Is it clumsiness or bad faith? On December 5th, 2009, the President declared that Centralism by Clumsiness or “BAD FAITH” had deprived Guayaquil from electric power and thus to compensate the main port, it would not have more power cuts this year. As a first bounding, I must indicate that it is the discretionary that allows “giving or taking” and you know that for many years we have hold an equation that says: CORRUPTION = Monopoly + Discretionary – Accountability. Monopoly because it imposes and because Discretionary is in hands of an official to removing, giving, imposing or harassing a countries’ resident, turning an inhabitant into a slave; and for the same two before mentioned actions, accountability isn’t allowed. As an example, let’s visualize the lived with the blackouts. Being the electricity sector a centralized estate’s monopoly, it improvised instead of using technology and during these three last year’s preferred leaving the power generation in hands of nature, when we all know (except the bureaucrats) that the dry season or drought in the eastern zone, occurs between October and March of each year. The worst thing is that these bureaucrats did not realize that blackouts would be given and due to their irresponsibility and clumsiness they didn’t allow creating private, domestic and foreign projects in 2007, which were already underway, as well as new ones. The blackouts were produced because the task wasn’t done and also because a highly politicized discretionary centralism hindered the timely purchase of turbines in 2007. The previous government blocked the gas extraction in the Gulf of Guayaquil; that same centralism and bureaucracy continued for three years with the same blockade and impeded extracting our gas for a clean and cheap generation. Don’t you think that it’s a betrayal to the Homeland not having prevented it and in this way forcing to buy electric power from Peru to the exaggerated price of thirty cents per kilowatt/hour? It would be interesting to know who hindered accountability, and therefore accuse them of Homeland betrayal. That same centralism promises to supply light and energy the 24hours of the day which obviously wasn’t fulfilled. However what has been confirmed is that monopoly, the discretionary and the non accountability have generated loses of around 600 million dollars, which apparently has been pointed out by some means of communication. What good was sacrificing thousands of jobs with the safeguards, increased tariffs, import quotas, etc? It served to needlessly spend more than 600 million dollars as a result of a bad energy management, to send many people to poverty and fill others pockets (because of a discretionary increase). You can’t and shouldn’t improvise, offer to centralism being discretionary, or let them take away the freedom of expression and work. Do not allow hate reaching us because of blackouts and unemployment. It is demonstrated that it won’t rain by decree and, as the President recognizes, centralism is evil and of bad faith. That’s the reason why we must demand and hurry the autonomies because this isn’t a country of slaves but of entrepreneurs and of competition. ¡We have had enough!
Ing Joyce Higgins de Ginatta
How to break the wall of poverty? On November 16th 2009 the X Conference of the Federacion Interamericana Empresarial (FIE) was held and called “How to break the wall of poverty?” It is a vital topic in current times of crisis which the whole world unfortunately is going through. Photo left
The Vice-Mayor, Guillermo Chang attended and offered some welcome words. Photo 2 at the right
Joyce de Ginatta, FIE’s President emphasized that freedom and truth are the equivalent to democracy and employment.
Photo number 3 left
From left to right: Jose Manuel Nuñez Pliego, Principal of Mexico’s Pan-American University; Carlos Ponce, President of the Latin American and Caribbean Net for Democracy; Rodolfo Silva Chamorro, Nicaragua’s National Deputy; Joyce de Ginatta, FIE’s President; Rafael Rosenthal, Vice-President of ITAU’s International Bank; and Luis Fernando Rivadeneira, Forzafrut Exporter. Photo number 4 right
From left to right: Sonia Torres, Ecuadorian Missionary expert on Value Chains; Rafael Cuesta, very well known Social Communicator; Giovanni Ginatta, FIE’s Executive Director; Carlos Ponce, President of the Latin American and Caribbean Net for Democracy; Rafael Rosenthal, Vice-President of the ITAU International Bank; Joyce de Ginatta, FIE’s President; Emilio Palacio, Columnist of El Universo Newspaper; Lester Toledo, Venezuelan Students Leader; and Marc Wachtenheim, Pan-American Development Foundation.
Last photo left
Roberto Salinas, Mexico’s Business Forum President, emphasized that “leadership means being able to influence others but not by force but through a civilized conversation”. Last photo right
“You have to serve people to help them develop skills of what is really needed. They must be encouraged and served for them to improve”, were some of the words of Vladimiro Alvarez, former Government Minister and prominent Ecuadorian academic.
How to break the wall of Poverty?
Rodolfo Silva Chamorro emphasized that “the political parties, the civil organizations, entrepreneurs and citizens, must join for a single ideal, to fight for freedom and democracy”. Photo 2 at the right
Lester Toledo, Venezuelan Students Leader, said that freedom of expression is what we feel, whether or not is of the ideological tendency of our government. To defend the values in which we believe is the key to be able to say that we live in freedom”.
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Very well known entrepreneurs are part of our Conference: Agustin Loor, Isabel Noboa, Patricia Isaias and Virginia Schneidewind. Photo 3 right
The entrepreneural Rosa Guaman, President of Jambi Kiwa, also participated in the Conference.
We can observe how Joyce de Ginatta and Juan Verdesoto, speak with students of Guayaquil’s State University.
Photo right
The events of the FIE always stand out for the massive participation of businessmen, students and other leaders who feel strongly committed to the country’s future.
Dollarization effects in small and medium enterprises Dr. Franklin Lopez Buena単o1 After almost ten years since Ecuador adopted the dollar as official currency, very little has been said about the effects this has had on businesses, particularly on the medium and small. Probably the reason is because the effects of dollarization have been focused towards macroeconomic effects: inflation, unemployment, interest rates, balance of payment (BOP) and growth. This essay pretends to examine the effects over dollarization in the microeconomic environment, that is, on the behaviour of medium and small enterprises (SMB). For this we use a model developed at the Universidad Internacional de Andalucia and operated by Alberto Rigail for the PYMES in Guayaquil which allows us to study how governmental policies and other positive effects (or negatives) of dollarization may be counteracted (or intensified) by other variables behaviour. The variables that influence corporate behaviour In the enclosed graphic the decisive factors of business conduct are classified in accordance to the level of influence. The largest is the Meta level, while the closest to the business is the micro.
