Cuba’s Limited Absorptive Capacity Will Slow Normalization*

By Fulton Armstrong

Photo Credit: PBS NewsHour / Flickr / Creative Commons

Photo Credit: PBS NewsHour / Flickr / Creative Commons

As the U.S. embargo – the main obstacle to expanding U.S.-Cuban economic ties – is relaxed by presidential regulatory action and eventually lifted by Congress, limits on Cuba’s own willingness and ability to conduct trade, absorb investment, utilize information technology, and even accommodate tourists risk putting a brake on the normalization of economic relations.  Five decades of embargo and failed socialist models have rendered key sectors in Cuba ill-equipped to take advantage of the surge in U.S. business interest in the island.  In some areas, the political will to open up and reform is crucial.  These problems do not translate into a rejection of normalization but rather into a slower timeline than many on and off the island would hope for.

The advantages of economic engagement are well known.  Foreign investment will help provide the $8.7 billion Cuba wants for its “Portfolio of Foreign Investment Opportunities” – some 246 projects in energy, tourism, agriculture, and industry.  Havana also wants growth rates to rise to 4-5 percent per year (from an estimated 1.5 percent in 2014), fueled by at least $2 billion in annual foreign investment.  Trade, investment, and tourism are all potentially powerful engines for growth and employment in Cuba.  Private farmers have long out-produced their state competitors and many cooperatives, making them ideal for engagement under current U.S. regulations if the Cuban government facilitates it.  The small private sector, currently employing over a million people, could – with a more supportive infrastructure – provide many more vital goods, services, and employment that the Cuban government years ago admitted it could not provide.  Sectors utilizing Cuba’s specialized and skilled human capital, such as biotechnology, could also benefit quickly and generously from the new U.S. relationship.

Cuba has a lot going for it – such as its deep reserve of potential human capital – but it is also is held back by a variety of problems, many of which are prolonged by political caution.

  • Cuba is updating laws governing investments, property, and labor – a new foreign investment law in March 2014 and related regulations are steps in the new direction – but the multi-year, incremental process has been too slow to keep ahead of burgeoning opportunities. Regulations on how foreign firms select, pay and release Cuban employees are also antiquated.  Paperwork for approving foreign direct investment remains formidable and must pass through multiple levels.  The country lacks the basic institutions necessary to license import and export transactions for beneficiaries outside government ministries.  Much of the bureaucracy – chronically underpaid and, during periods of party dominance, neglected – has yet to grow into a new, more professional role.
  • Unifying Cuba’s two national currencies is absolutely essential but, despite the government’s repeated declarations of intent, it has still not been done. The existence of a different, lower exchange rate for state enterprises creates distortions that will worsen as demand for imports rises.  The financial system, moreover, is too over-burdened, secretive, and lacking in agility, and continued blocks to Cuba’s access to IMF, World Bank, and Inter-American Development Bank (IDB) funds deny it important breathing room to reform.
  • Cuba lacks an information and communications technology (ICT) framework capable of harnessing and nurturing its human capital and driving growth and efficiency – which will retard progress in a number of priority areas.
  • De-industrialization over the past 25 years has further reduced Cuba’s absorptive capacity. Many key sectors – including textiles, clothing, metals, machinery, transportation equipment, and more – have contracted between 50 and 100 percent.  Much of the infrastructure is dilapidated.  The transportation sector is in dire need of repair and modernization; and the construction industry is inefficient and poorly resourced.

Cuba’s challenges in taking advantage of new opportunities are not insurmountable – with political will and time.  The pace of reform and corresponding expansion of Cuba’s absorptive capacity may be maddeningly slow for many Cubans and Americans alike.  But insofar as the U.S.-Cuba normalization process is irreversible, so too is the conviction in Cuba on the need to “update” the system through reform in order to take advantage of the opportunities it brings.  Cuban national pride and the Communist Party’s fear of losing control could very well be assuaged as the island experiences the benefits of engagement.  Foreigners, especially the United States, who push too hard, too fast, and too haughtily could fail and even delay this aspect of normalization, just as Cubans who move too passively, too slowly, and too skeptically could stymie the process as well.

October 27, 2015

*This blog post is excerpted from the third in a series of policy briefs from the CLALS Cuba Initiative, supported by the Christopher Reynolds Foundation.  Read the full brief here.

