Pentagate Corruption Scandal Rocks Chile

According to Transparency International´s Corruption Perceptions Index Chile ranks as one of the least corrupt countries in the world, ahead of the likes of Austria and France and similar to the United States and Ireland. The World Bank’s governance indicators suggest corruption in 2013 was under better control in Chile than in the U.S. and neared that of the United Kingdom and Canada. Quite the achievement on a continent whose governments are not exactly known for their incorruptible politicians, which Chileans have consistent free-market policies to thank for. However, a major political scandal that broke last week represents a blow to the country’s status. Known as Pentagate, the campaign finance scandal currently making headlines in Chile allegedly involved dozens of politicians from across the political spectrum, although the majority are said to be members of the Independent Democratic Union (UDI) party. Some of the more prominent individuals being investigated include former Finance Minister Andrés Velasco, who served one term under current president Michelle Bachelet during her first four years in office, officials of the previous Sebastián Piñera administration, as well as several former presidential candidates. The privatization of state corporations after the fall of the Pinochet military dictatorship in 1989 gave birth to the Penta Group. Formerly known as the Instituto de Seguros del Estado the insurance company was acquired by two investors – Carlos Alberto Délano y Carlos Eugenio Lavín – who incidentally both used to work for the government during the regime. The former is known as a big political donor and a friend of former president Piñera, while the latter tends to keep a lower profile. Last August their holding company came under investigation by Chilean authorities for tax fraud, which besides several arrests lead to the laying off of the Group’s director. And while many a …

The New Libertarian Movement in Brazil

Currently, Brazil is not exactly a bastion of freedom.  The Economic Freedom of the World Index, put out by the Fraser Institute, ranks Brazil way down at number 103, with high taxes and over-regulation to blame.  However, many people are beginning to question the role of government, especially after the riots in June 2013 in Brazil.  Protesters upset about the growing government, and poor civil services are beginning to look for alternatives to the majority parties. Many are finding a glimmer of hope in a new libertarian party that is beginning to emerge.  The “Novo” party is about as freedom loving as it gets, said Isabela Christo and Gustavo Torres, members of the new party. According to Isabela, although there are 30 political parties in Brazil, politics generally revolves around the two major parties, the Brazilian Social Democracy Party, and the Labour Party, known as PSDB and PT respectively.  From a libertarian perspective, both parties look the same. “Neither parties are very fond of liberty,” said Isabela, “and there’s no big difference between both parties when it comes to the usual libertarian agenda.”  Isabela went on to say that both parties advocate for a bigger government in banking, monetary policy, drug wars, and abortion.  “Actually, all those subjects are commonly ignored by the major parties in Brazilian politics, since mentioning them usually has no political benefits at all.” The Novo Party, on the other hand, does offer a fresh alternative. According to their website, the party advocates for individual freedom over state control.  The website lists other principles: – Free-market – Individual as sole creator of wealth – Reduce the role of the state – Defend personal liberties – All are equal before the law When asked if the Novo party is the only libertarian party in Brazil, Isabela said, “This may sound a …

For School Choice, in Chile and Elsewhere!

In her second term as president of Chile Michelle Bachelet is set to impose significant educational reforms to further her socialist agenda. An estimated increase of 1.5-2 percent of GDP on top of existing spending is supposed to improve the quality of and access to (higher) education and thereby reduce the problems of inequality and segregation. Bachelet’s plan to provide “free” college education to all Chileans exposes her ignorance of the effect of such policies in other countries. It is a statist’s’ knee-jerk reaction: once we’ve identified a problem naturally all we need to do is throw a bunch of money at it and have the government point guns at people, and the rest will take care of itself! After all, the Danish taxpayer is forced to pay for everyone’s college tuition, and they are prospering! This sort of simplistic stance on education completely ignores historical and empirical evidence that shows that the voluntary system in existence before the dawn of compulsory schooling already met the existing needs for education, or that modern public schooling is a lot more likely to increase social segregation. The latter is confirmed by Chilean figures correlating people’s addresses, incomes and test scores. Besides, we already know that putting more power into the hands of bureaucrats in faraway government buildings, where we can be sure their views and policies will be heavily influenced by special interest groups, will invariably reduce transparency, accountability and quality. In the United States, for instance, this has lead to a ballooning student loan debt that now stands at $1.2 trillion or some $30,000 per student. In three decades tuition fees have risen by 1,120 percent, meaning that the same college degree today costs 12 times as much as in 1978. The total bill ranked up on behalf of the American …

Who Will Be Hurt Most by Chile’s Carbon Tax?

