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Latin America and the Caribbean

Venezuela

World

Rory Carroll’s Venezuela Revisited

Rory Carroll responds to my criticism of his NPR interview on Venezuela by calling it a “daft polemic.”  But I would like for him to explain why inflation and currency depreciation, which do not measure living standards, are more important than poverty, extreme poverty, income inequality, income per person (measured in real, inflation-adjusted terms), health care, and employment. That would truly be a “daft polemic” – but that is what he is implying in his interview.

There are other things wrong with his interview that I didn’t have room for in 800 words.  For example, he says that Chávez “basically rained petrodollars over the country, certainly in his first seven years in power.”

In fact, Chávez didn’t have petrodollars to rain on anyone for his first four years, because he did not have control over the national oil company (PDVSA).  That was controlled by his opponents, who during those years had “a strategy of military overthrow,” according to opposition leader and journalist Teodoro Petkoff.  So they used PDVSA to try and overthrow the government, including the military coup of 2002 and the devastating oil strike of 2002-2003.

Carroll’s portrayal of Chávez as “playing the race card” is also somewhat misleading.  He gives the impression that this was an important part of his politics. But in fact it was not. It was more like in the United States under President Obama, where part of the right-wing opposition plays on racist sentiment against the president (only this was much more open and explicit in Venezuela, with opposition calling Chávez a “monkey” and “gorilla” ), but President Obama does not make a point out of being African-American.  Chávez was proud of his Afro-Venezuelan and indigenous heritage, but he did not talk about it all that much.  And like Obama, he didn’t use the bully pulpit to talk about racial discrimination, or try to mobilize voters along these lines.  In Venezuela, even more than in the U.S., most people are not aware of the extent of racial discrimination.  Of course this is even more true of the upper income groups. I remember being on a television show with a prominent Venezuelan-American, and he declared that there was no racial discrimination in Venezuela; this is a typical belief of upper-income Venezuelans.  But in Venezuela, as in much of Latin America, while it is obvious to even a casual observer that there is a huge difference in skin color between upper-income and lower-income groups, there is not anywhere near the sense of “racial” identity (or even awareness of racial discrimination) as there is in the United States.  So even if Chávez had wanted to mobilize people along racial lines, it would not have been an effective political strategy.

CEPR / April 11, 2013

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Despite Track Record, U.S. Hires Contractor to Provide Troops to U.N. Haiti Mission

In a press release yesterday, DynCorp International announced that the U.S. Department of State Bureau of International Narcotics and Law Enforcement Affairs (INL) had awarded the company with a $48.6 million contract. The purpose of the contract is to “recruit and support up to 100 UNPOL and 10 U.N. Corrections Advisors. DI will also provide logistics support to the Haitian National Police (HNP) Academy and each academy class. In addition, DI will supply five high-level French and Haitian Creole speaking subject matter experts to advise senior HNP officials.”

While the press release went out yesterday, the contract was actually awarded to DynCorp a year ago, and the first funding through the award was given to DynCorp in November 2012 in the amount of $12.9 million. DynCorp is one of the largest government contractors, receiving well over $3 billion in 2012.

As the company points out, its previous work in Haiti began in 2008 and involved the training of over 400 police officers. That work, part of the Haiti Stabilization Initiative, also entailed increasing the size of the U.N. military base in Cite Soleil. DynCorp, which continues to receive funds through that task order, has received over $23 million since 2008 for its work in Haiti.

One of the primary tasks of the U.N. military mission in Haiti (MINUSTAH) is to recruit and train members for the Haitian National Police, so that they could eventually take over for the foreign troops. With this latest contract, DynCorp has gone from training police to take over for MINUSTAH, to simply supplying troops directly to MINUSTAH.

But the awarding of the contract to DynCorp is also problematic given the company’s terrible track record in the same exact program areas where they will now operate in Haiti. 

In Bosnia in the late ‘90s, DynCorp was contracted by the State Department to provide “peacekeepers” for the U.N. police there, just as in Haiti now. One employee, Kathryn Bolkovac, was eventually fired after blowing the whistle to her superiors at DynCorp on the participation of her colleagues in sex trafficking, among other abuses. The case was the basis for the 2011 Hollywood movie, The Whistleblower.

Unfortunately, these types of abuses have been all too common in Haiti since the arrival of U.N. troops in 2004. And similar to the situation in Bosnia, there have been only sporadic and piecemeal efforts to hold those responsible, accountable.

Jake Johnston / April 11, 2013

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Teaching the Wall Street Journal About Pensions and Stock Returns

The Wall Street Journal had a column this week that would terrify its readers, if they took its columns seriously. The piece, by Andy Kessler, derided the 7.5 percent return assumed by the Calpers, the public employer pension fund in California. Other pensions, both public and private, make comparable return assumptions.