The META level Every business or individual operates inside a cultural context, understanding by culture the values, attitudes and believes of the majority of members in a society. The vision of the cosmos, of men, of life, the government and the businesses, impacts on
business decisions. For example, a company dedicated to the production of Halloween costumes would not be welcome in a country where the majority of the population is anti-American. The MACRO level This level includes the judiciary, the type of government (republican or monarchical, presidential or parliamentary), as well as anti-inflationary economic policies and counter- cyclical fiscal policies, infrastructure, public spending and social programs. It’s obvious that the legal frame such as security and equality before the law and macroeconomic policies –such as dollarization – exercise enormous influence in the administration and business development. The MESO level This category includes the regulatory system, such as labour or environmental laws. It also includes the industrial structure: monopoly or competition; organisms which assist the business operations, such as: public or private financing sources, technical assistance for export or technological improvements. The MICRO level At this level, business decisions at managerial levels, strategic management, participation in nets, and research and development in nets activities, are discussed. The systematic perspective here exposed allows us to analyze the influence of dollarization not only in the macroeconomic effects, but at other variables which affect the businesses behaviour. What’s more, we pretend concentrating our study on the small and medium business. For example, dollarization has affected the businesses men’s culture, before; the attainment had priority and how to defend currency devaluation. In this effort they were in disadvantage before the big companies. With dollarization they had to change their attitude and focus their efforts towards competitiveness. This essay is divided into two parts. In the first one, the dollarization effects are studied in the variables developed in the previous model. In the second one, other variables are analyzed which could lead to nullity or intensify dollarization effects. 1. Dollarization effects There is no doubt that dollarization not only has had an economic effect, but the changes range from cultural attitudes to strategic planning, through modifications on competitiveness and financial facilities. META changes An inflationary economy, such as the one which existed in Ecuador, propitiates speculative activities. Speculation in Latin American’s culture isn’t well seen. Speculators are seen as people taking “advantage”. Another morally harmful situation is price distortions occurring in galloping inflation processes. Rulers tend to control prices –force- instead of eliminating the real cause of inflation: the monetization of
public debt; in other words, the creation of money to finance spending, technically called discretionary monetary policy. Dollarization forced or facilitated the entrepreneurs to provide transparent prices. Consumers didn’t have to guess who the speculators where or which not. The businessmen didn’t have to defend their pricing practices in front of the authorities. In short, there were important cultural changes and the beneficiaries of these changes were the small and medium businesses, Both, customers as well as providers could trust that the receiving prices and the ones which were paid were stable and overall, real, meaning that they weren’t distorted by inflation. MACRO changes Many things have been said about the economic stability which arose with the dollarization. Economic activities were separated from unstable policy, because in spite of having had three presidential changes, multiple scandals about corruption, demonstrations and work stoppages of the indigenous or teachers, Ecuador’s private economy had grown moderately. It’s also significant that when eliminating the monetary policy and the possibility of financing public spending through money creation, governments have had to be more transparent in their fiscal policy. While high oil prices have allowed huge tax expenditure, it’s not less true that the resource to taxation or borrowing abroad, transparent fiscal activities and the subsequent analysis of the columnists and journalists. In general, the economic and prices stability facilitate its calculation, both for consumers as for producers. In other words, the economic agents can plan on longer terms and also risk more. The big businesses could allocate resources to forecasting inflation or perform operations that minimize the risk of devaluation. In contrast small firms could not devote resources to such operations so they were at the mercy of the unsteadiness of the monetary policy. With dollarization, the big businesses didn’t have any more advantages in front of the small and medium, matching the pitch of the game. MESO changes Even if dollarization doesn’t affect the regulatory framework or the commercial or industrial structure, it has important effects facilitating financing, from the reduction in interest rates to the time of borrowing. The small and medium businesses have been benefit of the interest rate reduction, direct consequence of the inflation reduction and the exchange risk. The simplification of economic calculation (as mentioned before) increased the terms. This was also shown by the increase of terms in the banking loans, which allowed the SMB to have access to credit. The economic stability has been also reduced and is known as the effect in the countable balance of devaluation. Devaluation reduces the value of assets and if the debt is in local currency, it increases the value of liabilities, that is to say, it upsets the
balance sheets. This imbalance reduces the financing capacity of businesses, overall in the small and medium businesses, whose operations are financed much more with assets than with liabilities. A small or medium business, which is unbalanced by devaluation, is condemned to stagnation, because you need to borrow to grow. Dollarization reduced this effect. MICRO changes We already mentioned that economic stability has allowed prices transparency; it has also facilitated strategic planning and has allowed a longer term financing, and this of course has had a substantial impact on business decisions. However, little or nothing can be said about the influence of dollarization in developing networks for example, or in investigation and development activities. Nevertheless, it’s important to highlight a direct effect of dollarization over the small or medium businesses (SMB): which is competitiveness. For many, one of the negative effects adopting the dollar was about competitiveness, for allegedly, not being able to depreciate the currency, prices of imports would be reduced and export prices would be kept, which would reduce the competitiveness of local firms vis-a-vis imported products. It’s difficult to establish a priori the effect of competitiveness, because the dollar has had fluctuations in the last years. So, regarding to the Colombian Peso or the Peruvian Sol -the other important commercial partners after USA- there have been times in which the dollar has lost and gained value. Furthermore, it is also difficult to study the effect of competitiveness on the trade balance by the influence of oil in exports. This forces us to examine the evolution and the structure of Ecuador’s balance of payments, According to official figures from the Central Bank and described in Table number 1, goods trade balance improves starting from 2002, even if in 2008 the surplus is reduced. Even if services are included, you observe an improvement in the trade balance, having in mind that in 2008 a deficit is produced.
This same Table also clearly shows that non traditional exports exceed the traditional and since 2001-2008, the non traditional exports grew 179% while the traditional were at 112%. More than the previous, the non traditional exportations have diversified, as Table No. 2 shows.
It’s important to note that the increase of non traditional products has been made by the SME: For example, wooden products which include furniture which is exported by medium businesses. It’s important to note that many of the non traditional products are exported for Ecuadorians which live abroad such as: corn, food made out of corn (humitas), tropical fruit, etc. Another criticism, but rather in the ideological field, concerned with the supposed alignment of Ecuador with the Washington Consensus, and that dollarization was simply a mechanism for opening markets to international competition, reduces the size of the government and balances the budget. None of the above mentioned has been made, and the governments’ intervention in economy has been increased since the year in which dollarization was adopted. In summary, the benefits of dollarization have been not only at macro level but there have also been changes in the cultural values of Ecuadorians, they have driven the growth of SMB’s and have led to the diversification of exports. It’s time now to study the variables that have influenced to invigorate the benefits of dollarization or have rather served being an obstacle.
