Connect with us

Americas

Why finance is at the heart of Chile’s crisis

Published

on

The outsized role of unfettered finance in Chile has only worsened inequality that led to recent uprisings

In September this year, less than a month before frustrated Chileans took to the streets in Santiago, on Chile Day, former finance Minister Felipe Larrain announced new legislation that, it was hoped, would make Chile into a regional financial center. The new bill would contains regulatory changes to facilitate registration of foreign securities in Chile and eliminate tax differences between locals and foreigners that affected the ability of finance to move seamlessly in the domestic economy. These measures were announced to commemorate ChileDay in London, where Conor Burns, minister in the UK government praised Chile’s macro-economic growth and fiscal management under the Sebastian Pinera government.

After years of trying to make the country into a financial regional center, the new bill concretized the government’s intentions. Larrain explained that the initiative meant to relax existing rules of financial regulations through a number of areas, including reduce paperwork for foreign investors, introduce new international practices in the local fixed income market for investors to access liquidity, simplify tax laws and contracts for short-term finance and make mutual funds more flexible. In this way the government sought to enable growth in profits of financial assets, which are primarily held by wealthy investors and high net worth Chileans. Protestors’ move into the affluent Providencia neighbourhood to up the ante a few days ago – known as Chile’s financial district – ironically represent the apogee of this relationship.

After unease spread about the social conditions in Chile after the increase on metro fares, Minister Felipe Larrain, who retained the position from Pinera’s 2010 administration, was sacked. Larrain’s firing is emblematic for several reasons. Much of the recent analysis while rightly focusing on worsening social conditions for the majority of Chileans, few commentators have pinpointed one, if not the most important culprit, of high inequality since Chile became a democracy ended in 1990. Chile’s embrace of financial globalization has been at the forefront of higher levels of inequality in Chile for over the last 2 decades during both left- and right-wing governments.

The planned growth of the financial sector, while good for investors and those with idle assets, it is not positive for the majority of Chileans. The United Nations Economic Commission for Latin America and the Caribbean shows ownership of financial assets are concentrated in the pocket books of the 1 per cent. In 2017, the net worth of households was extremely distorted. While the poorest 50% of households had an average net worth of US$ 5,000, the sum for the wealthiest 10% averaged US$ 760,000, and the richest 1% owned US$ 3 million. To make matters worse, the richest 10% made a whopping 92.2% of investments in shares and mutual funds, other forms of equity holdings and investment portfolios, and 77.4% of deposits in savings accounts and long-term fixed deposits. In comparison, the lower 50 per cent of the population held just 7.7% of total physical assets like motor vehicles and real estate. As a result, many Chileans are swimming in debt, owing a total of US$116 billion (about 44 percent of gross domestic product) – a significant portion due to mortgages and showing increases by 12 per cent since 2010.

In its 2018 economic survey, the OECD laid out the conditions that have led to the current crisis: as many 30 per cent of Chilean workers engage in informal work or on short-term contracts, with high concentrations among women, youth, low-skilled and indigenous groups, while unemployment benefits are virtually nonexistent. Self-employed workers earn 20% less than a formal waged employee with the same skills and experience. Financial sector employees also make more than twice the average worker and even mining sector workers. Over the years, this wage inequality and labour informalisation have been facilitated by deregulating labour markets whereby workers have less bargaining power of labour unions. Labour unions’ calls to increase their stake in the congress therefore offer some hope for workers to gain more of the share of national wealth. Increases in labour income, as ECLAC shows, have a positive effect on macro-economic growth. Pinera’s obstinacy to these initiatives seem to protect his economic standing rather than promote a resolution in workers’ favour. Government resistance would only encourage further polarization.

