUTE can both wishes be fulfilled? It all depends on the management MONARCHY TO A FEDERAL and planning implemented during the various stages that the REPUBLIC? enterprise has to face during its whole life cycle.

As I was saying, family businesses have unique features, inherent to their condition and which determine the success therefor –or subsequent failure–. The emotional involvement, the sense of identity, of belonging, the existence of a shared culture and the leadership of the founder are some of the keys to achieve business growth and success in a family enterprise.

Nevertheless, these businesses also have certain negative attributes due to the family nature of these corporations, such as the overlapping of responsibilities or conflicting interests.

First generation companies greatly depend on the founder and, thus, significant difficulties arise when the operation of the company is handed over. This transition calls for a wide range of changes: family relationships, ownership structures, management structures and leaderships must often be readjusted.

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Therefore, when this “second dream” starts, new threats arise, such as the active or passive resistance to succession, fear of loss of control, lack of knowledge regarding the steps that need to be taken to achieve this end or mismanagement regarding internal and external communication.

However, threats during the growth and handover stages can be reduced, even removed, through a sound management and planning from the beginning and during the whole life cycle of the enterprise.

It is important for the founder to know that the growth of the family will entail conflicting interests and these need to be managed and solved. Likewise, measures need to be taken to avoid confrontations. To achieve this, it is essential to lead the communication process.

Furthermore, the founder needs to hold, until the end, the power to continue or destroy what he created and, logically, must plan the succession process. In this sense, it should be noted that the families that do a good job training young people to join the family business usually pay much attention to the dreams and needs of their children.

It is essential to create an environment where family members feel comfortable debating their dreams and common future, where the feasibility of the shared dream is permanently analyzed –when conditions change, the aspirations of people change too–, where solutions are sought in order to align the family needs with those of the company and where individual dreams are not below the needs of the business. Only so can a lasting success of the family business be guaranteed.

Anyhow, and although the aforementioned points are essential, the truth is that the success or failure of the process ultimately depends on the capacity of the family to achieve confidence in their successors. Thus, the five c’s must be met: Competence –of the family members part of the company–, Congruence –the family knows that the leader will do what he says–, Coherence –in relation to the principles of the family, promoting the interests of the family over personal interests–, Compassion –when facing difficult situations that might harm certain members of the family– and Communication –in relation to feelings and ideas, in a clear, consistent and timely manner by all members of the family and management team–.

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In this sense, to ensure the success of the company it is essential to have a family protocol, i.e., a document that regulates and develops the rules of action and conduct bi-directionally between the property-business-family and establishes the framework for its development.

This is a framework agreement between the members of the family regulating the economic and professional relations between the family partners and the enterprise, as well as certain aspects within the management and organization of the latter. In fact, it goes beyond a mere agreement; it is a code of conduct for both the family and the business.

The objective of the protocol is to analyze, discuss and regulate conflict situations so as to objectively ensure the continuity of the enterprise and avoid, on one hand, family problems to affect business objectives and, on the other, family problems between partners of the company entailed by achieving business objectives.

In short, appropriately managing the appointment of new generations ensures business continuity and growth and, thus, is the cornerstone to make the founder’s dreams come true. Few experiences can be compared to the huge satisfaction produced by managing a family business and seeing the enterprise thrive well into the future.

Alejandro Romero Partner and CEO of LLORENTE & CUENCA in Latin America

118 LATIN FAMILY BUSINESSES: MORE GOVERNANCE, BETTER ENTERPRISES

LATIN FAMILY BUSINESSES: MORE GOVERNANCE, BETTER ENTERPRISES

1. INTRODUCTION: their corporate governance FAMILY BUSINESS AND systems. That is the aim of CORPORATE GOVERNANCE this paper: to reflect on the governance of family businesses Nowadays, the importance with a special focus on the Latin of family businesses in the American context. international arena cannot be denied; it can be affirmed that it I like defining the concept of is the main type of business. In a family business as a project “The desire of study carried out by EY, around and values that are shared continuity is, 80% of the global enterprises for generations. The desire therefore, key in this were family businesses. This of continuity is, therefore, important role played by family key in this type of particular type of particular businesses is also significant in organizations. To this end, organizations” the field of large corporations. family businesses must have Thus, family business and an efficient system of corporate mismanaged family SME should governance, since the object not be mixed. Estimations of corporate governance goes show that 25% of the TOP beyond its contribution to 100 European Businesses are transparency and accuracy in family enterprises. And within financial statements. Promoting emerging economies, according corporate governance translates to recent data collected by into an essential contribution McKinsey, around 60% of the towards the management listed companies in said countries of assets, both tangible and valued at over USD 1 billion are intangible, which will ensure the family businesses as well. feasibility of the continuity of the enterprise in the future. The qualitative relevance of family businesses and their For over two decades, I have contribution as regards job and been in constant contact wealth creation should also be with the context of the Latin noted. Indeed, in Spain these American family business types of businesses account for through my activity as Professor 70% of the GDP and employ at IE Business School, lecturer around 14 million people. at international events and advisor to several regional Thus, helping family businesses companies. This extensive is the same as promoting the contact restates the importance development of the society, of institutionalization within given their great contribution family businesses. in terms of employment, wealth and welfare. The clear advice Good governance translates into that should be given to family a quality leap towards excellence. businesses is to responsibly The leading family businesses manage their businesses which, generate opportunities for undoubtedly, depend on the economic growth and the creation and enhancement of creation of both wealth and jobs.

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Thus, they contribute to the measures. Based on my creation of a strong middle-class. experience in this matter, I have And this, in turn, entails balance identified a series of critical and is the best possible guarantee steps to face the challenges of for the consolidation of strong institutional management in democratic states which foster family businesses: prosperity. This is the degree “Any organization, of importance of the matter • Strong will to do it: In and particularly a in hand, beyond the specific my particular approach family enterprise, interests that each company has. regarding today’s organizations, Corporate must have an Corporate Governance is usually Governance is, above effective governance seen as an intangible. Thus, it everything, the watchtower as the basis of the is something unrelated to the of strategic thinking that urgencies of the business and, should govern the activities institutionalization of therefore, expendable. I think of any company, regardless of management” this is a clear mistake. Latin its size, field or origin. That is, people also tend to focus on the space where companies short-term issues. Making plans should place their capacity to is difficult for us. The objective design their strategy, monitor is not starting a debate between its implementation and intuition and rigor, but to important affairs to sustain efficiently mix both attributes. the business project.

I believe that any organization, • Splitting family and and particularly a family business affairs: Were we to enterprise, must have an dismiss this point, we would effective governance as the basis end up in a permanent of the institutionalization of situation of confusion and management. Nowadays, many conflict of interests which family businesses are growing would greatly hinder the into regional or multinational continuity of the family corporations. In this expansion business. Governance bodies process, the credibility that the should be created both for company can obtain through the family and the business, a rigorous and institutional and measures should be management is crucial. Having implemented to promote efficient governance bodies as communication between regards family and business, both areas. In fact, if we take clear rules governing both fields, a closer look at the largest to establish the principles of the family businesses in the relations between them and a world, the most common sound planning for business and trend is to reduce the family are elements that make presence of the members the difference. Developing the of the family in governance business and attracting partners, positions, both regarding the talent or investors is simpler business and the family, as through the aforementioned well as upper management

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executive positions. it does not make any sense The presence of family to go from zero to infinity. members in management Between the corporate and governance allows, governance practices of among many other things, large listed companies to continue respecting the and being an almost non- principles on which the existent company, there is a company was founded. huge world that needs to be Value-based management discovered. Progress should is an asset that confers slowly be consolidated important competitive to enhance corporate advantages in a family governance, both as regards business. the business and family. “The presence of family members in • Count on external • Holistic vision: The family management and assistance: My experience as business is a multifaceted advisor to several companies organization. There are governance allows, in these processes shows many interests and several among many other that the contribution that challenges have to be faced. things, to continue independent advisors can There is a need for balance make is a huge added value. to manage business affairs, respecting the principles An expert advisor provides generally marked by financial on which the company good practice and helps the parameters, and family was founded” family to cope with more issues, where socio-emotional institutional and rigorous issues predominate. parameters. The advisor brings “fresh air” in debates Thinking that establishing a that, in many occasions, are family protocol is enough to inefficient due to the lack of control this complex reality external opinions in many is a rather naive perception. family businesses. As we will see throughout this paper, it is mandatory Similarly, training is key for to develop a more global the family business. For the strategic thinking, so as new generation of many to develop the corporate enterprises in Latin America governance of the family it is mandatory to attend business. prestigious business schools in the U.S. or Europe. A good To sum up, I believe that the example to follow. institutionalization of these corporations is essential • Progressing gradually: As to achieve the objective of occurs in many different continuity they seek and also areas, progress should be gives meaning to entrepreneurial done in a gradual manner. families. On the other hand, Testing, learning and using Corporate Governance also helps the best possible tools for us promote competitiveness. each specific case. Honestly, We should not forget the

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globalized world we live in, where businesses is higher than that Competitiveness prevails. Thus, of non-family businesses and I encourage regional family they have lower insolvency and businesses to fully address such market risks. Along these lines, important issues as family and I would like to highlight the “The family business is business governance. data published periodically in the example we should the Family Business Barometer follow to find an 2. AN ETHICAL APPROACH published by KPMG and IEF TO THIS ISSUE (Institute of Family Business ethical approach for in Spain), which show that the business management” In general, both in the academic performance of Spanish family and consulting sectors, family businesses is higher than that of businesses have been analyzed their non-family counterparts, according to their problems. marked by a better and more Perhaps, this approach has been flexible adaptation to the Great influenced by psychology, and Recession and, ultimately, to this this point of view has not been ever-changing society which precisely positive. globalization and digitalization greatly influence. I must confess that I have always distanced myself from Based on these data, as well as the aforementioned theory. over two decades advising and On the contrary, I believe that training family businesses in the family business is usually Europe and Latin America, I influenced by a set of values can say that I know nothing as that I think are missing in many powerful as a family business other areas of our lives. Thus, I that knows how to manage well think that the family business its singularities. The deepest is the example we should follow root of this sound management to find an ethical approach is, undoubtedly, a management for business management. A that shares a project, shares key point, in my opinion, to values. Because values give a put a definite end to the Great sense of transcendence to the Recession and, above everything, family legacy. It is this ethical to face a more promising future. side of the family business that I want to address. This issue is particularly relevant given it is the dominant type of To this end, I had been working business all around the world. for the last years and recently finished my doctoral thesis In order to overcome certain “An ethical vision of the family clichés about the family business, business: consequences of I would like to point out, taking accounting manipulation as a reference the report of Banca from the perspective of the March written by me colleague shareholder and stakeholder at IE Business School, Cristina within the family business”, Cruz, that the average market whose conclusions I will share profitability of European family below. In order to analyze

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ethical behavior, the parameter companies, listed and non- that was taken was accounting financial during the period 2002- manipulation, which ultimately 2010, from 20 countries. implies reporting fake accounting figures. The empirical evidence shows that family businesses are less prone to A simple observation of reality accounting manipulation. Within “Family businesses shows us several accounting the family business, the owners have their own and financial scandals, have the power and incentive to singularities, which combined with constant cases control the management decisions of corruption, illegal financing and prevent their managers could be defined of several organizations such as from acting in an opportunistic as their desire of political parties or trade unions, way. The risk of expropriation intergenerational accounting manipulation or by managers decreases in creative accounting... Thus, it does highly concentrated ownership transference, long- not come as a surprise, that all structures with fewer informative term vision” these kinds of institutions have asymmetries and the larger lost their credibility. Furthermore, controlling power of majority social networks allow us to shareholders. In short, there immediately and clearly see is evidence of a greater ethical types of activism against these behavior among family businesses reprehensible behaviors. from an accounting perspective.

Family businesses have their If we take a closer look at the own singularities, which could issue in question, evidence shows be defined as their desire of that the accounting manipulation intergenerational transference, actions increase the market long-term vision, strategic valuation in the short term, where objectives beyond economic investors and stakeholders cannot profit and the role played my identify these practices. However, family members in governance they penalize these companies and management bodies. These with a loss of reputation, singularities undoubtedly combined with other negative give the family shareholder consequences for the corporation, the capacity to influence the such as an increased activism by organization through control stakeholders and other regulatory and surveillance actions that bodies. Nevertheless, these the former might exert on the consequences can be moderated decision-making process. To by the presence of a family in summarize, in family businesses a corporate enterprise, which the agency costs between owners maximizes its utility function not and managers are reduced as only regarding monetary affairs, there are conditions for a strategic but also in relation to the loyalty, alignment between both parties. succession and legacy of future generations. All these issues The sample from which we have now fall under the known as obtained empirical evidence was socio-emotional objectives of the comprised of 1,275 international family business.

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In short, with this study I wanted family members to understand to clearly show something that the importance that organizing “The family business those who work with family a sound corporate governance businesses have patently structure has in order to address literature has witnessed. An ethical attitude priorities such as: coined the concept ultimately generates value, not of “familiness” to only for the shareholder, but for • Defining a project and shared design the distinctive all stakeholders. It is the basis for values that will become the the creation of shared value. tangible basis for the family and characteristic legacy. feature of the internal In contrast with apocalyptic resources of a family perceptions of the family • Designing and implementing business, the truth is that it a strategic program regarding enterprise” can find an important source family and business. of competitive advantage in its own singularity. Based on the • Creating the necessary classical theory of resources and conditions, resources, time capabilities, a family business and efforts, to build the has a sustained competitive needed strategic alignment advantage that cannot be of interests between copied by its closest competitors shareholders, managers thanks to its internal resources and employees. The entire (capital and social network, organization must know that values, organizational culture they are not merely working, or transfer of tacit knowledge, but building something among others). These features important. provide a competitive advantage to family business; a unique and • Methodical monitoring of valuable resource which cannot the implementation of the be copied by its competitors. action plans. To the extent that the family business literature (Habberson • Development of the concept and Williams, 1999; Sirmon of adaptive innovation to and Hitt, 2003) has coined the complement traditional concept of “familiness” to design values with the necessary the distinctive and characteristic adaptations that the dynamic feature of the internal society of change demands resources of a family enterprise, in terms of business models, which allow it to keep strong management styles or competitive advantages, such market approach policies. as human capital, social capital, values or governance structure. 3. THE FAMILY BUSINESS OF THE 21ST CENTURY For these competitive advantages to flourish –which We live in highly competitive are based on ethics and value- and sophisticated environments based management– it is and this context undoubtedly essential for the entrepreneurial forces entrepreneurial families

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to think in a different way. We in scenarios of a more closed live in what I usually define as economy, the existence of family the society of change, strongly SMEs run in a traditional way influenced by globalization could be successful, although with and digitalization. Too often, huge commitments. However, the entrepreneurial family has these companies are now forced focused on internal debates; to be managed rigorously, solving family issues, managing institutionally and must strive for conflicts (in many occasions growth, the quest for leadership “The respect for artificially created) or favoring in order to be competitive in tradition and stability personal affairs over the general dynamic, global and sophisticated sometimes translates good. In addition, the respect for markets. In short, to create tradition and stability sometimes strategic thinking platforms: into immobility” translates into immobility. These corporate governance. families do not notice that the current scenario of business My model –inspired by these competition calls for a much processes– can be explained more pragmatic, rational, flexible through the Chart 1. and professional approach in order to face new challenges in a Any organization starts through swift and decisive manner. Many the impulse of its founder, which family businesses –nowadays we will call “family entrepreneur”. leading corporations– have This founder has the features understood this new situation of the excellent entrepreneur and should serve as a benchmark (achievement-oriented, for the remaining companies. hardworking, persevering, creator They are the 21st century family and leader of teams, capacity to businesses, in many cases already identify business opportunities, governed by descendants who spirit of innovation, etc.) but managed to find very successful is also strongly linked to his management formulas in which corporation, his work, which they mixed the academic training translates into his wish to make with the experience of closely the company last for future working with the founders of generations. It is then when the these corporations. In short, family nature of the business notable entrepreneurs who have organization arises. I define this respected tradition, retained initial stage with the concept of values and, on that basis, have family entrepreneur. brought innovations to the business models, management The consolidation of the initial forms or product and services. project is reached when the That is, the perfect balance business starts to transcend its between values and adaptive founder and slowly becomes innovation. We speak, therefore, what I call a family business, of true family entrepreneurs and meaning that several family entrepreneurial families that have members become involved in the understood that their companies business. The transfer towards had to face new challenges; that a family business calls for the

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development of a corporate me insist, these measures will culture where the foundations only be efficient if they are based for the future will be laid. This on truly shared principles and culture is defined by a series of values. Without fulfilling this “The transfer values. The first should be the condition, we would be putting towards a family wish for business continuity in the cart before the horse, as the business calls for the hands of the family which, saying goes. as previously stated, is one of the development the main elements of family According to the model, once of a corporate businesses. we have obtained values and culture where the tools that give meaning to From my point of view, only the family business, we must foundations for the family businesses with values start establishing significant future will be laid” and principles that are a strong business challenges. My theory part of the corporation will is that family business is be capable to set the bases particularly forced to grow. First, for growth and leadership. for competitiveness reasons Moreover, these principles and due to the highly crowded and values are like flowers, they increasingly global environments. decorate and add value to the Second, in order to remain an extent that the owner cares important source of income and/ for them. Therefore, managing or assets for a family that further this issue is, for me, a priority expands over the generations. objective for entrepreneurial The latter is a particularly families. Another challenge of significant matter in Latin corporate governance. American contexts, where the family tends to be large and its When these values are defined vocation and reality is to remain and accepted, it is meaningful united. Therefore, I consider that to acquire further tools which entrepreneurial management will help transform the founding is essential to ensure venture into a family business. I competitiveness, profitability am referring, among other things, and the growth of the business to the protocol, transfer plans, which will ultimately allow the Family Council, the Assembly or corporation to become a leading Board of Directors (or whatever family business. A leadership that the name is of the governance is initially local, but will end up body of the corporation). But let being national, regional... or global.

Chart 1: Management model for family business

FAMILY Culture FAMILY Entrepreneurial LEADING FAMILY ENTREPRENEUR Skills BUSINESS management BUSINESS

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4. THE TEN RULES their interests as one of their TO MANAGE FAMILY/ main competitive advantages. BUSINESS RELATIONS In this context there is a feeling As I am explaining, from my of pride of belonging, the point of view and based on the need to move forward, to face “Once we have experience I have gained through new challenges, to overcome obtained values my relationship with Latin obstacles both external –due and tools that give American family businesses, I to financial situations or the would like to provide a Decalogue emergence of new competitors, meaning to the family of general principles to ensure a worsening in some of the business, we must the foundations of corporate conditions of the economic and start establishing governance in family businesses. social context, the emergence of I will now establish the ten new technologies that strongly significant business rules that should be followed by influence the business model, challenges” family businesses to then further etcetera– as well as internal – elaborate on the development of personal conflicts related to the each of these ideas. family/business relations–.

UNITY: DEFINING A PROJECT GENETIC CODE: IDENTIFYING THAT BRINGS THE FAMILY THE VALUES THAT HAVE TOGETHER BROUGHT SUCCESS TO THE COMPANY TO CONSCIOUSLY Families that have developed a AND FORMALLY INCORPORATE long-term entrepreneurial project THEM INTO THE GENETIC CODE always highlight a common OF THE FAMILY BUSINESS project and values that combine There are successful family Chart 2: Rules to manage family / business relations businesses that have achieved their status not only because of the competitive advantages Defining a project that brings the family UNITY together. that this type of business model entails, but also thanks to certain Identifying the values that have brought success to the company to consciously and values that also were sources of GENETIC CODE formally incorporate them into the genetic competitiveness. In fact, I have code of the family business. seen many family businesses FAMILY HARMONY Taking care of the family. with a strong presence in the

ROLES AND LEADERSHIP Defining roles and leaderships. market whose success can be explained precisely through CONFLICT Lay the foundations for conflict management. these values, since their business COMMUNICATION Saying things in an honest way. model offered no distinguishing or unique features. Creating the conditions for an environment RESPECT of mutual respect and trust. My advice is to spend time on EDUCATION OF CHILDREN Ensure future harmony. identifying which values could DEFINING PRIORITIES Family vs Business. contribute to the enhancement of their products, to help the GREAT GOAL Identifying a long-term objective. workers be more involved, even

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more, proud of the project. between all members and, above The values that could help the everything, respect for the senior “A family corporation business be recognized across the members, the true guardians corporate world, to build long- of the values and principles of must have a soul, term relationships with suppliers which the genetic code of the values embodied in its and customers and, ultimately, company is comprised, as pointed founders and successors, to create a climate of trust in the out in the previous point. values that constitute company and its environment. Thinking that all this will occur the genetic code of the A family corporation must have in a spontaneous manner, merely family business” a soul, values embodied in its because we all are part of the founders and successors, values same family, is leaving things to that constitute the genetic code chance, which always translates of the family business which into a high-risk threats. will establish the guidelines for the future and become a Promoting family harmony legacy for whoever becomes requires quality time, dedication, involved in the business in the energy, efforts, work... It basically future –whether they are family must be accepted as another members or outsiders–. priority of corporate governance.

FAMILY HARMONY: TAKING ROLES AND LEADERSHIP: CARE OF THE FAMILY DEFINING ROLES AND LEADERSHIPS As I have previously stated, the challenge that the family Successfully managing a family entrepreneur needs to face business –understood as the is a two-way hurdle, as two combination of a healthy, united elements need to be addressed; family and a company marked family and business –hence its by growth and profitability– will respect and impressiveness–. require, as one would expect, the efforts of many. It always calls Managing a business is a given for teamwork. within the entrepreneurial world. Often, the large amount Establishing roles must be done of time that needs to be devoted through a rational process that to fulfilling this task relegates takes into account factors such the family and this is a mistake. as the character, skills, experience A family business should be or willingness of those who take governed by harmony. part in the family project. It is important for every member to This harmony is clear in points hold the perfect position for their such as close relations between characteristics, as well as their the members of the family group, willingness. a high sense of commitment as regards family matters, It is obviously important an obvious sense of pride of to have an entrepreneurial belonging or great respect leader in each generation. A

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visionary. It is often said that CONFLICT: LAY THE one of the most important FOUNDATIONS FOR CONFLICT assets a company can have MANAGEMENT is a leader whenever one is needed and for them to work A common topic in family for enough time as to provide businesses is conflicts –and stability to the project and rightly so– since many failures develop long-term policies. An of this type of businesses enterprising leader who, as I are attributed to these “It is obviously have already stated, is much confrontations. Conflict is important to have an more than a good manager; inherent to the human condition. the leader must be able to Whenever two people debate entrepreneurial leader mobilize projects, people and about the same topic they might in each generation. A illusions. A leader that helps have two different opinions, even visionary” do what must be done. But just antagonistic. It could even be as important as this business possible for both to be legitimate. leader is the family leader. This For example, is it better to person must be respected by exploit a market opportunity the whole family, must have by carrying out an aggressive moral authority and should growth strategy through the guide the family whenever a purchase of a competitor that controversial affair arises. In is going through a difficult time the Latin American sphere, this or should the family business be role has been commonly played run in a conservative way? Both by the mother. The mother is positions may be reasonable the person who traditionally from a business point of view. spent time raising their children In fact, these dilemmas arise and compensated the long continuously in the family and justified absences of the business sphere. entrepreneurial father. Consequently, I think that Many successful any business will have to entrepreneurial families have face these conflicts. Yet, in insisted on the important role my opinion, the real problem played by the family leader is that these situations are to facilitate the reaching of worsened in family businesses consensus, avoid conflicts due to two questions: or manage them in a wise manner when unavoidable, • The first is the presence to foster a feeling of union of various interest groups and harmony governed by the that gradually increase as spirit of coexistence, mutual the company grows: family respect, generosity, loyalty, members who work in the a commitment towards the company and hold shares, common project and where family members who work personal interests are secondary in the company and have to the global objective. no shares, family members which do not work in

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the company but hold precisely, quarrelling without shares, family members a reason. who neither work in the company nor have shares, • Thinking that the conflict in-law family members will be avoided is only a pipe who might or might not dream. There is no doubt work in the company and/ that a united family, with a or have shares and third genetic code that establishes “A common topic in parties who might work the shared values and where family businesses is and/or have shares. These communication is open will groups have rather different find it easier to solve conflicts conflicts –and rightly perceptions of the situation calling for the old principles so– since many based on their own interest. and always bearing in mind failures of this type that the general good for • Second, and especially among the project shall prevail. of businesses are Latin American businesses, When the family suffers attributed to these conflict tends to be personal, from other symptoms the confrontations” and this worsens the debate conflict usually lasts for an and hinders the prospects extended period of time and of finding a solution. Thus, in many cases, it only ends in my opinion, it is essential with the disappearance of to handle these discussions the firm or its break-up. This following two key principles: happens because in some first, the debate should focus occasions the own interest on the specific question at prevails over the objectives of hand, since there is a risk of the business. This situation starting a conversation about has sometimes been caused increasing the expenditure by people who preferred for the launch of the new to create a suffocating shop and end up saying environment when they did how much of a slacker your not achieve their personal husband is, who by the way objectives, such as being adds nothing positive to the appointed as the next business and dad already leader of the firm to replace hated him when you both the previous generation were dating. From there or when they could not on, anything is possible. impose their decisions or Second, rationalizing the management style. debate with objective data to avoid the aforementioned Prevention work is critical. personalization and help A crucial part of the work the company make the of leaders, both as regards best possible decision in the business and the family, a logical way. This is the is precisely having the reason for which quantifying foresight to understand everything is really positive when could these conflict and every member should situations occur and try to avoid talking loosely, or more avoid them.