2. The impact of other variables It’s important to note that dollarization solidification is not the purpose but a means to solidify the economy. By itself dollarization is a means to obtain the macro-economic stability in first place, and as it was explained in previous paragraphs, brings benefits to consumers, producers, lenders, borrowers, in short, a great range of economic agents. These benefits are the ones that seek to be kept when talking about solidify the dollarization. At META level The cultural values are very stable and evolve very slow. The adoption of the dollar had initial difficulties over the population, over all in the rural areas in which economy is little monetized. Nevertheless, in about two years, the farmers have become accustomed using the dollar. It should be noted that there are still prevailing nationalist and “anti Yankees” feelings in a large segment of the population and these feeling can be exploited by those who would wish to take the dollar out from the economy. However, once individuals have learned to use the dollar, there is little hope for just the feeling against the alleged American imperialism to take up a local currency, or even a regional one. Something else has to be noted as the enemy to dollarization which is the combative and confrontational way of governing. The Saturday’s speeches full of insults, the revelations of corruption, the attacks to the press, to the judges and prosecutors, frightening people and increasing the legal uncertainty. To all the previous mentioned we have to add the rise in crime, it’s obvious that in the META field there are many factors that weaken the economy. At MACRO level The macroeconomic policies, particularly the ones of Rafael Correa’s government, are the ones which carry the greatest risk including the economic ones. The excessive fiscal spending, tax policy and legal uncertainty have discouraged the private internal and external investment. In spite of the enormous income of dollars (it’s estimated over 30 billion in the last three years) the unemployment continues rising. The scandals of corruption seem to increase and these are due to macroeconomic policies to carry out social projects using the state of emergency, which has increased waste and inefficiencies even beyond those which normally are innate to government management. The El Comercio’s editorial from November 4 th, 2009 says: “The drama searching for employment becomes worse: it’s sad enough to watch the episodes in the streets of the main cities, in which a simple call for a temporary job joins thousands of applicants. The figures are near to 10% and threatens turning into the greatest social problem of the country, because it is easy to deduce the implications and adverse effects of the lack of employment. While the global crisis is in
part responsible for what is happening for the exports decrease and declining demand for products and services, other reasons must be seen through for which Ecuador specifically, suffers the deterioration of offering work posts”. Despite that dollarization helped reducing unemployment, the wrong policies of the current administration have exacerbated the problem and the reasons are found bellow, because the tax and regulatory reforms have discouraged investment. It’s worrying what happened because there is no prospect of reversing the macro, mesa and micro from the government policies. Another measure that creates uncertainty in economic agents over the dollarization’s future is the creation of the virtual currency, the SUCRE. The appearance of this virtual currency, which only serves as an account unit, is seen as precursor to the creation of a regional currency. Others, besides the author of this essay, believe that they are “flag salutes” with little probability of success. This deserves a special analysis which will be published in a near future through this same magazine. At MESO level The financing policies are the greatest concern regarding to dollarization. There have been implemented caps on interest rates, with the consequent credit shortage. Just when the terms had been increased and the rates reduced, nowadays you can feel in the banking business a reduced growth of deposits and credits have slowed down in the housing business for example. The funds which banks have overseas to defend and protect depositors are continually threatened by the government to repatriate them, supposedly to “encourage the development of local enterprises”. To do that would be a great mistake and one more reason for the capital flight as the one which has been stimulated with the 2% tax. The same editorial of El Comercio says: “Dogmas and radicalism with which the Government plans its strategies and makes decisions have also a lot to do. If those running the Estate do it with subjective and biased attitudes against the business sector and dictate laws and regulations that drive away new capitals, this is a tangible reason for the lack of employment. This picture is completed with extreme tax rules and inflexible behaviour in the recruitment rules, are obstacles that instead of stimulating the economy, is blocking it. The Government could incentive the companies to creating temporary work posts and lift for a given period, the many restrictions that exists by recruiting staff”. Very little or nothing can be added. The regulatory frame is one of the most important one regarding to the formation of new businesses and the facilities which a country offers to do business. The World Bank produces an annual report known as “Doing Business in...3 The one in Ecuador shows a drop from place 133 to 138 (from the 183 studied countries). This clearly shows how wrong the economic policies have been managed. At MICRO level
Even if it’s true that the economic position of the SMB doesn’t allow them to finance investigation and development operations, the fact remains that they haven’t been able to establish operational networks or clusters. Dollarization either had substantial effects in that direction. Nevertheless, in front of the before mentioned difficulties: overspending, corruption, waste, crime or unemployment, the SMB must look for solidify their individual operation and aren’t able to take the necessary resources to start new activities. It’s enough to study the negative effect of the tariff policy. The Colombian imports have been reduced and entrepreneurs that survived, for example, the marketing of lingerie, cosmetics or candy, have had to close, increasing unemployment. Table No. 1 clearly shows that in the last three years the gains that had been made in foreign trade were lost. Even more, the Global Competitiveness Report4 places Ecuador in No. 103 of the 133 researched countries, while last year it was in place 103. It is sad that with respect to economic freedom, which the lifeblood of a progressive market according to the Heritage Foundation which publishes an Economic Freedom Index 5, Ecuador in 2009 is in place 137 among the 163 studied countries with a drop of 25 places compared to 2008. According to Rigail’s studies, the SME in Guayaquil, since dollarization began, reorganized their administrative figures and set new strategies for management and marketing. But nowadays they are threatened with the requirements to obtaining the RUC, or patrimonial declaration – believed to give rise to property taxes – which are contrary to opposed microeconomic policies and weakening the small and medium business sector. Conclusions There are many analysts which have raised their voices to express concern about the future of dollarization, despite repeated statements by President Correa or his people, the spectre of getting rid of the dollar shows its ugly head from time to time. What the authorities have clear about taking away the mentioned currency is the huge political cost which would be confronted. The damages to Ecuadorians would be tremendous. SMB’s which are a very important source of employment would suffer much more than large firms. Overall the ones that operate importing raw materials, and could also close their businesses. It’s difficult talking about “solidarity” when the effect of taking out the dollar from our economy would have its worst effects among the most poor, small and medium businesses or among traders struggling to earn few cents, selling imported goods in the streets. Because of all the above mentioned, the government should reverse the macro, mesa and micro policies, to defend dollarization, because defending it, promotes the well-being and life standard of Ecuadorians. 1 2 3 4
Retired Professor from Tulane University. View his Master’s Thesis: Business models to address dollarization and globalization. Analysis of SMB’s competitiveness in Guayaquil-Ecuador. Universidad Internacional de Andalucia. Masters in Economic Development in Latin America. http//www.doingbusiness.org/Document/Countryprofiles/ECU.pdf http//ger.weforum.org/gcr09/
The economy and free expression Dr. Roberto Salinas L. President Mexico’s Business Forum When talking about free expression we have to appeal to the concept of dialogue, which in words of the English Philosopher Michael Oakeshott says “the foundations of a civilized conversation”. Dialogue implies the free exchange of ideas, where other’s ideas are respected even if we disagree, which is called: tolerance. A country tries to be an open society, which dialogues, and their disagreements are solved with a civilized conversation. An open society is fundamental in these times of transformation and technological vanguard, because in about two or three years the technological world will be breaking its own intentions. This current year, has generated more information than in the last five years, which shows that the information and communication technologies have managed generating such fast progress and it isn’t possible to think that a political process could stop us. In a large extent this is what the Berlin’ Wall collapse meant (twenty years ago on November 9 th, 1989). In the dialogue process each one of us can search for the truth, but for the one which thinks owning it, also turns him into a tyrant of intolerance. One who does not agree to disagree is one that celebrates figures such as the Berlin’s Wall, a closed society, an intolerant and absolutist society. When talking about freedom, it isn’t only civil but in a political and economic way. Nowadays we live in a world of deep uncertainty, which shouldn’t be complained but celebrated, because that is the nature of a world that lives at the speed of change, which has seen great technological advances in information and communication system. This is the nature of a world were planning, conduction, guidance and coordination of economic activity are simply not allowed as public policy. A world full of uncertainty implies knowing how to manage risks and be able to determine them in the future, and will depend of communication among our colleagues, partners and even our enemies. Speaking to people makes understand each other How will validity be learned of a risk management scenario if we have no communication, if you can’t disagree, if you can’t hold a civilized conversation with our partners and fellow citizens? If we analyze the first ten years of XXI century, we can see many events which have changed the world forever: the terrorist act of September 11th, 2001, is a perfect example of the last consequence of intolerance: the accounting crisis and the collapse of Arthur Andersen’s firm (2002), which for most had a great reputation for being one of the five biggest ones, in less than 24 hours broke down.