Chile’s financial sector has expanded at a rate more than any other economic sector, and realized a significant portion of total income and profits in the country. In terms of asset base as a percentage of GDP, the financial sector (including money bank deposits and of other financial institutions) it has growth from 64% in 1984 to 67% in the late 1990s, surpassing the 100% mark in 2010. In 2016, this ratio reached 117%. After Mexico, Chile has the highest capital penetration of foreign banks in Latin America which has counter intuitively reduced the amount of credit available to small local businesses to finance production in new products and sectors. In the meanwhile, foreign investment has however expanded in areas that do not employ great numbers. Large mining businesses which employ fewer numbers of Chileans also have a disproportionate access to international markets for credit. Chile’s pension system is also privatized and seen as source for financial sharks to make a killing, which fluctuates according to traders’ optimism and can lose as it did in late 2018 when investors lose confidence.

Increased privatization of the state, and narrow industrial policies promoted by agencies like the Inter-American Development Bank bolster the role of finance using a number of instruments and incentives. Compared to years prior to the dictatorship, and for a short period during Pinochet reign after the banking crisis of the 1980s, finance was largely well regulated and credit expanded to sectors that generated a large number of jobs. Now, rather than expanding employment and increasing high-value industrial exports, Chile has since the 2000s suffered becoming more and more specialized in mining. Even as private investment flows increased in copper mining during the 2000s, this has not had a broad effect on re-industrializing the Chilean economy. The opposite is true. In fact, the majority of the country’s lithium is manufactured outside of the country.  

While some economists have suggested that that higher inequality was due to the end of the high-price commodity boom in Chile in 2014, the historical record shows that inequality was rampant during Pinochet’s dictatorship and only slightly decreased from the 1990s onwards. Inequality was practically baked into the tax system, as well as the housing and transport policies of successive governments, as Chileans found it hard to seek work opportunities in its capital city Santiago. This has earned Chile the infamy of the most unequal country in Latin America and the OECD as a whole according to certain analyses. 

As the world awakens to the reality that the expanding finance do not lift all boats or ‘trickle down’, if there is to be a successful resolution to the current calamity that dates back to the reforms of Pinochet, democratizing finance is critical to return power to the hands of Chileans.

Keston K. Perry, PhD is a political economist with expertise in global finance, climate policy and economic development with specific reference to resource wealthy economies in Latin America and the Caribbean. Previously, he served as an external adviser to the United Nations Development Program Latin America and Caribbean Bureau.

Continue Reading
Comments

Americas

As Refugees Flee Central America, the Mexican Public Sours On Accepting Them

Published

on

Authors: Isabel Eliassen, Alianna Casas, Timothy S. Rich*

In recent years, individuals from Central America’s Northern Triangle (El Salvador, Guatemala, and Honduras) have been forced out of their home countries by extreme poverty and gang violence. While initial expectations were that the Lopez Obrador administration would be more welcoming to migrants, policies have slowly mirrored those of his predecessor, and do not seem to have deterred refugees. COVID-19 led to a decrease in refugees arriving in Mexico, and many shelters in Mexico closed or have limited capacity due to social distancing restrictions. Now that the COVID-19 situation has changed, arrivals could increase again to the levels seen in late 2018 or 2019, with overcrowded refugee centers lacking in medical care as potential grounds for serious COVID-19 outbreaks.

Mexico increasingly shares a similar view as the US on this migration issue, seeking ways to detain or deport migrants rather than supporting or protecting them. For instance, Mexico’s National Immigration Institute has been conducting raids on freight trains to find and detain migrants. Public opinion likely shapes these policies. In the US, support for allowing migrants into the country appeared to increase slightly from 2018 to 2019, but no significant majority emerges. Meanwhile, Mexican public opinion increasingly exhibits anti-immigrant sentiments, declining considerably since 2018, with a 2019 Washington Post poll showing that 55% supported deporting Central Americans rather than providing temporary residence and a 2019 El Financiero poll finding 63% supportive of closing to border to curb migration.