Mexico’s Petroleum Sector: Not Yet Out of the Woods

By Thomas Andrew O’Keefe*

Photo Credits: Ian Burt and Alex / Flickr / Creative Commons

Photo Credits: Ian Burt and Alex / Flickr / Creative Commons

The September 30 awarding of three contracts on five oil production blocks that the Mexican government opened for bidding has raised hopes that the Peña Nieto administration’s efforts to reform the country’s energy sector are back on track, but many challenges remain.  In contrast, an auction of leases on 14 blocks in July was a huge disappointment as contracts could only be issued for two of them.  The auctions are part of Mexico’s effort to reverse years of declining petroleum output by permitting private sector and foreign participation in an industry monopolized for decades by the state oil company, PEMEX.  Foreign and private sector firms are now allowed to enter into both profit- as well as production-sharing agreements with PEMEX and thereby retain a percentage of the gains on the oil they extract.  In some cases, outright concessions – termed “licenses” so as not to run afoul of the Mexican Constitution – are permitted.

A careful examination of the successful bids last month, however, leaves doubts as to whether the auction marks a change of fortune.  To entice a better response, the Mexican entity responsible for the auctions, the National Hydrocarbons Commission (CNH), relaxed many rules in a way that may be difficult to repeat and can be challenged politically.  Noticeably absent from the list of winning bidders are the major multinational oil giants.

  • The Italian state oil company, ENI International, won the block that attracted the most bids, while an Argentine-led consortium headed by Pan American Energy won a second block. They are well-known players in several South American countries – Argentina, Bolivia, Ecuador, and Venezuela – where the rules of the game are constantly changing and lack of transparency is a major issue.  The third block had only one bidder, a consortium made up of the U.S.-based Fieldwood Energy and Mexican Petrobal (whose director is PEMEX’s former director of exploration and production, Carlos Morales Gil).
  • The blocks awarded on September 30 are for already discovered shallow water fields, meaning lower geological risks for private operators. In order to make the auction attractive, the CNH lowered the fees required to bid and added the right to explore for new oil as well as pumping oil from existing reserves.

Mexican President Enrique Peña Nieto came to office in 2012 with an ambitious reform plan to revitalize the Mexican economy by focusing on structural reforms, including education, finance, telecommunication, transportation infrastructure, and energy.  While there have been noticeable changes in all five areas, the results have not yet led to significant improvements in Mexico’s economic performance.  The optimistic reform scenarios of three years ago are further clouded by corruption scandals – including one touching the President, his wife, and a finance minister who had houses built by prominent contractors who had won lucrative government contracts – the lack of progress investigating the Iguala Massacre (involving 43 students who disappeared), and high levels of citizen insecurity.  The real test for the Mexican energy reform – and the credibility of President Peña Nieto’s reform policies – will come next year when offshore deep water blocks in the Gulf of Mexico and extra-heavy oil fields are put up for auction.

October 19, 2015

* Thomas Andrew O’Keefe is President of San Francisco-based Mercosur Consulting Group, Ltd.

OAS: Almagro’s Challenges

By Fulton Armstrong and Eric Hershberg

Photo Credit: OEA – OAS / Flickr / Creative Commons

Photo Credit: OEA – OAS / Flickr / Creative Commons

The OAS’s new Secretary General, Luis Almagro Lemes, appears to be steering his organization toward a coordinating role that, he hopes, places it above the fray of hemispheric tensions.  He has not chafed at Washington’s version of democracy promotion, and indeed has embraced elements of it.  He has readily admitted the “inexorable conclusion” that the OAS needs to be “revamped and modernized”; that it needs to “reinforce its legitimacy”; and that its structure and resources need to be better realigned with the four pillars of its mission—democracy, human rights, security, and integral development.  His promises of internal reform so far have not been radically different from those put forth by his beleaguered predecessor, José Miguel Insulza, or even diverged from proposals embodied in U.S. legislation passed in 2013.  They have been articulated, however, in the sort of Washington consultancy language that might help his cause in the U.S. capital, such as references to evolving “from the OAS’s traditional command and control toward an organization that operates like a matrix geared to results in which the hemispheric and national dimensions feed into and enrich each other.”  Elected in March and inaugurated in May, in June Almagro received a mandate from the OAS General Assembly to restructure the General Secretariat, reorganize old offices into new ones, and implement other aspects of his plan.