Confidence The words credit implies credibility, and when confidence or credibility is lost they will never be recovered again. Confidence is something you reach by dialogues and demonstrating day by day that you deserves it. When not admitting differences, discussions or dialogue means that trust has been lost, because there has been no honesty, transparency or responsibility admitting a mistake was made or that somebody else is right. In a world of uncertainty, flexibility is the key Those who celebrate a closed society, who try to eliminate the discussion or the ones which practice intolerance, could be called: “enemies of the future”, and are those who try freezing it and do not recognize that the future is full of uncertainties. In a world of uncertainties nobody is the owner of truth. To face the challenges of a rapidly changing future, flexibility is needed. The economy in some countries is the human action (not the GDP, the type of exchange rate, the interest rate, etc.); they are the thousand of million decisions which producers and consumers have to take daily in mind and have influence in how it will be produced and consumed, where is investment going to derive, how much is going to be saved, etc....and for all the previous, flexibility is needed. Flexibility is to be able to adapt quickly to circumstances which change rapidly. If tomorrow oil prices drop sudden and dramatically, we need enough flexibility to adapting ourselves to this situation. At the end of the day everybody understands that economy’s target is to do more in less time, because everybody tries living in a better way. Freedom This will be achieved by interchanging goods and services in a free and voluntarily way, but also when there comes the time to expressing our ideas, innovations, that which breaks paradigms, that which changes what we are already used to and causes fear. That’s living in a world of dynamism, in an open society, which changes every moment of the day. However, instead of trying to have societies with complicated regulations, simple rules are required for our complicated world, and what is needed is: dialogue, the foundations for an open society and a stable currency to planning the future. However, if we have abrupt changes in interest rates, unit of account, inflation and if we don’t know exactly what will happen because of political whim or for some proactive desire to use the unit of account for other purposes, we would be talking about dishonesty, for not wanting to speak the truth and not wanting to acknowledge our worlds reality. Let’s notice that something static such as inflation and monetary unit of account have to do with freedom of expression. A stable unit of account talks to us with freedom and truth and the same thing can be said about taxes. The Latin American Countries have become accustomed to a kind of tax viceroyalty in which the governments have become obsessed with the collection to be able to generate more spending and exert
it. There must be fiscal stability, which implies having two taxes (one to burden taxes and another to consuming) and a massive government effort to spend better (not more). It’s noteworthy that public spending is not of the government, but as its word says, “The public” and therefore deserves accountability. We have to demand: a state of law, respect for contracts, enforce the law; protect our rights as citizens, etc. But if instead we have a government that in addition to not protecting the rights, now seeks to eliminate them we would be going back: the comfort of a medieval past, rather than the challenge of a future full of uncertainties but also of prosperity. What to do The current challenge is not to redistribute wealth but to distribute the growth opportunities: that everybody has the same opportunity under the scheme of simple laws for our complicated world. We must respect rules such as the monetary stability that the government doesn’t spend more than it has; stability and fiscal discipline. The competence which countries need must be respected. The competence is no longer a matter of doctrine but an issue of processes and realities. Within an open society, with a culture of dialogue/tolerance, there must be leadership. Leadership means having a vision about where we want to reach and – in a contagious way and with clear determination- be able to influence others, but not by force but through a civilized conversation. People understand each other by talking. That’s why a society with dialogue, free, of interchange of goods and services/ideas, is a society which respects the desire of all belonging to it: to transform the potential wealth in wealth that makes the difference in our standard of living*.
Latin America and a view for its future Victor H. Becerra Friedrich Naumann Stifftung Fur die Freiheit Mexico Around these days, the world marks a year of the beginning of the worst global crisis in years. On September 15th, 2008, Lehman Brothers collapsed, which was Wall Street’s fifth biggest investment bank, while the legendary Merrill Lynch was absorbed by Bank of America. Weeks later and in a gradual way, the main world’s economies (one by one) declared their recession, with serious consequences for the majority of the less developed economies. One year later, signs of recuperation can be seen all over, but nothing has been said and this, still could take longer. Anyway, according to accredited calculations, the coming months will see the return of growth in our region, after the debacle of the last hard months. Regarding to this topic, we must have in mind that the growth average in Latin America and the Caribbean has dropped more than 4% in 2008 and to -2% and 2.5% in 2009. Let’s hope for a 3% growth recovery for 2010. But this will match the development of a busy political season for the region, as there will be carried out seven presidential contests in the next 13 months. In this regard, it’s easy to predict that the worst economic recession in 80 years, had an important role and perhaps key to the decision of voters. It’s even more difficult knowing what type of leaders will emerge. What we sure know is the kind of leaders we need. They must be leaders, which beyond their human and social concerns (real or feigned), opt for solid economic and fiscal policies. The bitter experiences of the 80’s and part of the 90’s for the whole region, were a lesson that only responsible and sustainable policies are capable to fight poverty and backwardness, even if the dividends aren’t just short-term electoral issues. This lack of correlation (perhaps inevitable) between efficient economic policies and profitable electoral policies is precisely what makes possible emerging leaderships such as Hugo Chavez, Rafael Correa or Danilo Ortega. In a near future, their people will be paying the price to enthrone a person over the needed responsibility and seriousness. Another result of these policies has also been that large social sectors became less poor. For example, just after the beginning of this century 60 million people in Latin America and the Caribbean have come out of poverty. However the World’s Bank predictions show that the crisis will make a backward move towards poverty for eight million of Latin Americans which will be forced living with less than $4 per day. The commitment to these eight million people (and the coming ones) is not having again generous fiscal irresponsibility and governments wasting.