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COMMUNICATION: SAYING solutions through the THINGS IN AN HONEST WAY contribution that different positions can generate. Based on my experience, I have come to the conclusion that this Promoting an open and honest feature is the largest difference communication is the same between the Latin American as decisively contributing to and the Anglo-Saxon business create healthy relations and world. Latin American people environment. Thus, one of the often prefer to not say what main objectives of corporate they think so as to not hurt the governance is precisely to feelings of others, agreeing when facilitate communication we really do not, not directly channels and the exchange of “A crucial part of addressing someone and rather information. the work of leaders use third persons hoping that is precisely having the message will ultimately reach RESPECT: CREATING THE the person in question, to ignore CONDITIONS FOR AN the foresight to things that actually bother us ENVIRONMENT OF MUTUAL understand when until we finally blow up in anger. RESPECT AND TRUST could these conflict For all these reasons, I think that communication is one of We have been talking about the situations occur” the main points to successfully concepts of communication, manage a family business. conflict, united family, group harmony and it seems obvious It is essential to create channels that all the aforementioned and spaces to facilitate an open features stem from the same and honest communication. attribute: respect. When respect Always in a respectful manner governs the relations with and understanding the cultural others, it is easier to reach differences that have to be taken agreements, consensus, have into account; things need to be dialogues and empathy to put said in a clear manner so that ourselves in the other’s shoes the other person/s understand/s and understand other point of us without any doubts. views, to listen and value the opinion of others. Communication is a basic element to convey the set of It is easier to not respect, label values that a united family people and take for granted has and which should serve as that the things other people a guideline and incentive for have to say do not deserve the future generations. slightest attention. Yet, I think that respect has to be earned; Communication is also a through a balanced behavior, key point to create debate being coherent and doing what spaces and where, with one says, having a nice training respect, conflicting positions and professional experience, with might be faced so as to reach an honest and clean past, a good agreements or seek enhanced career full of achievements, etc.

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This is what we call credibility. Thus, when managing a family This is the reason for which business, a type of company business with well-trained that is defined by its desire for managers who complement each continuity, I think it is essential other can easily be successful, to handle all issues with a long- as the conditions are met so as term perspective. Within these to generate mutual respect and, approaches, the education of from then on, an environment children is a key point. of mutual trust is achieved, which allows the distinction of Raising children is a huge “Communication is roles, delegation and facilitates challenge, but if they are to agreements. become the new leaders and will a basic element to have to ensure the continuity convey the set of This is one of the reasons for of the firm, it becomes an even values that a united which creating a climate of larger difficulty. professionalism and rigor seems family has” so important in relation to the It is no easy task advising management of both the family parents in relation to this and the business. When the issue, since each family and appointments does not conform business are a different case, professional criteria, but merely but for what it is worth, I will for belonging to the family, share the educational advice meeting the aforementioned that an important Colombian respect conditions seems entrepreneur gave me: “Manuel, an almost impossible task. the best thing we can leave our Respect, like leadership, cannot children is education and culture”. be imposed, but is the result of professional and personal DEFINING PRIORITIES: FAMILY actions governed by credibility. VS BUSINESS

EDUCATION OF CHILDREN: The combination of family and ENSURE FUTURE HARMONY business generates a cocktail of emotions and unique situations All topics so far are clearly which, strictly speaking, related to a perspective of should be managed for them to continuity. There is no point become a source of competitive in achieving some years of advantages for both the harmony thanks to shared business and the family. projects, visions, respect and communication if, at a given This is simple in theory yet moment, the conditions change. complex to carry out. We only need review statistics And, at the end of the day, of failure regarding family we are talking about people, business, or even simpler, and it is precisely them who review own situations or those are in charge of creating of acquaintances who work in environments in the company family firms to understand the and the household. aforementioned statement.

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The important idea is for each over control of the business entrepreneurial family to know to the next generation, once that combining family and the business has a network of business might entail conflicts loyal clients who guarantee of interests and therefore, it is the economic feasibility of the essential to create mechanisms project. to predict these situations and solve them. It is then when the short- term urgencies disappear and, However, it is true that the since the next generation had Chart 3: Life cycle of the family family business evolve, as the chance to obtain better business occurs with any dynamic training, the new management structure where human beings makes decisions such as work and, among other things; the delegation of important this process usually affects the functions to non-family order of priorities. experts, the implementation FOUNDER of management surveillance I will explain my theory systems, an enhanced efficiency regarding this point with the is sought through improved Chart 3. processes, the management Chaos/ cares about the creation Excitement due It is common for the founding of mechanisms for inter- to the Start Up generation to be a complete departmental coordination, etc. Survival mixture between family and business. They live in a kind On the other hand, the second of exciting chaos which is generation usually gives rise rather common at the peak of to the singularities of this SECOND entrepreneurship: all attention type of business which, if not GENERATION is focused on the survival of correctly managed, might the firm, improvisation and entail severe conflicts. Namely, informal management are there are many new family ordinary and, if the project is members, different roles as Growth successful despite this chaos, it some will work in the firm Decisions Family/ is only thanks to the impressive while others will not, some will Business efforts made by the family be shareholders and others entrepreneur, who is able to will not... the number of in-law face all the challenges thanks to family members and their his huge efforts. influence will also increase; THIRD there might be jealousy or GENERATION In many cases of rivalry between parents AND NEXT ONES entrepreneurial families, the and their children, between end of the stage of the family children or even cousins. entrepreneur coincides with the consolidation of the business. In short, this is the key When there is a clear succession phase in which the business Leadership –usually the older children who will have to make crucial Family Crisis have joined the family project– decisions to prioritize and Disappearance the entrepreneur can hand ensure the conditions to take

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a qualitative leap towards will crumble as well, ultimately business leadership as well as resulting into bankruptcy the consolidation of the role or the firm being divested of the entrepreneurial family. combined with severe personal From the objective point of crises that might even translate view that distance gives, it into a family breakdown. seems pretty obvious that family and business should GREAT GOAL: IDENTIFYING A “Family and business take the professionalization LONG-TERM OBJECTIVE should take the route, but, in many cases, professionalization certain factors prevail which Another feature that I route, but, in many prevent the family from have frequently seen in making the correct decision. successful family businesses cases, certain factors To sum, sometimes certain is establishing long-term prevail which prevent unbelievable mechanisms objectives. Challenges that the family from seriously jeopardize the slowly shape the dreams of survival of the firm, greatly the entrepreneurial family and making the correct concerning all involved which usually take place on decision” members, except those who round dates (2000, 2020) or with have the capability to revert anniversaries of the family the decision, but are blinded business (20, 50 or 100 years). by highly selfish approaches. Their actions inevitably lead to These projects are expected to lose-lose situations. be fulfilled in 10, 15, 20 or more years... and thus, go beyond After the third generation, the contextual circumstances enterprise might have happily that the economic cycle or solved all the problems related any internal or external factor to the priority setting process might produce. We have and could be focused on repeatedly insisted on the growing to be more competitive importance of this long-term and become a leader in its approach, as it undoubtedly is sector. Long-term planning a huge source of competitive now becomes a key issue, the advantages for the family great objective is to exploit business. new business opportunities – what we call, entrepreneurial 5. ORGANIZING management– to ensure, for CORPORATE GOVERNANCE a long period, a feasible and sound business project and, Once the family culture has at the same time, keep the been created, based on their harmony in a united family, principles, rules and short and whose size is now impressive. If long-term objectives, I consider the challenges that the second the enterprise to be in a position generation had to face have not to establish formal tools to been successfully met, the firm develop a more institutional will now start declining and, management so as to facilitate quite often, family relations growth of the entrepreneurial

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activity and strive for a leading Spain, where a strong family position in the market. From businesses’ association operates, that comfortable position, the important developments enterprise will have greater have been made in the field of credibility in order to attract regulatory management of the people and resources to tackle family business. Thus, in the “If the challenges that new projects or to enhance following pages we will address the second generation competitiveness. Again, I this topic and the various had to face have not insist on the importance of mechanisms to be used. addressing this process through been successfully met, a holistic approach as I have When family businesses the firm will now start previously mentioned. experience a significant declining and, quite growth they usually create often, family relations I would like to propose a several corporations or legal scenario which would be organizations to carry out their will crumble as well” recommended for large family activity. For example, various business which are diversified corporations can be created to across several sectors. In any address the activity in several case, smaller firms should also countries where the business implement these tools according operates or to diversify the to the pace at which the company’s activity across several corporation grows. sectors which complement the original activity of the company To better understand this point, founded by the first generation. please see the chart 4. In these cases, the This is not designed to recommendation for reasons specifically address the legal of tax optimization and legal and tax-related aspects that protection –although I insist, family organizations need to this point has to be reviewed tackle, nor is this the author’s in each specific geographic area of expertise. Therefore, this area since tax regulation might analysis will mainly focus on the greatly vary between countries, strategic, business and family- regions or cities within the same related features that justify the country– is to create a holding use of these tools and the ways corporation. Moreover, from to optimize their use. However, a managerial point of view, it behind some of these decisions, allows the corporation to create there are also clear possibilities synergies and achieve a sound of optimizing the legal and tax external image of the business aspects, in accordance with the group. This holding corporation legal framework established by will have the shares of all family each country and, logically, it is members and will act as partner always worth hiring experts in in the various businesses of trade, tax and civil law to have the family. In turn, both the their advice in order to tackle holding and the remaining projects of this importance. corporations shall have their own Incidentally, in countries like Board of Directors, focused on

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strategic elements and a Steering reasons of convenience and Committee to manage matters of efficient operationalization, a more tactical nature. cannot hold all members of the family, regardless of its size, it In order to keep the essential is important to create a tool, separation between family the Family Assembly, where and business two institutions the whole family shall meet should be formally established: and whose main objective is to the Board of Directors for the inform the current status of the governance of business-related enterprise and ensure family affairs and the Family Council harmony and coexistence. to manage family-related issues. Since the Family Council, for In turn, the main rules of the game of coexistence between family and business are Chart 4: Organizational lay-out of the entrepreneurial family contained in the protocol, a document similar to what the constitution is to a country, ENTREPRE- and which states the great FAMILY FAMILY NEURIAL ASSEMBLY COUNCIL principles that shall govern FAMILY the management thereof. Subsequently, it shall detail the laws and regulations as occurs in family businesses HOLDING COMPANY Marital Contracts with specific decisions that Wills PROTOCOL affect both the firm (pay system, marketing plans or Statutes technological investments) BOARD OF as well as the family DIRECTORS OF THE HOLDING (policies regulating how COMPANY new generations should join the company or succession planning). In turn, it is very likely for certain decisions made when the protocol is established to be subsequently Enterprise specified in public documents Enterprise 1 Enterprise 2 owner of real estate assets such as marital contracts, wills or corporate bylaws.

I must confess that it is much more important for the family Board of Board of Board of to know that certain situations Directors Directors Directors must be anticipated and this requires having specific mechanisms rather than having special tools. Incidentally, experience shows that all Steering Steering Steering Committee Committee Committee

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periods of change in the life of the pressure of being in the both the business and the family spotlight of many people with are critical. high hopes...

6. A KEY PROCESS: Anyhow, the worst possible SUCCESSION scenario would be to need to “In order to keep the face this challenge without essential separation One of the most crucial previously developing, at between family processes in the management least, mechanisms to manage of a family business, given its this process. To seriously and and business two inherent desire for continuity, rigorously lead a succession institutions should be is succession. Therefore, it process, the family will ensure formally established: must be part of the discussion that both parties agree on the Board of Directors and planning of corporate carrying out this procedure, governance. whenever planning is possible. and the Family Council” MANAGERIAL SUCCESSION SUCCESSION PROCESS

First, it is important to Although this process is too understand that it is a stage complex to be broken down that stirs up many emotions if into a mere guide, for easier the family is lucky enough to understanding we will list a be able to organize it without series of logical steps that might any external circumstances help formalize the succession. rushing the process. As regards We will start from the the former leader, thoughts assumption of several possible arise about the retirement, successors –as occurs in families loss of power and influence, with various generations– and not having much time left or multiple candidates. In the fear of a new situation. The opposite case, the situation is next manager also will go much simpler and the key will through a difficult time since be to train the sole successor he needs to overcome many so that, were he willing to take doubts in order to successfully over the firm, he would be able tackle this new challenge and to meet this challenge under fulfill all expectations put on the best possible conditions. him. The new leader will also have to overcome the fear of In short, if several candidates being constantly compared were to take part in the to the prior manager –even succession process, I would more depending on the degree follow the recommendations of success achieved by the below, which each family may aforementioned leader–, modify according to their own potential insecurities entailed circumstances: by working with already- formed teams that need to • Succession debates be won through personal generally revolve around and professional respect, personal affairs. That is,

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simplifying the matter stage. From there on, it will to a mere question: Who be much simpler to better should be chosen? Juan, define the profile of the best María or Ana? I do not agree possible candidates to take with this approach and, in over the business. my opinion, this process “Succession debates should start with strategic • Once the plan has been generally revolve and business analyses so defined, the business may around personal as to answer the following appoint a family member question: What route do we or an external person for affairs” want to take? Therefore, as several reasons: there might shown in the figure below, be no family successors, succession must be carried they might be too young or out clearly knowing where they could prefer to work in we want to go. Precisely, a different sector. one of the advantages of a rigorous succession is In the second case, the that it allows to define a company could still continue strategic business plan for with its original features, the long term –five, ten but with an external or twenty years–. Having leader. To this end, the clarified this issue, we best option is to hire the are now in the position services of a professional to define the new profile headhunter who will carry for the next master of the out the pertinent search family vessel. To continue and recruitment process with the sea metaphor, and to appoint a new manager. despite my complete lack Another possibility is of knowledge on nautical to identify a non-family issues, it is logical to think member within the that the skills of the captain company with enough of a recreational vessel who experience and sufficient sails near the Dominican skills for this position. The Republic fishing for marlin advantage of the latter is will differ from those of that the company ensures a captain who sails from that the person shares the Veracruz to Hamburg, project, family ideas, there through the Atlantic Ocean, are no doubts about his on a cargo vessel. commitment and he fits in the business. The only Thus, the succession question in this respect is process should be initiated, whether he has enough in my opinion, with the recognition within the development (or review) company; whether the of the strategic business remaining members of the plan to meet its future organization will recognize, challenges and establish the respect and support this main priorities for this new appointment. When these

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circumstances are not met – »» They have a sound or when the enterprise seeks decision-making ability. a new strong driving force– the best option is to bring an »» They are independent. external, well-known expert, who might even have an »» They are mature from easier time managing this both a personal and stage of change. professional point of view. In other cases, the lack of succession has entailed the »» The whole organization “In other cases, the sale of the company, since considers them to be a the family considered that it clear alternative thanks lack of succession has would be difficult to keep the to their professional entailed the sale of balance between the family experience and their the company, since the and the external leader. personality.

family considered that • If there were multiple This last point is extremely it would be difficult family candidates, the important so that the new to keep the balance objective would be to leader has the support of between the family and choose the most suitable the whole firm thanks to his person. Besides being achievements, professional the external leader” the best candidate to career, experience or skills successfully implement the and not only because he new business plan, there is the son of the previous are several features that leader. Incidentally, in the successors usually have: case of a clear succession because there is only »» They know the one suitable person, it is company, are committed important to keep working to it and have expressed on the aforementioned their willingness to lead points in order to enhance the new era. the credibility of the next leader both within and »» They represent the outside of the organization. family values. What I do not particularly »» They have leadership like, given the times that skills. we live in, is suggesting sexist or ageist stereotypical »» They are able to approaches. Let me be clear, manage interpersonal the eldest son does not relationships through have to be necessarily the empathy. next leader. The youngest daughter might be better »» They are good team suited to carry out the job. managers. Thus, please, stay away from

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preconceived perceptions cannot be permanent, but regarding these matters. temporary. Gender or age discrimination is a waste of talent. Sometimes certain companies appoint a In cases where several transitional leader. This candidates are real usually happens when the alternatives, this issue eventual family leader is will certainly become too young and lacks the more complex. Certain personal and professional companies decided to maturity to hold such an diversity and appoint important position. In these “Certain companies several leaders in order cases, the family appoints a decided to diversity to avoid conflicts. When person they trust, with high and appoint several implemented in businesses expertise and no ambition which diversify across to improve his position leaders in order to several unrelated sectors, within the company, to avoid conflicts” I think this might be a guide the firm during this sound solution. In other stage and also to train cases, in my opinion, the young successor. This the firm ends up losing process is very interesting the advantage of having and enriching, particularly synergies and has critical when a sound temporary sizes to compete, thus leader is appointed. This the option of diversifying leader must understand becomes less attractive. that he is carrying out a In the aforementioned transitional work, for a approach personal fixed period of time and interests prevail over should not seek to become business interests. an alternative to the family leader –and the latter There have also been cases should not feel this way where the corporation either–. On the opposite, decided to implement a the key is for the future co-presidency to avoid leader to completely trust taking sides between the moral authority that two potential candidates. his mentor has acquired If the skills of both are thanks to his experience different, yet complement and knowledge. Thus, it each other’s abilities, as is important to appoint well as their interest areas someone with no ambition and a sound culture of to move up in the company. consensus, mutual respect and loyalty is created along • Once the successor has with efficient coordination been appointed, a detailed mechanisms, the structure succession planning should might work. Although in my be agreed with him. This opinion, these mechanisms plan might greatly vary

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depending on the features process and the role of the and circumstances of the current leader is essential company and the people to implement it. Companies involved in this processes. should not make the mistake to confuse succession and • And with all the homework cloning; it is impossible to have done, let us be blessed exactly the same leader twice. by luck during the On the opposite, the successor implementation of the should be a new entrepreneur, succession process. This a business leader capable of basically means the same as guiding the entrepreneurial hoping that the successor management that we promote. “There have also rises to the occasion, does been cases where the not give in to pressure and In general, many people are shows the same capacity involved in these complex corporation decided that he has developed in processes: not only the family, to implement a co- other positions where he but also the Board of Directors, presidency to avoid always successfully met the key employees or external objectives. It means that the consultants. The role of the taking sides between collaboration team must latter is particularly interesting two potential give the best of itself, the when they contribute to greatly candidates” family shall unconditionally objectify a task where passion support the new leader and often prevails. Any parents will allow him to develop his agree with the fact that their action plan without any son is a better candidate than interferences and he must their nephew. preserve and transmit the set of values and principles of As regards the formalization the family. It means for the of the process, my unequivocal environment to recognize position is that the Board of him for his training and past Directors –or a similar body–, professional achievements, as the highest governing body for this transition periods to within the company, should not further complicate the appoint the new leader, process with severe sectorial, generally proposed by the personal or family-related Family Council. issues, for him to have health to fully carry out his work... SUCCESSION IN RELATION TO In short, many elements will OWNERSHIP depend on luck and in others a sound succession planning Succession as regards will definitely enhance the management should not be chances of the process being confused with succession in successful. relation to ownership. As regards ownership, it should be noted Therefore, we insist on the that, based on the principle of importance of appropriately equity and if the shares of the planning the succession company are inherited equally

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Graph 5: Lay-out organize the as younger generations become business activity in relation to management succession involved, governance conditions the agility and rigor that are so will be greatly hindered in a necessary for today’s businesses. rapid manner. DEFINE A Lastly, it should be noted NEW STRATEGIC Therefore, certain that there have been cases PLAN entrepreneurial families of families which, in order to decide to surrender ownership ensure the development of shares of the business only, or the business project, seeking to a great extent, to a/several to achieve a greater credibility descendant/s through the estate in the markets and generate IDENTIFY THE PROFILE OF THE apportionable at will provided trust both within and outside NEW LEADER by the succession law of many of the organization, have forced countries. It is increasingly all heirs to guarantee their common for the successor or permanence within the family successors that will manage group for a fixed period of time. the business to receive a larger COLLECT INFORMATION share package in order to run To sum, the transfer of shares ABOUT THE the firm on favorable terms. is a highly important issue and CANDIDATES The remaining members shall an affair on which significant be compensated by inheriting decisions should be made other family assets unrelated to to shape the future of the the business activity. business. The responsibility of entrepreneurial families forces EVALUATE THE In other cases, the company them to carefully manage this CANDIDATES might set non-voting shares point and take rigorous and that might allow their holders thought decisions in a more to obtain dividends or proceeds complex and refined context from the sale of the company than the usual environment. in the future, with the voting Therefore, I have repeatedly shares being held by the family insisted on the need to develop There are no sound There are sound internal candidates internal candidates members that are professionally communication within the involved in the management of family, both natural and in-law, the company. in relation to these points as it will contribute to the creation Search for Appoint the most external talent suitable person Sometimes, these companies of harmonious and peaceful implement majority reinforce relations and will enhance policies which promote the understanding of certain Design the agreement cultures or set decisions. succession planning mechanisms to avoid deadlocks. This issue is really important 7. FAMILY GOVERNANCE: and should be reflected upon so FAMILY COUNCIL Announce the as to avoid the aforementioned decision transfer of family values The Family Council is the towards the business, a essential governance body for misinterpreted equity in this family affairs and the space case, which creates conditions where relation policies between Implementa- that could severely hinder the family and business should be tion and luck

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designed. Its role is similar to quite often, dividends that of the Board of Directors will be allocated to the as regards business affairs. creation of future value. In this effort to carry out the Sometimes, against more necessary separation between passionate approaches, the the family and business spheres, decision might be to sell the it is necessary to create a space company which has been where families could debate and part of the family group reflect on their areas of interest for generations, but has without interfering with the ceased being profitable or “The Family Council management of the business or hast lost its strategic value. is the essential affecting it as little as possible. Another potential possibility This area is covered by the Family is keeping certain people governance body for Council in large entrepreneurial in their current position family affairs and the families, since a true Family because they might lack space where relation Assembly can be used to bring the necessary skills to hold together all members of a family high management positions policies between family if the size of the latter is not –regardless of them being and business should particularly large. relatives–. be designed” From my point of view, and The Family Council must especially as the size of the ensure maintaining the family grows, this body should support towards the have three main objectives business strategy and that are connected to the people in charge for communication to a greater or implementing it. Logically, lesser extent: the business strategy will be influenced, among other • Make the family things, by the interests and understand and support genetic code of the family. the business strategy. In this sense, this body At the present time, will be where the family many companies need to will send messages to the grow to be profitable and managers of the firm such competitive and must as the level of risk that the make decisions rapidly in family is willing to take, order to take advantage of the expected returns or the the market opportunities possibility of discarding or meet new challenges. I businesses or management understand that in these practices in accordance to new scenarios the family, the family principles. represented by the Council, must share this business • Transferring the family approach that, in certain values, its culture, occasions, might go against principles and the way it the short-term interests wants to be seen by the of some of its members. business community. As the It should be noted that, company grows, it is easy to

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understand why it would Several issues that affect the slowly have an increasing family, but not the business, number of outsiders and might be discussed too; managers who are not part whether it is the divorce of of the family and, unless the a member of the family, the family pays attention, the severe illness that a relative company might be at risk of might have and whose losing its features. Therefore, treatment might entail a the family has the legitimate significant economic outlay... interest of transferring its Lastly, this is the forum vision, mission and culture where the family interests towards the various teams, shall be defended, through a as it wants them to share single voice, thus enhancing the project that unites the coordination and efficiency. whole family and make If this body is well managed, “The Family Council them feel proud of being it will not be necessary for must ensure part of the project. In short, each member of the family maintaining the the point is to create the to personally call the CEO to feeling that the company request specific information support towards the is unique, where the end or insist on the importance business strategy and does not justify the means. of certain decisions. the people in charge The enterprise has certain behavior patterns that need Experience shows us that issues for implementing it” to be adopted. It is quite that greatly concern the family important to emphasize are usually related to monetary these own features of each affairs –dividends policy, family –which ultimately family wealth management allowed them to create an or the possibility of selling important business project– participations– and also to and make all employees the professional relations of understand this point. This family members who work in point should not be imposed, the company –possibility of but promoted so that the joining the business, required whole company believes conditions and salaries–. that these guidelines are the The Family Council is the best possible route for the perfect forum to discuss the company. aforementioned issues.