New Data Shows the Mexican Public Unwelcoming

To gauge Mexican public opinion on refugees, we conducted an original web survey June 24-26 via Qualtrics, using quota sampling. We asked 625 respondents to evaluate the statement “Mexico should accept refugees fleeing from Central America” on a five-point Likert scale from strongly disagree to strongly agree. For visual clarity, we combined disagree and agree categories in the figure below.

Overall, a plurality (43.84%) opposed accepting refugees, with less than a third (30.08%) supportive. Broken down by party affiliation, we see similar results, with the largest opposition from the main conservative party PAN (52.90%) and lowest in the ruling party MORENA (41.58%). Broken down by gender, we find women slightly more supportive compared to men (32.60% vs. 27.04%), consistent with findings elsewhere and perhaps acknowledgment that women and children historically comprise a disproportionate amount of refugees. Regression analysis again finds PAN supporters to be less supportive than other respondents, although this distinction declines once controlling for gender, age, education and income, of which only age corresponded with a statistically significant decline in support. It is common for older individuals to oppose immigration due to generational changes in attitude, so this finding is not unexpected.

We also asked the question “On a 1-10 scale, with 1 being very negative and 10 very positive, how do you feel about the following countries?” Among countries listed were the sources of the Central American refugees, the three Northern Triangle countries. All three received similar average scores (Guatemala: 4.33, Honduras: 4.05, El Salvador: 4.01), higher than Venezuela (3.25), but lower than the two other countries rated (US: 7.71, China: 7.26) Yet, even after controlling for general views of the Central American countries, we find the public generally unsupportive of accepting refugees.

How Should Mexico Address the Refugee Crisis?

Towards the end of the Obama administration, aid and other efforts directed at resolving the push factors for migration in Central America, including decreasing violence and limiting corruption, appeared to have some success at reducing migration north. President Trump’s policies largely did not improve the situation, and President Biden has begun to reverse those policies and re-implement measures successful under Obama.

As discussed in a meeting between the Lopez Obrador administration and US Vice President Kamala Harris, Mexico could adopt similar aid policies, and decreasing the flow of migrants may make the Mexican public respond more positively to accepting migrants. Lopez Obrador committed to increased economic cooperation with Central America days into his term, with pledges of aid as well, but these efforts remain underdeveloped. Threats to cut aid expedite deportations only risks worsening the refugee crisis, while doing little to improve public opinion.

Increasingly, the number of family units from Guatemala and Honduras seeking asylum in Mexico, or the United States, represents a mass exodus from Central America’s Northern Triangle to flee insecurity. Combating issues such as extreme poverty and violence in Central American countries producing the mass exodus of refugees could alleviate the impact of the refugee crisis on Mexico. By alleviating the impact of the refugee crisis, refugees seeking asylum will be able to navigate immigration processes easier thus decreasing tension surrounding the influx of refugees.

Likewise, identifying the public’s security and economic concerns surrounding refugees and crafting a response should reduce opposition. A spokesperson for Vice President Harris stated that border enforcement was on the agenda during meetings with the Lopez Obrador administration, but the Mexican foreign minister reportedly stated that border security was not to be addressed at the meeting. Other than deporting migrants at a higher rate than the US, Mexico also signed an agreement with the US in June pledging money to improve opportunities for work in the Northern Triangle. Nonetheless, questions about whether this agreement will bring meaningful change remain pertinent in the light of a worsening crisis.

Our survey research shows little public interest in accepting refugees. Public sentiment is unlikely to change unless the Lopez Obrador administration finds ways to both build sympathy for the plights of refugees and address public concerns about a refugee crisis with no perceived end in sight. For example, research in the US finds public support for refugees is often higher when the emphasis is on women and children, and the Lopez Obrador administration could attempt to frame the crisis as helping specifically these groups who historically comprise most refugees. Likewise, coordinating efforts with the US and other countries may help portray to the public that the burden of refugee resettlement is being equitably shared rather than disproportionately placed on Mexico.

