Tag Archives: CAFTA

Costa Rica

What will Solís do as Costa Rica’s new president?

4 Comments

LGS

He won the Costa Rican presidency yesterday with 78% of the vote. His opponent considered the runoff so hopeless that he conceded defeat and suspended his campaign a month ago. With nearly 1.3 million votes, he won more votes than any other Costa Rican presidential candidate in the country’s modern history.costa_rica_flag

But now that he’s been officially elected Costa Rica’s new president, what will Luis Guillermo Solís (pictured above) do in office?

The first thing he’ll have to do is temper high expectations that Costa Rica’s first third-party president in modern history will suddenly transform the country into a wealthier, corruption-free, social democratic paradise.

The son of a cobbler and the grandson of a laborer on a banana plantation, Solís vowed to reverse the income and social inequality that’s become a growing concern in what is arguably Central America’s most politically and economically successful country.

Solís, a historian who has never held elective office, won a surprise victory won the first round of the presidential election on February 2, edging out one-time frontrunner Johnny Araya, the candidate of the ruling Partido Liberación Nacional (PLN, National Liberation Party) and the longtime mayor of San José. Solís’s strong showing against Araya in the final presidential debate bolstered his candidacy, which had languished in fourth or fifth place in polls, even a week before the February vote. 

It was a magnificent turnaround for a candidate who barely figured in the polls at the end of 2013. 

tico2014

Solís won 77.85% in Sunday’s runoff, while 22.15% voted for Araya, despite the suspension of Araya’s campaign on March 6. He said that he’ll start announcing key members of his cabinet next Monday, April 14.

Araya was attempting to win a third consecutive presidential term for the PLN. In the 2010 vote, Costa Ricans elected Laura Chinchilla as the country’s first female president. Despite initially high expectations, Chinchilla’s administration has been a disaster, marred by embarrassing corruption scandals within the PLN and charges of lackluster economic policy.

Costa Rican voters also had doubts about Araya’s leading challenger, the far more leftist José María Villalta, the candidate of the socialist Frente Amplio (Broad Front), who had been expected to advance to a runoff against Araya.

So it’s not a surprise that voters would turn to Solís, who offered a slightly more leftist vision for Costa Rica than Araya and the PLN, but not so socialist as Villalta and the Broad Front.

He’ll take office with an incredibly fragmented Asamblea Legislativa (Legislative Assembly) — his own party, the Partido Acción Ciudadana (PAC, Citizen’s Action Party), holds just 13 seats in the 57-member chamber. That means he’ll have to form an alliance with the PLN, which holds 18 seats, or form ad-hoc coalitions with other lawmakers who range in ideology from Christian democratic to radical libertarian to chavista-style socialist.

It helps that Solís — and the PAC’s unofficial leader Ottón Solís (no relation to the president-elect) both started their political careers with the PLN. Ottón Solís, elected in February to the National Assembly as a deputy, will play an important role in forming and achieving the new administration’s agenda. For the past decade, opposition to the ruling PLN and to corruption has united the PAC, and it’s ideological diversity has been helpful in the 2014 campaign. Once in government, however, Luis Guillermo Solís may find it difficult to unite a party that contains both socialists and liberals — and to maintain a constructive role for Ottón Solís.   Continue reading What will Solís do as Costa Rica’s new president? →

Costa Rica

Upstart leftist challenges Araya dominance in Costa Rican vote

1 Comment

Villalta

Not so long ago, the Costa Rican presidency was Johnny Araya’s to lose.costa_rica_flag

But as Costa Rica holds a general election on February 2 to pick a new president and all 57 members of its Asamblea Legislativa (Legislative Assembly), Araya is on the defensive and may find himself in a runoff against an upstart progressive candidate, José María Villalta (pictured above).

araya

Araya (pictured above), the mayor of San José since 1998, the candidate of the relatively dominant center-left Partido Liberación Nacional (PLN, National Liberation Party) and the nephew of former president Luis Alberto Monge, led polls throughout 2013.