• Being the channel through Apart from these main generic which the family can objectives, the following tasks debate about their issues of are common among Family interest. This point covers Councils: many different possibilities. For example, the family • Management of the various might decide to write a book aspects covered by the about the history of the family protocol. Thus, it is family with an upcoming the space where the protocol event, such as a centenary. is implemented.

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• Addressing possible changes facilitates the understanding of the protocol, whenever of the family’s genetic code. the family circumstances or those of the environment, • Develop mechanisms to people or priorities have defend the rights and changed. interests of all members of the family –whether they • Planning and managing are partners, workers or the future of the family by none at all–. establishing a real strategic plan for the family, defining • Foster the creation of an the role to be played by atmosphere of family the former in the family harmony, specifically as “Experience shows project –which again, might regards the establishment us that issues that change as time passes and of communication links greatly concern the circumstances change–. between all members. family are usually • Ensure that the principles • Report and share the related to monetary and values of the family are business strategy and ensure affairs and also to respected, implementing that key decisions are them in the protocol or supported by the managers. the professional ethical code and transfer relations of family them into business It is advisable to have a reduced members who work management guidelines. number of people in the Council –between 5 and 11 members–, in the company” • Solve any relationship including representatives of all problem between family and sensitivities and interests which business. coexist in the company –avoiding, as far as possible, the overlap of • Promote family succession functions so as to prevent any policies –although, in my kind of conflict of interest–. This opinion, the appointment process should prioritize criteria of the leader of the business of skills and available time to should be carried out by the take on these responsibilities. In Board of Directors. In this general, the family establishes sense, the Family Council fixed periods of time to hold the might propose candidates position of family counselor – for them to be included into three/four years– so as to ease the Board of Directors or alternation, particularly in large the succession process. As families. Again, let me insist on regards the latter, the role the importance of carrying out to be played by the Family a truly rigorous work to ensure Council is highly important – the equitable presence of all particularly when an external branches of the family. A very leader is appointed– as it common situation is having an should promote the values, external consultant –especially style and projects of the at the beginning– so that the family and everything that family has external assistance

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to structure the operation of • Defining the strategy the body and provide enough of the company and its formality and rigor to the process main objectives in the which, sometimes, might be medium/long-term so that difficult to achieve given the the business is no longer trust that family relations managed in an action/ usually entail. reaction kind of way. Having the capacity to 8. BUSINESS GOVERNANCE: develop a strategic thinking BOARD OF DIRECTORS which allows anticipating “Family Council changes and being in a The Board of Directors is the position to create value separates business highest governing body of the for the shareholder in a and family, the company and the place where sustained manner. The Board of Directors the business’ strategic decisions Board is the place where splits ownership and are made. Just like the Family the business should forget Council separates business about the stress of needing management” and family, the Board of to address urgent issues, Directors splits ownership and meet its everyday tasks management. and achieve the budgetary targets for the current From my point of view, it is year in order to carry out essential for the entrepreneurial a reflection work to clearly family to take a qualitative leap define the route that the and understand that there are business must follow. In highly important matters such this sense, the Board is a as the day-to-day affairs which, platform to analyze the although not urgent, are still competitive reality through rather relevant. environmental observation or the study of the data Certainly, when talking about collected by the company the professionalization and itself. This reflection should institutionalization of the provide the planning, family business I consider objectives and resources that the first element that that the company needs should undergo this process in order to achieve the is its governing body. expected results which, Professionalizing a company from then on, will become goes beyond hiring an external part of the foundations of Marketing Director or CEO. the long-term management of the company. This being said, I would like remind that any • Monitoring the entrepreneurial family that implementation of the seeks to achieve a leading strategic plan which, position in the market should unavoidably, depends on have its Board of Directors meet its capacity to appoint the following objectives: or remove the CEO of

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the company. Therefore, particularly important, as I already pointed this issue is incredibly out when I referred to relevant. For many authors, succession and the role myself included, some of of the Family Council, the the advantages of family family might promote the business lie in the stability implementation of the that value and principle- succession plans; but it related management is the Board of Directors provides, as well as long- who has the final say. In term approaches, the a broad sense, this body psychological advantage should ensure the sound that employees and “The Board of governance of the business, managers have since they Directors should guarantee it does not lose know for whom and with ensure the sound the strategic focus and whom they work as well be in a position to offer as the sense of pride in governance of the satisfactory feedback to its belonging to the company. business, guarantee stakeholders. Certainly, these issues do it does not lose the not magically happen, • Being the institutional but need to be achieved strategic focus and be representative of the through work and, in my in a position to offer business before the opinion, this task should be satisfactory feedback business community. preserved and enhanced by Besides the issues related to the highest governing body to its stakeholders” sound governance that we of society. mentioned in the previous paragraph, the truth is Meeting these objectives makes that the management it possible to create a list of of stakeholders requires tasks that can be assigned to developing certain the Board of Directors, some relationships –whose of which –as can be easily standards are usually understood– will disappear established by the Board–. once they have been achieved, It is even usual for Board while others will be permanent. representatives to carry out We can therefore highlight the this work directly. following tasks:

• Ensuring that the interests • Working to align the of the family, its values interests of both the and culture are kept and company and the family, become part of how the defining the pertinent company acts. In this policies to this end and way, the Board acts as a establishing communication communication body with mechanisms between both the Family Council through groups. the mechanisms that the protocol establishes. Even • Approving the strategic plan though it might not seem and the annual budget.

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• Defining strategies and • Taking part in the succession objectives in the medium and process according to the role long-term. it has to play in each case.

• Developing the annual • Authorizing important accounts. corporate decisions (buyouts, mergers, strategic alliances, • Making decisions involving incorporating investment the mobilizations of funds partners, etc.). “The Board acts as that exceed an internally- a communication established figure. • Defining and taking part in crisis policies. body with the Family • Creating reporting systems Council through the for the Board to have • Promote policies that might mechanisms that the valuable and efficient be, at a given time, on the information to make agenda of priorities of the protocol establishes” strategic decisions. company.

• Defining long-financing In many cases, tasks that were policies which ensure the initially responsibility of the availability of resources to Board might be delegated to implement future growth the Steering Committee for plans. their implementation and/or follow-up once the Board has • Appointing the CEO and, made the decision. Likewise, as where appropriate, the the company grows, there are management team as well as changes in relation to the issues organizing the pay systems to be managed by the Board. and the organizational Such is the case, for example, structures of the company. with modernization processes of the management systems. • Ensuring that the company During a specific period, it might has the means, tools and have been the Board which processes that the strategic promoted and monitored the plan requires. process but after some time, it becomes a responsibility of the • Defining and taking part in pertinent executive department. the institutional policy of the company. As regards the composition of the Board, it should gather • Guaranteeing that the a sufficiently large group as company has a good to represent all interests but, corporate reputation and at the same time, remains its behavior is socially small enough to be efficient in responsible. the decision-making process. Therefore, a figure between 5 and 13 might be appropriate to meet both conditions. It is

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clear that the membership of IPO, modernization the Board should be reserved to of management and people with enough expertise, implementation of new training and skills to efficiently management practices or manage the important relations with institutions affairs that the Board has particularly in regulated to face and which cover the sectors. Their role is very previously described areas. important, as they provide Thus, in compliance with the objectivity in the debates previous statement, it would be that might confront “In many cases, tasks reasonable to include: opposite interests –as is the case with directing that were initially • Representatives from all shareholders and responsibility of Groups of Shareholders, shareholders that do not the Board might which in a large family work in the company–. business translates into a In order to be considered be delegated to the counselor for every family independent, they can Steering Committee for branch who owns of a neither work for the their implementation considerable percentage of company, nor have family and/or follow-up once the shares of the company. ties with shareholders or the It is also common for Upper Management of the the Board has made minority groups to unionize organization. the decision” to combine a percentage of capital so as to acquire • There might be managers a seat on the Board. mainly represented by the Moreover, if the business Managing Director in order has non-family partners, to ensure the necessary they are usually given a seat sensitivity towards the on the Board depending on business and the status of the agreements that have the company as perceived been reached between both by those who see it on a parties. daily basis. They are the Executive Directors. • External Directors –also known as “Independent The most important objective Directors” in certain is making sure that the Council countries– who provide works in a rather executive expertise in important way. As previously stated, business strategic affairs the competitiveness index of and, in general, in corporate the company is given by the governance matters. It is degree of functioning of the common to include people Board. To this end, certain with recognized expertise obvious conditions need to in critical areas for the be met: establishing an early business at a given time, schedule of annual meetings, such as: internationalization, set a specific agenda of issues search and connection for each meeting and even with investing partners, establishing a time schedule

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for each of the issues, send this model. Therefore, based all pertinent information in on the pragmatism of the relation to these issues to evidence, the aforementioned the Board members before approach is perfect. the meeting... And having independent directors to enrich In a classical example, the “Having independent the debate thanks to their leader is expected to be replaced directors to enrich the expertise in important areas by other members of the family debate thanks to their for the company as well as –men or women of the next providing objectivity by basing generations– who are expected expertise in important their analysis on pure reason to become a replica of the areas for the company and not belonging to specific previous manager. And it was as well as providing interest groups. also thought that perpetuating a specific business activity was objectivity” 9. CONCLUSION. THE the element that united the PARADIGM SHIFT IN family and created a legacy. FAMILY BUSINESS: FROM AN ABSOLUTE Lastly, in this traditional MONARCHY TO A approach, absolute FEDERAL REPUBLIC? shareholding control would rest with the family. Let me insist My intention with this on this point, evidence shows provocative heading is not to several examples of the benefits create a political confrontation, that the classical approach but to facilitate the debate about entailed. the future of the family business and its governance. A future But, let us not forget the fact that, marked by leadership, as I have when the family business started already mentioned several times being analyzed and doctrinal in this paper. principles on good management were established, the world There is a classical conception was quite different, despite this of the family business that phenomenon taking place only has always reminded me of two or three decades ago. absolute monarchies. Based on these assumptions, the Our world is one where the family business was founded most valuable and better- by a hyper-charismatic leader valued companies to work are with exceptional qualities that the classical firms of digital ranged from an astonishing economy and technology. intelligence to an innate Apple, Facebook, LinkedIn, gift to identify business Twitter, Google, Amazon, opportunities, a brutal working Yahoo... A world where a capacity and incredible mere group of 50 people can commercial skills. If we take a create such a huge project closer look, many of the family as WhatsApp, whose actual businesses, particularly among sale value amounts to USD successful ones, implemented 16 billion and has almost 500

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million clients every month. non-family CEOs and having Or a world that has recently family members in governance witnessed how Alibaba bodies, selling the traditional obtained a world record figure business to carry out new with the largest IPO ever. Can activities, creation of business the continuity of a family conglomerates that cover other business be guaranteed in this sectors under the leadership of “There is a classical society of change through the new generations, integration conception of the exploitation of the same type of family businesses into of business that the founder larger groups to better face the family business that created? Is the character of challenges that globalization has always reminded the family business lost by poses, etc. In short, an infinite me of absolute carrying out businesses with number of strategies and monarchies” non-family shareholders? decisions that, in my opinion, Does the business lose its would not remove the family family nature by selling the business’ nature from these traditional business at a given companies. Actions that, time? Is it simple to find a at the end of the day, and successor with the exact following the example of the same features as the previous forms of governance that leader, who had an exceptional countries have, are much more entrepreneur quality? The similar to a Federal Republic. answer to these questions Underlying this issue lays probably translates into a the idea of an evolution of new perception of the family the entrepreneurial family business. A new concept that, model, of the perpetuation in my opinion, and with the of a specific activity towards uttermost respect for the the creation of shared value traditional model, is much through generations. This better suited to face the new evolution of paradigms arises context. In fact, we are already during the strategic debate witnessing situations –which when family companies are even slowly becoming implement their corporate referents– such as: appointing governance bodies.

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Author

Manuel Bermejo is Director of Executive Education and Professor at IE Business School in the areas of corporate governance, entrepreneurship, family business, private equity and franchise. Over more than two decades of pro- fessional life he has combined his work in IE with senior management and corporate governance duties in differ- ent companies operating in sectors such as private equity, entertainment, technologies, food processing and industry. He is the author of the following books: Hacia la empresa Familiar Líder (Finan- cial Times Prentice Hall, 2008), Gente Emprendedora, Gente de calidad (Plataforma Editorial, 2013); and co-author, among others, of: La reputac- ión de la empresa familiar (Fundación Nexia, 2012), Aquí quien manda: le- vantando el mapa del poder de las organizaciones del siglo XXI (Financial Times Prentice Hall, 2011), Crea tu propia empresa (McGraw Hill, 2003). www.mabermejo.com [email protected]

152 The multilatinas by Ramón Casilda

Madrid, June 2015 THE MULTILATINAS

PRESENTATION

The changes undergone by the business world during the last PRESENTATION BY ALEJANDRO ROMERO decade and, more specifically, by Latin American organizations, can be clearly seen: many multinational corporations have increased THE MULTILATINAS BY RAMÓN their investments in emerging countries such as Brazil, China CASILDA, PROFESSOR AND or South Africa. Until recently, the latter were mere receptors of IBEROAMERICAN BUSINESSES CONSULTANT foreign investment, and have now become important investors in international markets. 1. A GLANCE AT THE LATIN AMERICAN ECONOMY 2. DEFINING THE This is the case of the Multilatinas, Latin American business MULTINATIONAL ENTERPRISE groups that are part of the known as “emerging multinational 3. DEFINING THE MULTILATINAS organizations”. This idea may match the definition and objectives 4. REGIONAL EXPANSION OF of multinationals. However, in this case, this organizational MULTILATINAS conglomerate belongs to a single region: Latin America. 5. INTERNATIONAL EXPANSION 6. BEYOND REGIONAL BORDERS Even though Latin American corporations have been part of the 7. THE WORLD’S LARGEST markets for centuries, it is necessary to understand the financial MULTINATIONAL AND MULTI- importance and strength that they currently hold, competing with LATIN CORPORATIONS the largest business groups around the world and, sometimes, even 8. PROSPECTS OF MULTILATINAS, reaching leading positions, as in the case of Latin American airlines, MORE PROMINENCE AND a sector where regional companies prevail and which Ramón GREATER RESPONSIBILITY Casilda thoroughly analyzes in this paper.

The value of multinationals for the countries in which they operate cannot be denied, and particularly now in a period where the Latin American region will experience an economic slowdown and negative forecasts have been made as regards the development of the region compared to that of recent years. Multilatinas have become a key element to enhance the economic forecasts of the region. However, it is crucial for these businesses to focus their business strategy in innovation, an essential feature which will help them be competitive in other business environments, beyond the regions that they already control.

This international and regional expansion of Multilatinas cannot be explained through an intelligible mathematical formula; but through foundations that have made it possible for these businesses to be successful and achieve leading positions in their markets. Ramón Casilda identifies five competitive advantages that improve their presence in the business environment: a high-quality upper management, access to capital market and founding tools, leadership in the local market, acquisitions and joint ventures and a sound corporate governance.

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Therefore, these are part of the conditions that other Latin American companies will need to meet in order to become Multilatinas, although they will face a highly competitive market. Besides the already known leading Multilatinas, almost all of them state-owned organizations from the petrochemical, energy and commodity sectors such as Pemex, Petrobras and YPF, there are several private Multilatinas across all sectors. The latter includes companies such as Mexican Gruma and Bimbo, Brazilian enterprise JBS-Friboi or the largest cement company in the world, the Mexican organization Cemex.

Special attention should be paid to Multilatinas located in Spain, a market where they have found a niche through which they can penetrate into Europe. Their entry into the Spanish economy can be partially explained through the historical, cultural and linguistic ties that link them and also thanks to the facilities that Spain provides to any organization willing to invest.

At this point, it would be interesting to wonder what the future of the Multilatinas will be: Will they become responsable for the changing of the economic map in the next decade? Everything suggests that their expansion will gradually increase and this will provide greater potential and international influence to Latin America.

Alejandro Romero Partner and CEO of LLORENTE & CUENCA in Latin America

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1. A GLANCE AT THE LATIN as in 2014 and almost 1 percentage AMERICAN ECONOMY point below our previous forecast “The region is now (October, 2014)2. The challenging Latin America (LA) has a GDP of external circumstances are an expected to grow USD 5,657 billion, which accounts important burden for many by 1.3%” for 8% of the global wealth, countries. But it is not too late to and a population of around 588 define a list of resolutions for the million people, comprising 8.5% New Year in order to address the of the world’s population. The internal weaknesses and improve region has grown over the past the growth prospects”. three decades, also managing to reduce poverty and raise The prices of commodities the income level of its citizens have continued dropping due to USD 9,536 at current prices to the unexpected weakening or USD 13,000 according to of the demand in several major purchasing power parity (PPP)1. economies, such as China. The However, it still has not been best example was oil, where the able to close the welfare gaps growth of supply has also played between the region and more an important role in relation to developed countries. the price drop. In this context, the IMF revised the forecast for The region is slowly losing its world economic growth to 3.5% increasingly important role in 2015. The growth prospects within the global arena. Experts in the U.S. have improved, but and international organizations the weak state of the Eurozone, have downgraded its growth China and Japan is affecting the forecasts due to a mild, yet global activity. persistent, generalized slowdown. Every New Year usually gives Within the context of global rise to renewed optimism, but economy, in general, it is the prevailing feeling among expected that the fall in oil many Latin American countries prices will be neutral for Latin is that of anxiety, as 2015 began America and the Caribbean as a with a further reduction in the whole, but the effects at national growth expectations, according level will greatly differ (Table 1). to Alejandro Werner, Director of the Western Hemisphere In 2015 it grew by 3%, in 2013 by Department of the International 2.5% and in 2014 by 0.8%, figures Monetary Fund (IMF): “The well below the ones recorded in region is now expected to grow the years before the crisis (4%-5%). by 1.3%, about the same low rate South America fell sharply due

1 For more information, see: Ramón Casilda Béjar (2015): Crisis y Reinvención del Capitalismo: Capitalismo Global Interactivo (Crisis and Reinvention reinvention of capitalism: interactive global capitalism”). Editorial Tecnos. Madrid. 2 FMI. Regional Economic Outlook (October, 2014): América Latina y el Caribe: Enfrentando tiempos complejos (Latin America and the Caribbean: facing complex times). Washington.

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to internal factors, worsened through the recovery of high- by the economic slowdown income countries, as well as that most of its international the arrival of major capital business partners suffered and flows which should rise the the severe consequences in GDP to an average of 2.6% some of the major economies between 2015 and 2017. However, entailed by the global drop the possibility of a stronger in prices of commodities. On slowdown in China and a sharper the other hand, the growth of fall in prices of commodities and Mexico and Central America oil pose significant risks (GEP, has stabilized thanks to the January 2015). strengthening of the U.S. activity (WB, Global Economic In order to achieve a long- Prospects, January 2015)3. term growth, it is essential to implement structural reforms Similarly to international and, in general, promote access organizations, most analysts to more diverse funding sources consider that there will be and vastly enhance the business some recovery as a result of environment and climate. This exports which will be boosted environment is also suffering these negative consequences and, according to a study carried Table 1. Latin America and the Caribbean: growth of real GDP (percentage) out by the Brazilian Foundation Getulio Vargas (FGV, October 2014 2015 2014), has recorded its lowest LATIN AMERICA AND THE CARIBBEAN1 1.2 1.3 level since July 2009. The same FINANCIALLY INTEGRATED ECONOMIES2 2.4 2.8 has happened to the economic NORTH AMERICA CANADA 2.4 2.3 climate index, which dropped MEXICO 2.1 3.2 from the 84-points mark in July 4 UNITED STATES 2.4 3.6 2014 to 75- points by January 2015 . SOUTH AMERICA This is the lowest score in over ARGENTINA -0.4 -1.3 five years (July 2009), when the BRAZIL 0.1 0.3 region was suffering the effects CHILE 1.7 2.8 of the international economic COLOMBIA 4.8 3.8 crisis. These 75 points are below PERU 2.5 4.0 the average of the last ten years, VENEZUELA -4,0 -7.0 which stood at 102 points. CENTRAL AMERICA3 3.7 3.8 THE CARIBBEAN The study warns that this has 4 ECONOMIES DEPENDENT ON TOURISM 1.4 2.0 been the fifth consecutive 5 NATURAL RESOURCE EXPORTING COUNTRIES 2.6 2.9 quarter in which Latin America

Sources: IMF, Perpectives for global economy (WEO report) and calculations from technical staff at IMF 3 1Weighted average by PPA. World Bank (January, 2015): Global Eco- 2Simple average of Brazil, Chile, Colombia, Mexico, Peru and Uruguay. nomic Prospects: Washington. 3 Simple average of Belice, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua 4 Survey conducted quarterly by the FGV in and Panama. partnership with the Institute of Economic 4Simple average of Bahamas, Barbados, Jamaica and States member of Eastern Ca- ribbean Currency Union (ECCU). Studies of the University of Munich among 5Simple average of Guyaba, Suriname, Trinidad and Tobago 1,071 experts of 117 countries.