Facing a complex situation affecting multiple governments requires coordinated efforts and considerable resources to reach a long-term solution. Until then, the Central American refugee crisis will continue and public backlash in Mexico likely increase.

Isabel Eliassen is a 2021 Honors graduate of Western Kentucky University. She triple majored in International Affairs, Chinese, and Linguistics.

Alianna Casas is an Honors Undergraduate Researcher at Western Kentucky University, majoring in Business Economics, Political Science, and a participant in the Joint Undergraduate/Master’s Program in Applied Economics.

Timothy S. Rich is an Associate Professor of Political Science at Western Kentucky University and Director of the International Public Opinion Lab (IPOL). His research focuses on public opinion and electoral politics.

Funding for this survey was provided by the Mahurin Honors College at Western Kentucky University.

Continue Reading

Americas

Indictment of Trump associate threatens UAE lobbying success

Published

on

This month’s indictment of a billionaire, one-time advisor and close associate of former US President Donald J. Trump, on charges of operating as an unregistered foreign agent in the United States for the United Arab Emirates highlights the successes and pitfalls of a high-stakes Emirati effort to influence US policy.

The indictment of businessman Thomas  J. Barrack, who maintained close ties to UAE Crown Prince Mohammed bin Zayed while serving as an influential advisor in 2016 to then-presidential candidate Trump and chair of Mr. Trump’s inauguration committee once he won the 2016 election, puts at risk the UAE’s relationship with the Biden administration.

It also threatens to reduce the UAE’s return on a massive investment in lobbying and public relations that made it a darling in Washington during the last four years.

A 2019 study concluded that Emirati clients hired 20 US lobbying firms to do their bidding at a cost of US$20 million, including US$600,000 in election campaign contributions — one of the largest, if not the largest expenditure by a single state on Washington lobbying and influence peddling.

The indictment further raises the question of why the Biden administration was willing to allow legal proceedings to put at risk its relationship with one of America’s closest allies in the Middle East, one that last year opened the door to recognition of Israel by Arab and Muslim-majority states.

The UAE lobbying effort sought to position the Emirates, and at its behest, Saudi Arabia under the leadership of Crown Prince Mohammed’s counterpart, Mohammed bin Salman, at the heart of US policy, ensure that Emirati and Saudi interests were protected, and shield the two autocrats from criticism of various of their policies and abuse of human rights.

Interestingly, UAE lobbying in the United States, in contrast to France and Austria, failed to persuade the Trump administration to embrace one of the Emirates’ core policy objectives: a US crackdown on political Islam with a focus on the Muslim Brotherhood. UAE Crown Prince Mohammed views political Islam and the Brotherhood that embraces the principle of elections as an existential threat to the survival of his regime.

In one instance cited in the indictment, Mr. Barrack’s two co-defendants, a UAE national resident in the United States, Rashid Al-Malik, and Matthew Grimes, a Barrack employee, discussed days after Mr. Trump’s inauguration the possibility of persuading the new administration to designate the Muslim Brotherhood as a designated foreign terrorist organization. “This will be a huge win. If we can list them. And they deserved to be,” Mr. Al-Malik texted Mr. Grimes on 23 January 2017.

The unsuccessful push for designating the Brotherhood came three months after Mr. Barrack identified the two Prince Mohammeds in an op-ed in Fortune magazine as members of a new generation of “brilliant young leaders.” The billionaire argued that “American foreign policy must persuade these bold visionaries to lean West rather than East… By supporting their anti-terrorism platforms abroad, America enhances its anti-terrorism policies at home.”

Mr. Barrack further sought to persuade America’s new policymakers, in line with Emirati thinking, that the threat posed by political Islam emanated not only from Iran’s clerical regime and its asymmetric defence and security policies but also from the Brotherhood and Tukey’s Islamist government. He echoed Emirati promotion of Saudi Arabia after the rise of Mohammed bin Salman as the most effective bulwark against political Islam.