chinchilla

There were always reasons to believe that lead was soft, in light of the massive unpopularity of outgoing president Laura Chinchilla (pictured above), who late last year has a 12% approval rating, making Chinchilla, according to pollster Mitofsky, the least popular leader in Latin America.  Elected in 2006 to great fanfare and high expectations as the country’s first female president, Chinchilla has struggled to contain Costa Rica’s exploding public debt, which grew from 30.7% of GDP in 2011 to 35.3% in 2012.  Fifteen ministers have resigned during her administration following corruption and other scandals, and Chinchilla last May hit rock-bottom when she accepted jet rides from a Colombian businessman with suspected drug trafficking links.  Furthermore, Araya’s two-decade record as mayor of Costa Rica’s capital, including ongoing investigations for corruption, provided his opponents with ample ammunition.  Araya has also struggled at times to respond to critics about how he could lead a government that commands the trust of the electorate.

Despite those headwinds, Araya had hope to believe that he would win the PLN’s third consecutive presidential term, given the near-complete collapse of Costa Rica’s traditional center-right party of the past three decades, the Partido de Unidad Socialcristiana (PUSC, Social Christian Unity Party).  Though it held the presidency three times between 1990 and 2006, its parliamentary caucus shrunk from 27 in 1998 to just six today, and its presidential candidates in 2006 and 2010 failed win more than 4% of the national vote.  When former presidents Rafael Ángel Calderón Fournier and Miguel Ángel Rodríguez were convicted and imprisoned on corruption charges stemming from PUSC’s time in power, it massively discredited the party.

But the PUSC’s troubles have only worsened in the campaign leading up to Sunday’s vote.  PUSC’s presidential candidate Rodolfo Hernández dropped out of the race, blasting his own party’s record on corruption along the way.  That Hernández dropped out on October 3, changed his mind two days later, and left the race again on October 9 only made the PUSC’s chances worse.  The PUSC hastily named Rodolfo Piza, the former head of Costa Rica’s social security system, who previously contested the PUSC primary for the presidential nomination in May 2013, as its nominee instead.

Support for three other candidates now threaten to deny Araya the 40% support he needs to win the election outright on Sunday, leading to a runoff between the top two candidates, likely on April 6.  It would be just the second time in Costa Rican history that the presidential race requires a runoff (the first was in 2002).

The strongest challenger is the 36-year-old Villalta, whose popularity surged dramatically last autumn.  He’s the candidate (and currently the sole parliamentary member) for the Frente Amplio (Broad Front), a relatively new social democratic party that has figured minutely in Costa Rican politics — until now.

A brash, confident leftist, Villalta has embraced a campaign heavy on human rights for an agenda to  boost environmental regulations, enact same-sex marriage, and enact more progressive economic policies at odds with the broadly free-market policies that have dominated both PUSC and PLN administrations over the past three decades.  But his youth and his rapid rise in Costa Rican politics have kept some voters from fully embracing his candidacy.  Though he’s not a communist as his opponents have charged, words of solidarity with the late Venezuelan president Hugo Chávez have not helped convince voters that Villalta is moderate enough to govern Costa Rica effectively.  He received some ridicule in the final presidential debate for suggesting a tax on sodas and other junk food, including chifrijo, a Costa Rican bar food that combines rice, beans, chicharrón (pork) and chimichurri.

guevara

The strongest candidate on the right is Otto Guevara (pictured above), who’s making his fourth consecutive presidential bid.  Guevara, an attorney, founded the conservative Movimiento Libertario (ML, Libertarian Movement), in 1994 as an anti-corruption party championing free-market liberalism and greater individual rights.  First elected as a legislator in 1998, Guevara has won increasing amounts of support in each election — 1.7% in 2002, 8.4% in 2006 and 20% in 2010.  Guevara has taken a strong social conservative stand in the current campaign, especially against abortion and same-sex marriage.  He’s benefitted from the collapse of the PUSC and, though he seems unlikely to make it into the second round, polls show that he could win the presidency in a runoff against either Araya or Villalta.

solis

If Villalta had the momentum through the end of 2013, yet another center-left candidate seems to have captured that momentum as the campaign ends — Luis Guillermo Solís, an academic, diplomat and one-time adviser to former president Óscar Arias on the Esquipulas Peace Agreement that helped bring an end to the ideology-based civil wars that plagued much of Central America in the 1980s.  Ariás, who won the Nobel Peace Prize in 1987 for his efforts, has served twice as Costa Rica’s president, from 1986 to 1990 and again from 2006 to 2010, and he remains one of the region’s most respected statesmen.  Solís (pictured above) left the PLN in 2005, however, and he’s running on a solidly center-left platform to improve the country’s health care and pension system and reduce corruption.  Solís has sharply criticized both Chinchilla and Araya throughout the campaign and, as a more moderate center-left alternative to Araya, Solís may be winning voters who are having second thoughts about catapulting the more radical (and younger) Villalta to the presidency.