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continued at a negative level. funding through stock markets The fall of the business climate for smaller companies, which “The access of in Latin America contrasted with would help them to grow and the slight global improvement gain importance. enterprises to capital thereof, rising from 105 points markets is limited” in October 2014 to 106 points In this regard, the World in January 2015, fostered by a Bank, in its report: El better environment both in the emprendimiento en América U.S. and the EU, where the index Latina: Muchas empresas y poca rose from 104 points to 113 points innovación (Latin American in three months and a slow entrepreneurs: many firms but improvement is taking place in little innovation)5, states that: Japan and Spain. “60% of the Latin American employees work in enterprises As regards promoting access with five or less people. Thus, to more diverse funding entrepreneurship in the region sources, the global economic is high, but the companies that crisis has taught us one of the survive, grow at a much slower most significant lessons. The pace than those in other regions World Federation of Exchanges of average income. The economic confirms that the Santiago Stock outlook in Latin America is such Exchange (Chile) and Bovespa that business starts as small (Brazil) are among the exchanges enterprises and remain small. that have channeled the most There is no problem with being funding to their respective small, but remaining small enterprises in 2013. In aggregate forever is a problem for survival”. terms, the stock exchanges of the region have translated into Moreover, size is not always over USD 50 billion, a figure that the best indicator of growth doubled the previous one. This potential and quality jobs. In is good news, as it shows the fact, many multinational firms right path and the progressive in Latin America are much less improvement that all countries innovative and Multilatinas also should strive for. However, suffer from a lack of innovation similarly to the situation in Spain which affects their dynamism, and other European countries, that is, their competitiveness. the access of enterprises to Thus, the report suggests capital markets is limited, as the creation of an economic these are mainly reserved for environment that promotes major companies. Thus, there is innovation and competitiveness, a common objective; granting therefore reducing the power a broader and deeper access to of monopolies, improving

5 Ramón Casilda Béjar. Coordinator, with the World Bank, of the Conference: Retos y oportunidades del emprendimiento en América Latina (Entrepreneurial challenges and opportunities in Latin America). Fundación Ramón Areces. Madrid, June 24, 2014. www.worldbank.org/content/dam/Worldbank/document/LAC/ LatinAmericanEntrepreneurs.pdf

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productivity and diversifying the but 80% lower than the per capita risks6. Furthermore, the report income of a developed country. “Latin America is shows that multi-Latin companies This translates into a decline of launch their products at a slower its relative position: 50 years ago a middle-income pace than their counterparts in the region was in a much better region” other developing countries. In condition compared to the rest fact, in Ecuador, Peru, Jamaica, of the world and, despite recent Mexico and Venezuela the launch developments, it has been unable rate of new products is less to converge with, for example, the than half of that in Thailand or U.S. (IDB, Rethinking productive Macedonia and well below the development)8. rate recorded in South Korea. 2. DEFINING THE Consequently, this lack of MULTINATIONAL innovation hurts competitiveness, ENTERPRISE slows down growth and affects the creation of quality jobs, and Collective nouns are a useful thus, the desired virtuous circle abstraction when defining an idea is not completed. It is a matter of or a thing with a certain degree of creating an innovative business accuracy, but are dangerous when class, where first class companies, taken as an end by themselves. those which export goods, The collective definition of services and even foreign direct “multinational” has been and still investment, as occurs with multi- is subject of discussion and debate Latin companies, start competing within specialized literature, with multinational enterprises of largely due to the broad diversity developed countries7. of these organizations and their evolution in time9. This whole situation might put Latin America in the known as Perhaps the most striking feature “middle income trap”. It should of multinational companies is be taken into account that Latin the amount of time it took for America is a middle-income them to obtain a collective noun region: the typical country has a and, therefore, the possibility per capita income 25% higher to of a distinct identity. This that of a typical global country, denomination was coined by

6 Retos y oportunidades del emprendimiento en América Latina (Entrepreneurial challenges and opportunities in Latin America). www.worldbank.org/content/dam/ Worldbank/document/LAC/LatinAmericanEntrepreneurs.pdf 7 World Bank Report (2014): El emprendimiento en América Latina. Muchas empresas poca innovación (Latin American Entrepreneurs. Many firms but little innovation). Office of the Chief Economist for Latin America. Washington. 8 Inter-American Development Bank. 2014 Annual Report (Edited by Gustavo Crespi, Eduardo Fernández-Arias and Ernesto Stein): Rethinking Productive Development. Sound Policies and Institutions for Economic Transformation. Washington. 9 For more information, see: Ramón Casilda Béjar (2015): Crisis y Reinvención del Capitalismo: Capitalismo Global Interactivo (Crisis and reinvention of capitalism: interactive global capitalism). Editorial Tecnos. Madrid.

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David E. Lilienthal10, during his corporation had three defining speech at the Carnegie Institute characteristics12: “This form of of Technology (April 1960): Multinational Corporations. • Has, at least, a production internationalization During the speech, Mr. Lilienthal base or some form of direct beyond the traditional referred to the special problems investment in a foreign meaning of of American companies country. It has a truly international” with industrial or business international scope, since transactions abroad with direct its management makes the management responsibility, fundamental decisions about offering the following definition: marketing, production and “I would like to define such research according to the corporations –which have their available global alternatives. home in one country but which operate and live under the laws of • The top management of other countries: as multinational the company takes full corporations” (Lilienthal, 1960)11. responsibility for foreign operations, so that the In order to obtain international division is acknowledgement of established as an independent the authorship of the department in charge of all aforementioned term, the Wall international operations. Street Journal had to edit his article The European Common • But, above everything, Market. “As far as I know, during multinationals should be my conference at the Carnegie considered as an integrated Technology, it was the first time organization. The object that the word “multinational” is to achieve the greatest was used: thus, I am inclined profits, even at the expense to think that it was me who of the interests of a coined it to refer to this form particular part of the whole. of internationalization beyond the traditional meaning of The simplest definition of a international”. In any case, it was multinational is: “a corporation positive for this term to become that owns and controls part of the economic language. productive assets in more than Lilienthal deserves the credit for a country” (Dunning, 1974). the term and his authorship and Also: “a company of a specific reasoning has been recognized, as nationality with partially or he stated that the multinational wholly owned subsidiaries

10 Initially, he was the Director of the Corporation Tennessee Valley, the Atomic Energy Agency and, since 1955, the CEO of Development and Resources Corporation in New York, jointly established with the investment bank Lazard to grant loans to less developed countries. Lazard is the parent company of the Lazard Group, a global independent investment bank with offices in 27 countries in Europe, North America, Asia, Australia, Central America and South America. 11 Fieldhouse (1990). 12 Business Week. New York, April 25, 1963.

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within at least one other companies into multinationals national economy” (Gilpin, 2001). similar to U.S. multinational “The common A more detailed one: “company corporations. Unlike the U.S., the that conducts its activities at European boom in the growth of element is the an international level, without external businesses was marked control of a business taking into account national by horizontal integration, with activity abroad” borders, designing its actions the removal of competitors and, based on a strategy managed thus, an increase in the degree of by the corporate center, that is, business concentration. its headquarters, located in the country of origin (Vernon, 1971). However, Japanese multinational enterprises As can be seen in the above are more recent. During the definitions, the common 60s and, particularly, the 70s denominator or common Japan considerably acquired element is the control of a importance within the global business activity abroad being arena through exports. This rose present in, at least, two countries, during the 80s, when the trade one being the origin country balance showed a significant (the one to which the company surplus as regards the U.S. and belongs) and the other being the the EEC, which led to both country where the company is countries pressuring Japan to established (where the country give greater facilities to import owns assets or has subsidiaries). industrial products from abroad. The response was to increase The multinational enterprise capital export through direct is considered to be a historical investments in third countries, a continuation of the great modern prominent strategy in the 80s. industrial corporation. It can be said that, as we know them In all this corporate policy, the today, their development started incredibly powerful Ministry of after WWII, during the 50s and International Trade and Industry 60s, a time that greatly promoted (MITI) played a quite important agreements or arrangements role, as it was responsible for of collaboration between the creation, for many years, of businesses, which led to the the policies that would increase proliferation of horizontal and industrial growth, ensuring vertical integration processes. that the capital was channeled Consequently, multi-sectorial towards the most productive enterprises greatly developed, sectors of the Japanese economy entailing the creation of and also avoided the proliferation industrial groups. of widespread destructive industrial processes. The MITI Mergers, takeovers and was considered to be the ministry acquisitions in the European with the largest direct influence Economic Community (EEC), on the economy of a country. during the 60s and the 70s, transformed large European

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According to these definitions benefiting from good economic and conceptualization of the times, mainly due to higher “Local companies multinational corporation, it could prices of raw materials, which be said that their nature is defined increased thanks to the strong that started by the control and ownership they Chinese demand and a favorable conducting business hold in the various countries in international environment. across the Americas” which they operate. Just like multinationals, which 3. DEFINING THE originated from industrial MULTILATINAS and mining manufacturing companies, Multilatinas first Originally, Multilatinas were started among the mining defined by the magazine sector and then expanded to América Economía in 1996. the industrial manufacturing Its aim was to describe local sector, finally reaching fields as companies that started diverse as the cement industry, conducting business across the construction and engineering, Americas. In this sense, it could cosmetics, agribusiness, biofuels, be said that collective nouns are food, telecommunications, steel, a useful abstraction when they petrochemical, audiovisual, define an idea or a thing with a distribution, department stores certain degree of accuracy. or aircrafts.

Their origin, which took place The closest example of during the 90s, coincided with Multilatinas can be found in a general context of economic the “Spanish multinationals”13 boom in the region (although (which I have been analyzing with ups and downs), and and following up since they the implementation of the began their internationalization Washington Consensus, whose process across the region), policies facilitated the changes which also capitalized on the that Latin American economies economic momentum and experienced during the last three context with the incorporation decades, which led to a greater of Spain to the European productive modernization and Union and the Single Market. transformation as well as the Since the Spanish economy international integration thanks has leading multinationals, to increased openness and its transformation has been liberalization. And all of this, significant as regards its

13 For more information, see; Ramón Casilda Béjar (2002): La década dorada. Economía e inversiones españolas en América Latina 1990-2000 (The golden decade. Spanish inves- tment and economy in Latin America 1990-2000). Ediciones de la Universidad de Alcalá. Madrid; (2008): La gran apuesta. Globalización y multinacionales españolas en América Latina. Análisis de sus protagonistas (The great bet. Globalization and Spanish multina- tional enterprises in Latin America. Analyzing the players). Editorial Granica and Norma Editorial. Barcelona and Bogota; (2011): Multinacionales españolas en un mundo global y multipolar (Spanish multinational enterprises in a global and multipolar world). ESIC Editorial. Business & Marketing School. Madrid.

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dimension, organization, 2014 the top position with 14 modernization and international organizations, followed by “The regional scope, and thus Spain’s weight Mexico with 12, Chile with 11 has prominently increased, and closing the list, Colombia, expansion were becoming an important Peru and Argentina with 3 favored by the international player. respectively (Table 2). implementation of several trade 4. REGIONAL EXPANSION During 2014, the total sales of OF MULTILATINAS the top 50 Multilatinas grew agreements” by 29% over the previous year. The regional expansion of A first analysis shows that the Multilatinas, as previously internationalization of the described, coincided with a operations is a good way to general positive economic protect the enterprise against context and a favorable the economic policies of each international environment, country (economic cycle), which was crucial for the start while risks are diversified and of a vigorous growth cycle synergies exploited. throughout the region, entailing excellent results which, in Over the last two decades, turn, led to an increase in the Multilatinas have gradually confidence of investors in their expanded throughout the respective countries. region and, thus, across the international markets, promoted, The regional expansion strategies as previously described, by which sought to achieve the economic liberalization greater size, diversification and and openness policies of the benefits, were favored by the Washington Consensus, but implementation of several trade also, and this point has to be agreements whose objective reminded, thanks to the open was the promotion of regional regionalism of the ECLAC. integration through exchanges between the various economies The implemented growth that take part in these regional strategies are various and are treaties and have participated strongly influenced by the with different intensity, such as: singularities of the countries of MERCOSUR, CAN, CARICOM origin and destination, although and more recently the Pacific they share certain common Alliance14. points. For example, Chilean companies still lead the ranking According to the data annually of mergers and acquisitions. An published by the magazine illustrative example is the merger América Economía, which between Chilean airline LAN ranks the 50 most important Chile and Brazilian TAM, which Multilatinas, Brazil held in resulted in “LATAM”, among

14 Ramón Casilda Béjar (10-06-13): La Alianza del Pacífico y la Cumbre de Cali(“The Pacific Alliance and the Cali Summit”). www.economia.elpais.com

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Table 2. The 50 largest private Multilatinas in 2014 the top 10 airlines worldwide, providing transport services for % 2014 RAN- COUN- passengers and cargo to over a MULTI-LATIN ENTERPRISE SECTOR SALES 2013 EMPLOYEES KING TRY ABROAD hundred destinations in twenty

1 CEMEX MEX CEMENT 14,953.90 77.7 countries. A similar strategy 2 LATAM CHI AIRLINE 13,266.10 77 was carried out by the largest 3 BRIGHTSTAR USA/BO TELECOM 10,600.00 84 private Brazilian Bank, Itaú, 4 GRUPO JBS - FRIBOI BRA FOOD 39,658.00 59.2 which merged its subsidiary in 5 SUDAMERICANA DE VAPORES CHI SHIPPING 3,206.00 83.1 6 TENARIS ARG METAL 10,597.00 74 Chile with Corp Banca Colombia, 7 TERNIUM ARG METAL 8,530.00 70 through which the Brazilian 8 AVIANCA-TACA CO/SV AIRLINE 4,609.60 70 company was granted access 9 MEXICHEM MEX PETROCHEMICAL 5,177.00 72 to the markets of Colombia, 10 AJEGROUP PER ALCOH. BEVERAGES 1,745.00 77.7 Peru and Central America. The 11 TELMEX MEX TELECOM 10,277.10 75 12 GERDAU BRA METAL 17,016.60 55 resulting company: Itaú Corp 13 GRUMA MEX FOOD 4,138.00 58.8 Banca, will have Itaú Unibanco 14 AMÉRICA MÓVIL MEX TELECOM 60,079.70 58 and Corp Group as main 15 MASISA CHI MANUFACTURING 1,364.70 68.4 shareholders. 16 ARAUCO CHI PAPER 5,145.50 37.6 17 CENCOSUD CHI RETAIL 19,648.00 60.3 AUTOMOTIVE COM- 18 NEMAK MEX 4,390.90 49.5 This shows that the Latin PONENTS American business map is 19 SONDA CHI SOFTWARE 1,277.30 72.5 20 SIGMA MEX FOOD 3,744.10 95.2 subject to rapid changes and 21 ARTECOLA BRA CHEMICAL 128,196.00 61.6 variations, as evidenced by the 22 EMBOTELLADORA ANDINA CHI ALCOHOL BEVERAGES 2,905.30 77.9 intense activity that Colombian 23 CMPC CHI PAPER 4,974.50 43.8 and Chilean groups are carrying 24 MARFRIG BRA FOOD 8,007.20 30.9 25 I NDRA BRA MULTISECTOR 4,011.60 53.7 out, having acquired important 26 COPA AI RLI NES PAN AIRLINE 2,608,30 24 European multinationals that 27 GRUPO ALFA MEX MULTISECTOR 15,560.30 28.9 decided to leave the region. 28 ISA (I NTERCONEX ELEC) COL ENERGY 1,872.70 63.3 Among the latest transactions, 29 FEMSA (3) MEX BEVERAGES 19,640.40 21.8 30 GRUPO BELCORP PER CHEMICAL 1,963.00 79 the following stand out: 31 GRUPO BIMBO MEX FOOD 13,785.00 39.8 AUTOMOTIVE COM- 32 MARCOPOLO BRA 1,766.80 60.2 • Grupo Aval (Colombia): PONENTS 33 PDVSA VEN OIL/GAS 116,256.00 6 Purchased Banco BAC 34 IMPSA ARG ENERGY 689.6 54.8 Credomatic in Central 35 SQM CHI MINING 2,203.00 4.4 America, financial arm of 36 MADECO CHI MANUFACTURING 415.9 75 General Electric, for USD 37 VALE BRA MINING 43,323.50 19.1 38 COCA-COLA FEMSA MEX ALCOHOL BEVERAGES 11,931.70 47.7 1.9 billion. 39 LOCALI ZA BRA LOGISTICS 1,483.80 93.4 40 WEG BRA MANUFACTURING 2,915.10 18.2 • Grupo Aval (Colombia): 41 GRUPO NUTRESA COL FOOD 3,156.10 32.8 Acquired AFP Horizonte in 42 PETROBRAS BRA OIL/GAS 130,150.30 11.6 43 POLLO CAMPERO GUA FOOD 400 47.8 Colombia previously owned PHARMACEUTICAL/ 44 NATURA BRA 2,966.70 80.2 by BBVA for USD 530 million. CHEMICAL 45 CONSTRUTORA ODEBRECHT BRA CONSTRUCTION 4,101.50 32 46 GRUPO MODELO MEX BEVERAGES 6,771.70 7 • Grupo Aval (Colombia): 47 SUZANO PAPEL E CELULOSE BRA PAPER 2,428.30 6 Controls Editorial El Tiempo 48 ALICORP PER FOOD 2,047.80 46.7 of Spanish Grupo Planeta 49 METALFRIO BRA ELECTRO. 344.1 53 after purchasing it for USD 50 FALABELLA CHI RETAIL 12,653.30 47.7 300 million. Source: América Economía. Ranking 2014. Santiago de Chile.

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• Grupo Aval (Colombia): • Cencosud (Chile): Acquired Acquired the historical French hypermarket subsidiary of BBVA in Carrefour and its stores in Panama for USD 646 million. Colombia for USD 2.6 billion.

• Davivienda (Colombia): • Compañía Sud Americana de Took over the operation of Vapores (Chile): merged with HSBC (UK) in Costa Rica, Hapag-Lloyd, its German Honduras and El Salvador competitor in containerized for USD 801 million. liner shipping services, becoming the fourth largest • Grupo Gilinski (Colombia): company in the sector with Took over the operation of a turnover of USD 8.7 billion. HSBC (UK) in Colombia, The headquarters will be Uruguay, Paraguay and Peru located in Hamburg and the for USD 400 million. regional center in Santiago de Chile. • Grupo Sura (Colombia): Purchased ING • Abbott Laboratories (EE. Netherlands, assets in UU.): purchased CFR pensions, insurance and Pharmaceuticals, specialized mutual funds in Chile, in generic drugs, one of Mexico, Peru, Uruguay and the largest companies Colombia. The transaction in the region as regards computed USD 3,763 million. development, production and sale of drugs, present • Grupo Argos (Colombia): in 15 Latin American Acquired several assets countries and Vietnam. It of the French cement has 7,000 employees and company Lafarge in the manages production plants U.S., with a total cost of and research centers in USD 760 million. Chile, Colombia, Peru and Argentina. The purchase • ISA (Colombia): Purchased amounted to USD 2.9 billion the subsidiary Intervial and the total cost is USD Chile of Cintra (Spain) for 3.33 billion if the debt of USD 580 million. the Chilean enterprises is added. Abbot will double its • Corpbanca (Chile): presence in the generic drugs Purchased Grupo Santander, market in Latin America and Santander Colombia, for its revenues will rise by 900 USD 1,225 million. million annually.

• Corpbanca (Chile): It should be noted that these Purchased Helm Bank in transactions show a significant Colombia for USD 1,278 change in the growth pattern, million. since until recently, these

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acquisitions were almost During the opening and exclusively carried out by liberalization of public services, “These transactions multinationals of developed which took place during the countries, such as Spain15. This 90s, it could have been thought show a significant rise of Multilatinas indicates that airlines would follow change in their excellent skills to adapt the same path as energy or the growth pattern” and transform resources to telecommunications enterprises successfully compete at a and would end up being regional level, as occurs in the controlled by foreign groups. Latin American airline sector. However, the outcome has been quite different. REGIONAL GROWTH STRATEGIES OF AIRLINES In fact, purchases by international investors were Due to their nature, the scarce and unsuccessful. airline sector is constantly The main transaction was transforming, seeking the purchase of Aerolineas expansion paths to successfully Argentinas by Iberia and compete at an international Marsans –both Spanish– before level. Competing globally is its re-nationalization in 2008. a capital-intensive project, Likewise, Continental acquired with network economies that a majority stake in Copa de facilitate the integration of Panama, an enterprises that subsidiaries in several countries did not generate the expected and the possibility of creating benefits either and thus entailed global brands. the gradual withdrawal by Continental since 2005 until it At the same time, because of its completely stepped down. strategic nature, it is a highly regulated and protected sector Contrarily to the results of by national governments. actions undertaken by foreign In fact, it is one of the few enterprises, the integration of Latin American sectors where local and regional corporations foreign owned enterprises are into the airline industry has limited by law. These factors considerably advanced in recent have resulted in a partial years. The most illustrative consolidation of the industry, example is LATAM, which was completely dominated by created through the merger regional corporations. between Chilean LAN and Brazilian TAM, currently the

15 For more information, see; Ramón Casilda Béjar (2002): La década dorada. Economía e inversiones españolas en América Latina 1990-2000 (The golden decade. Spanish inves- tment and economy in Latin America 1990-2000). (2008): La gran apuesta. Globalización y multinacionales españolas en América Latina. Análisis de sus protagonistas (The great bet. Globalization and Spanish multinational enterprises in Latin America. Analyzing the players), and; (2011): Multinacionales españolas en un mundo global y multipolar (Spanish multinational enterprises in a global and multipolar world).

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largest airline company in Latin as Copa Airlines Colombia America and the Caribbean. since 2010, the third largest “The integration of Besides operating in these two Colombian airline. countries, it is also particularly local and regional important in other Latin The Caribbean airlines, as well corporations into the American nations thanks to LAN as enterprises of other sectors, airline industry has Peru, leader airline in the Andean establish subsidiaries networks considerably advanced country and LAN Colombia in several countries to reduce and LAN Argentina, the second the operating costs in very small in recent years” most important airlines in their markets. The national airline of respective countries. Trinidad and Tobago, Caribbean Airlines, started operating in 2007 The second largest airline group to replace West Indies Airways in the region is Avianca, the (BWIA), a British company that previous Colombian national went bankrupt. In 2010, Caribbean airline, which merged in Airlines acquired the remaining 2009 with TACA Airlines16, a operations of Air Jamaica, and Central American corporation thus also became the Jamaican headquartered in El Salvador that national airline. In late 2012, previously acquired Lacsa, the Caribbean Airlines also became airline of Costa Rica, El Salvador, the national airline of Guyana. Guatemala, Honduras, Nicaragua Another important Caribbean and Peru. With its extensive airline is Leeward Islands Air operations, Avianca offers a more Transport (LIAT), a Panamanian complete services network than enterprise, co-owned by eleven its main competitors. Currently, Caribbean governments and with Grupo Avianca is owned by important hubs in Antigua and Synergy Group Corporation, Barbuda, Barbados, Saint Vincent founded by Germán Efromovich, and the Grenadines and Trinidad a Bolivian entrepreneur, of and Tobago, apart from private Brazilian and Colombian shareholders. nationality. In 2012, Synergy also tried to purchase TAP Portugal, The difference between these but the offer was rejected by the large airline groups in Latin Portuguese Government. America is, undoubtedly, its networking nature. In each The airline Copa has chosen a country of the region, the different strategy and used its operation of a group is executed base in Panama as a hub for through individual airlines, long-haul destinations for Latin subsidiaries of a parent company, America and the rest of the in order to comply with local world. The only exception was regulatory requirements the purchase of Aero República as regards limiting foreign in 2005, currently known participation in the airline

16 It was a strategic merger and both Avianca and Taca kept their corporate image. This merger sought to strengthen the services of both corporations within the region and exploit synergies.