The piece tells readers:

"Who wouldn't want 7.5%-8% returns these days? Ten-year U.S. Treasury bonds are paying 1.74%. There is almost zero probability that Calpers will earn 7.5% on its $255 billion anytime soon.

"The right number is probably 3%. Fixed income has negative real rates right now and will be a drag on returns. The math is not this easy, but in general, the expected return for equities is the inflation rate plus productivity improvements plus the expansion of the price/earnings multiple. For the past 30 years, an 8.5% expected return was reasonable, given +3%-4% inflation, +2% productivity, and +3% multiple expansion as interest rates plummeted. But in our new environment, inflation is +2%, productivity is +2% and given that interest rates are zero, multiple expansion should be, and I'm being generous, -1%."

Pretty scary, one wonders if Mr. Kessler tells his hedge fund clients that they should expect to lose 1 percent a year with the money they invest with him.

Anyhow, this is a case where Mr. Arithmetic can provide a big hand. Pension funds like Calpers typically invest around 70 percent of their assets in equities, including the money invested in private equity. The expected return on stock is equal to the rate of the economy's growth, plus the payouts in dividends and share buybacks. It also should include a term for the expected change in the price to earnings ratio, but with the PE ratio pretty much in line with long-term trends, there is little reason to expect much change.

Dean Baker / April 11, 2013

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Latin America and the Caribbean

The Vatican, Pinochet, and the ‘Mopping Up’ of ‘Natural Bloodshed’ Following Chile’s Coup

Yesterday WikiLeaks announced the release of a new archive of U.S. diplomatic cables and other documents, 205,901 of which “relat[e] to former U.S. Secretary of State Henry A. Kissinger." This new addition contains cables, intelligence reports and congressional correspondence from 1973-1976 and is part of the larger collection of almost two million documents and U.S. diplomatic cables that WikiLeaks’ founder Julian Assange has called, “the single most significant body of geopolitical material ever published.” WikiLeaks has grouped the material together in a searchable database called the “Public Library of U.S. Diplomacy.”  

The first of these cables to make a splash about Latin America is one that exposes the Vatican’s reaction to news of human rights atrocities in Chile under dictator Augusto Pinochet, who participated in the military coup that toppled the democratically-elected government of Salvador Allende in September of 1973. Pinochet was responsible for the torture and murders of thousands of people.

In the cable to then-U.S. Secretary of State Henry Kissinger, dated five weeks after the military take-over, the Vatican’s deputy Secretary of State Giovanni Benelli dismissed reports of torture and murders by the military government as “exaggerated coverage of events” and denounced the media’s coverage “as possibly greatest success of Communist propaganda,” lamenting that this showed “how Communists can influence free world media in future."

As if on cue from the CIA –whose covert operations in Chile were instrumental in the toppling of the Allende government- the cable insists that reports of torture, disappearances, and murders by the military regime were fabrications, “leftist propaganda”:

Despite Vatican’s efforts, leftist propaganda has been remarkably successful even with number of more conservative cardinals and prelates who seem incapable of viewing situation objectively.

CEPR and Sara Kozameh / April 10, 2013

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Robert Samuelson Spreads Confusion on Manufacturing

The Washington Post seems to have a quota for pieces that spread misinformation on manufacturing. Today's piece by Robert Samuelson fills the quota for the day.

The gist of the piece is that manufacturing employment has been declining in importance in the U.S. for decades and also everywhere else around the world. Therefore we should not expect any substantial boost to manufacturing employment.

This is the sort of three-card Monte story that people expect from the Post when discussing economic issues that are relevant to working people. Yes, manufacturing has declined in importance everywhere and yes, it has long been declining in the United States. However the issue is the rate of decline.

According to the Bureau of Labor Statistics, from 1973 to 1989 manufacturing employment declined at an annual rate of 0.3 percent. By contrast, it declined at a rate of 1.7 percent annually between the years of 1989 to 2012. If we had simply maintained the earlier rate of decline we would have another 4.7 million manufacturing jobs. 

These years are business cycle peaks, however we get an ever sharper picture if we put the break in 1997 when Robert Rubin was able to put muscle behind his high dollar policy through his control of the IMF's bailout of the East Asian countries from their financial crisis. The annual rate of decline from 1973 remains the same at 0.3 percent, however the decline since 1997 has been 2.5 percent. If we had maintained the 1973 to 1997 rate of decline through 2012 we would have 4.9 million more manufacturing jobs today. That would be more than a 40 percent increase in manufacturing employment.

In the same vein, we have the comparison with other countries. As Samuelson's colleague Dylan Matthews showed us last month, the manufacturing share of employment in Germany fell by roughly a third between 1973 and 2010. By contrast, it fell by 60 percent in the United States. If the U.S. had seen the same pace of decline as Germany we would have another 8 million manufacturing jobs.

Dean Baker / April 08, 2013