Regional reactions to Almagro’s election and reform plan have been positive if sometimes not overly enthusiastic.  At the General Assembly meeting, U.S. Deputy Secretary of State Blinken spoke of a “new chapter … in the history of the OAS” and said, “We have a new secretary general, a new strategic vision statement, and renewed attention to genuine reform.”  South America’s preeminent power has been generally aloof toward the OAS, but the Brazilian Senate in mid-July approved a new OAS permanent representative, and last week Brasilia paid $3 million of its $18 million in late dues—modest relief from the slow strangulation caused by dire cash-flow issues because of non-payment by several key countries.  Almagro has also won support in Latin America through his repeated signals of a desire to work more closely with other hemispheric bodies—even CELAC, which was created in 2011 as a direct challenge to the OAS and supposed U.S. influence over it.  He pledged to “seek out areas where we can complement the work of other bodies,” citing by name CELAC, UNASUR, SICA, CARICOM, and MERCOSUR.  According to press reports, his close cooperation with UNASUR as Foreign Minister of Uruguay in 2010‑15 lends credibility to that promise.  Almagro also has won regional praise for pledging to continue efforts for bring Cuba back into the OAS as a full member—building on the success of the Summit of the Americas in April driven by the Washington-Havana rapprochement.

Outgoing Secretary General Insulza was a relatively easy act to follow because, often unfairly, his image was tattered after 10 years in the crossfire between Washington and the countries pushing to undermine U.S. influence in Latin America.  Almagro appears eager to push the re-set button, and the success of the Summit of the Americas and his pledges on democracy, reform, and hemispheric cooperation have given him a good start.  But leading the OAS is going to take more than artful rhetoric, internal restructuring, and a few reforms.  President Obama’s move on Cuba removes one major irritant from hemispheric relations, but an effective Secretary General is going to have to navigate the shoals of longstanding North-South tensions.  The “spirit of genuine and equal partnership” that Deputy Secretary Blinken spoke of wanting with the OAS will be difficult to achieve, and the supporters of CELAC, UNASUR, and other alternatives to the OAS will find it equally tough to accept the OAS as a valid venue for debate and compromise.  Almagro will also have to show that he can run the organization in a professional and modern way to overcome the perception left by his predecessor of weak management of the institution.  He has declared himself a man of practical solutions, not ideology, but pleasing everyone—trying to be a coordinator who threatens no one’s interests—may not be a workable strategy for long.  If the OAS is to fulfill its mission, moreover, the United States and others will have to give Almagro the space to do his job.

July 27, 2015

Argentina Presidential Campaign: Harbinger of Deep Change?

By Federico Merke*

Candidates, left to right: Daniel Scioli, Mauricio Macri, and Sergio Massa. Photo Credits: Cgazzo, Inés Tanoira, and Tigre Municipio, respectively / Wikimedia Commons / CC BY 2.0

Candidates, left to right: Daniel Scioli, Mauricio Macri, and Sergio Massa. Photo Credits: Cgazzo, Inés Tanoira, and Tigre Municipio, respectively / Wikimedia Commons / CC BY 2.0

As the 2015 presidential race begins to take shape in Argentina, the leading candidates – Daniel Scioli (Frente para la Victoria, FPV), Mauricio Macri (Propuesta Republicana, PRO), and Sergio Massa (dissident Peronist faction Frente Renovador, FR ) – have already begun to outline their visions, but sweeping change doesn’t yet appear on the horizon.  According to early polls, Massa had a strong start in the runup to the August 5 presidential primary, but his popularity has faded, making Scioli and Macri appear to be the real contenders.  Originally considered an unexciting three-way race, it has now become a polarized contest.  It should come as no surprise if campaign speeches start to follow a continuity-versus-change line.

Several developments suggest the presidential race will be close:

  • The fact that Scioli has named Carlos Zannini, President Cristina Fernández de Kirchner’s legal secretary, as his running mate has been a game-changer. The Scioli-Zannini effort to bridge two different factions of the FPV, namely the left-wing Kirchnerites with more business-friendly Peronists, will demand tons of rhetoric.  This ticket casts them as guarantors of continuity: el modelo with some modifications.  Yet in electoral politics, almost everything is about framing – explaining to core and potential supporters how new decisions, which for all their twists and turns, remain faithful to the flags of the party.  This is when Peronism gets real.
  • The Zannini gambit on the Peronist side prompted Macri to follow a pure PRO formula, naming Gabriela Michetti, a former deputy-major of Buenos Aires City, as his vice-presidential candidate. This ticket bets on the idea that most Argentine voters reject the government and want substantial change, while polls suggest that many just opt for moderate adjustments.  Macri’s record indicates that he would propel a more pro-business government than that of Fernández de Kirchner, but his victory would not portend a return to the neoliberal heyday of the Menem years during the 1990s.
  • Sergio Massa, on the other hand, is the plain-speaking candidate of the dissident Peronist faction who’s challenged by the FPV and PRO candidates to duke it out over the issues. Polls indicate that he will draw 15 percent of the votes in the election – making him an important powerbroker.