“It is impossible for the US to move against any hostile Islamic group anywhere in the world without Saudi support…. The confused notion that Saudi Arabia is synonymous with radical Islam is falsely based on the Western notion that ‘one size fits all,’ Mr. Barrack asserted.

The Trump administration’s refusal to exempt the Brotherhood from its embrace of Emirati policy was the likely result of differences within both the US government and the Muslim world. Analysts suggest that some in the administration feared that designating the Brotherhood would empower the more rabidly Islamophobic elements in Mr. Trump’s support base.

Administration officials also recognized that the UAE, Saudi Arabia, and Egypt constituted a minority, albeit a powerful minority, in the Muslim world that was on the warpath against the Brotherhood.

Elsewhere, Brotherhood affiliates were part of the political structure by either participating in government or constituting part of the legal opposition in countries like Kuwait, Iraq, Yemen, Bahrain, Morocco, Jordan, and Indonesia.

The affiliates have at times supported US policies or worked closely with US allies like in the case of Yemen’s Al Islah that is aligned with Saudi-backed forces.

In contrast to UAE efforts to ensure that the Brotherhood is crushed at the risk of fueling Islamophobia, Nahdlatul Ulama, one of, if not the world’s largest Muslim organization which shares the Emirates’ rejection of political Islam and the Brotherhood, has opted to fight the Brotherhood’s local Indonesian affiliate politically within a democratic framework rather than by resorting to coercive tactics.

Nahdlatul Ulama prides itself on having significantly diminished the prospects of Indonesia’s Brotherhood affiliate, the Prosperous Justice Party (PKS), since the 2009 presidential election. The group at the time successfully drove a wedge between then-President Susilo Yudhoyono, and the PKS, his coalition partner since the 2004 election that brought him to power. In doing so, it persuaded Mr. Yudhoyono to reject a PKS candidate as vice president in the second term of his presidency.

Nahdlatul Ulama’s manoeuvring included the publication of a book asserting that the PKS had not shed its links to militancy. The party has since failed to win even half of its peak 38 seats in parliament garnered in the 2004 election.

“Publication of ‘The Illusion of an Islamic State: The Expansion of Transnational Islamist Movements to Indonesia’ had a considerable impact on domestic policy. It primarily contributed to neutralizing one candidate’s bid for vice president in the 2009 national election campaign, who had ties to the Muslim Brotherhood,” said militancy expert Magnus Ranstorp.

Continue Reading

Americas

Biden Revises US Sanctions Policy

Published

on

Official White House Photo by Adam Schultz

In the United States, a revision of the sanctions policy is in full swing. Joe Biden’s administration strives to make sanctions instruments more effective in achieving his political goals and, at the same time, reducing political and economic costs. The coordination of restrictive measures with allies is also seen as an important task. Biden is cautiously but consistently abandoning the sanctions paradigm that emerged during Donald Trump’s presidency.

The US sanctions policy under Trump was characterised by several elements. First, Washington applied them quite harshly. In all key areas (China, Iran, Russia, Venezuela, etc.), the United States used economic and financial restrictions without hesitation, and sometimes in unprecedented volumes. Of course, the Trump administration acted rationally and rigidity was not an end in itself. In a number of episodes, the American authorities acted prudently (for example, regarding sanctions on Russian sovereign debt in 2019). The Trump-led executives stifled excess Congressional enthusiasm for “draconian sanctions” against Russia and even some initiatives against China. However, the harshness of other measures sometimes shocked allies and opponents alike. These include the 6 April 2014 sanctions against a group of Russian businessmen and their assets, or bans on some Chinese telecommunications services in the United States, or sanctions blocking the International Criminal Court.

Second, Trump clearly ignored the views of US allies. The unilateral withdrawal from the nuclear deal with Iran in 2018 forced European businesses to leave Iran, resulting in losses. Even some of the nation’s closest allies were annoyed. Another irritant was the tenacity with which Trump (with Congressional backing) threw a wrench in the wheels of the Nord Stream 2 pipeline project. Despite the complicated relations between Moscow and the European Union, the latter defended the right to independently determine what was in its interests and what was not.

