Mexico and Latin America

In the past few months most international news has focused on conflicts throughout the Middle East, while little has been said about the incredible transformation the Guatemalan justice system is currently undergoing. The International Commission Against Impunity in Guatemala (CICIG) is an independent UN body that has stabilized and rebuilt Guatemala’s previously failing justice system. CICIG has helped Guatemala reduce its impunity rate, democratically elect a new president and prosecute various high-level officials for corruption in “La Línea,” or “The Line,” kick-back scandal.

Guatemala has lacked a legitimate justice system since its civil war ended nearly twenty years ago. Today unpunished crime is the status quo. The Human Rights Watch released a report in 2012 that announced homicides had 95% percent impunity in 2010 (that is, 95% of homicides went unpunished) and previously, a UN-sponsored commission found the Guatemalan federal government responsible for 93% of the human rights abuses that occurred during its 36 year civil war. CICIG has made great strides towards ending the impunity that destabilizes the country, an immense accomplishment considering the violence and lack of legitimate justice that has been constant for nearly half a century. Working closely with the Attorney General’s office, CICIG arrested thirty-eight government officials tied to La Línea scandal earlier this year, including ex-President Otto Molina and former Vice-President Roxana Baldetti. The body has also successfully prosecuted other corruption scandals since 2007, actions that were non-existent before CICIG’s inception.

The most pressing questions regarding the recent success of CICIG reach across national borders: Can the commission be reproduced in other countries, such as El Salvador and Honduras? If so, under what circumstances can the commission be successful and long-lasting? Although CICIG is less than 10 years old and the long-term viability of the Guatemalan justice system remains in doubt, a progressive national leader, committed commissioner and overwhelming domestic support can effectively fight impunity within other Latin American countries.

Three main factors are responsible for the recent arrests of Guatemalan government officials that brought CICIG to the forefront of international news. The first was the willingness of Guatemalan President Óscar Berger and the Guatemalan Congress in 2007 to approve an agreement with the UN to establish CICIG. A previous attempt at creating a commission to support domestic investigations failed due to the Guatemalan Constitution’s specific declarations regarding the delegation of justice. The Guatemalan government made it a priority to work around the constitutional issue and reach an agreement on CICIG, accomplishing the most difficult step towards ending impunity. The importance of the Guatemalan state’s support of CICIG cannot be understated; this initial barrier will be the hardest to overcome in other Latin American countries due to corrupt government officials having no interest in an international body investigating their own wrongdoing.

The second factor was the appointment of Commissioner Iván Velásquez by UN Secretary-General Ban Ki-moon in 2013, a full six years after the body was created. Although the previous commissioner of CICIG was quietly successful— the impunity rate dropped from 95% to 70% under his term— he lacked a celebrity presence and the body’s accomplishments were not widely covered by the media. On the other hand, Velásquez is currently a domestic superstar, symbolizing hope and justice while carrying the informal label of most popular man in Guatemala. His investigation and arrests in La Línea scandal have shown Guatemalans that nobody in their government is above justice. The UN Secretary-General did not appoint Velásquez as the first commissioner of CICIG; it may take time to find the perfect leaders of future commissions against impunity in other countries. Therefore the focus must be on domestic governments’ continual support of independent commissions in order to keep renewing their short mandates (CICIG has a two-year mandate that must be renewed by the Guatemalan government).

The third factor, and perhaps the most complex of the three, is the Guatemalan domestic support for CICIG. The Guatemalan public is currently vocal in their support of CICIG, especially with the recent arrests of top government officials. The two candidates that ran for President last month both promised to keep CICIG intact, which shows the enormous value the public places in the commission. If the successful trend of CICIG investigations and arrests continue, no presidential campaigns will be successful without voicing support, which assures future extensions of the commission. The first two factors listed, agreeing to create the commission and allowing enough time for it to become effective, are reliant upon the domestic and international support of CICIG as public pressure can force other states to agree to similar independent commissions and ensure the extension of its mandate when necessary.

Those in the region and the international public sphere must also be loud in their support for such commissions in other Latin American countries, as is the case in Guatemala. The most recent CICIG arrests have thrust the commission into the public spotlight within Latin America and Commissioner Velásquez’s current popularity adds to the CICIG’s domestic support, marking the perfect time to pressure other governments into installing their own commission. That being said, creating financial incentives for the federal government may be the most effective way to incentivize states’ acceptance of anti-impunity institutions.

So far there have been some calls for implementation in El Salvador and Honduras but each state’s government has opposed a commission that replicates the mandate of CICIG. One way to overcome the reluctance of these governments is to link the creation of a similar commissions to foreign aid programs, which the United States has attempted. El Salvador and Honduras both refused to agree to a commission with similar domestic power, even with these added financial incentives. The US government and others across the globe must be more demanding of these aid recipients and it is the job of the international community, including the American public, to raise awareness and support for the implementation of CICIG-like bodies in other Latin American countries marred by government corruption. If CICIG is to truly mark a turning point in the history of Latin American corruption there must be multilateral efforts by the US, the UN and other democratic nations that pressure states like El Salvador and Honduras into implementing similar independent institutions.

December 6, 2015 0 comment

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Ending the Embargo: Liberating US Politics from the Cuba Lobby

written by Kurt J. Klein

Cuban propaganda declaring “Ideas are and forever will be the most important weapon.”

On 14 December, 2014, President Obama announced he will re-establish diplomatic relations with Cuba after almost 54 years. A month later in the State of the Union, he called on Congress to end the embargo in 2015.

Since its beginnings in 1960, the embargo has done nothing to promote its stated goal of fostering democracy and human rights on the island. On the contrary, Cuba remains a one-party communist state that has been led by either Fidel or Raul Castro since 1959. In reality, the brothers use the embargo to successfully create a martyr identity; propping up their regime by giving them a boogeyman on whom they can blame the country’s economic woes. Furthermore, it serves as a derisive obstacle to US cooperation with Latin America. Economically, it costs US exporters at least $1.2 billion per year. Even stalwart allies, with the exception of Israel, leave the US isolated on this issue by renouncing the embargo. Since 1999, more Americans have favored ending the embargo than oppose ending it. So what’s the fuss? Why has it taken so long to abandon an anachronistic cold-war remnant that is not just ineffective, but deleterious to American interests?

Over the last 40 years, the “Cuba Lobby,” interest groups that support the embargo and other hardline policies towards Cuba under Castro, has wielded an unrivaled level of influence in Washington; indeed, analysts like American University’s William M. Leogrande have deemed it more powerful than even the NRA. The Cuban American National Foundation (CANF) and the U.S.-Cuba Democracy PAC have a long history of wooing congressional candidates with campaign contributions and punishing those who would renounce the embargo. Similarly, this power reaches even to the State Department. Notably, congressmen under the influence of this cartel are known to manipulate the agency’s funding for specific programs and deny appointments to career Foreign Service Officers who are not sufficiently hard on the Castro government. Furthermore, in possibly the moment when their influence was most strongly felt, many election analysts believe that the traceable chain from Vice President Al Gore to the Clinton Administration’s actions during the Elian Gonzalez saga provoked the wrath of the CANF and the Cuban American exile vote during the 2000 election. Consequently, the lobby’s powerful presence in Florida helped swing the state, and correspondingly the presidency, to George W. Bush.