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industry. Most of the Latin regional entrepreneurs American countries merely allow have been creative enough “The difference foreign investors to partially to operate within the legal own a national airline (often not framework of each country between these large over 50%) and limit flight airlines and exploit the expansion airline groups in on certain routes, particularly possibilities of the networks. Latin America is its as regards internal flights. networking nature” This entails an organizational Finally, it should be noted that burden for the airlines that must not all main airlines in the create this type of pan-regional region take part in this regional networks. In the case of Avianca internationalization process; and LATAM, this resulted in airlines operating in the main working with partially owned internal regional markets tend subsidiaries. to exclude themselves from this process. Thus, one of the This is the case of LAN, which largest Latin American airlines is only owns 49% of LAN Peru Aeroméxico. The Mexican airline and LAN Argentina and 45% of has implemented a completely LAN Colombia. However, these different strategy than LATAM companies are an integral part or Avianca and has focused on of LATAM, which owns aircrafts its large national network and instead of local airlines. When the connections with the U.S. TAM was purchased in 2012 by These two features (internal LAN a specific agreement had market and opportunities in the to be signed to comply with the U.S.) are probably the reason legal requirements of Brazil. why the airline did not need to Ultimately, TAM is 100% owned establish these networks. by LATAM Chile, but 80% of the decision-making rights rests Another important Latin with Brazilian investors, in American and Caribbean airline order to comply with Brazilian is Brazilian Gol, the only low-cost Law, which requires that 80% of airline, mainly focused on the the domestic airlines must be huge internal market. However, it property of nationals. Following is a growing business, which has a similar strategy, Avianca has a great room for expansion in its not completely integrated Lacsa domestic market. into its operations to keep its Costa Rican nature. Source: Author, based on ECLAC (2014): O. De Groot and Miguel The reason behind the success Pérez Ludeña: Foreign direct of these large networks investment in the Caribbean: in Latin America and the trends, determinants and Caribbean seems to be related policies. Caribbean Studies and to the lower relative size of Perspectives, Nº 35 (LC/L.3777). national markets and the ECLAC and the Caribbean Sub strong demand for various Regional Office. Port-of-Spain. flight choices across the Trinidad and Tobago. continent. Furthermore,

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It is also mandatory to highlight intra-South American growth the positive impact that multi- exchanges were those of intra- “It is essential to Latin corporations have on industry trade, both in relation such an important process as to manufacturing and resource- exploit these dynamic the “regional integration”17. This based products20. forces to incorporate occurs due to the large and them as much as increasing level of transactions, In general, Latin American possible to promote a projects and investments that economies complement each are carried out throughout other. Those specialized in the regional integration” the region, showing the production of raw materials contribution they make towards are complemented by those the enhancement, cohesion and specialized in manufacturing. integration of the Latin American INTAL considers that the region markets. Therefore, producers shows a mixed picture as regards and consumers develop an trade and identifies significant unprecedented relationship at a industry flows in 11 out of the 66 faster speed than that of treaties bilateral relations between 2003 and agreements in recent years18. and 2013. Only three economies Consequently, it is essential to (Argentina, Brazil and Uruguay) exploit these dynamic forces to have a high level of intra- incorporate them as much as industry flow, although Colombia possible to promote a regional and Ecuador are close to it. integration that, by the way, is Argentina and Brazil are the two still well below the expected level. countries with most significant intra-industry exchange; whereas In this regard, the Institute for in the other cases the two-ways the Integration of Latin America exchange is almost nonexistent. and the Caribbean (INTAL)19, It is here where multinationals shows that between 2003 and can act to revert and enhance the 2013, the trade between South intra-industry flow. American countries reached levels over those of global exports These data undoubtedly and sales of the region to the rest contribute to the debate regarding of the world. The most significant Latin American integration and

17 In the 23rd Ibero-American Summit, in Panama City, October 16-18, 2013, during the opening ceremony, the President of Panama; Ricardo Martinelli said solemnly and deeply that “integration is our future”, and added that “if we reflect on the future of the Summit, we will see that countries could find the Latin American community to be a useful tool to develop and strengthen their countries in the 21st Century”. 18 These integration agreements cover every aspect and are: ACS; ALADE; ALBA; CA-4; CAN; CARICOM; CELAC; MERCOSUR; NAFTA; OAS; OECS; ACTO; PARLACEN; SELA; SICA; UNASUR and AP. 19 INTAL is an institute part of the Inter-American Development Bank based in Buenos Aires (Argentina). 20 For more information, see technical note; Romina Gayá and Kathia Michalczewsky (May, 2014): El comercio intrarregional sudamericano: patrón exportador y flujos intra industrials (Intra-South American trade: export patterns and intraindustry flows). Insti- tute for the Integration of Latin America and the Caribbean. Buenos Aires.

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relevant conclusions can be drawn Costa Rica and Guatemala from them, both for policymakers implemented an electronic “Developments are and the private sector, since the system to file and pay business exchange flows represent one of taxes, saving over 60 hours per still being made as the key attributes of economic year in time spent in meeting regards the business integration. Diversifying the tax obligations. Uruguay passed regulatory framework regional export supply and a law that seeks to speed the in many economies in penetrating new markets as resolution of business disputes Mexican multi-Latin corporations and also implemented a system Latin America” are doing in Spain (Box 2), as well of risk-based inspection that as developing intra-industry reduces the time spent for exchange flows, creating new custom clearance. potential for trade gains as a result of economies of scale, It should be noted that Colombia incorporating technology and the is the easiest economy to do creation of business networks business. Additionally, it has entail positive effects for the led the ranking of implemented rest of the economy and foster regulatory reforms in the region regional expansion and business. since 2005, with a total of 29. For example, in 2013/2014 access to DOING BUSINESS IN LATIN credit was made easier through AMERICA a new law that enhanced the law of security in movable According to the: Doing Business assets. Peru, Mexico, Chile and 2015. Going Beyond Efficiency Puerto Rico are the other four report by World Bank Group, countries in the top 5. These developments are still being economies are among the top made as regards the business global scenarios to do business regulatory framework in in many of the studied areas. many economies in Latin For example, ten years ago, it America. Local Latin American would have taken over 33 days entrepreneurs perceived for a Peruvian entrepreneur certain improvements to do to register the transfer of a business in the last year, as property. Currently, this would the strong reformist pace to only take 6.5 days, less time improve business regulations than in the U.S. (15 days) or remained unaltered. According Austria (20.5 days). “For almost to the report, half of the regional a decade, some Latin American economies implemented, at least, economies have improved a regulatory framework reform their business environment, in between 2013 and 2014. many cases reaching levels that can be compared to the best The report states that certain global practices”, according to Latin American and Caribbean Augusto López-Claros (director economies took steps to remove of the global indicators group, the barriers for entrepreneurship development economy, World and strengthened the legal Bank Group), who considers institutions. For example both that: “broadening and speeding

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up this process would contribute theories obsolete. For some to closing the gap with the authors, now it is not enough to “Some Latin economies with the best global think that access to cheap labor, performances and would also control of natural resources and American economies boost competitiveness”. productive skills are sufficient have improved to explain these growth trends. their business In this issue, for the first time, The new trends differ from these environment” Doing Business collected approaches by pointing out, for information for a second city example, that innovation and of the 11 economies with a quality are distinctive features of population of over 100 million the main enterprises that expand people. In Brazil, the business internationally, as Multilatinas do. regulations of Sao Paulo and Rio de Janeiro are analyzed, in Mexico, This expansion has some it is Mexico City and Mexico singularities, for example, some D.F. The report shows that the argue that there are certain differences between the cities are advantages when operating under more common in indicators that close “cultural environments”, measure stages, time and cost to such as Angola, where Brazilian complete regulatory operations in Multilatinas have rapidly and which local agencies play a more successfully implemented large important role. construction, engineering and infrastructure projects. The report also shows that Singapore tops the global The proximity of the cultural ranking to do business, followed environment, as could be a by the ten main economies with common language, allows to positive environments to do develop skills more easily in business: New Zealand, Hong order to generate attitudes and Kong, China, Denmark, Republic behaviors that benefit them in of Korea, Norway, U.S., UK, relation to the form and manner Finland and Australia. of establishing relationships with their environment, this also Source: World Bank Group being the case of the Spanish (October, 2014): Doing Business companies that were widely 2015 Report: Going Beyond favored in their rapid and Efficiency. Washington. successful investment expansion across Latin America thanks 5. INTERNATIONAL to the common language21, a EXPANSION certainly valuable bond. In the process of international growth, The international expansion of the comparison between the Multilatinas has made certain institutional environment proposals related to traditional of origin and that of the

21 For more information, see; Ramón Casilda Béjar (2011): El español en el mundo. Una década de inversiones españolas en Iberoamérica (1990-2000) (Spain in the world. A decade of Spa- nish investment in Ibero-America [1990-2000]). Anuario del Instituto Cervantes. Madrid.

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destination country can provide Multilatinas companies24 such “signals” of the degree of ease as Jbs-Friboi, Embraer, Natura, “There are certain or difficulty that the enterprise Petrobrás and Vale, the two latter will encounter during its with the largest global reach advantages when internationalization process, as and presence in all continents. operating under well as regards the consequent Also, Mexican América Móvil, close ‘cultural development of their activities. Cemex, Femsa and Bimbo stand environments’” out thanks to their international According to the above, the ranking and others, such as corporation will try to establish the Chilean enterprises, should itself in the countries whose be noted because of their conditions are similar or lower dynamism; becoming leaders than those of its country in certain fields like the wine of origin, thus allowing the sector through Concha y Toro, company to take advantage of which exports wine to over 100 these conditions to increase its countries; Peruvian companies competitive advantage. This are gradually improving their hypothesis may largely reflect ranking, with Aje Group at the behavior, for example, of the top of the beverage sector, Colombian Multilatinas22 and present in over 10 countries and how they adapt to similar or Astrid & Gastón, a symbol of the better settings, the reason behind catering sector which operates in the incredibly growth in their eight countries in Latin America sales, well above those obtained and Spain. by Mexican and Brazilian organizations, which is attracting As an international recipient attention of several experts23. of FDI, Brazil is the leading country in the region and fourth As regards foreign direct worldwide. In 2013, it received investment by Multilatinas, over USD 63 billion. Regarding these have a high volatility from other BRIC countries, Russia is year to year, partly because the third with USD 94 billion, while figure that these flows generate India, fifth, received 28 billion. The is still limited and focuses on U.S. leads the ranking with USD specific projects. Some examples 159 billion followed by China with can be found among Brazilian USD 127 billion (UNCTAD, 2014).

22 Andonova, V. and Losada, M. (2010): Las nuevas multilatinas y sus retos. El caso Colombia (The new multi-Latin enterprises and their challenges. The Colombian case). Business Magazine ITAM, issue 34. Mexico 23 Casilda Béjar, R. (2014): Multilatinas y translatinas. Las nuevas realidades empresa- riales de América Latina (Multi-Latin and trans-Latin corporations. The new business realities in Latin America); in: LANMARQ. LID Editorial. Madrid. 24 For more information, see; Ramón Casilda Béjar and Jaime Llopis Juesas (August, 2014): Brasil. Las multilatinas. El reto de la internacionalización y la seguridad jurídica de las inversiones extranjeras, en: Brasil, un socio estratégico para España (Brazil. Mul- tilatinas. The challenge of internalization of legal certainty for foreign investments, in: Brazil, a strategic partner for Spain). Boletín Económico de Información Comercial Española, issue 2054, June 2014. Ministry of Economy and Competitiveness. Govern- ment of Spain. Madrid.

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It should also be taken into number of employees: Femsa account that Argentinian (Mexico) leads the ranking with a “Argentinian Multilatinas were the pioneers total of 177,470 workers, followed of internationalization. The shoe by Andrade Gutierrez (Brazil) with Multilatinas were factory Alpargatas (currently 175,503 and Ibs-Fribobi (Brazil) the pioneers of Brazilian) launched a subsidiary with 128,036, Brazil Foods (Brazil) internationalization” in Uruguay in 1890 and later in is fourth with 127,982 and Bimbo Brazil. This path was followed (Mexico) closes the top 5 with by the agricultural organization 126,747 people. Bunge & Born which, in 1905, built a mill in Brazil, and then Considering their size, the expanded to Uruguay and importance, significance Peru. This would ultimately and scope that Multilatinas lead to industrial activities. can have for Latin American However, Brazilian corporations modernization and currently lead the ranking industrialization is clear, as they and have quite important cover a wide productive spectrum international Multilatinas. and, at the same time, constitute Although among the various the tool that governments should international mergers and use to promote growth and, acquisitions, according to the consequently, achieve a greater ranking of Brazilian multi- presence and a more successful Latin corporations abroad, only participation and international 15 out of 40 increased their projection. Mexico and its internationalization rating Multilatinas in Spain are a good compared to 2008 (Fundação example. Dom Cabral 2013). MEXICAN MULTILATINAS IN Regarding the 65 internationally SPAIN. THE MOST NOTEWORTHY most important Multilatinas TRANSACTIONS 2012- 2014 according to América Economía in 2014, Brazil is the leading country The increasing investing with a total of 25 corporations, presence of Mexico in Spain followed by Mexico with 14, during the last years is Chile 12 and Argentina and evidenced by the significant Colombia with 4. In relation to the purchases made by Mexican enterprises operating in the most investors taking advantage countries, Brightstar25 (Bolivia- of the various opportunities U.S.) tops the list, as it operates offered by several sectors due in 50 countries, followed by Weg to the economic crisis. Mexico (Brazil) in 49, Lupatech (Brazil) in is the sixth most important 39, Vale (Brazil) in 39 and Cemex investor in Spain with a FDI (Mexico) in 36. As regards the volume close to EUR 19.5 billion

25 Although headquartered in Miami, its founder is the Bolivian businessman Marce- lo Claure, its current CEO. In January 2014, SoftBank invested USD 1.26 billion thus controlling the enterprise. Brightstar is the world’s largest wireless distributor and a leading innovator of diversified services within this industry.

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(12-31-2013)26, followed at a as one of the main pillars of his considerable distance by Brazil: business conglomerate. At the “Mexico is the sixth 5,683 million27. same time, Slim has almost 1% of the capital of CaixaBank, thus most important Thanks to financial holdings becoming the largest individual investor in Spain” in banking, real estate, ground shareholder. The singularity of transportation, the food these transactions is the close industry and shipping Mexico relationship that defines them has become the largest Latin with a share exchange between American investor in Spanish the Spanish banking group and economy. The position of Spain the financial holding: Inbursa, as a gateway to Europe and since La Caixa acquired 20% of the price adjustment due to Inbursa, Slim’s financial holding, the crisis offers acquisitions in 2008. possibilities at highly attractive levels, which entails The U.S. fund Fintech, headed an unprecedented activity. by Mexican financier David These are some of the most Martinez, acquired 4.94% of noteworthy Mexican capital Bank Sabadell. This great transactions. commitment is also promoted by Colombian investor The pioneer was Petróleos Jaime Gilinsik, the largest Mexicanos (Pemex), as it shareholder with 7.5% of the acquired 5% of Repsol between entity and an investment 1990 and 1992, gradually of EUR 700 million. Gilinsik increasing the figure until it is the owner of the fourth reached 9.34%, thus becoming local Colombian bank: GNB the second largest shareholder. Sudameris, which controls Finally, on June 4, 2014 Pemex 4% of the Colombian market decided to sell 7.86%, which and has been strengthened marks the beginning of new thanks to being part of the plans driven by the energy operation of HSBC in four reform enacted by the Latin American countries. government of President Peña Another acquisition, for the Nieto on December 10, 2013. moment, is the equity holding of Liberbank by Mexican In 2012, businessman Carlos corporations Davinci Capital Slim made a major investment with 2% and Inmosan with through the purchase of 439 7.02%, which became the third branches of La Caixa for EUR largest shareholder. 490 million. This was how his real estate business began in Part of a group of Mexican Mexico, with Inmobiliaria Carso investors led by the Del Valle

26 Source. Investment Register Stock. General Authority for Investment and Trade. Secretariat of Commerce. Ministry of Economy and Competitiveness. 27 Source. Investment Register Stock. General Authority for Investment and Trade. Secretariat of Commerce. Ministry of Economy and Competitiveness.

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family acquired 6% of Banco Mexican frozen foods company Popular for EUR 450 million. Sigma and Chinese Shuanghui, “The singularity of In exchange, the Spanish bank a practical example of global purchased 24.9% of the shares alliances, share ownership of these transactions is of the Mexican bank BX+ for Spanish meat industry leader, the close relationship EUR 97 million. The transaction Campofrío, valued at EUR that defines them” further strengthens the 695 million. The agreement solvency of Banco Popular confirms the renewed interest and allows it to start its in Spain as a gateway to other international expansion in European markets. For Sigma, Mexico and, consequently, part of the Mexican group in Latin America with its Alfa, the agreement offers experience and leadership as the possibility of exporting regards SMEs and individuals. leading brands such as Fud Meanwhile, BX+ (Ve por más, and Nochebuena from the U.S. “Go Get More”) expects to triple and Latin America to Europe, its size within the next five where both companies seek to years. It currently has 23,000 strengthen the leading position customers and its balance sheet of Campofrío. has assets that amount to EUR 1,850 million. The NPL ratio The TEC of Monterrey is is below 1.6% and its solvency present in Spain, through the level reached 12.5% at the time creation of e-learning content of the transaction. and training courses for BBVA, which in turn owns the largest Fibra Uno acquired 253 branches bank in Mexico: Bancomer, the of Banco Sabadell Atlántico most important asset for the from the British fund Moor turnover sheet of the Spanish Park Capital Partners for corporation. Other information EUR 300 million. This was the systems enterprises such as most important real estate Neoris, BSD Enterprise or transaction of 2013 in the Softek, which has a research sector. The bank will keep the center in A Coruña, show the branches during 35 years, with dynamism and technological a mandatory minimum of 25 competitiveness of Mexican years. businesses.

The ADO group purchased Bimbo has built new factories, Avanza, the largest Spanish with the plant of Azuqueca de business in the field of urban Henares (Guadalajara) as the transport and second in long- most important one, with an haul transport. The new owner investment of EUR 50 million, has 2,000 buses and a turnover a production line of just bread; close to EUR 450 million. the largest, fastest and most Although the prize of the efficient of Europe, designed by transaction is not public, it is the company. The enterprise estimated to have been close to expects to increase its size EUR 800 million. over the next years, although

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the specific number of new gradually diminished through facilities, location or investment the business’ capital increases. “The agreement has not been defined yet. The Gruma, one of the leading organization also wants the global manufacturers of corn confirms the renewed headquarters of Barcelona to tortillas acquired the Mexifoods interest in Spain as not only control the Iberian Spain factory seeking to invest, a gateway to other market, but also Europe and modernize and increase the European markets” North Africa. capacity of the Spanish plant. It will start producing tortillas, Pemex, through its subsidiary wraps and other products for PMI, has become the majority southern Europe, entailing an shareholder of Hijos de J. investment of EUR 35 million. Barreras, the largest private shipyard in Spain, with over 100 Mexican businessman Valentín years of experience. The scope Díez Morodo is also part of of the energy reform does not this dynamic and was awarded only translate into the arrival the prize Enrique V. Iglesias of new businesses in Mexico, for the development of the but also the international Ibero-American business space expansion of Pemex. The in its first edition in 2014. Díez strategy of PMI is to acquire the Morodo, one of the creators skills and advanced technology and Vice President of the of Barreras to export it to Grupo Modelo, after its sale Mexico and develop larger and to Belgian-Brazilian Company more advanced ships. AB INBEV, the largest brewer in the world, remains as a Entrepreneur Roberto Alcántara shareholder. The appointment invested EUR 100 million in the of Carlos Fernández González Prisa group, thus becoming the as independent director of the majority individual shareholder Santander Bank during this with 9.3% of the shares. new stage with Ana Patricia Therefore, the group reinforces Botín as President should also its commitment towards Latin be highlighted. This Mexican America, the leading media in businessman is President of the education, information and Grupo Televisa and Emerson entertainment in Spanish and Electric Co. He also founded Portuguese. It is present in 22 the Academia Mexicana de la countries with an audience of Comunicación, the Fundación over 60 million people (40% in Carolina, and the Fundación Spain and 60% internationally) Beca and is Chairman of the through its global brands Consejo Consultivo del Agua. such as El País, Santillana, 40 Principales, Cadena SER or By the end of 2014, Carlos radio Caracol among many Slim had become the largest others. Slim’s participation is shareholder of the company more of a token presence, since Fomento de Construcciones the Mexican businessman y Contratas (FCC), leading had over 3% of the shares that enterprise in construction

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and services in Spain, with hand in hand with the recovery an extensive and intense of Spanish economy. These “Carlos Slim had international activity, after transactions, in its diverse 50 years under control of manifestations, strengthen become the largest the Koplowitz family. The Spain’s position as a hub, a bridge shareholder of the investment amounts to EUR 650 for Multilatinas to penetrate and company Fomento million: 25.634% of the shares. grow in Europe and, likewise, de Construcciones y Spain can be used as a platform With these successive for European companies to arrive Contratas (FCC)” investments, Carlos Slim shows and invest in Latin America. his confidence in Spanish economy and its future, where 6. BEYOND REGIONAL he seems to be creating a replica BORDERS of his Mexican conglomerate. Although it is still far from There are several reports, studies his Mexican conglomerate as and surveys that confirm the regards economic size, it can be sound state of Multilatinas compared in terms of covered and their dynamism to expand sectors: construction, services beyond regional borders. One and infrastructure concessions, of these reports is: “América operating through Inmobiliaria Latina sin fronteras” (Latin Carso and the Ideal group, both America without borders)28, exclusively present in Mexico, as which analyzes the 500 leading they are complemented by FCC corporations of the Latin Trade through its vast experience and Ranking 2013. The singularity international relevance. So far, of the study is its conclusion: he still has to invest in energy, “Multilatinas can expand beyond mining and telecommunications regional borders to become to fully replicate his Mexican international leaders, since conglomerate in Spain. Difficult they do not only successfully objectives, each for different compete at a local level, but are reasons. In any case, what does also gaining relevance beyond seem clear is that his investments regional borders”. are gradually increasing and are close to EUR 1.5 billion, which While major multinationals shows his confidence in Spain in Latin America used to and its attractive prices. be Canadian, European (particularly Spanish) or U.S. A perception of this Mexican corporations, during the first investing presence is that it will years of the 21st century, grow in its different categories the region has witnessed

28 Deloitte Américas(September 2014) and the successive reports of El País Negocios on Multilatinas. For more information, see; Alejando Rebossio (4-1-2015): Techint una multilatina argentina de acero (Techint, an Argentinian steel multi-Latin enterprise). JackelineFowks: (1-2-2015): Belcorp cosmética peruana para las Américas (Belcorp, Pe- ruvian Cosmetics for the Americas). Elizabeth Reyes (8-2-2015): Bavaria en cada bar de Colombia (Bavaria in all Colombian bars), and Pedro Cifuentes (15-2-2015): El “oro negro” hace sufrir las Américas (Black gold keeps America suffering). El País-Negocios.