These early stages of the campaign reflect a recurrent pattern in Argentina’s political landscape: a tendency of ruling party candidates to move away from incumbents with lofty rhetoric but little specificity on the one hand, as opposition candidates issue harsh criticism while at the same time manifesting a reluctance to embrace radical change.  Scioli seems to be going all-out Kirchnerite, but it’s too soon to judge whether the electorate will follow, or whether once in office he would govern as if it were Cristina’s third term.  He and Macri both aspire to grab Massa’s 15 percent, as it could enable them to win the presidency in the first ballot rather than having to contest a second round of voting between the two top vote-getters.  But he hasn’t stated a credible price, and neither Scioli nor Macri seems ready yet to begin bargaining with him.   President Fernández may have avoided plunging the economy into crisis before she steps down, but her successor will definitely have to make tough choices because the country is mired in recession and cannot access foreign investment.  Macri might initially enjoy some leeway to introduce austerity measures that would clean up a good part of the macro-economic mess and reopen Argentina to international capital markets, but even he – like Scioli – is likely to be constrained by embedded Kirchnerism in Congress and in the ministries.  Those in Argentina and beyond who have dreamed that Kirchnerism’s days are numbered will have to wait to see.  Kirchnerism, Argentina’s latest “ism,” has profoundly altered the political and ideological landscape – and, at this early point in the campaign, it appears likely to continue to be part of the country’s political ethos into the future.  It could even turn out to be the dominant force in the administration that takes office in 2016.

July 2, 2015

*Federico Merke directs the Political Science and International Relations Programs at the Universidad de San Andrés in Buenos Aires.

Civics Lessons from Guatemala

By Robert Brenneman*

Former Vice President of Guatemala Roxana Baldetti (l) and a protestor with sign "We demand justice" Photo Credits: Surizar / Flickr / Creative Commons

Former Vice President of Guatemala Roxana Baldetti (l) and a protestor holding sign that proclaims “We demand justice.” Photo Credits: Surizar / Flickr / Creative Commons

Guatemala’s popular movement for justice and transparency is suddenly and happily discovering that nothing breeds success like success.  Many Guatemalans have grumbled for years about rampant corruption among the political class, but in recent weeks a surging popular movement has finally emerged giving voice and energy to years of that frustration with impunity and graft.  The movement picked up steam after a public exposé of a shadowy tax fraud and contraband network called “La Línea,” orchestrated out of Vice President Roxana Baldetti’s office by her private secretary.  The report was produced by the International Commission against Impunity in Guatemala (CICIG).  (Click here for analysis of the Commission’s renewal.)  President Pérez Molina not only renewed CICIG’s term until 2017; on May 7 he also accepted the resignation of Baldetti and her secretary, who had served as the key money-raising dealmakers for his administration.  The U.S. Embassy suspended the visas of many of the officials named in the report, including the luckless former vice president herself.

These actions have not been enough to appease the appetite for justice and transparency sought by the growing crowds of flag-waving nonviolent protestors converging each Sunday afternoon in front of the Guatemala City’s Municipal Palace.  An estimated 57,000 gathered under thunder and pouring rain on May 17.  Empowered by the relatively swift impact of their movement, and outraged by the mounting evidence pointing to the president’s personal connections to the corruption network, the crowds of protestors  led principally by students of the public university  have shifted to demanding that the president himself step down.  Pérez Molina, sensing that the wheels are coming off his administration, has requested the resignations of his closest advisors and top officials, including his Interior Minister and his Chief of Strategic Intelligence.  He has revoked or rescinded several of the most lucrative (and obviously corrupt) government contracts that he had vociferously defended only a few weeks ago.