Third, concerns about sanctions have emerged among American business as well. Fears have grown in financial circles that the excessive use of sanctions will provoke the unnecessary politicisation of the global financial system. In the short term, a radical decline in the global role of the dollar is hardly possible. But political risks are forcing many governments to seriously consider it. Both rivals (Moscow and Beijing) and allies (Brussels) have begun to implement corresponding plans. Trade sanctions against China have affected a number of US companies in the telecommunications and high-tech sectors.

Finally, on some issues, the Trump administration has been inconsistent or simply made mistakes. For example, Trump enthusiastically criticised China for human rights violations, supporting relevant legislative initiatives. But at the same time, it almost closed its eyes to the events in Belarus in 2020. Congress was also extremely unhappy with the delay in the reaction on the “Navalny case” in Russia. As for mistakes, the past administration missed the moment for humanitarian exemptions for sanctions regimes in connection with the COVID-19 epidemic. Even cosmetic indulgences could have won points for US “soft power”. Instead, the US Treasury has published a list of pre-existing exceptions.

The preconditions for a revision of the sanctions policy arose even before Joe Biden came to power. First of all, a lot of analytical work was done by American think tanks—nongovernmental research centers. They provided a completely sober and unbiased analysis of bothха! achievements and mistakes. In addition, the US Government Accountability Office has done serious work; in 2019 it prepared two reports for Congress on the institutions of the American sanctions policy. However, Joe Biden’s victory in the presidential election significantly accelerated the revision of the sanctions instruments. Both the ideological preferences of the Democrats (for example, the emphasis on human rights) and the political experience of Biden himself played a role.

The new guidelines for the US sanctions policy can be summarised as follows. First, the development of targeted sanctions and a more serious analysis of their economic costs for American business, as well as business from allied and partner countries. Second, closer coordination with allies. Here, Biden has already sent a number of encouraging signals by introducing temporary sanctions exemptions on Nord Stream 2. Although a number of Russian organisations and ships were included in the US sanctions lists, Nord Stream 2 itself and its leadership were not affected. Third, we are talking about closer attention to the subject of human rights. Biden has already reacted with sanctions both to the “Navalny case” and to the situation in Belarus. Human rights will be an irritant in relations with China. Fourth, the administration is working towards overturning Trump’s most controversial decisions. The 2020 decrees on Chinese telecoms were cancelled, the decree on sanctions against the International Criminal Court was cancelled, the decree on Chinese military-industrial companies was modified; negotiations are also underway with Iran.

The US Treasury, one of the key US sanctions agencies, will also undergo personnel updates. Elisabeth Rosenberg, a prominent sanctions expert who previously worked at the Center for a New American Security, may take the post of Assistant Treasury Secretary. She will oversee the subject of sanctions. Thus, the principle of “revolving doors”, which is familiar to Americans, is being implemented, when the civil service is replenished with personnel from the expert community and business, and then “returns” them back.

At the same time, the revision of the sanctions policy by the new administration cannot be called a revolution. The institutional arrangement will remain unchanged. It is a combination of the functions of various departments—the Treasury, the Department of Trade, the Department of Justice, the State Department, etc. The experience of their interagency coordination has accumulated over the years. The system worked flawlessly both under Trump and under his predecessors. Rather, it will be about changing the political directives.

For Russia, the revision is unlikely to bring radical changes. A withdrawal from the carpet bombing of Russian business, such as the incident on 6 April 2018 hint that good news can be considered a possibility. However, the legal mechanisms of sanctions against Russia will continue to operate. The emphasis on human rights will lead to an increase in sanctions against government structures. Against this background, regular political crises are possible in relations between the two countries.

From our partner RIAC

Continue Reading

Publications

Latest

Trending