However, this is all changing. The first group of Cuban Americans who came to the US as political refugees after the Cuban Revolution are now well into their 80’s. It is this generation and their children, themselves aging and approaching retirement, who fervently loathe the Castros. These older Cuban Americans make up the leadership who push the Cuba Lobby to strongly support the embargo and other policies that isolate Cuba. On the other hand, the more recent Cuban immigrants came to the US for economic reasons. They do not possess the same acrimonious sentiments towards the Castros. They desire improved relations between the US and Cuba so they can visit and send remittances to their families without hindrance. As this younger generation replaces the older one, a window is now opening where a majority of Cuban Americans wish to see the embargo end. Currently, 52% of Cuban Americans in Miami-Dade County, the largest center of Cuban Americans, oppose continuing the embargo. The changing mood in the Cuban American community, and the fact that the President sees it as politically safe to normalize relations with Cuba, are evidence that the Cuba Lobby’s power is beginning to fade.

Even with the change in general attitude that is spurred by shifting demographics, it is unlikely that we will see any changes toward the embargo in the near future. As a matter of fact, both Houses of Congress are in the hands of Republicans. If Congressional Republicans fall in line as expected with current leadership, Speaker John Boehner and Senator Mitch McConnell, the necessary congressional support needed to repeal the embargo will be hard to come by. Under the current hyper-partisan climate in Congress, supporting policies that are promoted by the President are often seen as traitorous to the Republican cause. With that stated, there are some GOP supporters in Congress such as Senators Jeff Flake and Rand Paul who desire a change in policy. However, for the time being, the Cuba Lobby still retains its hold on the legislative branch. Perhaps future Congresses can end the embargo by bringing either a change in party control, or, if enough Republicans find political incentives to oppose the Cuba Lobby.

The embargo is very likely to become a hot foreign policy issue in the next Presidential election. The Democratic frontrunners support continuing President Obama’s initial steps. However, with the notable exception of Rand Paul, nearly all the Republican hopefuls oppose the president’s efforts to normalize relations with the island.

It is ironic that while the Cuba Lobby has been able to exploit Florida’s disproportionate political importance for its own cause, those wishing to end the embargo are looking to do it through another US electoral power oddity: Iowa, the first state to begin the process to pick presidential nominations for both parties. The United States Agricultural Coalition for Cuba (USACC), an organization made up of many powerful agricultural interest groups, sees Cuba as a potential market for farm exports. They can count among their supporters current US Secretary of Agriculture and former Iowa Governor Tom Vilsack. USACC’s goal is to convince voters in Iowa’s caucuses of the potential benefits that ending the embargo would have on the local agricultural industry. It appears their argument is already being heard in Iowa as the State Senate recently approved a resolution supporting enhanced trade between the US and Cuba.

Perhaps the Iowa caucuses can convince those seeking the Republican nomination, and in turn provide evidence to Congressional lawmakers, that opposing the Cuba Lobby is a politically tenable position. The beginning of presidential nomination process will be a great barometer to how close the US is to ending the embargo.

Note: This article also appears in The Generation’s first print issue

October 12, 2015 0 comment

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Los Muertos no Pagan: The Case for New Institutions to Resolve Sovereign Debt Disputes

written by Kurt J. Klein

A political poster from a Buenos Aires street advocating “Enough Vultures! Argentina united in a national cause.”

In 1776, Adam Smith in The Wealth of Nations asserted: “When it becomes necessary for a state to declare itself bankrupt, in the same manner as when it becomes necessary for an individual to do so, a fair, open and avowed bankruptcy is always the measure which is both least dishonorable to the debtor, and least hurtful to the creditor.” Yet, 238 years later, international financial institutions still fail to answer Smith’s call. Recent turmoil in financial markets has brought both advanced economies such as Spain, and developing nations like Argentina, dangerously close to default. The global threat by destabilized markets makes it imperative that the State of New York, the federal government, and international bodies, such as the International Monetary Fund (IMF), create new mechanisms to resolve the unique cases of sovereign debt defaults. Just as bankruptcy laws and courts are used domestically to resolve debt repayment conflicts, a similar framework needs to be created to handle sovereign debt disputes. This system needs to be focused on producing economic growth in the interest of both creditors and debtors. This idea is not new: Anne Krueger, while in the office of First Deputy Managing Director of the IMF, proposed a Sovereign Debt Restructuring Mechanism (SDRM) in 2002. The proposal was vetoed by the George W. Bush administration. Now it is time to raise the issue again, as the absence of an adequate forum to handle these disputes is apparent in the ramifications of recent US court rulings against the Republic of Argentina.

In Republic of Argentina v. NML Capital, the Supreme Court upheld a ruling by Thomas Griesa, Federal Chief Judge for the Southern District of New York, stating that Argentina must pay the full value of $1.33 billion in bonds that are possessed by NML Capital before paying its obligations on other bonds. NML Capital is a hedge fund that owns Argentine bonds that were not exchanged during the country’s attempts in 2005 and 2010 to restructure debt after its 2001 default. As a result of the ruling, the nation fears that it could be liable for $15 billion when it is applied to all holdouts. This $15 billion albatross would be equal to roughly half of Argentina’s central-bank reserves. Yet the most important aspect of the ruling is Griesa’s understanding of the bonds’ pari passu clause. His interpretation prescribes that Argentina cannot make payments to the exchange bondholders until it comes to an agreement with NML Capital regarding its holdout bonds. When no agreement was reached and the Republic’s payment to exchange bondholders was blocked, Standard & Poor’s declared Argentina in default on July 30.

Argentina will not be the only party to endure the negative consequences of this ruling: the future of all sovereign debt restructuring is in jeopardy. Under Griesa’s interpretation of pari passu, bondholders will have no incentive to accept a debt swap after a default. Furthermore, even one bondholder who holds out can nullify an entire debt restructure and force the debtor back into default. As a result, countries with troubled economies become bigger prey for “vulture funds”: a pejorative term used to describe hedge funds such as NML Capital who buy up distressed bonds at fractions of their initial prices with the intent to litigate to be paid the bonds’ full nominal value. The ruling sets a precedent that would prevent nations from restructuring their debt, making good with creditors, and rebuilding after a default.

On the international level, Bolivia, with the support of the G77+China and alerted by Argentina’s tribulations, proposed a multilateral legal framework for sovereign debt restructuring processes at the UN General Assembly. On September 9, the assembly overwhelmingly adopted the measure with 124 votes in favor, 11 votes against and 41 abstentions. The US was among the 11 nations that voted against the resolution. The proposal is short on specifics but it includes an element that would bind all creditors to a restructuring agreement if a majority accept. It is improbable that the US would yield jurisdiction on local contracts to a global institution. Thus this hypothetical framework would have little power over existing bonds issued in New York markets. However, this is a clear call by the developing nations who are most likely to issue bonds in foreign markets such as New York that such mechanisms are badly needed.