President Pérez Molina’s political future remains up in the air.  Many Guatemalan political analysts believe he should step down.  José Rubén Zamora, founder of Guatemala’s influential daily El Periódico, argues that resigning is “the only way out of an impossible labyrinth” of the president’s own making.  But many others view the president’s fate as less important than whether the country takes advantage of the opportunity to use public pressure to pass sorely needed structural reforms.  For years Congress has ignored several bills that would tighten campaign finance rules and bring transparency to government contracting.  Since pay-to-play politics is not unique to this administration, fixing the problem will require legal and structural changes, not merely changing the nameplate on the presidential suite.  One hopeful sign is that Manuel Baldizón, leader of the opposition Renewed Democratic Liberty Party (LIDER), has not managed to coopt the popular outrage to kickstart his own election campaign.  A popular banner at the protests warns him “¡No te toca!” (“It’s not your turn!”).  The leaders of the movement recognize that Baldizón – who has many skeletons in his own closet and heads another investment-financed party – is hardly the answer.  The protesters’ focus on reform rather than politics suggests that the most certain – and long-lasting – outcome of all is the strengthened civic sphere that appears to have emerged as the protests grow and the newspapers report daily arrests and resignations.  In this civics lesson, the Guatemalan public is both pupil and teacher.

May 26, 2015

*Dr. Brenneman teaches sociology at St. Michael’s College and is author of Homies and Hermanos: God and Gangs in Central America (Oxford University Press 2012).

OAS: New Leadership, Old Challenges

By Aaron Bell and Fulton Armstrong

José Miguel Insulza and Luis Almagro Lemes Photo Credit: OEA - OAS / Flickr / Creative Commons

José Miguel Insulza and Luis Almagro Lemes Photo Credit: OEA – OAS / Flickr / Creative Commons

Uruguayan diplomat Luis Almagro, elected secretary general of the Organization of American States (OAS) last week, says he wants to revitalize the hemispheric organization – a herculean, if not impossible, task.  Almagro was the only candidate remaining after Guatemalan Eduardo Stein and Peruvian Diego García-Sayán withdrew from the race – the former for health concerns, and the latter due to a perceived lack of support from his government.  Almagro previously served as Foreign Minister under former president José Mujica and is a member of his Movimiento de Participación Popular, whose left-leaning sympathies led observers to wonder whether Almagro could draw sufficient backing even running unopposed.  But Almagro received formal support from several prominent nations ahead of time, including Brazil, Argentina, Mexico, and the United States, and he got 33 of 34 votes (Guyana abstained) to secure his election.  Following the election, U.S. Deputy Secretary of State Antony Blinken called for the new Secretary General to “lead the OAS through this genuine reform process by helping to refocus the OAS on its core pillars – democracy, human rights, sustainable development, and citizen security,” all while resolving its fiscal challenges.  “We look to [him] for his leadership, but we want him to know that he does not stand alone.”  His five-year term begins in May.

In his acceptance speech, Almagro stated that he intends to rise above the role of crisis manager and facilitate “the emergence of a revitalized OAS,” but major challenges await him:

  • The political crisis in Venezuela has long challenged the OAS, and an escalation in sanctions and rhetoric from the United States has made its balancing act harder. Current Secretary General José Miguel Insulza criticized the Obama administration’s national security warnings while also calling out the Maduro government for the arrest of opposition leader Antonio Ledezma and its resistance to dialogue with the opposition.  Almagro has been critical of U.S. sanctions as well, and quietly worked behind the scenes to encourage negotiations between political opponents in Venezuela, but his public silence on abuses by the Maduro government worries his critics.
  • The Cuba issue will also put Almagro in a tight spot. Havana’s participation in the Summit of the Americas is likely to build pressures for its readmission to the OAS, and Almagro’s record shows he’ll be sympathetic.  But the process could be fraught with risks for the new Secretary General.  Outgoing Secretary General Insulza bears scars attesting to U.S. Senators’ penchant for personalizing attacks when the OAS doesn’t go their way.
  • Any reform agenda is going to get battered from both sides. The OAS mandates are broad and expensive, and members don’t agree on priorities.  As Deputy Secretary Blinken’s comments suggest, Washington wants the organization to focus on its agenda, but much of South America, particularly the ALBA countries, wants the OAS to pull away from U.S. influence.  Nor do differences lie strictly along North-South lines, as made clear by protests during last year’s general assembly against Brazil’s resolution condemning discrimination based on sexual orientation and gender identity.