In that sense, the renewed debate about the Estates responsibility and the new role it must have in the future as well as its relationship with the market, shouldn’t mean a return to paternalistic policies, on short term political profitability of the 60’s and 70’s, which precisely brought us into the pit from which we just came out not long ago. Thus, the upcoming elections are very important. Between 2009 and 2012 almost all the countries of the region will hold general elections, in the heat of the effects of the crisis. But also at the 30th anniversary of the return of democracy to the region, in this third wave so much discussed in the past but nowadays so underestimated by many people and political actors. Regarding to the above mentioned, only note the unequal treatment of organizations such as the OAS has given the coup de facto of Danilo Ortega in Nicaragua, while all the attention has been focused over the situation in Honduras. The growing intentions must also be seen for re-election in the majority of Latin American countries, causing a persistent institutional weakness, a growing personalization of politics (twin sister of the abuse of state power for its own purposes) and hipper presidential intentions. As in the economic sphere it took decades of responsibility, seriousness and good public policies, whose result we see nowadays, and can also be said for the political area. The strengthening and consolidation of our fragile democracies do not go by charismatic and providential leaders but by the quality of institutions, citizen’s maturity and a solid civic culture. Only with this virtuous combination our people may find the horizon they seek. It’s in your hands achieving this.*
Political Parties, are they good or bad? Dr. Rodolfo Silva Chamorro National Deputy of Nicaragua The political parties are permanent national organizations and legally established to participate in national, municipal congresses and, depending on the geographic distribution of some countries, they are regional. They have the same ideology, values and principles which are applied once they reach governing. Main functions of a political party: Be intermediaries between citizenship and the government. Give constructive alternative policies for the governance. To educate civically and train its members and the citizenship. Encourage active citizen’s participation in national and local politics. Defending the Rule of Law, institutions and promote the democratic values. Promoting activities and projects for the communities benefit. Propose governmental plans that encourage country’s development. Propose solutions to problems concerning this situation. Is it possible thinking that a political party is able to fulfil all the above mentioned functions even if it not being in power? Well yes, it’s possible because you can exert politics from the opposition. But it must be a constructive, efficient, intelligent and timely opposition to achieve the common wealth. This means that the political parties, not only in power can perform the functions, but they can also make them through the opposition. Unfortunately, the population has been disappointed by the political parties since they have fallen into discredit of politics, and that politics itself isn’t dirty but it makes it dirty. Which are these disappointments? Broken promises; corruption in government; the way of making decisions within parties (there is the will to construct countries with solid institutions while they haven’t got real internal constitutions in order to make the right decisions); the way of selecting the candidates, in which it’s enough being the leader’s friend to obtain a position. The worst is that even many parties and governments of democratic tendency have made a fatal error: forgetting the immediacy. Very often the governments get engaged in managing macroeconomic figures to fulfil the requirements of international organisms, forgetting the immediate need: Poverty. And it is at this point that those called “the friends of the population” emerge, and taking advantage of poverty and their needs, propose populist projects, create institutions or councils that actually are nothing else than a party structure in order to endorse the decisions they make. They give bonuses which are “feast today, famine tomorrow”; but do not provide
comprehensive solutions to people’s problems, but only dedicate giving gifts to buy citizen’s conscience. Do not fall into populism, it’s not necessary. We need governments with social conscience, promoting freedom, development and investment. Democracy is the government of the people for the people; but we must not fall into the error to ensure that democracy is participative, because the only thing which the apprentices to legislators want is creating agencies to endorse the decision to be taken. We need political parties to promote from power or the opposition a true democracy, in which we are able to find: freely elected public authorities, transparent elections, the right to compete, freedom of expression, business and negotiation. ¿Why do we choose democracy? Democracy prevents tyranny and dictatorship, and guarantees: basic rights, freedom, self-determination, moral autonomy, human development, and respect for human rights, political equality, peace and prosperity. On the other hand, there are also civil, businesses, etc organizations whose purpose is orienting the population to make decisions. The problem is that these organizations cannot accede to power to carry on their plans, because they would turn into political parties and each country’s electoral laws establish that political parties are who guide, and is the communication channel to be able electing the authorities. The political parties, the civil organizations, entrepreneurs and the citizens in general, must join for a single ideal, fighting for freedom and democracy. If people are conscious of wanting a better country don’t participate, there will be people who will take advantage of this situation and do as they please and with tricked actions, fulminate freedom, democracy and country’s development.*
Generating employment serving people but not taking advantage of them Dr. Vladimiro Álvarez G. Ecuadorian Former Minister And prominent academic Ecuador without doubt is a very rich country, so, if it is wealthy where is the money? This was the question I asked almost 20 years ago as I was running for Ecuador’s Presidency. It’s unbelievable how people feel the need asking this question to be answered, and wherever they see me, they remind me about it. The above mentioned demonstrates this deep reflexion which people feel when seeing our country capable to fight poverty, and one of the ways is through individual work and employment generation. However, to create work posts and stimulate production, it’s necessary to live the Rule of Law. This means that the country has to be organized inside a legal structure which contemplates a Constitution (as the top of a pyramid), as well as laws and ordinances that establish the general framework of State’s behaviour, rulers and ruled (ordinary citizens) who are within the rights to develop their own potential. But besides the previous, they also want to be respected by the authorities, be able to act and perform freely, without fear of being confiscated. However, in our country there isn’t legal security and therefore no stimuli. Another fundamental element to generate employment is education, which has to be focused to cover each ones needs. People must be served to help them develop skills of what is really needed. One of my surprises being Minister of Labour was seeing a great development in the Ecuadorian oil sector and experts were needed in the welding pipes for gas pipelines, but Ecuador didn’t have this kind of professional having to be imported from Mexico and Chile. The logic is that through the Ecuadorian Service Training (SECAP) the population could be served through training adjusted to the professional profile required in the various productive sectors. This is a way in which the public function could help people. It’s important to be able doing any work with responsibility; the doorman, the elevator man, the sweeper that helps the streets to be clean, etc....should be encouraged and must be served for them to improve. It is so that education – not only formal, but the whole human formation- must be established with mysticism, with eagerness to help/serve. Tyrant people, who offends or insults drives away customers and investment. If it is understood that Ecuador needs offering legal and freedom security so each one can develop –in an individual or joined way- possibilities of employment and services, generating goods to be able serving and sharing with others; if independence in the Estates various functions, acting with freedom and fearless, corruption could be fought and production/investment could be stimulated, achieving comprehensive education. If we are able achieving freedom, security and independence, probably an old regretted question could be answered: where