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a massive influx of foreign transformation to successfully direct investment from Asian compete. Three of these “Multilatinas multinationals, specifically from factors are competencies that South Korea and China. This enterprises can influence can expand picture has greatly changed through their own actions, while beyond regional as years passed, and the the two remaining ones are borders to become report confirms this pattern, structural by nature, meaning international showing how Multilatinas have they are greatly determined gained ground, to the point of by the local environment on leaders” becoming local leaders. The six which business have no control major economies in the region: direct. This lack of control Brazil, Mexico, Argentina, does not necessarily mean that Colombia, Chile and Peru businesses will not be able to account for 86% of the GDP of succeed internationally. Latin America. Multilatinas have conquered “One of the most important new regional markets in conclusions was that over a fierce competition with 70% of the revenue generated foreign multinationals, as by these 500 corporations occurred in Chile, Peru, was produced by Latin Argentina, Brazil or Colombia. American enterprises and Thanks to these learning not foreign multinationals experiences and successive that operate locally, which approaches, they initiated their refutes the popular belief that internationalization beyond multinationals control the Latin regional borders, as Spanish American market”. The report multinationals did when they raises a number of reflections expanded towards Latin America regarding international where, by the way, they achieved expansion of Multilatinas and the necessary experience to analyzes the challenges they start a new era with great face, while highlighting “five international activity of global factors or key competencies”. scope29. The five key factors that confer advantages in the context Each and every one of the of global competition are: factors are of great interest because of their importance • Senior managers: the to design strategies for business environment international expansion, of a country plays a key which requires a process of role in the availability organizational and productive and retention of senior

29 For more information, see; Ramón Casilda Béjar (2002): La década dorada. Economía e inversiones españolas en América Latina 1990-2000 (The golden decade. Spanish investment and economy in Latin America 1990-2000). (2008): La gran apuesta. Globa- lización y multinacionales españolas en América Latina. Análisis de sus protagonistas (The great bet. Globalization and Spanish multinational enterprises in Latin America. Analyzing the players), and; (2011): Multinacionales españolas en un mundo global y multipolar (Spanish multinational enterprises in a global and multipolar world).

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managers, key in the based on inorganic growth process as they directly through acquisitions and “Multilatinas have affect the capacity of a joint ventures. On average, business to efficiently these companies run nearly conquered new guide the international four times more joint regional markets” expansion of an enterprise ventures and over six times in a sound manner and the number of mergers and its consequent operations acquisitions. abroad. According to the distribution of the top • Governance practices: 100 CEOs in the world, implementing leading Brazil and Mexico are the international corporate countries of Latin America governance practices with the highest number of helps global Multilatinas senior managers. operate more effectively at an international level. • Capital markets and Furthermore, it helps them financing:to finance their gain access to capital of international expansion, state pension funds and Multilatinas need to sovereign wealth funds, diversify their access to which usually have a strict both capital and a relatively regulation regarding the cheap financing. On average, type of companies which global Multilatinas are listed can request them. on two stock exchanges in comparison with regional These five factors are enterprises, on an average of considered to be key elements 1.3 and 1.25, respectively. to gain experience and successfully expand at an • Market leadership: global international level. As noted, Multilatinas are powerful three of these factors can companies with strong be influenced by companies growth prospects that, through their own actions: thanks to their sound performance, lead the • Achieving a leadership market in their home position in the market of countries before expanding their home country. abroad. The dominant position of leadership is • Implementing strategies reflected on the huge growth that focus on acquisitions of sales, an advantage over and “joint ventures” as regional Multilatinas and the primary means for local enterprises. international growth.

• Acquisitions and strategic • Carrying out leading alliances: the expansion corporate governance of global Multilatinas practices of international corporations is often scope.

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Internationalized Multilatinas of powerful Multilatinas, it tend to be very strong in these is mandatory for them to “Global Multilatinas three areas and any local or internationalize their operation regional enterprises that seek to benefit from the major are powerful to achieve international success trends in Latin America which, companies” will probably have to take all as previously stated, is a rising three points into account. The star within the global economy. other two factors are structural, Although not currently being at largely determined by the local its peak, it should be noted that environment. They are: according to the World Bank poverty was reduced by 40% in • Availability and capacity to the year 2000 and 30% by 2010. retain the most qualified This means that 50 million Latin managers to lead the Americans lifted themselves out international expansion. of poverty during that decade. Furthermore, it is estimated • Access to capital and that at least 40% of the regional financing markets. households have improved their “social class”. Since companies have no absolute direct control over These critical structural these factors, they must changes as regards the have appropriate alternative composition of social classes strategies. Successfully have reshaped the Latin meeting the five previously American map and business discussed factors entails a value. Thus, between the 30 clear competitive advantage. Multilatinas whose revenue is However, this does not increasing, over 20 specialize completely guarantee success, in sectors that respond to as there is no single formula the growing demand of the for international expansion. middle class, such as food, Various companies will face cement, retail, electronics, different opportunities and education, construction and challenges and walk divergent others that have an export and paths. However, regional import component, but also Multilatinas should remember respond to a great extent to the that the implementation of demand of the thriving middle these five factors will yield class, such as electronics and them greater chances of communications, automotive success in their international and air transportation. expansion. These same factors could also serve as guidelines According to the World for foreign multinationals that Bank report: Latin American seek to operate or establish entrepreneurs: many firms but themselves in Latin America. little innovation, it is a matter of creating an innovative For all these reasons, in order business class, where first class to achieve the results expected companies, those which export

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goods, services and even foreign positions and five among the direct investment, as occurs with top ten (four banks and an oil “40% of the regional Multilatinas, start competing company). with multinational enterprises households have of developed countries. These firms are increasingly improved their important but they still ‘social class’” 7. THE WORLD’S LARGEST have to go a long way to gain MULTINATIONAL the influence, image and AND MULTI-LATIN global projection of their CORPORATIONS U.S., European and Japanese counterparts. So far, thanks The Forbes Global 2000 to their condition of state ranking. “The world’s largest companies, they generally companies of May 2014”30 (Table operate and work within 3 and Graph 1), only includes the old mentality of central enterprises listed on stock planning and the rigidity, exchanges, taking into account limitations and burdens that just four indicators: “profits, this approach entails. The sales, assets and market value”. best option would be, once The list features companies predominant positions had from 63 countries, the largest been achieved, to review figure since it went public in this approach and strive for 2002, when only 46 nations greater agility and flexibility as took part. South Korean multinationals have done, which strengthen In total, ranking firms have through the most advanced generated revenues amounting technology sectors, with to USD 38 billion31 and 3 benchmark multinationals billion in profits. The assets such as LG and Samsung, of these global giants reach leader in mobile phones (27% USD 161 billion and employ 90 of the global market share), million people worldwide. The surpassing Nokia, which pattern remains unaltered: seemed impossible some years Chinese companies continue ago (purchased by Microsoft in growing, taking the top three September 2013)32.

30 For more information, see: www.forbes.com 31 In 1998, revenues amounted to USD 11.5 trillion and in 2008 it was more than twice that figure: USD 25.2 trillion. 32 Microsoft purchased the patents and businesses of Nokia and paid EUR 3,790 million for the mobile manufacturing unit and 1,650 million for the patent portfolio. There was a time where everything mobile-related revolved around Nokia. Its past speaks for itself; fourteen years as the world leader. But then touch phones arrived. It was then, when almost by magic, the concept of mobile phones, simple and convenient, completely changed. Off with the old, in with the new. In April 2012, Samsung, the Korean giant, became the main supplier of mobile devices. This transaction entailed loses for Europe, since Nokia was not a mere corporation, but symbolized the fact that European manu- facturers and technology companies could be competitive in today’s market. The end of Nokia as a manufacturing company means that no options are left to compete against the U.S. and, particularly, the Asian technology world.

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For the first time, no European the ranking shows that, year bank or firm ranks among after year, the global corporate “They generally the top ten of the list. For the landscape is, above everything, second consecutive year the a dynamic and constantly operate and work list is headed by the Industrial changing environment. This within the old and Commercial Bank of is evidenced by the progress mentality of central China (ICBC), while China achieved by China, although planning” Construction Bank ranks the U.S. maintains the overall second. Agricultural Bank of lead with 5 of the 10 largest China raised five positions to companies. reach the third place, followed by JP Morgan Chas and In the case of Spain, there are 27 Berkshire Hathaway, Exxon large multinationals in the list, Mobil, General Electric and Wells again led by the Santander bank, Fargo (all three from the U.S.) which ranked 43rd; Telefonica which hold the sixth, seventh (68th), BBVA (118th), Iberdrola and eight places. Bank of China (133rd), Gas Natural (230th) and and Petro China appear at the Inditex (313rd). Caixa Bank (325th), bottom of the top ten. Apple, Mapfre (376th), ACS (382), Repsol fifteenth, ranks first in terms of (471st), Bankia (582nd), Abertis market capitalization or market (616th), OHL (1.610th), Liberbank value, while the superstores (1.646th) and Bolsas y Mercados giant Walmart, twentieth, ranks de España (1.679th) are also listed. first in sales volume. By country, the U.S. leads with Among Multilatinas, Brazil is 564 firms, followed by Japan with the country with the largest 225 and China with 207. This representation with Petrobras is the first appearance in the leading the list, ranked 30th. ranking for Mauritius, Slovakia It is followed by Itaú (46th), and Togo. By regions, the power Bradesco (63rd) and Banco balance between the East and the do Brasil (104th). The second West has considerably changed. country is Mexico, with América The present issue shows this Móvil as the most important shift by dividing the corporations company (115th), Femsa (373rd), in seven regions: Asia with 674 Grupo Financiero Norte (469th), corporations is ahead, followed Grupo México (529th) and by America with 629 and Europe Modelo (564th). There are also with 506. This sharply contrasts eight Chilean enterprises, with with the results obtained 11 years Falabella at the head of the list ago, when it had over half the (581st), six Colombians with companies of Asia. Ecopetrol as the most important one (128th), two companies from Emerging markets, particularly Venezuela, Mercantil Servicios the Middle East and Latin (774th) and Banco Occidental America, also had a significant (1,423rd), Credicorp from Peru participation during the (901st) and Popular from Puerto last decade with growths of Rico (1,301st). The growth of 265% and 76% respectively.

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Africa, although with fewer However, they still need to representation, is also growing, face their weakness: further “The global and had seven companies enhance their international listed. Four of the newcomers relevance. The perception corporate landscape are headquartered in Nigeria, of these companies greatly is, above everything, which represents a total of growing through mergers and a dynamic and five companies for the African acquisitions is not a reflection constantly changing nation. of reality. These transactions amounted to USD 52 billion, a environment” Another singularity is the figure 20% lower than that of incorporation of 179 new 2013 (the lowest result since companies, many due to the 2009); a rather moderate figure equity market, the rise in in comparison to the global corporate transactions and the amount which exceeded USD increase in takeover bids. Thus, 3.2 trillion33 (the largest result significant developments can be since 2007). Of that amount, seen, such as the one achieved the U.S. represents a third, 1.053 by Facebook, climbing 561 places trillion. to reach the position 510. On the other hand, Hewlett Packard, However, Chinese FDI has which fell sharply in 2013, rose greatly grown, fivefold during from position 438 to 80. 2005-2010, becoming the fifth largest global investor (UNCTAD, The ranking shows how 2011). Furthermore, in 2010 they certain industries dominate had 16,000 subsidiaries in 178 the business landscape. It is countries. Therefore, Chinese no wonder that banks and companies have taken a very diversified financial corporations active role in the international continue topping the list markets. Many of these with 467 members. The three operations have been carried out following industries are oil and by Chinese companies listed in gas (125), insurance (114) and the Forbes Global 2000 ranking. services (110). As regards growth, the semiconductor industry THE 10 WORLD’S LARGEST leads in sales (11%); while COMPANIES OF 2014 (FORBES diversified financial corporations GLOBAL 2000, MAY 2014) have sharply risen in the field of profits (90%) and the • Industrial & Commercial construction sector leads the in Bank of China (ICBC): terms of growth in assets (18%). China - Bank. Once again, it appears as the world’s largest It can also be noted that bank and the world’s largest Chinese corporations dominate company. The Industrial & the world arena thanks to Commercial Bank of China the size of their market. is one of the 4 major Chinese banks, all state-owned.

33 According to the specialized firm Dealogic, 2014.

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• China Construction • General Electric: U.S. Bank: China - Bank. China - Conglomerate. The “Chinese Construction Bank, also company with the largest one of the 4 state-owned international presence corporations Chinese banks, is second (over 100 countries), dominate the again. The bank has been diversifies its products world arena” internationalized and and services, ranging from investments are starting to infrastructure, financial yield profits. services, media or industry.

• Agricultural Bank of • Wells Fargo: U.S. – Financial China: China - Bank. The services. Fourth largest Agricultural Bank of China, U.S. bank, specializing in also among the 4 state- diversified financial services owned banks of China, has worldwide (deposits, experienced an interesting mortgage servicing and growth which allows it to debit cards). reach the third place, rising 5 positions compared to its • Bank of China: China - result in 2013. Bank. The oldest bank in China, state-owned since • JP Morgan Chase: U.S. 1912, is nowadays the main - Bank. Main West and Chinese bank and part of U.S. bank, global leader the 4 state-owned Chinese in investment banking, banking corporations. financial services and private investments worldwide. • Petro China: China – Oil and gas. State-owned • Berkshire Hathaway: company which belongs to U.S. – Diversified financial China National Petroleum institution. One of the Corporation (CNPC). It is the leading producers in the largest Chinese oil and gas world, with over 80 years producer and trader. of experience, it has a large-scale, diversified 8. PROSPECTS OF manufacturing. MULTILATINAS, MORE PROMINENCE AND • Exxon Mobil: U.S. – Oil GREATER RESPONSIBILITY and gas. The largest energy company in the world and The prospects of Multilatinas one of the most global gain significant weight. corporations, Exxon Mobil Consequently, it should be specializes in exploiting, taken into account whether processing and marketing these constantly growing petroleum products and companies will take the natural gas. leading role to modernize their respective countries and,

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by extension, the region and what Spanish companies did thus become the promoters of when a favorable economic cycle productivity34 (a key issue as started thanks to its integration regards the competitiveness of into the European Economic the region), innovation and the Community (1986), the creation internationalization of a new of the Single European Market global economic environment (1993) and the common currency for the 21st century. (1999), taking advantage of the situation to expand with force It should be noted that, just like and determination towards Latin multinationals of developed America, which offered highly countries have become beneficial opportunities. important players in the process of globalization of production To establish themselves in and, thus, industrialization and Spain, Multilatinas have, just modernization of their countries, like Spanish companies in Latin Multilatinas must do the same, America, historical and cultural by greatly developing, offering links, a common language and increasingly attractive goods very important economic and and services as regards cost and trade relations, largely promoted quality according to the needs of by Spanish firms of all sizes and demand through the same slogan conditions that operate across used by multinationals: act locally, the region. think globally. “There are many opportunities in Multilatinas must broaden their Spain. For us what is important perspectives if they really wish is achieving as many synergies to internationalize beyond their as possible with our activities traditional market, the U.S. They in Latin America and vice versa. have to take advantage of the We are convinced that this is opportunities other markets offer the decade of Latin America. in a decisive manner, as could be The continent is living a great the case, for example, of the clear time of growth and wealth. It opportunity that the economic is very exciting. And, why not situation of Spain has entailed, incorporating Spain into this with highly attractive prices in Latin American force? For us, it several sectors. This is exactly makes a lot of sense”, said Adriana

34 The new conceptual framework published in the annual report of the IDB (2014): Rethinking Productive Development, allows countries to implement essential productive development policies in order to progress, avoiding past mistakes. The report reviews productive development through the research of market failures that hinder transformation, as well as government failures that can turn policy remedies into something worse than the market’s defects. Using a simple conceptual framework, the authors systematically analyzed the policies of the countries in key areas such as innovation, financing, human capital and internationalization. They recognize that even the best policies will fail without the technical, organizational and political skills to implement them. The book concludes with ideas on how to de- sign institutions with appropriate incentives, increase public sector capability over time and promote a constructive public-private partnership.

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Cisneros, Vice President of mainly involves large Mexican36 Organización Cisneros, although, Multilatinas, followed by for the moment, these undeniable Brazilian37 and Colombian good intentions have not enterprises, which almost fully materialized35. complete the top 50 of the ranking (Table 2). A very important This “two-way path”, which I point is that these companies have always strived for, that is, often trade on the Spanish a flow in both directions, makes stock market through the Latin a lot of sense. Many Spanish American Securities Market in businesses, with its diversity Euros (Latibex)38, representing and size, have already done so and continue doing so. Now 35 Adriana Cisneros. Vice President of it is the time for Multilatinas Organización Cisneros. La tecnología to undergo an expansion that es el mejor aliado de la democracia is slowly taking place with (Technology is democracy’s best ally). El País-Negocios. Madrid, Sunday, Septem- the arrival of important Latin ber 11, 2011. American investors and groups. 36 For more information, see; Ramón Casilda Béjar (2014): Las multilatinas. Una It seems as if this trip to Spain mención especial a las mexicanas (Multi- and, by extension, to Europe, Latin corporations. Special mention for Mexican organizations.) Boletín de Infor- mación Comercial Española (BICE). Minis- The 10 World’s Largest Companies 2014 try of Economy and Competitiveness. 37 MARKET For more information, see; Ramón RANKING COMPANY COUNTRY SALES PROFITS ASSET VALUE Casilda Béjar and Jaime Llopis Juesas (2014): Brasil. Las multilatinas. El reto de la 1 ICBC China $148.7 $42.7 $3,124.9 $215.6 internacionalización y la seguridad jurí- dica de las inversiones extranjeras (Brazil. 2 China China $121.3 $34.2 $2,449.3 $174.4 Multi-Latin corporations. The challenge Construction of internalization of legal certainty for fo- Bank reign investments). Boletín Económico de 3 Agricultural China $136.4 $27 $2,403.4 $141.1 Información Comercial Española (BICE). Bank Ministry of Economy and Competitive- of China ness. Government of Spain. 38 Latibex is a stock market for Latin Ame- 4 JPMorgan United $105.7 $17.3 $2,435.3 $229.7 rican securities based in Madrid, operating Chase States since December 1999. It is governed by Spa- 5 Berkshire United $178.8 $19.5 $493.4 $309.1 nish Securities Market Law and is part of Hathaway States the holding Bolsas y Mercados Españoles (BME). It uses the same securities trading 6 Exxon Mobil United $394 $32.6 $346.8 $422.3 platform as the Spanish stock market and States the securities therein are quoted in euros. It was created to, firstly, allow European 7 General Electric United $143.3 $14.8 $656.6 $259.6 investors to buy and sell Latin American States securities through a single market, whose 8 Wells Fargo United $88.7 B $21.9 $1,543 $261.4 security and transparency standards were States similar and in a single currency and, on the other, to grant access to the main Ibero- 9 Bank of China China $105.1 $25.5 $2,291.8 $124.2 American corporations to the European capital market. The updated list of compa- 10 PetroChina China $328.5 $21.1 $386.9 $202 nies part of the Latibex, as well as a history of additions and withdrawals is available Source: Forbes Global 2000 (May, 2014). at www.latibex.com.

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the advance of a broader universities, business schools, movement that will be followed law firms and consultancies “There are many by Multilatinas of several sectors, for which Spain becomes the such as consumption, food, perfect partner and a strategic opportunities in Spain” catering or fashion. gateway to Europe. In addition, there are several Ibero-American Given these great prospects, it organizations such as the is important to point out the headquarters of the Secretaría crucial economic and business General Iberoamericana (Ibero- significance that Multilatinas American General Secretariat, have both within and outside SEGIB), the Union of Ciudades Latin America, the reason for Capitales Iberoamericanas which its presence among (Union of Ibero-American Capital specialized business literature Cities, UCCI), the Latin American is gradually increasing. This Stock Market in Euros (Latibex), is also occurring at the Latin the Organización de Estados American forums, evidenced in Iberoamericanos (Organization the 21st and 23rd Ibero-American of Ibero-American States, OEI) Summits, when then Ibero- and the representation offices American Secretary-General, of the two major multilateral Enrique V. Iglesias, during the development banks in Latin opening speech, referred to America such as the Inter- Multilatinas and its strength American Development Bank to compete internationally and (IDB) and the Corporación the need to reflect on how the Andina de Fomento (Andean countries of the Ibero-American Development Corporation, CAF)39. community could mutually reinforce themselves, enhancing From a close perspective, Latin their relations to face the tough America must gain relevance international competition in a within the global arena through global context. important Multilatinas, developed and competitive. Were Another important aspect in the the region not to do so, it would long term is to promote Spain be unlikely for it to achieve as a hub, i.e., as a distributor or the position it deserves in the entrance bridge to Europe and international scene and to play North Africa. This is a permanent the crucial role it should in the objective, since there are several 21st century world. As regards the important points, besides a role to be played by Multilatinas common language, such as a in the international projection broad presence and collaboration of their countries, the closest with Spanish corporations example is that of Spanish of all sizes, important banks, multinationals. The process of a noteworthy network of becoming a major actor on the

39 For more information, see; Ramón Casilda Béjar (10-4-2011): La importancia del efecto sede en la globalización (The importance of the headquarter effect in globali- zation). El País. Madrid.

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international arena for Spain is the per capita income in closely related to the creation constant dollars has increased “Another important of its multinationals, whose by 4.5 compared to the U.S. internalization was certainly late population, the welfare gap aspect in the long but intense through the rapid is now 8% larger than that of term is to promote expansion of large banks and their parents or grandparents Spain as a hub” companies across Latin America, (IDB, 2014): “Rethinking reaching a FDI of EUR 135 billion Productive Development. (Bank of Spain, 2013). Sound policies and institutions for economic transformation”. But from a different perspective, the thriving regional and The relative stagnation has international dynamic carried out led to the known as “middle- by Multilatinas could be slowed income trap”, the situation down. Not only because of the that defines the context of changes in the global economic many economies in the region, conditions, but due to the whose wage costs are too high concerns regarding middle income to compete in international countries. It may be possible for markets, compared to other Latin America (and China), to be countries that exploit cheaper caught in the middle income trap. labor and, at the same time, This trap occurs when a middle- do not compete with more income country is unable to take developed countries as they the next step to become a high- find it difficult to access the income nation (Foxley, 2012). highest part of the industrial chain with products and Latin America is the perfect services that call for intensive example as it has the largest knowledge and technology40. number of countries with middle-income worldwide, Yet, it is essential to take into according to the ranking made account that businesses and by the World Bank. The growth other economic players are rates of the income per capita part of a natural, social and of Latin American economies political environment that were inferior to those of determines and conditions developed countries during the their activities and possibilities. 20th century, which prevented This was already mentioned the region from further by Fernando Fajnzylber reducing the gap. During when he referred to the the last 50 years, the region determinants of international has not been able to reach competition: “... within the the welfare levels of more international market not developed countries. Although only companies compete.

40 For more information, see; Pablo Sanguinetti and Leonardo Villar (2012).Patrones de desarrollo en América Latina. ¿Convergencia o caída en la trampa del ingreso medio? (Latin American development patterns. convergence or the middle income trap?”) CAF. Working Papers. Issue 2012/02. July, 2012. Caracas.

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Productive, institutional and groups are complemented social organization systems by systems of long-term “The thriving regional also compete, and although the agreements with specific companies are an important banks and a relationship with and international part of this process, they are the State, which provides dynamic carried out by integrated into a network of incentives and develops Multilatinas could be linkages with the educational comprehensive policies in slowed down” system, technological cooperation with the major infrastructure, management companies and industrial skills, labor relations and groups”41. public and private institutional system. These factors have If Latin America were caught been highlighted when the in this trap it will be, to a great economic performances extent, Multilatinas42, which will of countries such as the have defuse it and become the U.S. and the UK have been thrusting force to take a leap compared with those of Japan forward and achieve a higher or Germany. The latter are productivity, industrialization an example of “organized and a sustained long-term capitalism” where the development which will entail competitive relations between an improvement in the income companies and economic and welfare levels.