Almagro seems to have the experience and temperament to be an excellent choice for the job, and his coming from Uruguay, whose good offices have credibility virtually everywhere, may serve the OAS well.  But the challenges will be daunting.  He faces several ongoing crises, particularly in Venezuela, and ongoing splits within the region over the OAS’s role.  One tempting option would be for Almagro to try to distance himself and the organization from Washington – a difficult task at best.  Not only is his headquarters several hundred meters from the White House and the State Department, but the United States government (and to a lesser extent Canada) provides substantially more funding for the OAS’s general fund and through special donations than any other member state.  Almagro’s actions will also be watched closely by U.S. conservatives who, stung by President Obama’s move toward diplomatic relations with Cuba, are looking for a fight over Venezuela, Ecuador, Argentina, and even on some issues with Brazil.  Whatever Almagro does, it will be with the black cloud of the OAS’s financial difficulties over him, and the possibility that failing to successfully balance all of these issues may weaken the OAS and benefit regional organizations like CELAC and UNASUR, which are smaller and less well established, but independent of North American influence.

March 23, 2015

Honduras: Charter Cities Lurch Forward

By Fulton Armstrong

Choluteca, Honduras Photo Credit: Jonathan D. / Flickr / Creative Commons

Choluteca, Honduras Photo Credit: Jonathan D. / Flickr / Creative Commons

The Honduran government expects to get the green light this month from a Korean consulting firm for a master plan to hand governance of several small communities over to private investors to develop them, but concerns about the plan run deep and appear unlikely to fade.  Called ZEDEs – the Spanish acronym for “Employment and Economic Development Zones,” the specially designated areas are also called by their proponents charter cities, model cities, and startup cities.  The first tranche of towns facing conversion are in the southern Honduran departments of Valle and Choluteca, with a new port built on the Gulf of Fonseca.  The government says that the affected communities will remain an “inalienable part of the Honduran state,” but amendments to the Constitution, laws, and regulations permit their governing body – which is unelected – to establish “policies and regulations” and their own police and other public services.  Called the “Committee for the Adoption of Best Practices,” the board is dominated by representatives of Honduran millionaires and an even greater number of non-Hondurans of predominantly libertarian ideology.  Among them are American anti-tax crusader Grover Norquist; former President Reagan’s son Michael; and Michael Strong, chief executive of Radical Social Entrepreneurs.  The ZEDEs’ guiding principle is to liberate communities from government taxation, oversight, and corruption in order to attract investment and stimulate prosperity.

The ZEDEs initiative has been plagued by opposition since its inception, however.  Numerous reports underscore that the affected communities were never consulted, and demands for a referendum have repeatedly been rebuffed.  Honduran implementation of the model has been rejected by the U.S. economist who proposed it, Paul Romer (formerly of Stanford University; currently at New York University).  He withdrew because of the lack of Honduran transparency, including secret deals with interested U.S. parties.  The Honduran Supreme Court initially voted 4-to-1 against a Constitutional amendment allowing creation of ZEDEs in 2012, but the Congress impeached the four dissenters and replaced them with supporters who voted unanimously in favor.  There are numerous reports of intimidation of local civil society leaders, who deem them credible in view of clashes between wealthy businessmen and campesinos in other areas resulting in hundreds of deaths in recent years.

Honduras has a desperate need for economic growth – two-thirds of the population lives below the poverty line – and its model of national governance, riddled with corruption and non-transparency, is indeed in crisis.  But there’s no evidence that fighting one form of corruption with another non-transparent system will help anyone but the big investors.  Indeed, Honduras has ranked among the most violent countries in the world for several years, with the term “failed state” looming darkly over it – making it perhaps the worst place to experiment with provocative new models of governance without popular consultation or support.  Critics seem to have a good case: real reform and economic stimulus would focus on cleaning up the government and holding accountable the elites that have brought the country to ruin and now are trying to impose this model on their fellow citizens, rather than usurping the affected communities’ sovereignty.

March 19, 2015

Pension Reform: Uneven Progress

By Christina Ewig*

Two Women

Nathan Gibbs / Flickr / Creative Commons

Recent pension reforms in Latin America show promise for greater gender equity across the region, but progress remains uneven in coverage and generosity.  Since 2007, 13 countries have either introduced or expanded some form of non-contributory pension, offered to defined groups as a social right, while others have made reforms to their existing pension systems that specifically compensate for gender inequalities.  These reforms in several instances were conceived with the participation of gender equity advocates.

