Tag Archives: economy

Colombia

In Colombia’s election, it’s the economy (not FARC), stupid

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The second round of Colombia’s presidential election has been billed as a momentous decision between war and peace.Colombia Flag Icon

Juan Manuel Santos, the incumbent, has staked his presidency on the ongoing negotiations with the Fuerzas Armadas Revolucionarias de Colombia (FARC, the Revolutionary Armed Forces of Colombia), a left-wing group founded in 1964 out of the political turmoil that stretches back to the assassination of liberal presidential candidate Jorge Eliécer Gaitán in 1948 and ‘La Violencia’ that followed for the next decade. Over the last half-century, FARC has been an impediment to a truly peaceful Colombia, even as the worst days of the drug-fueled violence of outfits like the Calí and Medellin carters have long receded. 

His opponent, Óscar Iván Zuluaga (pictured above, right, with Santos, left), is the protégé of former Colombian president Álvaro Uribe, who broke with Santos over the FARC talks. Santos served as defense minister under Uribe, he won the presidency in 2010 with Uribe’s full support, and he had been expected to continue the same militaristic push against FARC that Uribe had deployed.

When FARC offered up the possibility of peace talks, Santos surprisingly met the offer, and official talks kicked off in October 2012. The talks were designed to reach agreement on five key points — agrarian land reform and agricultural development, political participation for former FARC militants, the mechanics of ceasefire and ending the conflict, staunching the drug trade and creating a truth commission and compensation for the victims of abuses at the hands of government-backed paramilitary groups.

Those talks have reached accords on three of the five areas, most recently on ending drug trafficking — more than two decades after the death of Pablo Escobar and the demise of Colombia’s major cartels, FARC has become a leading conduit for cocaine and other drugs from Colombia and elsewhere in South America northward.

Zuluaga hasn’t exactly said that he’ll end the talks if he’s elected president. But he has indicated he’ll impose conditions as president that FARC leaders seem unlikely to accept, all but ending the best chance in a half-century to negotiate a political solution to the leftist insurgency, which follows a relatively successful Uribe-Santos military effort that has significantly weakened, if not eliminated, FARC. Moreover, Colombians say in polls that they have no sympathy for FARC, and they generally support the talks, in principle at least.

So the election is truly momentous, and the result will almost certainly determine whether the FARC talks will continue.

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RELATED: Zuluaga edges out Santos in first round

RELATED: Five reasons why Zuluaga is beating Santos
in Colombia’s election

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That’s not the reason, however, that Santos appears to be losing the election, after trailing Zuluaga in the first round on May 25.

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Mary O’Grady, writing for The Wall Street Journal, serves up an analysis of the Colombian election that misses entirely the reason why Santos is in such trouble headed into the June 15 runoff:

A year ago Mr. Santos—part economic liberal, part old-fashioned populist—seemed certain to keep his job. Real gross domestic product expanded by an average annual 4.7% from 2010-13, and in 2011 Colombian debt won investment-grade status from all three major U.S. credit-rating firms.

Had Mr. Santos run on this record he might have won in the first round. Most voters don’t see much difference on economic policy between him and Mr. Zuluaga—the former CEO of a Colombian steel fabricator. But he made the FARC talks the centerpiece of his re-election campaign, which opened his weakest flank.

According to O’Grady (and, to be fair, other commentators), Santos would be winning this election if only he had merely rebuffed FARC’s negotiation entreaties. Most beguiling is the notion that Santos’s chief strength is Colombia’s economy.

It’s not. That’s actually the issue that’s most jeopardized his reelection. He could lose on June 15, not because of the FARC talks, but because he hasn’t offered any solutions to the everyday Colombians who feel like they have lost out in what otherwise looks like a stellar economy.

If Santos loses on Sunday, it will be less because he spent so much time negotiating with Iván Marquéz, the lead FARC negotiator, but because he didn’t take Cesar Pachón, a leading agrarian protester, seriously enough.  Continue reading In Colombia’s election, it’s the economy (not FARC), stupid →

Gujarat, India

What exactly is the ‘Gujarat model’? And can Modi export it nationally?

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Narendra Modi’s strongest argument in his quest to become India’s next prime minister is the record of economic growth in Gujarat, where he has served as chief minister since 2001 — and the promise that Modi can unlock the same kind of growth nationally. India Flag Icon

There’s no doubt that Indian GDP growth has slowed — despite bouncing back from the 2008-09 global financial crisis with 10.5% growth in 2010 on the strength of a surge of investment in the developing world, India has struggled with much lower growth over the past three years. That’s one of the reasons that the governing center-left, governing Indian National Congress (Congress, or भारतीय राष्ट्रीय कांग्रेस) is so unpopular as it tries to win a third consecutive term in India’s April/May parliamentary elections.