Understandably, if US law is more concerned about protecting creditors than permitting nations with a troubled past a chance to start over, sovereigns will reconsider issuing bonds in New York or other capital markets in the US. This has the potential for New York to lose its place as an international financial center in regards to issuing sovereign debt. On July 15, with the Argentine President in attendance as a special guest, the heads of state from Brazil, Russia, India, China and South Africa inaugurated the $100 billion New Development Bank (NDB) at the sixth BRICS summit in Fortaleza, Brazil. These nations hope that the NDB will serve as an alternative to the western dominated IMF and World Bank. The BRICS’ NBD will be an alluring alternative to US financial markets for developing nations in the future.

If New York desires to preserve its place as an international financial center, new laws to preside over the unique cases of sovereign debt default need to be adopted. A sovereign is not a normal partner in a contract such as a person, business, or corporation. Hence, a special bankruptcy court for sovereign nations overseen by judges with advanced training in economics should be created by the State of New York or the federal government. A mechanism for negotiation, mediation and arbitration needs to be in place with a focus on restoring a nation’s economy so it has the ability to pay back its creditors. Among its many tools, it could swap debts for new bonds that pay according to macroeconomic statistics such as GDP growth similar to Argentina’s bond swap offers in 2005 and 2010.

But these measures can augment more than a developing country’s economic growth and New York’s standing as a hub of finance; they will promote global economic justice. Social utility is completely absent in the process where a cabal of hedge funds purchases distressed debt at a fraction of its titular value and subsequently litigates to be paid in full. A common counter argument is that Griesa’s and similar rulings are in line with what is in the bond contract. Thus, in order to observe rule of law, debtors must be held accountable. The fact that the legal process supports this practice is the very reason it needs to be reformed. The consequences aren’t beared by the corrupt politicians who wantonly accepted too much in loans and ensuingly misspent them in order to maintain political power. They fall on a country’s citizens who pay for both the creditor’s and debtor’s avarice in increased taxes, substandard public services, and stagnant economic growth.

The US’ foreign policy in regard to sovereign defaults must be reexamined and made coherent as well. With a large mandate from the aforementioned UN resolution, the world has asked the US to bring its actions in line with its commonly stated foreign policy goals of long term economic and social progress in the developing world. It should start by advocating and ratifying a SDRM at the IMF. The Anne Krueger proposed SDRM with collective action clauses from over a decade ago would be a great example to follow. This would set insolvent nations on a feasible path to grow while making good with all their creditors. The alternative is an eternal cycle of debt and default for nations with a dolorous economic past such as Argentina

”Los muertos no pagan las deudas” – ”The dead don’t pay their debts” is a phrase from late President Nestor Kirchner’s 2003 speech to the UN General assembly. Frequently, the current president borrows her late husband’s proverb in speeches regarding the external debt and the holdouts.

November 28, 2014 3 comments

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State of the (Student) Union – 2014

written by James Walker

by James Walker – Editor in Chief

Summer has begun, and life at UCLA has taken on the gentle ambiance of a half empty campus, basking in the glorious SoCal sunshine. Nervous freshmen and transferees can be spotted exploring the buildings in anticipation (or perhaps dread?) of the Fall, half the faculty have vanished to do research, and the other half wish they had, too. During this lull, it behooves us as students to reflect upon the past academic year, in order to take stock of where things stand for those of us fortunate enough to be in college, both here in California, and across the globe.

As the (retiring) Editor in Chief for the Generation, I like to think that there is a kind of fraternal connection between all of us who strive to increase our understanding of the world. As students with an interest in foreign affairs, it is important that we look not only at the academic objects of our interest, but also the people who will be our contemporaries in the years to come – the students who make up the global cohort of tomorrow’s leaders, researchers, (and with any luck) friends with whom we hope to make the world a better place. Therefore, as we cast a wary eye across the past year, it is a little sad to see just how many challenges have been faced by our contemporaries, and how many more they are likely to face in the future.

Perhaps there is no better example of this than Egypt. As regular readers of the Gen will know, we were fortunate enough to host Ahmed Maher on campus last year. Subsequent to his visit with us, he was arrested and sentenced to three years hard labor, and his youth and student based organization, the April 6^th movement, was declared a terrorist organization and banned outright. Other student groups have also been targeted by the security forces, with tactics that included the use of tear gas and baton charges at Cairo University, resulting in multiple injuries, and even death.

Much the same (depressingly familiar) tactics were also on display in Sudan, where student protesters are regularly attacked by government forces with tear gas and riot police. One incident earlier this year resulted in multiple arrests, injuries, and the death of a third year economics student at the University of Khartoum, Ali Abaker Mussa Idris. Not to be outdone, the Ethiopian government has apparently instigated a shoot to kill policy, with up to 47 students killed during protests at secondary and university campuses around the country.

Not all students are subject to deliberate violence by their governments, however – some are simply exposed to horrific violence through neglect and indifference. This was the case at the Rift Valley Institute of Science and Technology in Kenya, where hundreds of students battled with the police for several hours after the brutal rape of a first year female student. The students were protesting the lack of security available to them – the police responded by attempting to disperse the crowd with tear gas and live rounds.

Lest anyone think I am focusing too much on Africa, a quick look over the state of play in Europe will demonstrate that there are no regional boundaries to the challenges that students face. For example, it is worth remembering that students were one of the most vocal groups to take to the streets in the Ukraine earlier this year. They participated in many of the protests against the Yushchenko regime, and were targeted by the security forces in the lead up to the current geopolitical crisis that is enveloping the state.

Likewise, in Turkey the role of students as the advanced guard of social protest has singled them out as primary targets by the state. A recent funeral for a student killed in the Gezi Park protests quickly degenerated into a battlefield when the security forces used tear gas and water cannons on the gathered mourners, resulting in two additional deaths. The number of students arrested by the Erdogan government over the past year is simply astounding, turning what was a small, localized protest against the destruction of a city park into a fully fledged social movement for regime change.

In a somewhat less violent, yet still politically charged crisis, students across Spain brought major cities to a standstill over the issue of tuition rises and spending cuts – both of which are problems that should resonate with UC students. Unlike here at UCLA, however, the protests in Spain involved hundreds of riot police in full gear, burning trash cans, and running street battles with stone throwing and mass arrests. This link contains some jarring pictures of a modern day student protest in a developed state, and is well worth a look.

Turning to the Americas, the formula looks pretty much the same: student protesters met with tear gas, water cannons, live rounds, mass arrests, and death. A case in point, the students of Chile have been out on the streets for years now in ever increasing numbers. In one incident this year over 20,000 students attended a mass rally in Santiago, to protest for education reform. The tear gas and water cannon quickly followed.

Taking a more proactive route, in Venezuela pro-government militias have apparently taken to simply executing student leaders who dare to stand up to the regime. Daniel Tinoco, a prominent student leader, was gunned down in the street while manning a barricade in the city of San Cristobel. He is probably the most prominent of more than 20 people murdered over the past few months due to their participation in such activities.

So what are we UC students supposed to make of all this? We have troubles of our own, of course, as the graduate and undergraduate protests of last quarter can attest. However, they do seem somewhat tame in comparison. This is not to suggest that the issues faced by students right here are not challenging – simply that the environment in which we find ourselves is less dangerous than for our contemporaries.