As part of the tax reform put into law last month, Chile now has the “honor” of calling itself the first South American country to impose a carbon tax. Starting in 2018 Michelle Bachelet’s center-left government will attach a price tag of $5 to every ton of carbon emissions produced by the country’s large electricity generators. The law will apply to any thermal generators with a capacity of at least 50 megawatts – though biomass plants are exempt – and will reportedly extract $160 million out of the economy. Coincidentally the year the new carbon tax takes effect is the same year Chile is expected to officially become the first developed nation on the continent. The adoption of free market policies in recent decades – the Fraser Institute now ranks the Chilean economy as the 10th freest in the world – has made Chile a model for other South American nations to emulate. Squarely in line with her socialist philosophy, though, Bachelet aims to mold Chilean society according to her wishes. Unfortunately for Chilean citizens, especially the poor whose lots Bachelet claims to want to improve, this includes taxing electricity. Considering that some 30 percent of the country’s energy production stands to be affected, the carbon tax will likely have a serious impact on prices. Naturally those hit hardest by such price hikes are those spending the highest share of their income on energy, i.e. the poor. Enter the schizophrenia of left-environmentalism: advocating for forced wealth transfers to help the needy while simultaneously adopting policies that raise the prices those same people pay for some of the most basic necessities. Besides the obvious truth that a tax levied on any product or service raises its price, there is empirical evidence on environmental taxes we can point to and learn lessons …

Keynesianism in Chile

Last week Chilean president Michelle Bachelet announced an “especially anti-cyclical” government budget for 2015. Utilizing the usual rhetoric of creating jobs and stimulating the economy, the first budget in her second term is set to increase by a whopping 9.8 percent. The new budget’s “historical increase in public investment” – mind you, these are the words of a Socialist Party president – will be directed mostly toward social reforms. The increase in spending is supposedly covered by a landmark tax reform passed last month raising corporate taxes and closing tax exemptions. These funds, confiscated from those who could make actual investments to meet market needs, will be used to ramp up spending on health care by 85 percent and education by 10.2 percent. In addition, Bachelet pledged to pump more money into developing certain remote regions and consolidate social welfare schemes, stating her administration’s goal to have 1,700 of the poorest families on the dole by next year. The latter, of course, is typical of the redistributionist ideology; the fundamental difference between giving a man a fish to feed him once and teaching him how to fish so that he may become more self-reliant. As always the irony of striving first and foremost to make the poor and destitute more dependent on others for their sustenance seems to be lost on most people. Growing up, children are expected to become better able to take care of themselves and take on more responsibility as they get older – I personally recall a story or two about my older sister looking after me when we were kids. Yet when government takes this inherent human instinct and turns it on its head, nobody bats an eye. In her press conference president Bachelet claimed the stimulus will create 139,000 jobs. What she left out, …

What’s Really Growing in Argentina?

Traveling through Argentina recently I was taken aback by the abject depression that seems to have taken the country and the people in its grip. Even after spending barely two days in the country I left with a negative taste in my mouth. More than the many buildings, modes of transport, streets and sidewalks in severe states of disrepair the overall feel of the place really stood out in my mind. And it is not that I was expecting to see a prosperous, bustling country either. For some time now it has been clear that the Argentine economy is rapidly disintegrating. The people are struggling to cope with an estimated inflation rate of over 50 percent, a rate the Kirchner administration has been stubbornly underreporting to the point to where international authorities have openly questioned the numbers. Other persistent problems include seemingly permanent fiscal deficits, international reserves drying up, and the ongoing devaluation of the peso. Government spending as a percentage of GDP now hovers around 50 percent, contributing to last month’s second sovereign debt default in a mere 13 years. Meanwhile the previous one is still haunting the state budget. In late 2001 the Argentinian government declared the world’s largest sovereign default, triggering the worst economic recession in history. Unemployment spiked to 20 percent causing widespread riots and looting, not to mention political instability– five different presidents held office in a mere two weeks. Eventually the debt was restructured and most bondholders agreed to a debt swap even if the new bonds were worth only 35 cents on the dollar. A small minority holding some 9 percent of Argentine debt did not take the deal. Consequently these hedge fund “holdouts”, in Argentina less affectionately referred to as “vultures”, have been involved in a legal battle with the government that …

Saving the Amazon From Socialism

As reported by the BBC last week, Brazilian authorities have dismantled a criminal organization believed to be the “biggest destroyer” of the Amazon rainforest. The gang stands accused of invading, logging and burning large areas of public land to put up for sale for farming and grazing. Their crimes, said to be worth more than $220 million, could land them up to 50 years of jail time if found guilty on all charges of invading public land, theft, environmental crimes, forgery, conspiracy, tax evasion and money laundering. Representing more than half of the world’s rainforests the Amazon is the largest and most biologically diverse tropical rainforest on the planet. Its millions of square miles are home to the largest collection of living plants and animal species in the world. While the Amazon is largely contained within Brazil, its 2.1 million miles span a total of nine countries from Peru on the Pacific side of the continent to French Guiana on the east coast. Given the vast size of the area it is little wonder that some (illicit) activity goes unnoticed. In the case of the Amazon, however, there is a major contributing factor. One of the aforementioned charges likely to catch a libertarian’s eye is invasion of public land. The real underlying problem, then, becomes readily apparent: no one owns the Amazon! Even the BBC’s correspondent in Brazil is quick to point out that political and police corruption coupled with the federal government’s ineptitude allows loggers and illegal miners “to operate with impunity”. So here we have a situation in which a lack of real ownership of land predictably leads to poor conservation of the area and its natural beauty. The solution, then, should be equally obvious. And it is. Contrary to mainstream environmentalist thinking examples of successful private management …