Solís represents the Partido Acción Ciudadana (PAC, Citizen’s Action Party), another social democratic party founded in 2000 by Ottón Solís (no relation) that emerged as an anti-corruption alternative to the PLN that, like the Broad Front, is more skeptical of the PLN/PUSC adherence to neoliberal policies.  The PAC, for example, opposed Costa Rica’s membership in the US-Central American Free Trade Agreement. Ottón Solís ran for president in the previous three elections, and he nearly defeated the seemingly unstoppable Arias in the 2006 election.

The final CID-Gallup poll released January 28 showed Araya holding onto a 35.6% lead, followed by Villalta with 21.0%, Guevara with 17.6%, Solís with 15.6% and Piza at just 6.5%, with other candidates winning just 3.6%.  Those numbers represent a narrow drop for both Araya and Guevara, but it’s a bit of a sharper drop for Villalta, who was pollign in the mid-20s and high-20s earlier this month and in December.  Villalta’s loss has been Solís’s gain.   Continue reading Upstart leftist challenges Araya dominance in Costa Rican vote →

Honduras, United States

How the Obama administration is failing Honduras — and Central America

4 Comments

hondurasDEA

TEGUCIGALPA, Honduras – The June 2009 coup that ousted Manuel ‘Mel’ Zelaya from office was the first 3 a.m. call of U.S. president Barack Obama’s administration. USflaghonduras flag icon

While Obama and Hillary Clinton, then the U.S. secretary of state, condemned the coup and the interim government’s refusal to reinstate Zelaya, the United States returned to business as usual with the election of Porfirio Lobo Sosa later that year, and U.S.-Honduran cooperation, especially militarily, has been on the rise during the Lobo Sosa administration.  As Juan Orlando Hernández prepares to assume the Honduran presidency — like Lobo Sosa, he comes from the conservative Partido Nacional (PN, National Party), it also likely means continuity in US policy toward Honduras, specifically, and Central America, generally.

But should it?

Though the votes aren’t even fully counted, and there are real questions about the November 24 election’s fairness, it’s hard to believe that U.S. policymakers are too upset about the apparent defeat of Xiomara Castro de Zelaya, the wife of the former president, and the leader of the newly formed LIBRE, which would have pulled Honduras in a more leftist direction – and toward closer contact with Venezuela, Ecuador and Bolivia, each of whom have challenged U.S. influence in Latin America.

There’s another risk that the Obama administration’s Central American policy could be causing more harm than good by ‘feeding the beast’ of corruption among police officers and impunity among drug traffickers, the very things that U.S. aid to Honduras is ostensibly designed to combat.

With three more upcoming elections in Central America over the next six months, it’s a particularly relevant opportunity for the Obama administration to review its policy in the region.  Guatemala’s conservative president Otto Pérez Molina came to power early last year, promptly declared the ‘war on drugs’ a failure, and issued a powerful call to legalize drug use.  Even Felipe Calderón, who militarized the Mexican fight against drug traffickers in the late 2000s, has argued that legalization might be the most effective policy weapon in combatting drug-related violence in Latin America.

Even as some libertarian Republicans in the United States increasingly believe that the four-decade ‘war on drugs’ is a failure at home, it’s easy to underestimate the damage that war has wrought in Latin America, with North American demand fueling an illicit drug supply, together with subsequent US-sponsored military efforts throughout the region, that have destabilized entire countries – Colombia in the 1990s, Mexico in the 2000s and Honduras today.  Research from Horace Bartilow and Kihong Eom, professors of political science at the University of Kentucky, finds that U.S. drug policies have caused greater levels of drug violence in Latin America.  Even when countries are ‘successful’ in their supply-side fights against drug traffickers, demand dictates that the suppliers find new countries, establishing a vicious ‘bubble problem’ – success in one country means that a new chapter opens elsewhere as traffickers search out new bases for drug operations, a tragic game of ‘whack-a-mole’ on a hemispheric level.