Having said that, it is with a heavy heart that we must turn to the epidemic of campus shootings that continue to plague the United States. It is beginning to feel as if you cannot turn on the news without hearing about another mass killing at a US campus. I would list the incidents from the past year, but it is simply too long, and too damned depressing. As UC students we are directly affected, due to the horrific events at our sister campus last month, in which six people lost their lives, and we collectively lost our naivety.

The heartbreak of the UCSB shooting is only compounded by the fact that, as opposed to the deaths of students cataloged above, in many ways the events here are self-inflicted. It is not an oppressive government we need fear, but the kid sitting next to us in class. This is a challenge every bit as desperate as any of the ones covered, but it is also one that we can play a part in helping to solve.

If I can offer one piece of advice from looking at the world of student activism, it is that change only comes about through action. All across the globe students are standing up for what they believe in. They put everything on the line to try and improve their situation, their lives, their countries, and we must try and do the same. Take the summer to reflect, and then take a stand and help to make things better – work on gun control, or mental health access, or campus safety training, or whatever else it is you feel is the most significant way to make a difference – just do something. After all, your job is to help mold the future, and there is no time like the present to get started.

July 11, 2014 0 comment

Mexico and Latin America Society and Culture South America The International Economy

Brazil’s World Cup, a Reflection of Flawed Priorities?

written by thegeneration

By Emily Milstein

International sporting events provide platforms for host countries to broadcast their national glory. With the world watching, a host nation can showcase its achievements and further dazzle audiences with its ability to successfully organize a massive undertaking. The world watched this story play out with the Olympics in Athens, Beijing, London, and Sochi, as well as the World Cup in South Africa recently.

As host of the 2014 World Cup which began in June, Brazil hoped to use the event to fulfill similar aspirations. Hosting the Cup can publicize Brazil’s progress and growth as a developing nation, worthy of hosting not only the 2014 World Cup, but also the 2016 Olympics in Rio de Janeiro. Furthermore, Brazil is considered by many to be the “spiritual home of soccer.” This gives the country’s role as host even greater significance to the nation’s population, many of whom are avid soccer fans.

However, global sporting events such as the World Cup require huge investments and a massive amount of capital from host countries. China spent approximately $40 billion to host the 2008 Summer Olympics, Russia spent an estimated $50 billion on the 2014 Winter Olympics, and South Africa spent $3.5 billion to host the World Cup in 2010. While FIFA, the international governing association of soccer, provides some of the capital needed for each tournament, host countries are responsible for providing money needed for projects like infrastructure improvements. These improvements often cost billions of dollars. Such expenditures can generate considerable popular resentment but host governments often justify these costs with claims that the event will bring economic benefits to the country. Brazil is no exception. The country’s leaders have claimed that hosting the tournament will bring economic prosperity to Brazil through increased tourism, job creation, and infrastructure development. In fact, at a cost of $11 billion the 2014 World Cup is set to be the most expensive World Cup ever held, even before expected overrun costs.

Brazilians from a variety of backgrounds have heaped criticism on the Brazilian government for spending so much money on a month-long sporting event in a country where many live in poverty. Brazil is a rapidly developing nation where, according to the World Bank, 15.9% of the population still lives in poverty. Social services such as education, healthcare, and housing remain woefully inadequate. Recent demonstrations in Brazil reflect these grievances, as teachers, bus drivers, police, and even bank workers have mounted protests and strikes against poor working conditions and inadequate wages.

The discontent throughout Brazil in the lead up to the World Cup reflects questions that need to be asked, questions that have come up time and time again as countries continue to spend outrageous amounts on such events. Can a country justify spending huge amounts of money on a sports tournament while many of its people live in poverty? Shouldn’t the $11 billion spent by Brazil to host the Cup be used instead to improve necessary services such as healthcare? Lastly, are the potential benefits worth the immense financial costs that come from hosting large sports events, such as the World Cup or the Olympics?

Ultimately, the benefits promised by organizers of global sports tournaments often fail to materialize. Sydney for instance, did not experience the transformation and increase in tourism promised by its leaders after the city hosted the 2000 Olympics. The 2002 World Cup in Japan brought minimal benefit to the downtrodden Japanese economy. After the 2010 World Cup in South Africa, the country struggled to recoup the $3 billion it invested in hosting the tournament.

For Brazil, the costs of the World Cup will most likely exceed any benefits the country may gain from hosting the tournament, especially given the fact that the corruptionthat has long haunted the country has infiltrated even its preparation for the Cup. For instance, building contracts for World Cup projects have been awarded to friends and cronies of politicians. Given such corruption, any of the economic benefits generated by thegames will benefit already wealthy Brazilians. An auditor’s report assessed the cost of the ready-made grandstands in Brasilia’s stadium at $4,700. The construction firm that installed the stands however charged the government $1.5 million. That price increase amounted to a 31,000% mark-up of the grandstand fees. Such instances of corruption siphon public funds into the hands of construction magnates and away from other possible uses, such as education.

Furthermore, while Brazil will earn revenue from the Cup, FIFA will also pocket a significant portion of Cup revenues by pursuing tax exemptions and through licensing and advertising. Unfortunately, this means that most Brazilians will accrue few benefits and have limited access to World Cup profits, as such earnings remain concentrated in the hands of Brazil’s elite and FIFA. FIFA has attracted significant condemnation in the international news media about its pocketing much of the revenues generated by the Cup. Hopefully, such criticism will push the organization to rethink its business model. FIFA and Brazil’s leaders ought to take steps to ensure that at least some portion of the Cup’s profits are spent on necessary projects such as improving poor Brazilians’ access to high quality education or healthcare.

Questions about excessive spending for sports tournaments apply not just in the context of Brazil, but to the world at large. The practice of spending huge amounts of money on sporting events is wasteful because that money could be invested in essential programs or services. All countries have people who live in poverty and who would benefit from improved social services and increased investment in areas like healthcare and education. Nonetheless, the drive to host events like the World Cup is strong in many countries because playing host on a world stage allows them to showcase their ability to plan and organize an event on such a large scale. This is particularly important for recently industrializing nations like China or Brazil who want to showcase their nations’ advancing development programs in order to raise their national profile and attract business investors. Nations that host large sporting events do experience these tangible benefits, however the costs of these endeavorsoutweigh their benefits. This is especially true given the short term nature of some of the primary gains, including job creation and tourism, which end with the closing of any tournament.

Given the lack of long-term financial benefits that comes from hosting large sporting events, the international community needs to reconsider the grand expenditures that go into such tournaments. Citizens and their governments need to re-assess their priorities and come to the realization that rather than investing money in sports, nations should increase spending on issues like fighting the effects of climate change and social services. Brazil’s World Cup and the protests experienced in the weeks leading up to the tournament highlight these problems, revealing the flawed priorities at play, as the country spends billions on sports while many Brazilians live in poverty. Far too often, people question sports spending during tournaments and then promptly forget the issue at the close of the event. Let this summer be a moment for the world as a whole to reevaluate and redirect its priorities regarding the exorbitant spending on global sports tournaments. Rather than forgetting these issues after the World Cup, we need to continue to raise questions about spending in order to ensure excessive spending practices do not continue in the future.