Brazil: Time For a Property Rights Revolution

During the Language of Liberty Institute’s Liberty Seminars in the south of Brazil last May, the attendees were treated to a talk about freedom and human prosperity. Using the Economic Freedom of the World report CATO’s Latin America expert Juan Carlos Hidalgo made a convincing case for (economic) freedom as a prerequisite for human progress. One of the points he made about underdeveloped countries relates to how poor protection of property rights stifles economic growth. In Brazil this lack of recognition of property rights is most pronounced in the infamous favelas. In the years and months leading up to the World Cup the evictions generated some press, but now that the international spotlight has shifted elsewhere it is business as usual. While major sporting events in third world countries have become somewhat notorious for leading to these practices, they certainly are not a requirement. One state over from Rio de Janeiro is Minas Gerais, epicenter of Brazilian coffee and milk production. Its capital and largest city Belo Horizonte boasts the third largest metropolitan area in the country after Rio and São Paulo and is a major financial hub in South America. Consequently it has attracted swaths of lower-class jobseekers who, lacking the financial resources necessary to buy a home in the city, opted to build their own communities on the outskirts of town. Now, local authorities are threatening to forcibly evict the 8,000 families who have taken up residence there. Leaflets spread over the region announced military police would – absent a court decision – follow their orders to repossess the land “in accordance with the constitution and the fundamental principles of human rights”. Residents of the three communities, however, have unanimously decided to stay in their homes after the state government pulled the plug on negotiations with them. The …

Privatize Water!

In recent days reports have been coming out about authorities’ struggle to battle a water shortage in Brazil’s two major cities of Rio de Janeiro and São Paulo. Ostensibly caused by a severe drought, the crisis has even sparked fears of an impending “water war”. Measures taken earlier this month to reduce the water flow at a major dam were unsuccessful to say the least, cutting off running water to families in some neighborhoods for as long as 12 hours a day. Unsurprisingly, the vast majority of the water system is government-run without much debate. After all, for all its ubiquity, government incompetence does not always overtly affect people’s daily lives. Now that it does, it might be an opportune time for Brazilian freedom advocates to voice their opinions. While some market reform has taken place in recent years, the process has been severely stifled by jurisdictional conflicts fueled by Constitutional as well as other regulations. Besides establishing a national system of water resources management the Constitution also defines criteria for granting rights of use, and it regards surface water and groundwater as property of the states. The National Water Resources Policy even specifies many uses of water that require government permission. A World Bank publication analyzing market reform in urban water supplies in Santiago de Chile found “surprisingly large” net benefits in economic welfare despite significant price hikes. After years of losses largely imposed by regulatory obstacles the Santiago Metropolitan Works Enterprise had become so underfunded it could no longer perform basic maintenance on its systems. Some of the positive results included almost 100 percent coverage of expanding demand, better water pressure, fewer interruptions of service and higher wages for employees. The outcomes were so positive, in fact, that full privatization of the entire urban water supply and sanitation …

The State of Firearm Freedom in Brazil

Walking down the street here in Brazil it quickly becomes apparent political campaigns are in full swing. Signs displaying the slick smiles and hollow rhetoric of (would-be) politicians abound, and the same rhetoric emanates from megaphones on small vans driving around town. But besides the more high-profile presidential elections there will also be state elections injecting more specific issues into the public debate. Recently one such sign immediately caught my eye. With an image of a firearm and the text “contra o desarmamento” (against disarmament) it was impossible to miss. A firm believer in the right to self-defense, I felt compelled to find out more about a gun debate I was unaware even existed here. Having found out that gun laws are very much like the ones in my native country of the Netherlands I figured the issue would not even be on the table. Fortunately I was wrong. In 2003 the Brazilian government passed a law dramatically restricting gun sales while all but outlawing their carrying by civilians. Termed the Disarmament Statute it forces potential legal gun owners to go through a litany of paperwork, checks, and tests just to own a firearm and keep it at home. A carry permit can still be denied if it authorities determine “genuine reason” was not provided. Yet in terms of bringing down crime rates the Statute has been a dismal failure; a decade after its adoption Brazil has 50 percent more gun deaths than the United States despite having110 million fewer citizens. Undeterred, Brasilia put forth another initiative to further clamp down on civilian gun ownership in 2005. Luckily this time lawmakers at least had the decency to call a referendum – the first of its kind in the world. The proposed law was meant to entirely ban the sale of …