It’s Central America’s turn, which now sources the vast majority of known cocaine shipments to the United States.  In particular, traffickers found Honduras a particularly attractive target, in part due to the breakdown in the rule of law that resulted from the 2009 coup.  Sadly, Honduras now boasts the world’s highest homicide rate, and has a thriving arms trafficking trade to match the drug trade. Continue reading How the Obama administration is failing Honduras — and Central America →

El Salvador

El Salvador’s experience in dollarization

23 Comments

CIMG1235

On the way back home from Honduras, my plane landed briefly in El Salvador at San Salvador’s airport.el salvador

Not wanting to pass up a brief opportunity to try my first Salvadoran pupusa in El Salvador*, I started looking for a cash machine to withdraw some local currency.  Within seconds, however, I remembered that El Salvador switched from the colón to the US dollar 12 years ago, so of course there was no need, and I began thinking a little more about why El Salvador adopted the US dollar and whether it has seen any benefits from doing so in the past decade or so.

That decision was among the most important of the administration of Francisco Flores, El Salvador’s president between 1999 and 2004, and a member of the conservative Alianza Republicana Nacionalista (ARENA, National Republican Alliance).  Flores became one of the top US allies in the region at a time when Hugo Chávez was cementing his control on power in Venezuela.  Not only did he stand firmly with US president George W. Bush over regional affairs, he even deployed Salvadoran troops to Iraq in support of the US invasion.

Dollarization was controversial even at the time, but the policy goal was that it would reduce El Salvador’s interest rates and facilitate trade — this was in the era before the Central American Free Trade Agreement (CAFTA), which came into effect in 2009 among the United States, the Dominican Republic and four Central American countries.**

But the broader economic benefits haven’t materialized as fully as Flores might have hoped a decade ago — El Salvador’s GDP growth rates have lagged behind even some of its poorer Central American peers in the past 12 years:

Screen Shot 2013-11-11 at 10.51.36 AM

The entire Central American economy is tied heavily to the US economy due to massive trade and remittances from family members living and working in the United State.  That’s especially true for El Salvador, because many Salvadorans migrated during the brutal civil war during the 1980s (in the Washington, DC metro region, for example, Salvadorans represent the largest Latino nationality group, outpacing even Mexicans).  With around 6.3 million people, El Salvador has over three-fourths of the population of Honduras, but less than one-fifth of the area of Honduras.***

But it’s been essentially the sick man of Central America for some time, routinely underperforming Honduras, which is struggling under the weight of political polarization, trafficking-related violence and massive corruption.  El Salvador faces those problems as well, but it’s generally believed that those problems are at least slightly less drastic in El Salvador.

What’s clear is that while dollarization may (or may not) have worked for Panamá and Ecuador, the benefits have either been too small for El Salvador to realize or, worse — and more likely, dollarization has actively hampered the Salvadoran economy.

Salvadoran central bank president Carlos Acevedo earlier this year admitted that dollarization was ‘a sack of unfulfilled promises’:

Bank President Acevedo made his most recent statements (reported by Active Transparency) following the release of a government study on dollarization, which reached some rather negative conclusions. The report found that many key economic indicators, including exports and GDP fell, while inflation and interest rates rose. Dollarization has failed to shield the economy from downturns and instead made El Salvador more susceptible to instabilities in the U.S. economy, as witnessed during the 2009 recession. The Economista published an article yesterday reaching very much the same conclusions.

In his statements this month, Acevedo said dollarization was “badly designed, improvised and lacking consultation,” and that El Salvador’s fiscal performance with dollarization was the worst in sixty years. He also said the performance was so poor that even proponents of dollarization could not ignore its negative impacts.