41 For more information, see; Fernando Fajnzylber: Competitividad internacional: Evolución y lecciones (International competitiveness: Evolution and lessons”). ECLAC Magazine, issue 36. Santiago de Chile, December, 1998. 42 For more information, see; Ramón Casilda (2014): América Latina. Región emergente del siglo XXI (Latin America. Emerging region of the 21st century), and; Ramón Casil- da (2014): Multilatinas y translatinas. Las nuevas realidades empresariales de América Latina (Multilatinas and trans-Latin corporations. The new business realities in Latin America); in: LANMARQ. LID Editorial. Madrid

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Author

Ramón Casilda is one of the leading Spanish business investment and internationalization analysts, both in relation to Latin America and worldwide. He has recently started analyzing the field of Multilatinas. He is Professor at the Institute of Latin American Studies at the Alcalá University and the Estudios Bursátiles Institute. He has been Director of the International Business Management Professorship of Grupo Santander in the Antonio Nebrija University. At a professional level, he worked as CEO of the Investment Promotion Center for Ibero-America of the Spanish Confederation of Business Organizations (CEOE) and directed the Union of Ibero-American Capital Cities (UCCI). He was the Director of Institutional Relations and Analysis for Soluziona and Director of Corporate Development and Institutional Relations for Probanca. He was the Banking Manager of BNP Paribas and Rumasa, Adviser and Member of various advisory boards in companies such as Repsol, Prointec, Hispasat and BT Global Services. He was President of the Commitee on Relations with Ibero- America at the Spanish Confederation of Directors and Executives (CEDE) and Member of the Board of the Spanish Association of Financial Executives (AEEF). He is author of an extensive economic work, of which his recently published book should be highlighted: Crisis y Reinvención del Capitalismo. Capitalismo Global Interactivo (Crisis and Reinvention of Capitalism, Interactive Global Capitalism), Editorial Tecnos, 2015; where he analyzes the phenomenon of globalization and internationalization of multinational and Multilatinas. [email protected]

190 The role of multilateral organizations in the economic and social development of Latin America

Madrid, September 2015 THE ROLE OF MULTILATERAL ORGANIZATIONS IN THE ECONOMIC AND SOCIAL DEVELOPMENT OF LATIN AMERICA

1. INTRODUCTION

The aim of this report is to highlight the contributions made 1. INTRODUCTION by international organizations through international economic 2. THE CONCEPT OF cooperation in relation to development. In order to assess the COOPERATION: ORIGIN AND EVOLUTION contribution of these organizations, the report has analyzed the 3. THE ERRADICATION OF collaborations under a broad-based approach that takes several POVERTY AS A PRIORITY factors into account. On one hand, the concept of development OF COOPERATION AND ITS adopted by the donors and, on the other, the context of the IMPLICATIONS IN LATIN recipient countries, particularly in Latin America. Analyzing these AMERICA factors will help us carry out an analysis on the contributions 4. CONCLUSIONS made by the international cooperation in the region, its flaws and limitations and how they have been or could be overcome. Given the importance of the international cooperation as a means of development, this analysis is crucial. Based on this importance, the fact that Latin America has been marginalized as regards the cooperation flows in recent decades is a serious concern. That being said, there are strong indications showing that a new stage is beginning, a time in which the region will have the support of these organizations. In this sense, the reshaping of the concept of development and, consequently, that of the cooperation agendas, have been the causes of this change.

The evolution of the concept of development, which also involved these organizations, will make it possible to understand their performance, the reasoning behind their efforts and, certainly, the efficiency of their actions. The initial failure entailed by the attempts to implement the European development model in other regions forced these organizations to reevaluate which factors ensured development. The existence of resources or its allocation does not automatically translate into development. Economic growth does not guarantee it either, as it does not necessarily entail the eradication of inequality or, in a broad sense, the quality of life of the population, both fundamental aspects of development. This is a reality that Latin America is well-aware of.

The lessons learned and the debate which has reshaped the concept of development, taking place since mid-20th Century, have increased its complexity, as well as the number and variety of quantitative and qualitative criteria related to it. The debates on this affair are not over, nor is the concept of development, which seeks evolving, as is currently taking place.

Latin America itself has called for a new development concept based on a broader and more complex approach. The main problem is the fact that restrictive definitions ignore serious structural problems affecting the Latin American region. Thus,

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if these circumstances are about a change of cycle seem to not included in the definition pose serious threats. As a result in question, cooperation of this changing situation, organizations no longer pay the study aims to analyze the attention to them. reactions of the international cooperation organizations 2015 has been particularly as well as their proposals “Since 2013, critical for the region in the in order to understand a period of field of cooperation. The their contributions to the deadline set by the UN in development of the region. economic relation to the Millennium slowdown has Goals to fight poverty 2. THE CONCEPT OF been directly and has elapsed. This period COOPERATION: ORIGIN has translated into the AND EVOLUTION fully affecting opportunity of re-thinking Latin America” the concept of development International Development which is now based on the Cooperation is understood as all “multidimensional progress”, the actions carried out by public after seeing the limitations and and private players between exclusions that the adoption countries with different levels of a restrictive concept of of income in order to promote development had entailed. This the economic and social multidimensional approach development of the southern provides the opportunity of countries, in order to align it identifying further structural with the development levels gaps affecting middle-income recorded in the northern region, countries, a group to which as well as making it sustainable1. most Latin American nations This traditional definition of belong, and not just low- international cooperation has income related ones. important ethical and solidarity connotations that legitimize this As regards this evolution, form of cooperation, although it is interesting to see the they have not always been the changes and adaptability of only motivations to carry it these organizations faced with out. Political and geostrategic various economic situations. factors have also been reasons Since 2013, a period of economic to develop international slowdown has been directly and cooperation, both during the fully affecting Latin America. Cold War and after the fall of the Unless the Latin America Berlin Wall. economies implement certain measures and strategies to This geostrategic criterion change the development model shows that, after the fall of the of the region, the predictions Berlin Wall, once democracy had

1 M. Gómez and J. A. Sanahuja, El Sistema Internacional de Cooperación al Desarrollo (“The International System for Development Cooperation”). Interation, Cideal, Madrid, 1999.

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spread over the region and its In addition, this type of political and economic stability cooperation can be carried out was guaranteed, international bilaterally or multilaterally. The development cooperation former refers to the one carried decreased and shifted towards out between governments; “The main multilateral other locations where donor grants or loans for the recipient organizations countries considered that state or for NGOs. The latter is operating in their interests and security implemented by international could be jeopardized due to the organizations through their Latin America are economic, social or political own cooperation programs characterized by their context of other areas. and projects. This analysis will lack of relevance focus on the second form of THE MAIN DEVELOPMENT cooperation. compared to COOPERATION ORGANIZATIONS bilateral aid” IN LATIN AMERICA The main multilateral organizations operating in This report will include Latin America are characterized the Official Development by their lack of relevance Assistance (ODA), which, compared to bilateral aid , as it according to the Development does not even account for 20 % Assistance Committee (DAC)2 of of the total. the Organization for Economic Cooperation and Development The main donors are the (OECD), is comprised of the European Commission with flows provided by official about USD 500 million, followed agencies, including local and at some distance by the aid state governments or their provided by the World Bank executive agencies. This aid (WB), which amounts to 271 is intended for developing million and the Inter-American countries and multilateral Development Bank (IDB), institutions and has to meet with USD 258 million. Both the following conditions on the Caribbean Development each transaction: a) its main Bank and the agencies of the objective is to promote the UN system are not among the economic development and 10 largest donors. However, welfare of the developing if we take into account the countries and b) it is amounts allocated by the Official concessional in character and Development Funding (ODF), conveys a grant element of at the loans provided by the WB least 25 %.

2 The Development Assistance Committee is a multilateral organization, part of the Organization for Economic Cooperation and Development (OECD), which seeks to monitor and evaluate the development policies of the member states. The DAC members are, at the date of issue of this report: Austria, Belgium, Denmark, Spain (since 1991), France, Finland, Great Britain, Greece, Holland, Ireland, Italy, Luxembourg, Norway, Portugal, Sweden, Switzerland, Canada, the U.S., Japan, Australia, New Zealand and the Commission of the European Communities.

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and the regional banks, they the inception and development accounted for 17 % and 72 % of international cooperation. In respectively of the multilateral short, these demands, combined resources donated to the Latin with the quarrel between American and Caribbean both world powers to not only “The Marshall countries between 1991 and strengthen, but to expand their Plan, in addition 2002. In the Andean sub-region, areas of influence, marked the to being a tool for the Andean Development foreign aid programs, which, Corporation (CAF) is ahead of since the beginning, were in the U.S. to maintain the WB and the IDB. In relation fact the direct result of the its influence, to the latter, which exclusively geopolitical interests of the also became the seeks to provide financial aid to international order of that the region, between 1994 and 2001 time. Thus, the ideological main cooperation loans aimed at reducing poverty confrontation between the program” and promoting equity accounted East and the West defined the for 44% of its total loans3. actual destination of aid flows; they were allocated according to BRIEF HISTORICAL OVERVIEW geostrategic criteria, ultimately seeking the establishment of A historical overview can be “safe areas”4. quite useful to understand the reasons behind the cooperation, In this sense, the Marshall as well as its increasing Plan, in addition to being a complexity. The beginning of tool for the U.S. to maintain international cooperation took its influence, also became the place during the Cold War. The main cooperation program , implementation of a bipolar implemented in the known order, governed by the U.S. as Third World, after the and the Soviet Union, is an decolonization process. This essential element to understand project was an American the inception of cooperation, initiative to aid Europe, which as it was seen as a means to was experiencing a severe strengthen their respective areas economic crisis due to the of influence. devastating consequences of WWII. However, as has In this context, the requests been repeatedly noted, this for financial and technical aid cooperation model was designed made by the new countries to address the economic, that emerged with the political, social and cultural decolonization ultimately led to circumstances of the postwar

3 UN Department of Economic and Social Affairs:World Economic and Social Survey 2005, http://www.un.org/esa/policy/wess. Regarding the main organizations providing aid to the region, http://ec.europa.eu/index_es.htm; WB, http://www. bancomundial.org/, IDB, http://www.iadb.org/es/banco-interamericano-de- desarrollo,2837.html, CAF, http://www.caf.com/, Caribbean Development Bank, http:// www.caribank.org/. 4 K. Griffin, K,Foreign Aid and the Cold War, Development and Change, Vol. 22, 1991, p. 645 – 85.

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Europe; a very different that actually copied the region compared to the newly patterns and processes created countries after the experienced by Western decolonization process. Europe, industrialized countries. although in ruins, was an industrialized continent which During that time, international its own technology and skilled development cooperation “This period was key workforce and the Marshall sought to establish industrial for the consolidation Plan was in line with these societies whose basic priority conditions, but could not be should be the economic growth. of cooperation, as implemented in other contexts. This is the second assumption crucial institutions Be it as it may, it became the of the Developmentalist and organizations first development model and theories, the association countries used this recipe in a between economic growth and for its future were repeated and persistent manner development. Thus, the aim of created then” in radically different countries. this cooperation was to boost the economic growth, since, EVOLUTION OF THE CONCEPT supposedly, this would ensure OF DEVELOPMENT the development of the country.

The complex reality has proven This period was key for the impossible to use universal consolidation of cooperation, recipes in every possible as crucial institutions and context. This circumstance organizations for its future largely explains the evolution were created then . The process that the very concept of Bandung Conference of 1955 development has experienced. led to the Movement of Non- The successive failures in the Aligned Countries, which attempts to incorporate the in turn raised awareness Third World countries into the on the need to reform the developed world have entailed international economic system the rethinking of this concept in and whose results would be order to achieve greater efficiency seen at the 1964 UN Conference in international cooperation. for Trade and Development (UNCTAD) and the creation of DEVELOPMENTALISM PERIOD the Group of 77. The creation of the UN Food and Agriculture The developmental approach Organization (FAO), the World of the fifties assumed that Health Organization (WHO), the economic development the UN Education, Scientific was achieved through a and Cultural Organization single recipe, valid for all (UNESCO) and the UN Program situations, and it was none for Development (UNPD) was other than that of developed also instrumental for the field countries. The main theorist of multilateral cooperation. of Developmentalism, Walter The establishment of the Whitman Rostow, established a UN Economic Commission periodization for development for Latin America and the

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Caribbean (ECLAC) in 1948 countries had even increased. was a particularly important Therefore, without ignoring milestone as regards the economic development, the the economic and social new models now started to pay development studies of the attention to the redistributive “The establishment aforementioned region5. issue, under the “basic needs of the UN Economic In all these initiatives, the approach”. Thanks to this all Commission for Latin influence of Developmentalism organizations understood that is clear, hence development any development proposals that America and the cooperation merely involved did not take poverty, inequality Caribbean (ECLAC) in economic aspects and its and unemployment into account 1948 was a particularly objective was growth. would not be able to ensure development. important milestone” In the sixties, under the same circumstances and based Based on this new approach, on the same conception, the Chenery, under the auspices Alliance for Progress (ALPRO) of the World Bank, published was created, a reformist project the work Redistribution with led by Kennedy which directly Growth6 in 1974. This publication led to the Inter-American considered the redistribution Development Bank (IDB) in of wealth in order to aid the 1959. This funding program most disadvantaged workers was seen as a Marshall Plan for and attention to the poor Latin America, although there through the development of were differences as regards the social services as essential allocated resources, unevenly elements for the new approach. distributed across the region. In fact, the World Bank started addressing new concerns in THE FOCUS ON THE WELL- addition to infrastructure, BEING OF INDIVIDUALS AS energy or transport, as it now THE NEW OBJECTIVE OF included education, health or DEVELOPMENT the fight against poverty as the keys to achieve development. In the seventies, after two Despite the limitations that decades of growth, it had been these new proposals had, proven that development must their contribution towards not be exclusively achieved cooperation and the changes through growth, which they entailed cannot be denied. meant that the development cooperation had not served as a Nevertheless, the projects were driver of development, since the still carried out in a top-down gap between developed and poor fashion without considering the

5 http://www.cepal.org/es. ECLAC, R. Bielchovski,Cincuenta años del pensamiento de la CEPAL (“Fifty years of ECLAC thinking”). Selected texts, Vol.1, Santiago de Chile, ECLAC, 1998. 6 H. B. Chenery, et al, Redistribution with Growth, Oxford University Press, London, New York, 1974.

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views, nor listening to the needs growth, but human beings. expressed by the recipient Thus, the best way to promote countries. development implies broadening and improving the opportunities THE EIGHTIES: THE LOST for people. They are no longer “In the nineties there DECADE the means to achieve other goals is a paradigm shift such as the economic growth, in relation to human The foreign debt crisis, which but become the development’s strongly affected Latin America, object in itself. development, which entailed the adoption of policies in turn implies a based on structural adjustments This first step in the process significant change in and economic reforms based of changing the concept of on the Washington Consensus, development promotes an the very concept of whose main points were the evolution that is best illustrated development” reduction of public deficit, by the Millennium Declaration. economic liberalization, opening The proposals of this up to international markets and Declaration set our eight goals in the predominance of the market the field of cooperation, known forces as the main regulatory as the Millennium Development element. This translated into a Goals (MDGs), agreed at the UN reduction of the State actions in 2000. The eight objectives7 and its size and services, through focused their efforts, mainly, privatizations, to a minimum. in the eradication of poverty, International organizations such necessarily leading to the as the International Monetary adoption of a multidimensional Fund or the World Bank concept of development, promoted this type of policies, implemented not only by the to the point of making the UN, but also the remaining provision of ODA conditional development cooperation on the countries implementing organizations. All these adjustment plans based on the organizations also promoted aforementioned policies. different forms of cooperation. Thus, organizations ended the HUMAN DEVELOPMENT AND quest to find a universal recipe THE MILLENNIUM GOALS for development.

In the nineties there is a According to the above, the paradigm shift in relation to transformation of cooperation human development, which is crucial in order to assess its in turn implies a significant efficiency; a problem that has change in the very concept of also been subject of a long and development and the way in thorough discussion. The concern which development cooperation over this issue was reflected needs to be carried out. The in the Declaration of Paris of objective was not economic March 20058. This document

7 http://www.un.org/es/millenniumgoals/ 8 http://www1.worldbank.org/harmonization/Paris/ParisDeclarationSpanish.pdf.

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was signed by 90 northern and towards a people- southern countries, in addition based approach under a to the representatives of 27 aid multidimensional perspective organizations of all the donor would certainly be positive for countries. However, beyond the the region, as it would expose its “Since 2000, the ODA discussion and the problems structural problems. However, allocation has clearly hindering the effectiveness if we analyze the data on the favored low-income and impact of international contributions made by the cooperation, there is a general international cooperation in and least developed consensus in relation to the recent years, the decline is clear. countries” fact that, in this globalization era, the cooperation is the main As regards the regional Gross instrument of international National Income (GNI), solidarity to contribute to the ODA provided to Latin promote development9. America and the Caribbean shifted from accounting for 3. THE ERRADICATION OF over 1 % during the sixties to POVERTY AS A PRIORITY 0.4% in the nineties and 0.22 OF COOPERATION AND ITS % today (see Figure 3). This IMPLICATIONS IN LATIN pattern of allocation of official AMERICA development assistance, based on the income level and which Having regard to the evolution favored the poorest country has of the concept of development been partly strengthened by the which in turn has transformed impetus provided by the system international cooperation, the of international cooperation question is: What consequences to achieve the Millennium has it had for the region? If we Development Goals (MDGs), look at the Developmentalist as the per capita income and recipe, as previously seen, the MDGs indicators are often the economic growth has not closely related. Thus, since translated into a reduction 2000, the ODA allocation has of poverty and inequality clearly favored low-income and and, in Latin America, the least developed countries . This implementation of these bias, as shown before, has been development strategies did detrimental to the countries not entail remarkable results classified as middle-income, as either, as inequality remained a they receive an increasingly problem, the largest challenge smaller share of the aid. that the region still needs to face. The decline as an ODA aid In this sense, the evolution of recipient is clear: during the the concept of development sixties, the region received

9 Debate on the limitations of international cooperation, Alejandra Boni Aristizabal, El sistema de la cooperación internacional al desarrollo. Evolución histórica y retos actuales, (“The international development cooperation system. Historic development and current challenges”), Cuadernos De Cooperación Para El Desarrollo, Issue 1, Centro De Cooperación al Desarrollo, Editorial Universitat Politècnica de València, 2010, p. 7-49.

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on average about 14 % of the of the USD 131 billion disbursed total ODA given to developing to developing countries in 2010, countries, while the figure now the region merely received 10.8 accounts for close to 8 %. Out billion.

Net disbursements of Official Development Assistance (ODA) in Latin America Comparing Latin America with and Carribean in relation to their GNI (percentage), 1964-2010 other regions clearly shows how (5-year Moving average in percentage points) the income level was adopted as a criterion for granting 1.6 international assistance, which 1.4 resulted in the loss of ODA the aforementioned region as it was 1.2 considered a middle-income 1 region. In 1990, middle-income countries received a larger share 0.8 of ODA on average than lower- 0.6 income countries (55 % vs 45 % 0.4 of the total ODA flows). In 2010, the share of middle-income 0.2 countries was greatly reduced, 0 as they received half of the ODA given to low-income and least 1974 1972 1972 1982 1978 1978 1976 1976 1992 1984 1988 1988 1994 1964 1964 1970 1998 1986 1986 1968 1968 1996 1996 1966 1966 1980 1980 2010 1990 1990 2002 2004 2008 2006 2000 developed countries. Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on the information provided by the Organization for Economic Cooperation and Development (OECD). If we analyze the evolution of the official development Shares of the countries in the total Official Development Assistance flows assistance flows between 1990 (AOD), according to income category, 1990-2010 (Percentage) and 2010, we can see that it has 70 increased among the low-income countries. In 1990, almost half of 60 the ODA flows were granted to low-income and least developed 50 nations. This trend intensified in the 2010s, as the ODA flows 40 towards these countries 30 increased, accounting for over 65% of the total assistance. 20

10 This decline can be explained through the adoption of the 0 income level as a criterion to allocate ODA. By adopting this 1991 1997 1992 1993 1994 1995 1998 1999 1996 1996 2001 2010 1990 1990 2002 2003 2007 2007 2004 2005 2008 2006 2009 2000 criterion, most of the aid is Low-income and least developed countries granted to low-income countries. Lower middle-income countries This criterion of discrimination Upper middle-income countries to award resources has

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on the ultimately consolidated due information provided by the Organization for Economic Cooperation and Development (OECD). to the ODA’s quest to achieve

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Latin America and the Caribbean: ranking of countries according to the World the Millennium Goals (MDGs). Bank and the Development Assistance Committee (DAC) of the OECD This explains the drop in the WORLD BANK DAC SUB-REGION contributions of the official 1 BAHAMAS HIGH-INCOME DEVELOPED COUNTRY CARIBBEAN development assistance to 2 BARBADOS HIGH-INCOME DEVELOPED COUNTRY CARIBBEAN 3 TRINIDAD AND TOBAGO HIGH-INCOME DEVELOPED COUNTRY CARIBBEAN promote cooperation in the UPPER MEDIUM- DEVELOPING COUNTRY, UPPER region, as the latter is a middle- 4 ANTIGUA AND BARBUDA CARIBBEAN INCOME MEDIUM-INCOME income zone. In accordance with UPPER MEDIUM- DEVELOPING COUNTRY, UPPER 5 ARGENTINA LATIN AMERICA INCOME MEDIUM-INCOME this consideration, and taking UPPER MEDIUM- DEVELOPING COUNTRY, UPPER 6 BRAZIL LATIN AMERICA INCOME MEDIUM-INCOME the gross national income of UPPER MEDIUM- DEVELOPING COUNTRY, UPPER the Latin American countries 7 CHILE LATIN AMERICA INCOME MEDIUM-INCOME as a reference, the ODA that UPPER MEDIUM- DEVELOPING COUNTRY, UPPER 8 COLOMBIA LATIN AMERICA INCOME MEDIUM-INCOME they received shifted from 1 % UPPER MEDIUM- DEVELOPING COUNTRY, UPPER 9 COSTA RICA LATIN AMERICA INCOMe MEDIUM-INCOME during the sixties to 0.4 % in the UPPER MEDIUM- DEVELOPING COUNTRY, UPPER nineties and 0.22 % nowadays. 10 CUBA LATIN AMERICA INCOME MEDIUM-INCOME The eradication of poverty as the UPPER MEDIUM- DEVELOPING COUNTRY, UPPER 11 DOMINICA CARIBBEAN INCOME MEDIUM-INCOME main objective of the MDGs, in UPPER MEDIUM- DEVELOPING COUNTRY, UPPER 12 ECUADOR LATIN AMERICA 2000, took place at the same time INCOME MEDIUM-INCOME UPPER MEDIUM- DEVELOPING COUNTRY, UPPER as the sharper decline in the 13 GRANADA CARIBBEAN INCOME MEDIUM-INCOME assistance provided by the ODA UPPER MEDIUM- DEVELOPING COUNTRY, UPPER 14 JAMAICA CARIBBEAN INCOME MEDIUM-INCOME throughout the region. UPPER MEDIUM- DEVELOPING COUNTRY, UPPER 15 MEXICO LATIN AMERICA INCOME MEDIUM-INCOME UPPER MEDIUM- DEVELOPING COUNTRY, UPPER Thus, it could be argued that 16 PANAMA LATIN AMERICA INCOME MEDIUM-INCOME in general terms, the adoption UPPER MEDIUM- DEVELOPING COUNTRY, UPPER 17 PERU LATIN AMERICA INCOME MEDIUM-INCOME of the structural gap of the UPPER MEDIUM- DEVELOPING COUNTRY, UPPER 18 DOMINICAN REPUBLIC LATIN AMERICA per capita income has been INCOME MEDIUM-INCOME SAINT VINCENT AND UPPER MEDIUM- DEVELOPING COUNTRY, UPPER detrimental to Latin America, 19 CARIBBEAN THE GRENADINES INCOME MEDIUM-INCOME since it is a middle-income UPPER MEDIUM- DEVELOPING COUNTRY, UPPER 20 SAINT KITTS AND NEVIS CARIBBEAN INCOME MEDIUM-INCOME region. If we carry out a more UPPER MEDIUM- DEVELOPING COUNTRY, UPPER 21 ST. LUCIA CARIBBEAN thorough analysis of the aid INCOME MEDIUM-INCOME UPPER MEDIUM- DEVELOPING COUNTRY, UPPER granted to each Latin American 22 SURINAME CARIBBEAN INCOME MEDIUM-INCOME country, we will be able to UPPER MEDIUM- DEVELOPING COUNTRY, UPPER 23 URUGUAY LATIN AMERICA INCOME MEDIUM-INCOME detect great differences, as UPPER MEDIUM- DEVELOPING COUNTRY, UPPER 24 VENEZUELA LATIN AMERICA the income level is again used INCOME MEDIUM-INCOME LOWER MEDIUM- DEVELOPING COUNTRY, LOWER as a criterion to decide which 25 BELIZE CARIBBEAN INCOME MEDIUM-INCOME country receives a larger share LOWER MEDIUM- DEVELOPING COUNTRY, LOWER 26 BOLIVIA LATIN AMERICA INCOME MEDIUM-INCOME of the official assistance, an LOWER MEDIUM- DEVELOPING COUNTRY, LOWER 27 EL SALVADOR LATIN AMERICA aspect that translates into huge INCOME MEDIUM-INCOME LOWER MEDIUM- DEVELOPING COUNTRY, LOWER inequalities in the distribution 28 GUATEMALA LATIN AMERICA INCOME MEDIUM-INCOME of the aid given to the region. LOWER MEDIUM- DEVELOPING COUNTRY, LOWER 29 GUYANA CARIBBEAN INCOME MEDIUM-INCOME For example, in terms of GNI, LOWER MEDIUM- DEVELOPING COUNTRY, LOWER 30 HONDURAS LATIN AMERICA the ODA contributions have INCOME MEDIUM-INCOME LOWER MEDIUM- DEVELOPING COUNTRY, LOWER been quite significant in this 31 NICARAGUA LATIN AMERICA INCOME MEDIUM-INCOME period for Haiti and Nicaragua LOWER MEDIUM- DEVELOPING COUNTRY, LOWER 32 PARAGUAY LATIN AMERICA INCOME MEDIUM-INCOME (over 15 % of the GNI), followed 33 HAITI LOW-INCOME LEAST DEVELOPED COUNTRY LATIN AMERICA by Dominica and Bolivia Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on the infor- (over 5 % in both cases). In mation provided by S. Tezanos Vázquez, Una aplicación al análisis de la distribución de la ayuda contrast, the contributions oficial al desarrollo* (“An application to the analysis of the distribution of official development assistance”), Financiamiento del desarrollo (“Development funding”), Santiago de Chile, 2012, were very modest for the press release; and the Development Assistance Committee (DAC), “DAC List of ODA Recipients”, 2011 [online]: http://www.oecd.org/dac/stats/daclist

