The Bedrock Institution for Development: Property Rights in Latin America

By Moises Rendon

In 1763 immigrants to the North American colonies had more secure property rights than a native-born Venezuelan does in the twenty-first century. Property rights in the U.S. were “constituted, secure, and out of reach of oppression from the most powerful” even before America’s independence. The concept of property rights runs in the blood of North America, fueling its market system, and helping the country to prosper. While the importance of having well-defined and strongly protected property rights is now widely recognized among policymakers, Latin America lags behind on securing the property of its people.

Property rights are the laws that allow individuals to manage, benefit from, and transfer property. Government enforcement of strong property rights is generally linked with more prosperous and developed countries. As the 2015 International Property Rights Index (IPRI) shows, the five best performing countries have an average GDP per capita of $72,000, whereas the five worst performing countries have an extremely low average of $3,900. The Latin America and the Caribbean region ranks just ahead of Africa, and countries with ongoing-armed conflicts like Nigeria or Chad have better protection of land rights than Argentina, Haiti, and Venezuela. Countries that flourish economically understand the difference between prosperity and poverty: property.

In Latin America, Venezuela and Argentina stand out for the consistent and institutional undermining of property rights. Venezuela, a country that the International Monetary Fund (IMF) identified with inflation of 720 percent this year, is ranked second to last on the protection of property rights in the region. In fact, more than 1,200 private companies were expropriated during Hugo Chavez’ administration from 1999 to 2013. Similarly, Argentina has a poor track record of respecting property rights. In 2012 Repsol, a Spanish oil group, underwent the traumatic experience of seeing its subsidiary unit in Argentina stripped from it by the government of President Cristina Kirchner. The expropriation of private property is the perfect recipe to frighten off investors. With few exceptions like Colombia and Peru, Latin America has seen major capital flows trying to reach other, more investor-friendly regions.

 

1200px-Rocinha_Favela_Brazil_Slums

Brazil has a significant slum population and weak property rights, leading to a large informal economy.

 

On the other hand, Peru’s success in reforming and improving its property rights has helped to transform the country into one of the best-performing economies in the region. In the 1980s, the Institute for Liberty and Democracy (ILD) helped to move Peru’s street vendors, transport drivers, poor farmers in remote areas of the Andes, and millions of other participants in Peru’s huge informal sector (or the “extralegal economy”), into the legalized economy. Policy reforms like simplifying administrative processes, improving access to public information, unifying business registries, and democratizing rulemaking have helped make Peru the second highest ranked country in Latin American and the Caribbean in the World Bank’s 2016 Doing Business report. Hernando de Soto, ILD’s founder, affirmed that they have received more than 44 requests from reform-minded governments from all over the world seeking to learn from Peru’s positive experience on protecting property rights. As a matter of fact, this kind of policy reform put Peru ahead of countries including Canada, the UK, and Japan on the Registering Property Indicator of the 2016 Doing Business report. Continue reading

Weekly Roundup

This week in development…

U.S. Development Policy/International Organizations

  • The United Nations has requested $1 billion for the first half of 2015 in order to eradicate Ebola in West Africa, especially for Guinea, Liberia and Sierra Leone, where the “epidemic has started to turn.” Valerie Amos, the UN Under-Secretary-General for Humanitarian Affairs and Dr. David Nabarro, the UN Special Envoy on Ebola announced on Wednesday the new appeal for increased aid focused on re-establishing important social services and improving the security of individuals in the region.
  • Andrew Lansley, the former UK Health secretary and leader of the House of Commons, is a potential appointee for the role of UN relief head. Lansley faces intense opposition from more than eighty major disaster-relief NGOs globally, who are concerned that his candidacy is driven by his political positioning and that his lack of inexperience could be a serious impediment to the disaster-relief sector. The 80 international relief organizations implored UN Secretary General Ban Ki Moon to establish a panel of experts to help him select the candidate, a move which could hurt Lansley’s prospects.
  • The International Labour Organization (ILO) released a statement on Thursday with new data suggesting that private sector services and a rising care economy are expected to provide employment for more than a third of the global workforce over the next five year period. Many public sector services that comprise the service economy, such as health care, education and administration, will be important employment resources. This shift signals the changing role of policies to support enterprise and the labor force. It also illustrates an amplified engagement with opportunities interconnected to new technologies.

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Weekly Round-Up

U.S. Development Policy/International Organizations

  • Ahead of this weekend’s G20 summit, World Trade Organization (WTO) members India and the United States agreed to extend a “peace clause” to 2017 allowing India to maintain its food subsidy program. The deal ends a WTO stand-off on trade facilitation that supporters describe as the biggest crisis the organization has faced in its two decade history. Implementation of the trade facilitation agreement would add $1 trillion to the global economy
  • Multilateral banks jointly backed G20 plans for the Global Infrastructure Initiative, a global hub that would share information to help match investors with projects. The Australia-led initiative comes on the heels of the formation of the Chinese led Asian Infrastructure Investment Bank (AIIB) set to launch in 2015.
  • USAID is drafting new internal policy prohibiting future covert, democracy-promotion efforts in hostile foreign countries that reject USAID funds. Recent USAID off-the-books democracy-promotion in Cuba prompted internal review and a critical response from Senators Patrick Leahy, D-Vt., and Jeff Flake, R-Ariz.

Asia-Pacific

Leaders gathered for the  APEC Summit in Beijing this week,

Leaders gathered for the APEC Summit in Beijing this week, but much of the action took place on the sidelines of the official meetings.

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