Prices in San Salvador’s airport do seem to be higher than prices in Tegucigalpa’s airport, though perhaps the better comparison is to the swankier airport in San Pedro Sula.  But there’s definitely a sense among Salvadorans that consumer prices rose after 2001, though the reasons for that phenomenon remain an open question, even among economists.

Another IMF report from 2011, however, indicated that dollarization had reduced interest rates between 4% and 5%, thereby contributing to savings and boosting GDP by 0.25% to 0.5% annually.

It’s tempting to argue that El Salvador is suffering from the same fate as the eurozone — i.e., that El Salvador and the United States do not comprise an optimal currency zone), Salvadorans are ‘stuck’ with US monetary policy, which may not be appropriate for the Salvadoran economy, and there’s obviously no mechanism for fiscal transfers from the US federal government to the Salvadoran government.   Continue reading El Salvador’s experience in dollarization →

Honduras, United States

So what’s the big deal about Honduras’s election?

1 Comment

image

TEGUCIGALPA — It’s not a controversial argument that the November 24 general election is the most important Central American election of the year, if not the most important since 2009, for the region.  But it’s certainly of vital importance for US foreign policy — and much more than the three additional upcoming elections next spring in Central America (Costa Rica, El Salvador and Panamá).USflaghonduras flag icon

The coup that overthrew former president Manuel Zelaya in June 2009 was in many ways the first important foreign policy crisis for the administration of US president Barack Obama.  Views differ incredibly as to whether Obama and US secretary of state Hillary Clinton succeeded in handling the crisis.  Though the US government joined virtually the entire international community in condemning the coup and voicing support for Zelaya’s return to office, the United States ultimately backed down on threats to refuse to recognize the November 2009 election, despite threatening not to recognize those elections in talks with Honduras’s interim president between June 2009 and January 2010, Roberto Micheletti.

It was clear that top US policymakers weren’t happy with Zelaya’s increasing turn toward stridently anti-American leftist regimes, including Venezuela, which was then under the leadership of Hugo Chávez, and Zelaya’s decision to join the Alianza Bolivariana para los Pueblos de Nuestra América (ALBA, Bolivarian Alliance of the Americas) was a turn away from the United States and toward Venezuela, Bolivia, Cuba and others in the region.  While Zelaya would be a fool to turn away the favorable terms of Chávez’s Petrocaribe scheme that subsidizes fuel (50% down, 50% to be paid far off in the future), and even his conservative successor continued to accept Petrocaribe fuel, he pulled Honduras far closer to the hardcore left than it had ever been in its history.

As the subsequent post-Zelaya elections approached, however, it was clear that the United States was more comfortable with the impending victory of Porfirio Lobo Sosa, the candidate of the Partido Nacional (PN, National Party).  When Lobo Sosa (pictured above with Obama) won that election, US-Honduran relations went back to business as usual — and then some.

Honduras is, in many ways, the key to US policy in Central America.  Its Soto Cano air force base is a key military transport point between the United States and the rest of Latin America — the air base itself came into modern existence in 1981, when the US government used Honduras as a staging point for Contra incursions against the Soviet-backed Sandinista forces in Nicaragua.  Don’t let its relatively small size fool you, either.  If you think a country with a population of just eight million people can’t be relevant to US foreign policy, just look at Israel — it’s a country with just six million.

Four years after the mixed US response to the coup, Hondurans are preparing to elect a new president and all 128 members of the Congreso Nacional (National Congress), and the consequences couldn’t be greater for US-Honduran relations.

Current polls show that it’s a three person-race, with the National Party’s Juan Orlando Hernández, the president of the National Congress, essentially tied with Xiomara Castro de Zelaya, the wife of the former president.  Castro de Zelaya is running as the candidate of a broad leftist movement, the Frente Nacional de Resistencia Popular (FNRP, National Popular Resistance Front), which is now organized as a full political party, the Partido Libertad y Refundación (LIBRE, Liberty and Refoundation Party).  Lagging behind is attorney Mauricio Villeda, the candidate of Zelaya’s former party, the Partido Liberal (PL, Liberal Party) and the son of a former social democratic Liberal president in the late 1950s and early 1960s.

Though Castro de Zelaya isn’t going out of her way to disparage the United States, and the United States hasn’t endorsed Hernández directly, US-Honduran relations will be much trickier if Castro de Zelaya wins the election.