What is needed to generate employment? Dr. Jose Manuel Nuñez Pliego Director of the Pan-American University of Mexico Education should be demanding, as it cannot be focused in solving people’s problems and that these people don’t live their own life experiences. When parents are concerned providing everything to their children, they often deprive their freedom to learn the effort which is required to make them worthy of things rather than letting do their best. Sometimes the result is a person who gets used not solving problems by themselves letting somebody else solve them. As the years go by, it’s evident that each one of them will have to solve their problems because their parents won’t be around to help them out. In that sense, the scheme of an education that contributes the generation of employment must have as its core, the demand, which isn’t heartless or inhuman but tries to look at each in its entire dimension. An education that measures the person in its intelligence and, depending on everybody’s intellectual ability helps getting the maximum academic degree. That aims to the will; it’s not a matter of being a knowledge machine but to be able achieving the intended making the right decisions. An education that does not leave aside the issue of the solutions in which everyone has an adequate control and management of emotions is needed. How is it possible that at some point in which a person becomes a dictator of a country, there are those who while they aren’t affected by what the dictator is running in power remain indifferent or even refrain participating as citizens? Thinking about you, the ability of not seeing beyond our own welfare, the individualism in which we are party very often, makes us remember the importance of education and the importance of solidarity. We aren’t only what each one of us is personally affected but we are indebted to our environment. That’s why we need to promote a grater solidity education, in which each one of us is aware of what happens around us without being indifferent. A social sensibility must be developed. Why is it that there may be a dictatorship? It simply is because of people’s ignorance; because noticing that for the first time somebody shows some interest towards them offering something; ignorance will avoid showing them the truth, of what is happening and only experiment the answer to a need which is tangible at that time. Education doesn’t pretend solving the problem immediately, but wishes to offer the tools allowing them to change their reality. What is desired is contributing to help the individual making a life project in which he is fully developed. Education must have the following elements: Social responsibility (citizen’s participation). - Don’t be indifferent to what happens around us and instead, be responsible for what we have lived and can be mended. We have to be able to feel and poverty should cause us pain, for which we have to be
aware that it is in our hands to revert those processes, not only through assistance mechanisms on short term but through generating solutions which contribute getting rid of poverty. Feel the weight of our reality. - Education must be in our conscience. Defeating oneself. - To know and decide when something isn’t convenient for us and be able to accomplish the objective we have in mind. If we are not able to make from knowledge an accessible good, an unlimited disproportion for everybody will be generated among rich and poor. The future’s economic foundation is knowledge; therefore everything which isn’t done to educate others excludes the possibility of participating in the new economy. It’s so that to achieving a quality education, the educational system requires to be changed in almost all Latin American countries. What should be taught in schools and universities are bases that require a permanent preparation, and a constant reinvention. Therefore, the most important thing is to know how to read, write, capacitating and teamwork; with all the above mentioned, there would be accomplished to vertebrate the democracy`s foundations. Nowadays there is a competition among the best of the world, for which education should offer enough, not only getting a good job, but thinking in solidarity and that each one – at their own risk – may be leading
Economic freedom, development motor Dr. Rafael Rosenthal Vice-president ITAU International Bank Argentina There wasn’t much freedom, 20 years ago. In countries such as South Africa, it wasn’t allowed that black and white would go to the same school; however world has moved rapidly and nowadays big advances have been seen, both technological as well as social. Approximately 20 years ago, Germany was divided in two, it had lost the war and basically the troops of the allied which had defeated the Nazi regimen divided it into the Democratic German Republic (DGR) which was kept under the soviet control; while the Occidental side was the German Federal Republic (GFR) and was kept under the control of the allies occidental troops (especially: Great Britain, United States and France). You could say that it almost became an experiment: one country with the same geographical and climatic conditions, divided in two. Berlin, being in the communist side was split in two, setting a wall in-between. The big question is: Why were there thousands of western Germans trying to escape to get inside the free Germany or crossing the Iron Curtain and go to another European country? It is simple; there was a Germany that grew and another one which was stagnated. 45 years after the war, the GFR had achieved the “German Miracle”, turning into the third world’s economy, and the biggest world’s exporter (nowadays with 1.0175 billion Euros = 1.5716 billion dollars) and working with industries such as: Siemens, Bayer, Volkswagen, and R. Bosch, Mercedes Benz, BMW, among others. That is to say, that it had a leadership role in the chemical, pharmaceutical, technological, mechanical and automobile industry, etc. The GFR’s GDP grew at annual rates of 6%, the German Marc was the strongest currency in Europe and the per capita income had an average of US$ 18.000 until reaching the US$ 34.000 of current times. The DGR meanwhile, produced a third of the GDP’s level per capita compared to the one of Western Germany and only reached a 25% of productivity of his neighbour. West Berlin continued surrounded by the wall and each time more the DGR’s Germans tried passing to the other side risking their lives. The principles with which the Western allies proclaimed to rebuilding West Germany were very simple: private property, legal stability, democracy and freedom (while the communist side could only do what it was allowed), causing the rebuilt and become the world’s third largest economy and exporter. All this happened with the help of allied countries and the Marshall Plan (which contributed for whole Europe’s recovery).
Since then, Germany has been an example of democracy, to the point in which it is the leader country and has promoted what nowadays is known as the European Union (before it was called European Economic Community). Asia and East Europe...
After Berlin’s Wall Fall, Poland, Hungary, Check Republic and the Baltic countries, were integrated to the principles of economic freedom of the European Union. Hong Kong, Singapore, Taiwan and South Korea (the Asian Tigers) with Australia and New Zealand, joined the principles of private property and investment, as well as bigger economic opening, obtaining high growth rates. India and China also opened their economies to private capital. India is the biggest democracy over the world while the reforms pro-market of Den Xiaoping still don’t reach the democracy field and freedom of expression.
Each country has its nature, population and geography, but basically in all successful cases, common factors will be found. Latin America...between progress and stagnation Latin America in whole has been convulsed: 20 years ago it was torn between democracy and military dictatorships with some exceptions. Countries such as Chile and Argentina came out from several dictatorship processes; Brazil went into their first years of democratic renewal; while Mexico and Colombia, had many internal challenges. But at the beginning of the 90’s these countries lived the principles of respecting private property, encourage private capital, open the economies, privatize several public services generating competition, among others. Later on other countries such as Peru, Costa Rica and Uruguay adopted that way of ruling. As you can appreciate in the following graphics, taking as an example four countries, they have succeeded in reducing inflation and keeping GDP’s rates above positive signs. Only Colombia had a strong recession in the 90’s and since then it has had an average growth rate of 3% and 5%.
What these countries have made is following a policy and fulfil it; they honour what they say and do what they promise, trying to maintain stability. The investment exists because once they sign something it is kept; otherwise if every five years the tax system would be reformed, the currency exchange would be threatened or there would be barriers for the entry and exit of capitals, which means that they wouldn’t be chosen for investment. Investment generates: employment, industries that supply them (ussually local PYMES), giving the country a positive image. Foreign investment favours economy development, and the more an economy opens it will have a bigger growth. To conclude, the principles of Respect for Private Property, Disposition of Income Tax, Fiscal Stable Regime joined to Political Alternation, Freedom of Expression and Independent Justice are the basic principles in which countries in growth are sustained. ¡Freedom isn’t only an ideal but an attitude that is exercised!