But what is the ‘Gujarat model’? Can Modi really claim that his government’s policies are responsible for the superior Gujarati economic performance?

What’s more, even if Modi’s claims do hold up, is the Gujarat model so easily replicable that he will be able to implement nationally in the likely event that he becomes India’s next prime minister?

Though Modi and his center-right, Hindu nationalist Bharatiya Janata Party (the BJP, or भारतीय जनता पार्टी) lead polls in India’s election campaign, the answers to those questions will determine the success — or failure — of any future Modi-led government. Continue reading What exactly is the ‘Gujarat model’? And can Modi export it nationally? →

Argentina, Venezuela

Will Venezuela or Argentina be the first to crumble into economic crisis?

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I write tomorrow for The National Interest about the dual economic crises in Venezuela and Argentina.argentinaVenezuela Flag Icon

The similarities between the two economic crises are uncanny — inflation, capital controls, dollar shortages, overvalued currencies, shortages, etc.

But the similarities don’t stop there.  Both countries currently fee political limitations to force policy changes to avert crisis — and that limit the political capital of the leaders of both countries, Venezuelan president Nicolás Maduro and Argentine president Cristina Fernández de Kirchner, to enact reforms:

Accordingly, normal political channels seem blocked through at least the end of 2015, despite the fact that both countries should be considering massive economic policy u-turns that will require significant amounts of political goodwill neither Maduro nor Fernández de Kirchner possess. But there’s an even greater inertia lurking beyond even the routine political impasse—a kind of political dead-hand control in both countries, on both a short-term and long-term basis.

First, both Venezuela and Argentina remain tethered to the political ideologies of chavismoand kirchnerismo, even though their proponents, Chávez and Néstor Kirchner, are now dead. Those policies may have worked over the last decade to achieve certain goals, including greater social welfare and poverty reduction in Venezuela and a rapid return to economic growth and competitive exports for Argentina. But it should be clear by now that chavismoand kirchnerismo are unable to provide answers to their respective countries’ economic woes today.

Even more broadly, I argue that beyond the shortcomings of chavismo and kirchnerismo, Venezuela faces a long-term resources curse and Argentina faces the long-term legacy of protectionism and statism of peronismo, which in each case underlie the current economic crises.  What’s more, the IMF-sponsored reforms in 1989 that led to the massive Caracazo riots in Venezuela and the IMF-approved lending tied to Argentina’s 1990s ‘convertibility’ crisis that led to the 1999-2001 peso crisis have undermined orthodox economic policymaking:

What’s more, ill-conceived attempts to rupture those dominant paradigms through orthodox ‘Washington consensus’ reform processes led to economic and political disaster. In both countries, leaders experimented with neoliberalism, facilitated by the misguided zeal of the International Monetary Fund, without enacting any corresponding safety nets or shock absorbers. The resulting crises led both countries to double down on their prevailing ideologies, thereby, ironically, making economic reform today even more difficult.

In both cases, the political, historical and economic legacies have prevented the broadly moderate, business-friendly, social democratic middle courses that much of the rest of South America has embraced to wide success, including Colombia, Peru, Chile, Brazil.

Venezuela

Venezuela’s economy is tumbling despite oil prices over $100/barrel

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I wrote a piece for The New Republic earlier today about the state of the Venezuelan economy and the difficult issues that await the next president, which for now looks like it will be Nicolás Maduro following Sunday’s landmark presidential election.Venezuela Flag Icon

I argued that although some of the economic reforms that Maduro could implement are relatively simple, he may well lack the charisma, the political capital (both within and outside the chavista camp) and the funds to pull Venezuela back from the brink of two devaluations in 2013, the threat of even higher double-digit inflation, increasing reliance on imports for basic staples, a crumbling oil infrastructure, an atrophied private sector and difficulty accessing international — and even Chinese — finance:

It’s now up to Maduro to sort all of this out in the background of a legitimacy crisis. Economically speaking, there are several options that could help. Venezuela could claw back some of its oil revenues by reducing subsidies to Cuba and the rest of the Caribbean basin. He could reverse the trend of ad hoc expropriations under Chávez that left the public sector bloated with bureaucrats, the private sector fearful, and the non-oil industry atrophied. He could direct more capital to be re-invested into PDVSA, the state-owned oil company, to boost oil production that’s fallen by up to a third in the past 15 years, and to develop refining capacity, especially in light of the ultra heavy crude oil that’s increasingly being drilled from the interior’s Orinoco Belt. Venezuelans believe cheap gas is virtually a constitutionally protected right, and an attempt to eliminate it pursuant to an IMF loan package in 1989 is widely seen as the catalyst for the deadly Caracazo riots later that year, but Maduro could gingerly begin to reduce the domestic subsidy that keeps Venezuela’s gasoline the cheapest in the world at about six cents per gallon.