  • The introduction of non-contributory pensions has equalized pension coverage between women and men in the region, according to a comprehensive study by the Organización Iberoamericana de Seguridad Social.
  • The equalization of men’s and women’s retirement age in the Dominican Republic, Mexico, and Uruguay makes it easier for women to attain the minimum number of working years for eligibility for a minimum pension.
  • The use of gender-neutral mortality tables in Bolivia and a return to the state-run defined-benefit system that treats men and women equally in Argentina, are also improvements.
  • More innovatively, in the 2007 expansion of the non-contributory pension in Bolivia and the 2008 reforms of the traditional pension systems in Chile and Uruguay, women were given credit toward their pensions for children born or adopted, to compensate for time out of the labor market.

The need for such reforms is great globally and in Latin America.  Women face much greater risks than men of poverty in old age due to workplace discrimination and gender imbalances in family carework responsibilities – the “motherhood wage gap” – during their working years.  Women are employed in smaller numbers than men in the formal economy, and they are often concentrated in the lower-paid and less-stable informal sector.  Domestic workers, primarily women, are in a sector notorious for employers’ evasion of pension payments.  Women in Latin America are also more likely than men to be found among the ranks of the unemployed or partially employed.  When employed full time in the formal sector, they face a diminishing but still substantial wage gap, earning 17 percent less on average than similarly educated men, according to the Inter-American Development Bank.  While the original pay-as-you-go pension systems were based on a male-breadwinner model that envisioned women as “dependents,” the 1990s push toward pensions that relied entirely on individual earnings magnified the effects of these discriminatory employment contexts and carework imbalances.  Moreover, in the individual capital account model, practices such as the use of differential mortality tables to determine monthly payments further reduced women’s income in old age, due to their greater expected longevity.

Despite the progress toward greater gender equity in pension policy, the issue deserves wider attention because advances have been uneven.  For example, while most countries in the region have adopted some form of non-contributory pensions, the percentage of the population eligible for these varies dramatically – as does the monthly payment.  Moreover, while the gap in pension coverage between men and women has narrowed, the compensation levels remain dramatically unequal.  Reforms, like those of Bolivia, Uruguay and Chile, that build-in compensation for market and carework inequalities deserve wider replication. 

February 26, 2015

*Dr. Ewig is Associate Professor of Gender and Women’s Studies and Political Science at the University of Wisconsin-Madison.  She is the author of Second-Wave Neoliberalism: Gender, Race and Health Sector Reform in Peru.

Cuba Welcomes “Normalization,” But Only on its Own Terms

By Eric Hershberg

Photo Courtesy of Philip Brenner

Photo Courtesy of Philip Brenner

Cuban President Raúl Castro is undoubtedly as serious about normalizing diplomatic ties as President Barack Obama is, but the island’s government arguably faces more pressing challenges than working out the details of a rapprochement with Washington.  Commentators have observed that after the initial euphoria following the December 17 announcement, officials now speak of a long road ahead.  Full normalization, while welcome, is not the foremost concern of Cuban policymakers.  The paramount objective of Cuban authorities is the survival of the revolution and the one-party state that it engendered.  Top diplomats reiterated on January 23, after the first round of talks in Havana, that there will be no concessions to continued American insistence on changes in Cuba’s domestic political arrangements.

Economic revitalization is imperative.  Despite the reforms introduced by Castro, the Cuban economy remains woefully unproductive, incapable of meeting the needs of its citizenry or generating the foreign exchange that any small island developing state requires to import goods that it cannot produce domestically.  Growth rates are anemic, reaching only 1.3 percent in 2014, and independent projections call into question last month’s official announcements predicting 4 percent expansion during 2015.  Agriculture remains stagnant despite reforms aimed at putting fallow lands to productive use, so imports of food account for $2 billion in the extremely tight state budget put forth for 2015.  The severe shortage of cash, moreover, impedes public investment in Cuba’s crumbling infrastructure, which hinders autonomous producers from securing vital inputs for their businesses or distributing what they produce.  Ideally, foreign investment would supply resources where domestic sources cannot, but for the most part this is not happening either.  A 2013 foreign investment law has to date yielded little fresh capital:  European and other investors with experience on the island explain privately that the conditions for conducting business are such that they are reluctant to commit good money after bad.  The new changes in U.S. regulations may produce some increase in investment flows – primarily in the form of remittances from Cuban Americans to families and friends – and thus continue to provide some economic oxygen, but the likely scale of these flows should not be overestimated.  Washington’s new regulations seem likely to continue blocking investments that could increase the Cuban state’s ability to develop the infrastructure necessary to promote economic growth.