But that doesn’t mean relations will necessarily be worse for the Honduran people.   Continue reading So what’s the big deal about Honduras’s election? →

Costa Rica, El Salvador, Honduras, Panama

Chart of the day: Central American GDP per capita

10 Comments

Screen Shot 2013-10-29 at 1.00.45 PM

Central America holds its fair share of elections over the coming months, starting with the November 24 general election in Honduras, where voters will select a new president and all 128 legislators in the Congreso Nacional (National Congress).honduras flag iconPanama Flag Iconcosta_rica_flagel salvador

But that’s just the beginning — El Salvador holds the first round of its presidential election in February 2014, with a potential runoff in March 2014, Costa Rica holds a general election in early February 2014, and Panamá holds its general elections in May 2014.  Guatemala will hold off until autumn 2015 and Nicaragua and Belize will hold off until 2016, when president Daniel Ortega (yes, that one) may well attempt to cling to power.

What’s more, in each of the four Central American elections set to take place in the next seven months, presidential term limits prohibit the incumbent from reelection, so four countries with over 21 million people will make political transitions of some kind.

But what’s most staggering is that the issues in each of the four elections are massively different — GDP per capita varies widely.  Though you can see a slight variance in 1960 setting Panamanian and Costa Rican GDP per capita apart, Guatemala briefly overtook Costa Rica in the early 1980s and Nicaragua was also on essentially the same path as Panamá and Costa Rica before flatlining for a decade starting in the late 1970s (following the Managua earthquake and anticipating the fall of the Somoza regime) and actively falling during the 1980s and early 1990s when the Cold War-inspired civil war devastated the country.  Though El Salvador continued to growth at a slow, steady rate throughout its civil war, which raged from 1979 to 1992, its growth rate exploded in the mid-1990s, and pushed the country to appreciably higher standards of living than its neighbors.

Still, the greatest relatively gains have been made over the past two decades:

Screen Shot 2013-10-29 at 1.09.36 PM

Costa Rica, with its tourism (and its position as a regional hub for Intel microprocessors), and Panamá, with its canal revenues, banking and insurance sectors and, increasingly, also tourism, lead the way.  Panamá City long overtook Managua as Central America’s financial hub.

In short, Panamá and Costa Rica are becoming tropical extensions of North America, with GDP per capita approach $10,000, essentially equivalent to that of México, and just a little lower than Brazil, Argentina, and Chile.

The remaining four countries major countries (minus Belize) are languishing further behind, with some of the lowest standards of living in all of Latin America.

Especially in Honduras, which features the higher homicide rate in the world — a rate that’s more than doubled since 2005 from around 37 homicides per 100,000 to 91.6 in 2011.  The World Bank estimates that violence and crime levels cost Honduran economy about 10% of GDP annually.  Security dominates the election campaign, but it’s a real drag on the economy as well.

Nonetheless, the economy has grown steadily at around 3.5% for the past four years, in part due to the strength of its export economy, fueled by the passage of the Central American Free Trade Agreement (CAFTA-DR) among the United States, Honduras, the Dominican Republic and several other Central American countries.  That has boosted the maquila (assembly) industry, as well as other service and manufacturing sectors in Honduras — agriculture remains important, but bananas represent just about 3.5% of exports in the original ‘banana republic,’ and coffee amounts to just 10% of exports.  The economy remains incredibly tied to the United States — exports to the United States account for about 30% of Honduran GDP and remittances from the United States and elsewhere contribute about 20% of Honduran GDP.

But whereas economists and observers once joked that Honduras was so poor that it couldn’t even afford an oligarchy, it now has the highest Gini coefficient in Central America (57) and one of the highest in the world as inequality continues to rise.  About 60% of Hondurans live below the poverty line.  Moreover, corruption remains a real impediment to foreign investment — Transparency International ranked the country 133rd in 2012, again the lowest score in Central America (and just barely topping the more lowly ranked Venezuela).

In global terms, however, Honduran GDP per capita (around $4,600 on a PPP basis), is relatively wealthy — that’s still higher than in India, Pakistan, Vietnam, Nigeria, Kenya or Ethiopia.