July 3, 2014 4 comments

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Sorry for the Inconvenience – Brazil is Under Construction

written by thegeneration

Photo Credit: Beraldo Leal, June 17, 2013, under Creative Commons License

by Michelle Sinness

Contributing Writer

When Brazil won the Confederations Cup final soccer game on Sunday night, June 30th, 2013, the streets of Brazil’s first capital city, Salvador, erupted into a celebration. Fireworks illuminated the sky, and cheers, laughter, and applause resounded through the small bar where over one hundred people were gathered to watch the match on two small televisions.

However, it was not only the win that was cause for celebration. Periodically, during pauses in the game and during halftime, the television coverage cut to the protesters that were marching outside of the stadium. Just as they would if Brazil had scored a goal, the people that were gathered in the bar jumped out of their seats to whoop and cheer in support of the protests. The movement that recently exploded onto the streets of Brazil had become a source of pride.

Soccer has been a part of Brazilian national identity since the 1930 to 1954 military dictatorship used the game to unify the population and construct a strong sense of nationalism. The arrival of the FIFA Confederations Cup in 2013 and World Cup in 2014 seems long overdue for a country that lives and breathes soccer. Most Brazilians are proud to finally have the opportunity to host the games and consider it a testament to Brazil’s place as an emerging world power. Hosting the World Cup and the 2016 Olympic games is an integral part of Brazil’s soft power approach to foreign policy as the state continues to lobby for Security Council reform and equitable IMF representation.

The shining new stadiums that have been constructed in many capital cities are not enough, however, to mask the crumbling infrastructure that surrounds them. Taxpayers have footed the bill for the FIFA preparations, but few expect to see any return on their investment. In fact, the vast majority of Brazilians will not be able to afford to attend a single match in the new structures. And while the construction projects have offered short-term employment to some, the benefits will hardly be long-term. The stadiums are expected to remain vacant for decades to come, and the people that sold tickets and popcorn will return to their previous jobs or go back to being unemployed. Nevertheless, in a matter of several months and several billion dollars, the colossal structures were erected. This was no easy feat for a country where bureaucracy burdens reform and corruption hinders progress, and Brazilians took notice.

One June 13, 2013, frustration over lack of infrastructural improvements turned into fury when several states enacted a bus fare increase. Residents of Sao Paulo that make minimum wage spend an average of 26 percent of their income on public transportation to get to and from work. A group of disgruntled students in Sao Paulo took to the streets, igniting a movement that took the Brazilian government and the world by surprise.

Over the course of the summer, the demonstrations grew to be the largest in Brazilian history, surpassing the 1992 protests that brought about the impeachment of President Collor de Mello. Although the movement lacked central leadership, demonstrations were effectively organized in cities across the country via social media. The majority of the protesters were educated, middle class Brazilians, yet they were fighting for causes that more directly affect the poorest sectors of Brazilian society. Perhaps this is because the height of the protests occurred while university students were on winter break, and wealthier Brazilians could afford to take time off from work to participate in the movement while poorer Brazilians could not. Regardless, Brazilians strategically capitalized on the worldwide media coverage of the FIFA Conferations Cup and the World Cup preparations to amplify their voices and make their demands heard.

The demonstrators that swarmed the streets in June and July had three main demands: the elimination of bus fares for students, more money for healthcare and education, and political reform to reduce governmental corruption. Brazilians bear a tax burden comparable to that of Germany, yet do not see the investment of their money to improving hospitals, schools, or infrastructure. Valéria Figueira, a Brazilian supporter of the movement who lives in Salvador, said, “I am angry every day that I pay first world taxes to live in a third world country. That’s why I admire and support the movement completely. It’s interesting to note that there are so many middle class and upper-middle class youths demanding lower prices for a public transportation system that they don’t even use. This is because they were educated, which is, unfortunately, an opportunity limited to only a select class of our society.” Brazil has the lowest rates of college enrollment in Latin America, and its public education system was ranked 39 out of 40 in an evaluation by the Economist Intelligence Unit last year. Clearly, Brazilians have reason to be upset.

The initial effects of the movement were impressive. President Dilma Rousseff was slow to react at first, and her approval rating plummeted. When she finally held a press conference to address the protesters’ concerns, President Rousseff commended them for exercising their right to demonstrate and promised that her government would work to control inflation and reform healthcare, education, and public transportation. Several states retracted the bus fare increase, and Rousseff’s cabinet met to discuss and implement further reforms, such as increasing the amount of government funds allocated on public transportation and infrastructure. As she prepares to campaign for reelection next year, Rousseff will need to implement much-needed economic reforms and streamline public spending in order to regain the public’s trust.

Although the movement made progress on some of its demands, it has struggled to keep its momentum going since the Conferations Cup has ended. The protests have largely died down and are no longer making national and international headlines. Whether the protesters are satisfied with their gains or they are just waiting until the spotlight returns to Brazil during the 2014 World Cup is yet to be seen. Whatever the outcome, the protesters’ strategic capitalization on a moment in history when the whole world was watching Brazil was powerful. Brazilians effectively held the games hostage in exchange for social reform, setting a precedent for future World Cup host countries and sending a powerful message about the balance between international soft power interests and national development.

The Brazilian flag was raised after Brazil won the Confederations Cup final game, and the people gathered in the small bar stood to sing the national anthem together. With tears glistening in many of their eyes, they sang the chorus with a glimmer of hope for the future of their country:

O country vast by nature,

Fair and strong, brave and colossal,

Thy future mirrors this thy greatness.

Michelle Sinness is a first year MA student in Latin American Studies at UCLA, specializing in Brazil. She spent the summer in Salvador, Brazil under a Foreign Language and Area Studies Fellowship.

October 22, 2013 1 comment

Mexico and Latin America Security Security and Conflict

The War on Drugs: Mexican Cartels

written by thegeneration

Mexican Navy seizes drugs and weapons from the Las Zetas drug trafficking organization (Jorge Lopez/Reuters).

by Akbar Khan
Contributing Writer

In 1971, President Nixon officially declared a “war on drugs.” Four decades later and after $1 trillion in government expenditures, the drug war still rages on with no signs of slowing down. During Nixon’s time, the big players in the drug scene were the Colombian cartels. It was not until the 1980s, when the United States successfully used Plan Colombia to disrupt Colombia’s drug cartels, that Mexico’s cartels rose to prominence. Today, Mexico’s “narcotraficantes” have established a $25 billion industry and account for a majority of America’s methamphetamine and marijuana supply.

Although former Mexican President Felipe Calderón invested billions of dollars in the deployment of tens of thousands of troops and the reformation of police and judiciary systems, the fight against drug cartels has not made any substantive gains. If anything, Calderón’s militarization of the drug war has only escalated drug-related violence. The Mexican government estimates that since 2006 over 40,000 people have died due to drug-related violence. And even worse, some of Mexico’s cartels are now highly influential in certain territories like Guerrero and along the coast on the Gulf of Mexico, making it harder for the Mexican state to fight them. In some regions where the cartels have eliminated political representation, the Mexican government has effectively lost the monopoly on the use of force – a monopoly which scholars like Max Weber have deemed to be an essential requirement of statehood.