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remaining countries –in 16 of change processes that have the 30 nations it did not even transformed the traditional reach 1 % of the GDP–. These references. The very concept of different ODA contributions powers has changed as well to are even clearer in terms of the extent that, in recent years, “In recent years, we population: seven countries – we have even begun to doubt have even begun most small populations– receive about the hegemonic continuity to doubt about the contributions amounting of the Western world, which the to over USD 150 per person U.S. has been leading. The strong hegemonic continuity (Dominica, Granada, Guyana, growth of the known as emerging of the Western world, Nicaragua, Saint Kitts and Nevis, powers and their intentions to which the U.S. has St. Vincent and the Grenadines exert international influence and Suriname). However, the largely justify these doubts. Even been leading” contributions received by the though it should be noted that two most populated countries in these new players do not meet the region –Brazil and Mexico– the traditional requirements to does not even reach one dollar be considered as powers, they and a half per capita10. have experienced an impressive growth and acquired a notable Regarding the areas of international weight in the 21st cooperation where the Century, although they suffer resources have been allocated, from serious problems of regular the concerns to achieve the poverty and inequality. Millennium Development Goals seem clear, since many Latin America is no stranger to resources were diverted towards the changes in the new trends areas of cooperation of social of power distribution among the infrastructure when, previously, international community and the largest investments involved the power shift towards Asia- the economic infrastructure and Pacific. In fact, the region has general development. also been labeled as emerging, as its economic and political THE “DISADVANTAGE” OF BEING weight has increased thanks to A MIDDLE-INCOME REGION IN countries like Brazil, seeking to RELATION TO THE MDGS become a regional leader and enhance its global influence. The The modern world is incredibly Latin American aspiration is to complex; it started changing become an autonomous regional rapidly after the end of the Cold player which aims to have a War and the current situation greater presence in emerging is marked by uncertainty and global governance structures.

10 S. Tezanos Vázquez, Conglomerados de desarrollo en América Latina y el Caribe: Una aplicación al análisis de la distribución de la ayuda oficial al desarrollo (“Deve- lopment conglomerates in Latin America and the Caribbean: An application to the analysis of the distribution of official development assistance”),Financiamiento del desarrollo (“Development funding”), Santiago de Chile, Economic Commission for Latin America and the Caribbean (ECLAC), 2012.

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The growth experienced from shortcomings and hurdles that 2003 to 2013 has had a positive the Latin American countries impact by reducing some of need to face, despite the growth the historical development in the income per capita. More structural problems in Latin specifically, inequality has “10 % of the population America, but pose new been a historical problem, still accounting for 48 % of challenges, such as those of unsolved, despite the growth the total income, while the middle-income countries experienced in recent years and (MICs)11. The main problem the positive impact it has had the lower 10 % merely is the fact that growth has on the region. As the European accounts for 1.5 %” improved the circumstances Commission itself pointed out, of the region and has partially indicators have shown that the solved historical structural region has the worst inequality problems, but has also led to the results in the world, with 10 % of marginalization of the region the population accounting for in relation to the international 48 % of the total income, while cooperation flows. However, the lower 10 % merely accounts despite the improvement, the for 1.5 %. As a comparison, in region still suffers from a series industrialized countries the 10 % of structural hurdles holding richest people account for 29 % back its development. of the total income while the 10 % poorest persons account for Development cannot be limited 2.5 %. The problem of inequality to a single factor, especially for and poverty is deteriorated by an area that is made up by rather the worsening difficulties that heterogeneous contexts and in several groups of the population certain cases, even absolutely need to face since they cannot different. This enormous access basic public services diversity includes very different (health, education, etc.), the labor social, economic and political market, the financial system or contexts. However, classifying political and legal institutions. them according to their income level simplifies and unifies this Therefore, the Economic diversity without taking into Commission for Latin America account that many middle- and the Caribbean (ECLAC) income countries have similar has proposed a new approach problems to those affecting which takes into account the low-income nations. Comparing vulnerabilities and needs that the Latin American situation middle-income countries have, with that of other countries which had been marginalized illustrates the unsolved from international official

11 J. A. Sanahuja, América Latina, más allá de 2015: escenarios del desarrollo global y las políticas de cooperación internacional (“Latin America beyond 2015: global deve- lopment scenarios and international cooperation policies”), quoted from S. Arriola, R. Garranzo and L. Ruiz Jiménez (coordinators), La renovación de la Cooperación Iberoamericana. Transformaciones para una agenda post-2015 (“The renewal of the Ibero-American Cooperation. Transformations for a Post-2015 agenda”), SEGIB- AECID, Madrid, 2013.

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cooperation flows so far due and worsen the situation of the to their status as middle- new middle classes, as well as income nations. To this end, negatively affecting the most it is essential to analyze the disadvantaged classes, despite challenges that each of the being middle-income countries. “It is mandatory to countries needs to meet. In rethink the concept this sense, a new cooperation In the current context, the of security, with a agenda should be set. An agenda ODA can certainly be a major which promotes inclusive contribution to avoid taking a focus on determining development12. step backwards and overcoming the vulnerabilities the structural hurdles that the entailed by the various THE CHALLENGES OF THE new agenda would take into REGION IN A NEW CYCLE account. structural gaps” OF SLOWDOWN AND ITS OPPORTUNITIES CONSIDERING THE ADOPTION OF THE NEW THE POST-2015 DEVELOPMENT POST-2015 AGENDA, BASED ON AGENDA AN INCLUSIVE APPROACH

The year 2015 was set as the For Latin America to attract deadline to fulfill the MDGs. the attention of international Hence, the UN has launched an cooperation, it is mandatory to extensive dialogue and round rethink the concept of security, of consultations so that, by with a focus on determining the September of this year, when vulnerabilities entailed by the all Member States meet at the various structural gaps . In this World Summit on Sustainable way, it will be possible to detect Development, it will be possible the structural hurdles slowing to draft a new development down development, even agenda. It seems like the agenda though they are middle-income will adopt an inclusive approach countries. On the contrary, which would certainly be a great as previously mentioned, opportunity for Latin America, addressing a single gap, such as as it would be included in the income, is not enough to fully ODA flows. define the multifaceted nature of development, nor the real This possibility comes at structural challenges that Latin a particularly appropriate America and the Caribbean time as it will take place at need to face. the same time as the start of a new economic cycle in Following the proposal made the region marked by an by the ECLAC, “achieving economic slowdown, after a development requires overcoming decade of strong growth. This endemic production lags through new circumstances might innovation and investment jeopardize the achievements in physical and, especially,

12 Middle-income countries, ECLAC, http://www10.iadb.org/intal/intalcdi/ PE/2012/10649es.pdf.

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human capital in order to in the countries of the region boost systemic productivity but also limit the potential for and competitiveness, as well as moving towards more inclusive strengthening institutions and economies and societies. These consolidating democracies. This gaps include those of (i) per capita means addressing a number income, (ii) inequality, (iii) poverty, of obstacles –or, more precisely, (iv) investment and savings, (v) structural development gaps– productivity and innovation, (vi) that still persist and that not infrastructure, (vii) education, (viii) only impede vigorous and health, (ix) taxation, (x) gender, sustainable economic growth and (xi) the environment”13.

13 ECLAC, La hora de la igualdad: Brechas por cerrar, caminos por abrir (“The time for equality: Closing gaps, opening pathways”) (LC/G.2432 (SES.33/3)), Santiago de Chile, 2010.

Latin America and the Caribbean (21 countries): Ranking of the middle-income countries according to the various gaps

Gap in Investment and Productivity and innova- Environ- Inequality Poverty Infrastructure Education Health Gender per capita savings gap tion gap Fiscal gap mental gap gap gap gap gap gap income Investment Savings Productivity Innovation gap Largest NIC COL HND BOL GUY NIC DOM GUY GTM GTM GTM GTM HND gap GUY HND NIC GUY BLZ BOL SLV NIC NIC HND CRI GUY NIC

HND BOL COL NIC SLV PRY HND JAM VEN BOL DOM HND SLV

BOL BLZ BOL PRY NIC GUY PRY BOL HND NIC SLV NIC GTM

PRY BRA BLZ GTM PAN HND GTM DOM DOM PRY PER BLZ ECU

GTM GTM GTM HND GTM PER NIC COL BRA PER MEX PAN PRY

SLV PAN GUY SLV DOM ECU ECU HND SLV PAN PRY SLV ARG

BLZ CHL SLV ECU JAM SLV BOL URY COL GUY ÀN COL PAN

PER NIC PER PER URY GTM PER GTM PRY MEX HND DOM BLZ

ECU PRY DOM DOM BRA BRA BLZ BLZ ECU JAM BLZ BOL VEN

DOM MEX ECU BLZ CRI COL GUY CRI MEX ARG CHL PRY BRA

JAM CRI PRY JAM COL PAN COL PRY CRI BLZ COL ECU BOL

COL ECU VEN COL PER URY JAM ECU URY VEN ECU JAM MEX

BRA DOM BRA BRA BOL DOM PAN VEN GUY SLV JAM BRA COL

CRI PER PAN URY PRY VEN VEN SLV BOL COL GUY MEX PER

PAN SLC MEX PAN HND JAM CRI BRA ARG BRA ARG VEN JAM

URY ARG JAM CRI CHL ARG MEX PER BLZ DOM BOL PER DOM

VEN JAM CRI MEX ARG CRI BRA MEX PAN ECU NIC CHL GUY

ARG GUY ARG VEN MEX BLZ URY PAN JAM CRI URY ARG CRI

CHL VEN URY CHL ECU CHL ARG ARG PER URY VEN CRI CHL Smallest gap MEX URY CHL ARG VEN MEZ CHL CHL CHL CHIL BRA URY URY

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on the information provided by the World Bank, World Development Indicators (online database): http://devdata.worldbank.org/dataonline/

Note: ARG: Argentina, BOL: Bolivia (Plurinational State of), BRA: Brazil, CRI: Costa Rica, CH: Chile, DOM: Dominican Republic, ECU: Ecuador, GTM: Guatemala, GUY: Guyana, HND: Honduras, JAM: Jamaica, MEX: Mexico, NIC: Nicaragua, PAN: Panama, PER: Peru, PRY: Paraguay, SLV: El Salvador, URY: Uruguay, VEN: Venezuela (Bolivarian Republic of). The indicators of Table 4 were proxy variables of each of the gaps. As regards the fiscal gap, the ranking is merely based on the public income indicator.

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Adding these gaps into the responsible for identifying approach enables it to address their key challenges. Without the main development hurdles their participation, it will of Latin America. not be possible to establish a development agenda, one “All the Once the needs of the that does not seek to equalize aforementioned data countries had been clarified, the structural problems, but lead to the conclusion the ECLAC carried out an recognizes the singularities of analysis to measure the each case. that it is not possible magnitude of these problems to establish universal and organized it on a country DRAFTING A NEW AGENDA development basis. This showed that the WHICH BENEFITS LATIN income level is not directly AMERICA AND THE CARIBBEAN “recipes”, since their related to the development implementation level, since an increase in the This new approach has been through the income level and, therefore, a adopted by the Latin Ameri- reduction in the income gap can region and was formalized cooperation does not necessarily translate during the Regional Consulta- mechanisms would into improvements in the tion for Latin America and the end up failing” remaining gaps. Not only Caribbean on Financing for that, it is also possible to see Development held in August that the importance of each 2000 at the ECLAC headquar- gap varies from country to ters in Santiago de Chile. At country. Thus, an individual this meeting, the government analysis is required for each representatives and experts country; while certain gaps demanded that the interna- are the main hurdle in certain tional cooperation system had countries, they are secondary to adopt a multidimensional in other nations. All the agenda, faced with the deve- aforementioned data lead to lopment challenges, not only the conclusion that it is not based on the needs of the low- possible to establish universal income countries, but which development “recipes”, since also considers the various their implementation through needs and weaknesses of the the cooperation mechanisms middle-income nations. would end up failing . On the opposite, it is essential In accordance with the to analyze the greatest proposals made by the weaknesses and challenges for ECLAC at the same meeting, each case. its Secretary, Alicia Barcena, reiterated that “The concept It is therefore crucial to of development must not only establish a dialogue with the focus on low-income countries. recipient countries and enable This is a wide concept which them to play an active role concerns the majority of the in the process of setting the emerging economies and those development goals. They are known as medium-income

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countries. The current levels not necessarily generate greater of ODA are not sufficient”14, social progress: different policies and added that, “the allocation must be in place, particularly criteria, both for ODA and at a time when fiscal resources, public and private funding crucial to expand social safety “The lessons learned on flows, which rank according nets, have shrunk”16. the limitations that the to average income, are not MDGs agenda had also appropriate as they do not In this sense, the lessons grasp the natural complexity of learned on the limitations seem clearer” development”15. that the MDGs agenda had also seem clearer. Thus, the “The economic growth is not UNDP emphasizes on the fact enough to continue reducing the that the welfare of the people poverty and inequality in Latin goes “beyond income”, calling America and the Caribbean”. upon the regional leaders to This was the message conveyed focus on the “multidimensional by the UN Development development”. This implies Program (UNDP), at the first investing in skills for job Meeting of the Advisory placement, financial systems Council of the 2016 Regional that do not lead to over- Human Development Report on indebtedness among the poor Multidimensional Development, population and reducing the which brought together over gender gaps. In this sense, 20 public authorities: ministers, Gonzalo Robles, Secretary- senators, academics and the General of International leaders of the main multilateral Development Cooperation organizations in the region. of the Government of Spain, “Clearly, “more of the same” in considers that “The Millennium terms of growth and public Development Goals have policies will no longer yield “more taught us that, beyond growth, of the same” in poverty and development actions must inequality reduction”, said the address multidimensional UN Deputy Secretary-General welfare aspects... Despite the and UNDP Director for Latin social achievements of the last America and the Caribbean, decade, the social protection Jessica Faieta, at the forum. systems are not universal More specifically, she stated that networks granting access to “Higher economic growth does decent work, health, education

14 This approach is also covered in Financiamiento para el desarrollo en América Latina y el Caribe. Un análisis estratégico desde la perspectiva de los países de renta media (“Funding for the development of Latin America and the Caribbean. A strategic analysis from the point of view of middle-income countries”), 2015, http://www.financiaciondesarrollo.org/ S1500127_es.pdf 15 http://www.cepal.org/es/comunicados/paises-de-america-latina-y-el-caribe-llaman- repensar-el-sistema-de-cooperacion. 16 http://www.sv.undp.org/content/el_salvador/es/home/presscenter/pressrelea- ses/2015/02/20/con-crecimiento-econ-mico-no-basta-dice-el-pnud-con-un-llamado- hacia-el-progreso-multidimensional-.html, February, 2015.

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and protection throughout the entailed by the new economic whole life cycle”. climate in the region, could arrive at a particularly appropriate Based on this new development time. agenda, the UNDP is preparing “The circumstances its 2016 Human Development The reports drafted by the of the international Report for Latin America and the ECLAC and the World Bank market had an Caribbean on Multidimensional suggest that Latin America could Progress which shall also join the global recessionary immediate impact on include policy recommendations trend, since it is slowly being the Latin American reflecting the new global affected by the European crisis economies” development agenda, in and the decline in the Chinese accordance with the Sustainable demand for raw materials. Development Goals to be Currently, the main concern is launched in September 2015 at the deterioration of the main the UN General Assembly in past achievements due to the New York. The new agenda will weaknesses of the development certainly include the middle- model promoted by the recent income countries, in accordance positive economic cycle. In fact, with the new approach. this model has been mainly Therefore, an increase in the aid based on the export of raw flows and a larger support for materials and commodities, such ODA development is expected in as oil and copper. This model Latin America. puts the region in an extremely vulnerable state when the THE TIMELY RE-ROUTING OF THE market context changes, as is INTERNATIONAL COOPERATION currently happening, since the FLOWS IN A PERIOD OF demand for products is reduced ECONOMIC SLOWDOWN IN LATIN and/or oil prices drop. AMERICA The circumstances of the Despite developing South-South international market had an cooperation mechanisms, the immediate impact on the Latin region has never intended to American economies. The region forego the international ODA. completed in 2014 its fourth The South-South17 cooperation consecutive slowdown term and between Latin American the forecasts for this year, both countries was a necessary from the IMF and the ECLAC, complement to international expect a regional GDP growth cooperation, but not a substitute of hardly 1 %. This situation for ODA18. This cooperation, contrasts with the recent data

17 Definition of South-South cooperation, http://sursur.sela.org/qu%C3%A9-es-la-css/ conceptos-de-la-cooperaci%C3%B3n-sur-sur/. See also, Mapping Multilateral Support to South-South Cooperation in Latin America and the Caribbean: Towards collaborative approaches, UNDP, 2012, http://www10.iadb.org/intal/intalcdi/PE/2012/10661es.pdf. 18 http://www.cepal.org/es/comunicados/paises-de-america-latina-y-el-caribe-llaman- repensar-el-sistema-de-cooperacion, April 2012.

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highlighting the recent economic institutions in the region, boom; since the beginning The World Bank Group of the 21st century until 2012, (WBG), the Inter-American the regional GDP grew by 80 Development Bank (IDB), and % –supported by increasing CAF, Development Bank of demand for raw materials–. The Latin America, have made a middle-class grew by almost 50%, commitment to support the partially solving the inequality efforts of the governments problem –Latin America remains in the region to preserve and the most unequal region in the expand the economic and “Out of the 600 million world– and poverty dropped social successes of the past by 30 %. Even so, out of the 600 decade... Aware of the fact citizens, 170 are poor” million citizens, 170 are poor. that the external factors that contributed to these The biggest concern is the achievements have changed sustainability of these (...) the IDB, CAF, and the WBG achievements, given the place our financial resources, existing structural gaps that knowledge, and power to Latin America needs to face. convene, at the disposal of This has become a priority the countries of the region. objective as regards the ODA, as Only in financial terms, the stated by the main multilateral three institutions expect to organizations engaged in the provide in our respective 2015 development of cooperation fiscal years more than USD 35 in the region based on their billion to Latin America and willingness to implement an the Caribbean: USD 12.5 billion “inclusive economic growth” from the IDB, USD 12 billion approach. from CAF, and USD 11 billion from the WBG”. THE ODA COMMITMENT TO LATIN AMERICA IN A PERIOD OF These worries, expressed very ECONOMIC DIFFICULTIES clearly by the organizations, show concerns for a social The commitment of regression due to the new international cooperation to economic context. Therefore, Latin America seems clear. the proposal to contribute to the This was ratified in the “Joint Latin American development at Declaration of the International this critical moment is based on Financial Institutions at the concept of multidimensional the Seventh Summit of the and inclusive development. The Americas”, held in Panama City organizations are well-aware in April 201519. of two key aspects for their contribution to be successful. In this document, “the main First, they need to “close the international financial wide competitiveness gaps”

19 http://www.iadb.org/es/noticias/anuncios/2015-04-10/declaracion-de-ifis-para-la-vii- cumbre-de-las-americas,11130.html.

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through this multidimensional 4. CONCLUSIONS approach, since they understand that, in order to ensure a “fairer The evolution of the concept society”, they need to invest in of development has been human capital, infrastructure, adopted by the international innovation and policies to cooperation. In this sense, after improve the gender equality, leaving the Developmental “The region is facing provide low-income citizens theories behind, the human with access to food, housing, being became the cornerstone a great challenge, drinking water, sanitation, of the new approach in which it must avoid as well as the health and the MDGs were promoted. wasting the past education services and quality However, the experience of employment. In short, social recent years has shown that achievements at a policies need to develop the this step, although important, difficult time” potential of individuals. was not enough. The adoption of per capita income as an Second, they understand that indicator to measure poverty solutions must be “customized”. has “hidden” structural gaps In this sense, the declaration affecting Latin America. also takes the UN proposal into account in relation to the Only through the need to promote the active implementation of a participation of the recipient multidimensional and flexible countries, given the singularities concept of development, that characterize each nation. which takes into account the Thus, the declaration insists on main structural gaps, will it be the fact that the solutions to possible for the international be implemented “will be in the cooperation to make hand of each country, as they meaningful contributions. will have to design the best path to follow”. This new development concept is particularly important for Latin America is expected to Latin America for several return to the international reasons. First, because it enables cooperation flows: a crucial and the region to become once necessary support, despite the again recipient of international fact that it is a middle-income development cooperation and, region, particularly at a time secondly, since this new concept of difficulties. International promotes a more efficient cooperation will certainly and successful cooperation. contribute to the development The region is facing a great of the region. challenge, it must avoid wasting the past achievements at a difficult time. In this context, the possibility of being aided by international cooperation will undoubtedly be a key support to achieve this objective.

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