The press freedom as a guarantee of economic development Ing. Joyce Higgins de Ginatta FIE’s President When talking about economic development it’s rarely related to press freedom; indeed, in the region high levels of economic growth have been presented during the last years along with systematic attacks to the press. However, this fact is explained by the cyclical high commodity prices in the world’s markets, main export products of the region. By lowering the prices of these goods we start feeling the flaws of bad public policies. The region needs the coexistence between the economic and political freedom because the only way of confronting poverty is with free market and democracy. Populism and demagoguery are useless, but captivate the masses of voters frustrated by poverty who seek those which promise short-term solutions. This is the time in which the media enters into scene as they reflect and contribute forming public opinion. A government with populist public policies will have as a result poverty and contraction of production and employment, which must be informed by the media, to exposing the bad ruler to citizenship. In this regard, Amartya Sen, Nobel Laureate in Economics in 1998, said: “It’s easy to see how an active and uncensored coverage helps fight hunger. Although starvation seldom affects directly a country’s ruler, stigma and shame that produce adverse reports impose direct costs to rulers; and when a country is democratically rigid, they might find it impossible to resist censure, or be re elected”. The World Bank (WB) published a report called “The Right to Tell: The Role of the Mass Media in Economic Development”. In this report the WB offers in a documented way the positive role of free press in economic development. In 19 chapters, experts from around the world with a wide range of positions, examine the monitoring role of the media over the government and the business sector, the ability of these to influence the market, its usefulness as a vehicle for new ideas and information, and its ability to act as the voice of the disadvantaged. The report clearly disproves the idea that has tried to support the autocratic governments, that the free press is a hindrance to development. As well as it condemns state ownership of the means, not as a philosophical concept, but on the basis of evidence that free access to information and the predominance of the private media accompany and stimulate the economic development. Thanks to the Freedom House we know that from more than 6 million people which live in the planet, only 1.2 million live in countries with access to a free press, this is, near 80% of the world’s population live without the possibility to access information generated by independent means of power. It should be noted that most of these
countries aren’t developed. In first world’s countries, the main characteristic is that their citizens have access to information from different sources. About the relationship between freedom of expression and economic development, Jim Wolfenson, WB`s former president pointed out: “Freedom of expression isn’t a luxury. It is about a key element for an equal development. The media can expose corruption and exercise vigilance over public policy, emphasizing the government’s action. They allow people expressing diverse opinions about governance and the reforms, and help creating public consensus for changes to occur”. To conclude I must note that the free press has the role not only as a means of expression but is also responsible for being a tool for monitoring the performance and corruption of governments; and even to private businesses that cause damage to society because of bad management. In that sense, the freedom of press contributes to transparency and accountability, both in the public and private sector, becoming the audit of efficient use of resources resulting in more efficient economic.
¡Enough of populism! Dr. Diego Ordonez Former Ecuadorian participant in National Assembly Originally populism was understood as a stream or way of understanding the people, “giving solutions to their needs” It’s so, that at the end of XIX century, in the United States was founded “The people’s party”, which had a fleeting existence but it was the first expression of what they wished to make known as populism. Unfortunately, this version was displaced as a way to using people, having a strong development in Europe at the beginning of XX century of a totalitarian way, being that of Mussolini (Italy) one of the most memorable. From this point on, comes the need to validate or invalidate this way of doing politics in terms of the solution of people’s problems. At the beginning of XX century Argentina lived an economic situation which placed it among the top ten economies in the world. Suddenly a great political force arose in Argentina, which placed General Peron in the government and established an expression of populism which spread to our Latin America. Eva Peron became a “saviour”, as she tried to solve the needs of citizens using Estates’ funds. However, this didn’t solve the poverty topic and on the contrary it increased. That’s how Argentina went through a succession crisis, both in the economic as in the governance, which has not been overcome until the present. In contrast, the socialist President Felipe Gonzalez (Spain) has told several times that the ideas or a way of governance has some value in the measure in which it solves the problems. The governments which accumulate power or prevent the free exercise in favour of democracy will achieve more poverty, fewer opportunities and greater social inequity. Poverty shouldn’t be counteracting by giving money to their citizens so they can buy what they need. In 1999, during the government of Jamil Mahuad, a poverty bond was created, as a welfares response to a very serious economic reality which increased the level of poverty in Ecuador. However, many years have passed and we continue with the same model of social policy: to take state resources and on behalf of the urgency to grasp the economic poverty, not with policies or alternatives that address the structural problem of poverty, but a kind of suspension of resources to subsidize this problem and keep it pacified but not entirely eliminated. What is better? Continue giving a bonus to the poor or having jobs? The answer is obvious: Only work will solve the poverty structure. The Venezuelan know that in spite of having the amount of resources received for the oil exploitation, and despite having a government that claims speaking for the poor, poverty has increased because there isn’t a work offering, which could be generated through a sustained investment.
The government of former President, Patricio Aylwin, who followed Augusto Pinochet’s government and lived the transition of dictatorship to democracy, had to confront the citizens’ demand –who among other things claimed for vengeance for what had happened -. He took office, considering further that in the last period of Pinochet, a series of economic policies had been put into effect that could have been considered contrary to the political and economic thought of those parties that integrated the democratic agreement, and they were who demanded continuing with this scheme which achieved maintaining a developing economy. In 2000 another scheme was chosen which gave stability (dollarization), and the result was that many Ecuadorians with fixed resources didn’t see their money’s value wasted by the effect of strong devaluations and high rates of inflation, and consequently eliminating poverty, attracting investment and creating work posts. Unfortunately, at present the economic results show that there is more poverty, unemployment and reduction of opportunities, when all Ecuadorians expected different results such as: a reduction of poverty, an increase of employment rate, allowing at the same time social justice equity, which isn’t a State’s charity. The populism model remains in the logic of pulling resources from the rich to give to the poor, understood as a mechanism to redistributing wealth. In modern societies, in which we find people that only think about collective interests, the policies of wealth redistribution have been deepened through education. The only way to create social equity is through education, when rich and poor have the same education quality. Subsequently, the persistence, the enterprise and individual capacity, will make each individual having a different future.
Impact and perspectives of the Peruvian economy, MESs and the challenges of free market Lcdo. Denis J. Montenegro D. Peruvian Analyst and Professor Nearly one year after the entry into force of the FTA with the United States, the behaviour of the Peruvian economy is giving positive indicators of growth, beyond the U.S. financial crisis which brought about the collapse of the global economy and major stock exchanges. It could be said that the consequences of this global impact in Peru, have not weighed against their expectations of economic development, either affected to much the people’s pockets, according to the Estates forecast, unlike what has been happening in the neighbouring countries of the region, with the implementation of fiscal measures to mitigate the severe effects of global financial crisis. Against much of what might have been presaged facing the adverse circumstances which were confronted by Peru as the FTA started with the United States in times of financial crisis, it was one of the few countries better equipped to face the difficult times, from the guidelines of its responsible economic and fiscal policy, promoter of the internal commercial activity and the flow of foreign investment –which wasn’t affected – increasing their levels of development, thus providing a favourable climate for business in Latin America. To all the previous mentioned, we should add the strengthening of the new Sol, consolidated as one of the most solid currencies of the region, in front of the dollar, represented in the local exchange rate behaviour and the growth of the buy and sale of shares of the Stock Exchange of Lima, which clearly denotes confidence and social feeling that the country is growing and going through one of its best times of wealth, which historically couldn’t be appreciated for more than one hundred years. In Peru the implementation and launch of the FTA with the United States, is part of a first link of a chain of commercial events that have been gradually rising as well as putting before the eyes of the world, the benefits of investing in a country with a stable economy. From there on, the negotiation cycle started in other countries, has been growing as part of the momentum of its free market economic policy that develops at a rapid pace, and which have allowed closing commercial agreements with: Canada, Singapore, Thailand, China and Chile. Currently it also maintains negotiations with. Mexico, Russia, South Korea, Costa Rica, South Africa, Morocco, the European Union and the European Free Trade Association (EFTA), conformed by: Switzerland, Iceland, Liechtenstein and Norway. An encouraging economic outlook, which also incorporated the onset of recent attempts with Japan, to implementing a FTA, which according to estimates of President Alan Garcia, should culminate in the best case, before the end of his mandate (mid 2011).