Why has it been so difficult to fight Mexican cartels?

For one thing, Mexican cartels are quite sophisticated. They are structured and militarized organizations that employ at least half a million people, according to Vanda Felbab-Brown, a Brookings Institute narcotics expert. The cartels have also demonstrated a high propensity for brutality and terror – a tactic that has enabled them to increase control within Mexico’s institutional framework. In many cases, corpses are dumped in city streets and in extreme cases, the bodies are cut into pieces or decapitated. Reporters, many of whom are consistently the victims of cartel murders, fear fatal repercussions for detailing cartel activities. A survey by Reporters Without Borders lists Mexico as the fourth most deadly country for reporters. This has had a gripping effect on Mexico’s media, as demonstrated by a Juarez newspaper that dedicated its entire front page as a plea for peace to the cartels, according to an Al Jazeera presentation.

Furthermore, the Mexican military has struggled to combat the cartels effectively. “Each year, the violence takes on distinct new dimensions,” states Victor Clark Alfaro, a security expert for the Binational Human Rights Center in Tijuana. “It’s like fighting guerrillas — it often defies understanding.”

This transformation of violence is demonstrated by the fact that some cartels, particularly the Caballeros Templarios, consider themselves to be more than simple drug traffickers; they view themselves as resistance fighters (La Resistencia). The very title “Knights Templar” (Caballeros Templarios) refers to early crusaders who protected pilgrims on their passage to Jerusalem. Other cartels substantiate their political motives to displace the government by organizing community events like picnics and barbecues. This demonstrates the cartels’ ability to not only compel violence but to support their efforts with ideological constructs of organized resistance and community welfare.

To top it all off, corruption within the Mexico’s government has severely hampered the war on drugs. Reports of government officials, police officers, and military personnel receiving payments from the cartels have repeatedly surfaced. “A system-wide network of corruption has ensured distribution rights, market access, and even official government protection for drug traffickers in exchange for lucrative bribes” according to a March 2011 CFR report. As one example of the corruption, in 2008, members of SIEDO (Subprocuraduría de Investigación Especializada en Delincuencia Organizada), the attorney general’s office in charge of investigating and prosecuting organized crime, and directors of the federal police were arrested for their ties to the Beltrán Leyva cartel. Noé Ramírez, the former director of SIEDO, reportedly received $450,000 every month for his services to the cartel’s leaders.

Of course, the supply side is only one part of the equation. The undeniable fact is that the demand for drugs in the United States provides an essential market for the cartels. According to the National Survey on Drug Use and Health, in 2010 there was an estimated 22 million Americans ages 12 and older using illegal drugs – nearly 9% of the U.S. population. That is an increase from the 6.7% of the population estimated in the 1999 Survey. With millions of buyers in the United States, Mexican cartels continue to generate a revenue stream that in turn serves to finance their violence and increased capabilities.

With their ability to intimidate, combat, conceptualize, and infiltrate, Mexico’s cartels prove to be a powerful force. But combined with this insatiable demand in America, the cartels become a cemented aspect of U.S. Mexico relations.

A more recent development on the drug war: Mexican cartels have exhibited increasing control in the rural areas of Mexico, namely in southern Mexico.

According to a study by Salvador Aranda in Revista Mexicana de Sociología, places like Michoacan that have not traditionally been in the spotlight of the media for the drug war, have witnessed more militarization and influence from cartels such as the Caballeros Templarios. This has led to changes in the agrarian culture of Michoacan due to the incorporation of the drug trade.

Jerry Langton, author of Gangland, talks about the many poverty-stricken, indigenous people in Southern Mexico who, feeling alienated by the central government, turn to cartels like “La Familia” for their provision of healthcare and education. This is in contrast with the terror tactics that the cartels use in Northern cities since it demonstrates an ability to garner support by immersing themselves in the livelihoods of the residents.

Despite their increased integration in rural territories, the extent to which the cartels exercise control over their territories is most greatly hindered by divisions amongst the cartels themselves. Mexico’s drug landscape is dominated by several competing cartels but there is no single dominant cartel. As a result, the major cartels must compete for drug routes throughout Mexico and into the United States, which result in deadly territorial battles.

This division demonstrates that while the cartels collectively have a significant voice in Mexico, they do not have complete control over their territories. While much of their influence is leveraged by fear and hostility, their growing aptitude to become integrated into the lifestyle and culture in rural areas like Michoacan should seriously heighten the concern of Mexican and American officials.

Fact and figures from CNN, BBC, PBS, CNS News, Al Jazeera, El Economista, Washington Post and Time.

Akbar Khan is a third-year Political Science student with a minor in Global Studies. He is an intern at the Burkle Center for International Relations.

May 29, 2013 7 comments

Mexico and Latin America Security and Conflict

Chavez: Sinner, Saint, or Sacrifice?

written by thegeneration

by Â¡Que comunismo!

by Kara McManus
Contributing Writer

When official news broke that Venezuelan President Hugo Chavez had passed away of cancer on March 5, 2013, it was met worldwide with mixed responses from civilians, political leaders, allies, and enemies. A polarizing figure, Chavez certainly altered the South American political landscape during his fourteen years of democratically elected rule – elections which were legitimated by international monitoring – periodically giving himself, and Venezuela, international media attention.

Yet whatever title you give Chavez – would-be dictator, autocrat, socialist, president, savior – his death undeniably sparked remarkable and unyielding reactions. Across the globe, responses to his death included unadulterated bereavement in the streets and city centers of Venezuela by his ardent civilian supporters; eloquent proclamations, peppered with elegiac strains, by Latin American leaders about Chavez’s indomitable spirit; U.S. politicians’ equivocated, yet diplomatic, official responses; and celebrations, flag-waving, and cries of joy by Venezuelan expatriates rejoicing, either for Chavez’s death or the new era that the event ushers. For a country with such strong familial ties around the world, the reception of the news itself has elicited a span of emotional responses.

But it is this concept of “news,” and how the media portray non-U.S. leaders, and possibly non-U.S. sentiments, that undoubtedly contributes to the range of reactions erupting in the wake of Chavez’s passing. Understandably, the media are incredibly powerful and have the capacity to bias the perspectives of their viewers, listeners, and readers. That the media are subjective is not a new philosophy, and neither is the knowledge that their subjectivity is, at least partially, based upon the leanings, proclivities, and, of course, monetary influences of media stakeholders. So when processing Chavez’s death and the inevitable ensuing portrayal of his legacy, it may be prudent to first reflect upon how the messages received by those outside Venezuela have been crafted, delivered, and adjusted according to their audience.