Because the intertwined goals of state security and economic revitalization are paramount, Havana’s engagement with the United States will be conditioned on its compatibility with those objectives.  Critics of the American opening who lambast Barack Obama for acceding to a deal with minimal Cuban concessions are right that Havana did not abandon its position that its political system is non-negotiable.  If by joining the rest of the western hemisphere in acknowledging the Cuban state Washington embarks on a path that will fuel economic activity in Cuba, the two countries will proceed, however gradually, away from confrontation.  The trajectory of U.S. relations with China and Vietnam in recent decades offers an instructive precedent for how this can be achieved and be mutually beneficial.  But if the Americans perceive greater engagement with Cuba as a tool for regime change, or strive to limit financial flows exclusively to private actors, their Cuban counterparts naturally will limit the scope of interaction.  A new round of State Department solicitations for bids to conduct democracy promotion activities in Cuba, like the U.S. negotiators’ insistence last week on getting a photo-op with dissidents before heading back to Washington, suggest that this message has yet to be absorbed by American officials.

January 26, 2015

Peru: Will Humala pursue deeper reforms?

By Marcela Torres

President Humala / Photo credit: OEA - OAS / Foter.com / CC BY-NC-ND

President Humala / Photo credit: OEA – OAS / Foter.com / CC BY-NC-ND

Facing growing public discontent, President Humala is attempting to navigate through yet another cabinet shuffle while struggling to advance reforms of the police, education, and health care.  The President’s approval rating has dropped from 65 percent soon after his inauguration in 2011 to an all-time low of 27 percent.  He swore in his fourth prime minister, César Villanueva, last week, after telling Prime Minister Juan Jiménez – in office for just 15 months – that it was time to “refresh” the cabinet.  Jiménez said he had been contemplating resigning for months, but recent polls suggest that growing crime and corruption, the two main issues citizens perceive to be afflicting the nation, forced him out.

Protests against Humala’s government have been growing.  In July, 8,000 demonstrators in Lima expressed their rejection not only of Humala’s government, but of the entire ruling political class.  Although still small compared with protests in other parts of Latin American, they were of a magnitude not been seen in the capital city since 2000, when protestors took the streets demanding President Fujimori´s resignation.  Unlike the rural indigenous protests over extractive industries, which have become commonplace under the administration, the participation of the middle class was evident and crucial in the July protests.  Social anger was sparked by a video showing members of the main political parties secretly negotiating highly controversial appointments involving individuals implicated in corruption.  Persons who had allegedly violated human rights were selected as the human rights ombudsman and as judges of the Constitutional Tribunal.  The uproar motivated Congress to immediately annul the secretly negotiated appointments, known as the repartija, which for many Peruvians resembled one of the traditional means by which the authoritarian government of Alberto Fujimori had avoided institutional checks and balances by placing regime-friendly officers in power.

The recent Peruvian protests are similar to social mobilizations taking place in Brazil, Chile and Colombia – other countries in which economic growth has not translated into broad public satisfaction.  While many protests in these countries have focused on the quality of social services, the recent Peruvian demonstrations have offered a critique of the country’s widespread corruption and backroom politics.  Peruvian demonstrators came from diverse sectors of society, including labor union members, students, artists, TV actors, gay rights activists, without clear leadership or coordinated demands.  This amorphous type of protest appears particular in Peru because civil society largely avoids political activism as a consequence of the stigmatization of collective social action after the defeat of Shining Path in the ‘90s.

Humala’s most recent cabinet reshuffle and his earnest but ineffective reform efforts suggest he appreciates the depth of the social discontent – now with middleclass support and the participation of youth.  Peruvians are not willing to tolerate the traditional corruption associated with the country’s politicians.  The lack of coordination among social movements that can connect rural and urban discontent, as well as the absence of political parties within the Peruvian landscape that can effectively mediate between citizens and the government, might limit the scope of social protests to isolated outcomes. If protestors come up with a clear agenda through legitimate leadership, however, President Humala will have to deepen his reforms or risk irrelevance through the remainder of his presidency.  Superficial changes appear unlikely to appease the middle class and civil society.