The socioeconomic indicators in Peru are clear: Between January and November, the Peruvian inflation was of -0.07% GDPs variation until the third quarter of 2009: -0.36%. Exportations growth for US$ 15.785 million to November 2009. We currently have an external public debt of US$ 19.935 million; Country Risk (EMBI) for 1.98 points; and Foreign Reserve for US$ 33.194 million. In addition to this, levels of investment provided by risk rating agencies such as Standard & Poor’s, Fitch and Moody’s Ba1, who reach 112.89%; while levels of profitability and capitalization reached by the Lima Stock Exchange, reach US$ 109.271. Within these considerations, the scope of free market economic model, and its positive impact on economic development in Peru, denotes a “slow but steady improvement”, as qualified by the Peruvian Institute of Economy (PIE), in a recent analysis of competitiveness report of the World Bank and production business of the World’s Economic Forum, who’s main characters are the different social, economic, financial and investment sectors of the country, and have led to a decrease in extreme poverty, unemployment, illiteracy and child malnutrition, thanks to the institutional Estates joined efforts and foreign cooperation, as part of this big agenda of social development. Under the PIEs analysis, the economic progression in Peru of 2005 to 2009, have been giving encouraging signs of changes and improvements, such as institutional strengthening, infrastructure, health, and technological readiness, as well as the introduction of the new Law to promote competitiveness, recognition and development of micro and small enterprises and access to decent employment (ACT MSE), which gives significant benefits to this emerging sector of the Peruvian economy. However, there are still challenges ahead as business sophistication, the innovative nature, the efficiency in the goods market, as well as bureaucracy, which is a latent and dangerous enemy to consolidate the country’s desired economic development, and hinders the quick processes for investment, as shown in the following graphic: 2005 2006 2007 2008 2009 Doing business 78 65 56 65 56 + Opening a business 118 92 96 117 112 Licence management in construction 116 121 107 114 116 Recruitment of workers 159 158 160 161 112 + Land Registry 29 32 32 40 28 + Obtaining credit 59 33 32 12 15 + Protection to investors 18 15 15 19 20 Tax payment 133 135 73 84 87 Border trade 87 93 58 98 91 Contract fulfilment 106 95 121 119 114 + Closing a business 70 73 96 99 99 Source: Doing Business 2010, WB Prepared by: IPE
Progress and some setbacks
Peru: Pillars of Global Competitiveness Index 2009-2010 (WEF) (Of the ranking of 134 countries) 2008-2009 Position Score General Index Basic Requirements Institutions Infrastructure Macroeconomic stability Health & elementary Education Efficiency strengtheners Higher education & training Efficiency of goods market Efficiency of labour market Sophistication of financial Market Technological preparation Market’s size Innovation Factors Business sophistication Innovation
2009-2010 Position
Post Variation Score Variation
Score
83 94 101 110 67 95
3.95 4.02 3.45 2.53 4 98 5.1
78 88 90 97 63 91
4.01 4.06 3.52 2.91 4.66 5.14
5 6 11 13 4 4
0.06 0.04 0.07 0.38 -0.32 0.04
69 89 61 75 45
4.01 3.62 4.25 4.28 4.68
59 81 66 77 39
4.11 3.75 4.21 4.3 4.66
10 8 -5 -2 6
0.1 0.13 -0.04 0.02 -0.02
3.03 4.19 3.4 4.12 2.68
77 46 85 68 109
3.34 4.35 3.37 4.02 2.71
10 4 -2 -1 1
0.31 0.16 -0.03 -0.1 0.03
87 50 83 67 110
Backward move The pillar presents a backward move; however improves in the ranking because other countries present more backward move. The pillar presents improvement; however its position gets worse in the ranking because other countries are of greater progress. Global Competitiveness Index source 2009-2010, World Economic Forum (WEF)* Prepared by: PIE
A similar scenario is the perception of the Peruvian economy to the international level that contrasts with the ratings assigned to the country, in the frame of competitiveness analysis, labour risks and investors at world’s level. In this contest, the North American Foundation Heritage, locates Peru in position 57 in the 2009 Economic Freedom, which added to the 2009-2010 world’s competitiveness, locates the Peruvian economy in position 78 of 133 world economies, improving five positions compared to 2008, and eight, compared to 2007. Similarly, the report issued by the World’s Bank and estimates of Doing Business Ranking 2010, shows Peru as an emerging economy in the process of consolidation, exceeded by some countries of the region such as Chile, Colombia and Brazil, locating it in position 56 of world’s economic competitiveness of a total of 183 countries (improving nine positions respecting to the previous year). The international analysis of the Peruvian economy ratifies with numbers the great moment which the South American country is going through, whose goal for 2011, is locating in place 25 of the world’s qualification; it’s a very ambitious project which will
demand work from political and productive sectors of the country, constituted in potential development areas, such as the commercial emporium of “Gamarra” in Lima, and which is worldwide recognized. Benefits for the formalization of the MSE’s in Peru Without doubt, the scope of the new MSE Law in Peru represents the best event for micro and small enterprises, providing a range of benefits as part of the formalization and promotion of its competitiveness, development of employment generation and its drive for social inclusion, through the management of local governments. This implies that the Peruvian State must undertake an arduous registration task of micro and small businesses not registered in the National Registry System (NRS), subject to the benefits conferred by this Act, among which stands out the constitution of a micro or small business in 72 hours, through a platform of citizen and businesses services of the Ministry of Production of Peru; the reserve of 40% of the estate’s purchases in favour of the MSEs; and to pay the 50% of the State’s contribution for access to integral health care system for its owners, employees and family members, as well as facilitating access to bank credit to micro and small entrepreneurs. This is a feasible proposal that has had positive answers in the population, who in less than a year has reached to formalize more than 60 thousand MSE’, of which it’s estimated that over 80% are micro-enterprises, employing more than 170.000 Peruvians. Other benefits provided by this law, including discharge of the Compensation for length of Service, gratuities, family allowance, profit sharing and life insurance policy, which will be subsidized by the Estate, according to the business size. According to these figures, the economic outlook which is expected to be fulfilled by Peruvians in the following years, provide various social and economic projects, which could continue shaping the roadmap of the next governments, with the purpose of impelling this view of improvements and areas to be improved. But now, it is questionable that some delays take even 40 days, in processes to opening a business, or the delay of 25 days, etc..., for obtaining a construction licence, situations which obviously must be corrected in short term. However, it’s demonstrated that the Latin American countries are able achieving when applying programs and socialisers economic development in democracy and not “socialists”, which propitiate a social promoter development for employment generation, from the invigoration of the MSEs and the emerging productive sectors, until the big companies and foreign investments, which contribute to economic growth consolidation in a country. This is a political paradigm which with transparent and audit objectives, constitute at the moment, in a development pattern and the key for success for the promotion of economic, social and human capital, generating business competitiveness. Thinking that the Estate’s protectionism facilitates sustained social development will eventually be a utopia of political demagoguery, which rises in claims defence of popular interests.....”Teach us to fish rather than give fish”.*