Is it simply because that as Venezuela’s poverty levels severely decreased under Chavez’s rule that the leaders of other nations teetering on the brink of the arbitrary classification of “developed/developing nation,” such as Cuba, Bolivia, and Argentina, severely mourned his death and praised his spirit? Chavez, who was democratically elected in 1999, undeniably centralized and internalized the power beyond that which his office granted him after his survival of 2002’s coup d’état; was it because of this internalization that the heads of countries with either a past or current relationship with a form of government that excludes democracy, such as China, Iran, and Russia, praised that very power-centralization for the benefit of Venezuela, as a whole? And is it because Venezuelan-United States relations became strained, possibly sour, during Chavez’s tenure that President Obama’s official response exuded almost painfully neutral diplomacy and desire for a more harmonious relationship in the future, even while former President Carter lauded Chavez’s aggressive assertion of South American governments?

Or does media bias somehow have to be accounted for? Obviously, editors have final say in what news is presented and where in a specific broadcast. But absolutely everything that is disseminated by the media (print, online, and over the radio and television airwaves), in relation to how the news should be presented, at what reading level the stories should be written, and how much time should be allowed for each piece, all plays into the opinions formed by those ingesting a specific story. Considering that every single media outlet in the U.S. is owned by one of only six conglomerates (seven if you include Clear Channel), the heads of which all have personal, political, and social viewpoints that inevitably trickle into the decisions made about the conglomerate’s welfare, one must ingest said media with the proverbial grain of salt. This is not specific to the U.S. either, but a worldwide approach to media ownership and facilitation. They don’t call it “programming” for nothing.

Whatever your personal interpretation of Chavez may be – defender of freedom, chauvinist, victim of conspiracy, victim of a vengeful God, Godsend, demon of democracy – his concentration of power is not unlike the concentration of power demonstrated by the media conglomerates bringing you the stories on his exploits (or centralization of government, or socially conservative gender beliefs, or what have you). And whether for good or bad, Chavez, over his fourteen-year rule, has left an indelible mark on the history of Venezuela, South America, and the rest of the world. How Venezuela’s connection with the U.S. (and the myriad other nations of the world with which the former has a relationship) will now develop is something that only time, and the media, can tell.

Kara McManus recently completed her MEd in Higher Education Administration from University of Hawaiʻi atMānoa. She also has a BA in Communication Studies from the University of Oregon and an MA in English from Clemson University. She currently lives in Honolulu, Hawaiʻi.

April 1, 2013 3 comments

Mexico and Latin America Security Security and Conflict The International Economy

Mexico 1992-2012: The Advent of Neoliberalism and the Reshaping of the Political Order

written by thegeneration

Photo Credit: REUTERS, Yuriko Naka

by Luis L. Lozada
Contributing Writer

The process of globalization in recent times has been equated to mean the triumphant victory of capitalism as the sole source for economic prosperity and equality for the developing world. The common agreement is that globalization whether good or bad is indispensable as the world precipitates into greater integration. The multiple processes of globalization (economic, social, technological, and cultural) aid the economic development of a nation if managed correctly, according to Nobel Prize winning economist Joseph Stiglitz. The discontent arises between the great fanfare of globalization and economic realities of stagnation, bank crises, and default. For Stiglitz, the source of the problems is the draconian policies of the International Monetary Fund (IMF) and other international organizations. The IMF pushes, what Stiglitz, calls “market fundamentalism” policies that benefit the developed world and disregard the role that economics play on society; as a result, these policies undermine developing economies.

The bank crisis in the early 1980s prompted Mexico to adopt free-market policies that valued austerity and the movement of capital to ensure economic confidence and stability. However, rapid economic liberalization without safeguards and elastic institutions led the economy towards increased exposure to risk.

Inception of the North American Free-Tree Agreement (NAFTA) in 1994 amounted to deregulation, increasing capital volatility, and mobility. Currency speculators traded and bought various national currencies across the globe, forming a portfolio of investments that sought the highest level of return, regardless of the long-term effects that it might produce in a country. As a result, deregulation and speculative foreign capital flowed to Mexico due to high rates of return on government securities and industrial investments. The change in trade policy allowed for 65 percent of U.S. goods to become duty-free immediately or within the next five years. However, the massive inflow of capital caused Mexico to increase a trade deficit of 7 percent of GDP along with Mexico’s external debt of 60 percent of GDP.

The political climate during this crisis complicated the rosy image of NAFTA. The year 1994 was an election year. The assassination of Institutional Revolutionary Party (PRI) candidate Luis Dolando Colosio and the Zapatista uprising both morphed optimism into instability, leading towards a decline of foreign funds due to fear of insolvency. Investors wanted to believe that the peso would appreciate, and in turn, increase the value of their various investments. However, prospects of fear, political instability and overbearing belief in NAFTA left them to realize that their investments in reality were worth of little value. The election of Ernesto Zedillo of the PRI party in 1994 opened the way to loosening monetary policy and tesobonos (short-term dollar debt).

The Bank of Mexico had purchased high amounts of tesobonos; the outstanding cost of tesobonos was twice the central bank’s reserves, resulting in capital flight and external debt. The government was unable to support the peso in the foreign exchange market and allowed the peso to float in 1995. The peso went into free fall, losing half of its estimated value. As a result, the market would not recover for another four years.

Without carefully managed control and maintenance of the national currency, a country is threatened with losing its political and economic sovereignty. Widespread depreciation of the national currency led to loan losses, resulting in an extensive wave of Mexican banks failures. The IMF applied structural adjustment programs on the Mexican economy to give confidence to foreign investors and governments that Mexico will be able to repay its outstanding loans. As often is the case, the IMF policies privileged wealthy patrons and foreign governments as opposed to the needs of the people and the health of the economy. The bank bailout cost the taxpayers 20 percent of GDP. However, in a twist of fate and monumental irony, Mexico experienced a shift in its balance of trade with the U.S. from a deficit of $20 billion in 1994 to a surplus of $7 billion in 1995, the year following the peso crisis.

NAFTA was a mixed blessing. Under the treaty, U.S. banks could open branch offices and U.S. citizens could invest in banking and insurance within Mexico. In addition, growing trade with the U.S., the start of more exportation and manufacturing at the northern states of the country. However, absent on the agenda was any mention of labor; NAFTA neither specified any provisions of labor nor addressed immigration from Mexico to the U.S., a negligence that would create a massive exodus of Mexican labor to the U.S. In sum, trade liberalization resulted in unemployment for workers in low-productivity occupations.

During Mexico’s 2006 elections, Felipe Calderon from the National Action Party (PAN) claimed victory. Mexico was undergoing massive migration from rural areas to cities, giving birth to the expanding informal economy. Economic growth from free access to capital and greater freedom allowed Mexico to experience a boom in production, which benefitted the new emerging middle class.

As Mexico began to revitalize its economic production to curb the problem of unemployment, the 2008 financial crisis occurred. In 2008 to 2009, 80 percent of all Mexican exports traveled to the U.S., but customers were not buying them. Rapid privatization from the 1980s to 1990s reduced the burden of spending placed on government. The wave of neoliberalism favored large corporations, inhibiting competition as well as the necessary supervision of labor standards. Mexico weathered down the 2008 crisis and is now experiencing economic growth once more. Calderon provided financial stability, expansion of health services and access to consumer credit to the wider population. However, pervasive poverty continues. Strong institutions, smart government intervention, and an end to political corruption are three requisites for Mexico to leave the shadow of its past and promote an agenda of economic growth, which means abandoning the neoliberal dogma. Some have argued that NAFTA did very little for economic development at local chains of production because of unskilled labor population, imported assembly parts, and global suppliers. The 2008 recession caused a 6.1 percent contraction of the economy. Further criticisms against NAFTA include mixed economic growth, lower real wages, and the lack of change for poorest segments of the population. Inequality and poverty have both increased as a result since NAFTA. The real irony of this entire experience is that real wages have declined steadily while trade has increased dramatically.

