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Honduras

Latin America and the Caribbean

World

Honduran Gangs Claim Truce, but Police and Military Still Deadly

The two biggest gangs in Honduras publicly agreed to a truce on Tuesday, calling it an effort to reduce the violence that plagues the country and asking for forgiveness and government support. Romulo Emiliani, the Catholic bishop of San Pedro Sula—the world’s most violent city outside a warzone—helped broker the agreement along with Adam Blackwell, a security ambassador for the Organization of American States (OAS). President Pepe Lobo has reportedly said he is prepared “to do whatever is necessary" to back the initiative.

The truce has been compared to a similar agreement between the same transnational gangs in El Salvador, made in March of last year. That country’s government reported a halving of the murder rate after the truce, and a 45 percent drop in the first four months of 2013 compared to the previous year. Despite such pronounced success, in January the U.S. State Department issued a travel warning for El Salvador that many (including the gangs themselves) interpreted as an effort to undercut the truce’s effectiveness. Responding to the warning, which referred to outdated murder tallies, the Salvadoran Minister of Justice and Security wondered aloud whether the State Department was misinformed and said the notice demonstrated that for the United States, “street violence, deaths, robberies mostly committed by gang members, that is not their priority—their priority is drug trafficking.”

Some commentators have already questioned whether the latest truce will result in outcomes similar to those seen in El Salvador. These doubts are due in part to the recognition that the police are widely believed to be involved in death squads and the military has been blamed for murders and disappearances, many against land rights and opposition activists. Associated Press reporter Alberto Arce quoted the rector of the National University of Honduras, Julieta Castellanos, as saying “The dynamic of violence in the country goes beyond gangs and reflects the existence of multiple actors that are difficult to pinpoint.” In December Castellanos presented a Violence Observatory report that showed police responsibility for at least 149 violent deaths in the previous 23 months, including the rector’s son, Rafael Alejandro Vargas. Castellanos also voiced concern that the truce could exacerbate the already extraordinary level of impunity in Honduras.

CEPR and Arthur Phillips / May 29, 2013

Article Artículo

A Way to Tax Corporations That They Cannot Escape

Eduardo Porter has a column discussing the increasing ability of corporations to escape income taxes. The idea is that they can play games on where their income originated so that it always shows up in countries with the lowest tax rates.

There are different possible responses to this problem. One is to follow the lead of many state governments which tax companies in proportion to the share of total sales that occur within the state. That seems like a reasonable path, but I remember an even surer route to collecting tax that was proposed some years back. (I apologize to the person who came up with this one, who I cannot remember.)

Suppose we give companies the option of giving the government an amount of non-voting stock (I would suggest something like a 30 percent stake) which would be treated exactly like the company's common stock, except without the voting privileges. This means that if the company distributes profits to the shareholders through dividends, then the government's shares get the exact same dividend. If it buys back 10 percent of its shares, then it also buys back 10 percent of the government's shares.

The beauty of this approach is that there is no way to escape the implicit taxation. In addition it has the enormously beneficial effect that there would no longer be any money in playing tax games. Companies could focus on doing business -- making better products or providing better services -- rather than gaming the tax code.

The share option can even be voluntary. If companies want to keep trying to play games with the tax system, they can refuse to go the route of giving shares to the government. Of course everyone will then know what these companies are doing, but that's their call.

Dean Baker / May 29, 2013

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Yet More Bipolar Economic Reporting from the Post

You get a one month jump in housing prices and suddenly the economy is booming. Okay, that's not quite fair, housing prices have been rising at a pretty rapid pace for a year now, but still does the Post really want to claim that the economy is "surprisingly robust?"

Let's remember where we stand. The economy grew at a 2.5 percent annual rate in the first quarter. Given the economy's trend rate of growth is between 2.2-2.5 percent, this means that we were at best making up lost ground at the rate of 0.3 percent annually. The Congressional Budget Office estimates that the economy is 6.0 percent below its potential. At the first quarter growth rate it will therefore take us at least twenty years to get back to potential GDP. 

But it gets worse. Much of the growth in the first quarter was due to a jump in inventories. Final demand grew at just a 1.5 percent annual rate. Investment in new equipment is only slightly above year ago levels. Non-residential construction has been falling in recent months.

The second quarter does not look a whole lot better. Retail sales fell 0.5 percent in March. They only made up 0.1 percentage point of this drop in April. The April job growth numbers were not bad, but because of a sharp drop in the length of the average workweek, there was a drop in index of total hours that equaled the largest in the recovery.

In addition to the run-up in house prices, the optimism rests on rising stock prices and a jump in the latest consumer confidence numbers. Not surprisingly, most of the rise in the consumer confidence index was due to the expectations component. This component is highly erratic and has little relationship to consumption. The current conditions index also rose, but not by anywhere near as much and not to levels higher than it has been in the past.

Dean Baker / May 29, 2013

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Robert Samuelson Mostly Right on Over-Valued Dollar

Robert Samuelson makes an important point in his column today, the "strong" dollar is hurting the country's economy. This fact is central to understanding the imbalances that have shaken the U.S. and world economy over the last 15 years. Because of an over-valued dollar the trade deficit exploded in the late 1990s.

A trade deficit means that demand is going overseas rather than for goods and services in the United States. To offset this lost demand we must either have public sector deficits or we must have private savings lag investment, or some combination. In the late 1990s the consumption, and resulted low savings, generated by the stock bubble filled the demand gap. In the last decade, when the trade deficit hit a peak of 6.0 percent of GDP in 2006, the construction and consumption booms generated by the housing bubble filled the gap.

Until we get the dollar down to a level consistent with more balanced trade we will have a large demand gap that will have to be filled by either public or private sector deficits. That is a fact of accounting, not a debatable point. Those who disagree simply do not understand.

The part of the story that Samuelson misses is that the over-valued dollar is a relatively recent phenomenon, not something that dates from the U.S. becoming the world's leading reserve currency. The dollars soared in 1997 as a result of the U.S. government and IMF"s mismanagement of the East Asian bailout from the financial crisis.

The conditions they imposed on the countries of the region led developing countries around the world to begin to accumulate massive amounts of dollars as a cushion so that they would not ever be in the situation that the East Asian countries found themselves in 1997. This means that the imbalances of the last 15 years can be directly attributed to the failures of the Greenspan-Rubin-Summers team (a.k.a. "The Committee that Saved the World") that directed the bailout.

Dean Baker / May 27, 2013