Investments are desperately required to transform Mexico into a truly modern nation. Education and infrastructure are two areas that eventually need investment. One-fifth of Mexico’s workers are in the agricultural sector and 75 percent of poverty is from rural areas. Unless Mexico turns away from neoliberalism in the form of deregulation, low government intervention and favoring large businesses, inequality will continue to balloon, meaning that poverty will not decline, but increase in the following years if it is not addressed fully.

Facts and Figures from American Journal of Sociology, Manias, Panics and Crashes: A History of Financial Crises by Charles P. Kindleberger, Development and Social Change: A Global Perspective by Philip McMichael, Modern Latin America by Thomas Skidmore, Fair Trade for All: How Trade can Promote Development by Joseph E. Stiglitz, Globalization and Its Discontents by Joseph E. Stiglitz, and Mexico: Democracy Interrupted by Jo. Tuckman.

March 20, 2013 1 comment

Mexico and Latin America The International Economy

Spain’s Labor Markets: The Disregarded Solution of Economic Recovery

written by thegeneration

by Tina Kim

Despite the anti-austerity protests from thousands of unemployed Spaniards in recent months, Spain is moving towards cutting social programs in its most severe austerity budget plan in history in order to receive bailouts for its banks and government debt. Spain is considering to apply for the Enhanced Conditions Credit Line (ECCL), a euro-zone bailout fund that would grant money to Spain’s government with the condition that it imposes more fiscal austerity. More than $50 billion worth of budget cuts in education, healthcare, welfare, and pensions are expected and unemployment benefits and civil servant wages have already frozen.

However, as long as the labor market in Spain remains uncompetitive, Spain has little hope in recovering from its economic crisis in the long term. Restoration of the labor market, rather than its banks and bond market, is what will ultimately bring Spain out of its suffering. With nearly a 25% unemployment rate, Spain is making a serious mistake in cutting the social programs that are the lifeline of thousands of unemployed people. Moreover, borrowing money from the rest of the world to grant these bailouts to banks does not consider the future of its youth in the job market. According to the Wall Street Journal, “workers ages 16 to 24 face an astronomical 53.3% unemployment rate and for 25- to 34-year-olds, the rate is 27%.”

UCLA Economics Professor Aaron Tornell explains that high unemployment in Spain’s youth is due to a situation of “insiders” and “outsiders.”

“An insider is someone who is ensured a job for life; many insiders are union members,” said Dr. Tornell. “An outsider, particularly a young person, is someone who will not have a job regardless of whether the person is educated or not. The power of unions is protecting the insiders from getting fired. In order to fix unemployment, you have to weaken the power of the unions to make sure companies can hire younger, more productive people.”

Another problem that the Spanish youth faces stems from the housing bubble that burst in 2008. When Spain joined the euro in 1999, low interest rates brought banks to lend an unprecedented number of property loans and the boom years of this period caused wages to rise quickly within the labor market. As a result, Spain has been exporting less of its own, more expensive goods and importing more of cheaper products from its European counterparts. This trend resulted in Spain’s government overspending, but more importantly, Spain’s labor market became highly uncompetitive.

In the long term, giving salvation only to banks with bailouts all the while punishing the Spanish people through austerity measures serves in no interest of the Spanish people, government, or even banks. Nobel Peace Prize Laureate in Economics, Paul Krugman wrote in a New York Times op-ed article that fiscal austerity in Spain’s current economic state is simply, “just insane.”

“Europe has had several years of experience with harsh austerity programs, and the results are exactly what students of history told you would happen: such programs push depressed economies even deeper into depression,” said Mr. Krugman. “And because investors look at the state of a nation’s economy when assessing its ability to repay debt, austerity programs haven’t even worked as a way to reduce borrowing costs.”

However, the general trend throughout the world, not just in Spain, has been that bailing out banks has preceded the need to support social programs. The banking system has become monopolized so that banks are too large to fail when they are in trouble. Smaller banks around the world have merged together into larger banks in order to increase their assets to a point where defaults in these banks can risk a financial collapse. In addition, the risk of having these banks default could lead to a greater catastrophe of foreign investors pulling out their money from banks and government bonds. No investments cause reserves of banks to shrink, which would in turn increase interest rates and stiffen lending to consumers. Therefore, the banking system has become so essential to capital of the economy that bailouts have become the insurance banks can rely on when their loans are in trouble.

As a prime example, Spain’s government is applying for an ECCL to bring foreign investors, or at least keep the ones it already has, and maintain its credibility to repay debt. Moreover, if there are no foreign investors, there is a risk that Spain will default on its loans to France and Germany, which can spread Spain’s economic crisis into an epidemic throughout Europe. Consequently, further downgrades of Spain’s bonds—which are currently one notch above junk status according to Moody’s and Standard and Poor’s—will not only drive foreign investors further away from its bond market, but also bring other European Union countries down with it.

For these reasons, although banks are responsible for the housing bubble, they will receive the aid that they need even though austerity measures will make taxpayers’ lives harder. Since big banks are nearly guaranteed bailouts, there are no incentives to prevent banks from issuing out risky loans when the economy recovers and interest rates are low again. But for how long can this vicious cycle last? Already there are violent protests of hundreds of thousands all around the world. If governments wish to ensure the future of its citizens, the cries of the poor, young, and unemployed must be heard.

A strong, competitive labor market is what will bring revenue and ultimately restore the economy. Spain can start with not cutting social programs that are the support systems for the thousands of unemployed and struggling citizens. Secondly, laws must be set in place to prevent unions from not hiring the unemployed youth in Spain. Thirdly, although bailouts must be administered, social programs should take priority before banks are given aid. Finally, there must be laws or a set of incentives that will prevent banks from giving out such toxic loans that start such housing bubbles and financial crises. The people of Spain have been hurting long enough and it is time the government supports and invests in the people who can restore the economy for what it once was.

Tina Kim is a second year Communications major and Public Policy and Urban Planning double minor. She is a co-editor and writer for The Generation.

October 23, 2012 1 comment

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UCLA's Foreign Affairs Magazine

Mexico and Latin America

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Ending the Embargo: Liberating US Politics from the Cuba Lobby

Los Muertos no Pagan: The Case for New Institutions to Resolve Sovereign Debt Disputes

State of the (Student) Union – 2014

Brazil’s World Cup, a Reflection of Flawed Priorities?

Sorry for the Inconvenience – Brazil is Under Construction

The War on Drugs: Mexican Cartels

Chavez: Sinner, Saint, or Sacrifice?

Mexico 1992-2012: The Advent of Neoliberalism and the Reshaping of the Political Order

Spain’s Labor Markets: The Disregarded Solution of Economic Recovery