Latin America 2030 Series SOUTH AMERICA

Transcription

1 Latin America 2030 Series SOUTH AMERICA

2 Table of Contents Introduction 2 Transnational Crime and Security 5 State Capacity 6 Economic Growth 8 Demographics 9 Technology 11 Outliers 13 Venezuela 13 Climate Change 14 Outside Actors 14 Collapse of Traditional Party Systems 16 Case Studies 17 Looking into the Crystal Ball: South American by The following South America 2030: Political, Economic and Security Outlook is the third in a three-part series assessing political, economic, security, and cultural trends in Latin America and the Caribbean through United States Southern Command provided funding to support this series as part of its academic outreach efforts. Academic outreach is intended to provide United States Southern Command with new ideas, outside perspectives, and spark candid discussions. The views expressed in this findings report are those of the authors and do not necessarily reflect the official policy or position of the United States Government, United States Southern Command, Florida International University, Global Americans, or any other affiliated institutions.

3 Introduction With the exception of Brazil, the 10 sovereign countries of South America included in this report (for reasons of cultural and political affinity we included Guyana and Suriname in the Caribbean Basin report) are all Spanish-speaking. But despite the dominance of Spanish as the official language in all but Brazil, the diversity of the region is staggering; the region boasts a range of indigenous languages, more than 100 according to Americas Quarterly, 1 from the rainforests of Venezuela, Colombia and Brazil to Patagonia in Chile, to the Chaco of Paraguay, to the highlands of Bolivia, Ecuador and Peru. This report examines the security, political, institutional, economic, demographic, and technological trends in Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, and Venezuela. Despite the tendency to often lump the region together in examining regional political and economic trends, there are great differences between countries. For example, the oft-referred-to pink tide 2 of leftist governments elected in the late 1990s and early 2000s in Venezuela (1998), Brazil (2002), Argentina (2003), Chile (2006), Bolivia (2006), and Ecuador (2007) in fact had little in common beyond a pledged commitment to social justice. The origins of those movements from economic collapse (Argentina), to political alternation in power (Brazil and Chile), to the total collapse of traditional party systems (Bolivia, Ecuador and Venezuela) differed widely, as did the political and economic impact of those governments once in power particularly in Bolivia and Venezuela, where those original movements have bent (and even broken) popular will and constitutions to remain in power. Similarly, economically there is tremendous variation within a region that often appears to move in common waves. Many of the so-called pink-tide governments that came to power in the 1990s and 2000s had the good fortune of doing so as the growth of China and India sharply boosted demand for many of their exports primary products, such as minerals, metals, hydrocarbons, and foodstuffs. What they did with that windfall, and its impact on corruption, economic stability, sustainable job growth, and the consolidation of political power, however, differed greatly across the continent. While the governments in Argentina, Brazil and Venezuela have fallen into corruption scandals over collusion between the private sector and the public sector to misspend new-found wealth to enrich public officials and businesses, others such as Chile and Colombia while not immune from corruption scandals sought to use their windfalls for economic diversification and investment. As a result, while the region s economies grew at a breakneck average rate of slightly over 5 percent between 2004 and 2010, when the commodities boom ended in 2010, what was left varied, and the fundamentals both economic and political remain different, today and for the future. Brazil slipped into the worst recession of its modern history, with its economy contracting by 3.5 percent in both 2015 and Argentina contracted less; but as a result of the profligate policies of the governments of first Nestor Kirchner and later Cristina Fernandez de Kirchner, GDP grew by only 0.01 percent between from 2012 to Venezuela s economic death spiral has been even more severe, with the one-time oil-rich economy losing almost half of its GDP between 2013 and today and with no end in sight. Even the GDP growth projection numbers today for South America hide important differences. While Colombia is expected to grow by 2 percent this year, Paraguay is expected to see its economy expand by 4.5 percent. Venezuela s economy is expected to contract by between 15 to 18 percent, its fifth straight year of economic contraction. The rest fall across the positive range of 2 percent to 4.5 percent a significant difference and one that the World Bank in a recent report said may be soft. 3 [Please see Figure 1 below] Even the modest growth rates for some countries may be too optimistic, particularly Argentina where the government of President Mauricio Macri just re-adjusted its projections for economic growth downward to -1.5 percent for 2018 and -.5 percent for At the same time, as Brazil starts to climb out of its recession, it faces the aftermath of a highly polarized election and angry electorate in which much-needed economic reform was not prominent in the political debates in a campaign dominated by issues of corruption and violence. There are few outstanding border disputes in South America. Bolivia s claims to the stretch of land it lost connecting it to the Pacific coast in the War of the Pacific with Chile was at least juridically resolved when the International Court of Justice at The Ha Just the Numbers: The hemisphere s indigenous languages, Americas Quarterly, Winter 2011, org/node/2092 (Last accessed 10/15/18). 2. de Santiago, Monica, The Pink Tide in Latin America, Modern Latin America, modernlatinamerica/chapters/chapter-8-venezuela/moments-in-venezuelan-history/the-pink-tide-in-latin-america/ (Last accessed 10/15/18). 3. World Bank warns of Latin America s fragile recovery, October 5, 2018, (Last accessed 10/17/18).

4 FIGURE 1 Gross Domestic Product Growth Rates, COUNTRY Argentina 2.0% 3.2% 3.1% 3.2% 3.3% 3.3% Bolivia 4.0% 3.8% 3.7% 3.7% 3.7% 3.7% Brazil 2.3% 2.5% 2.2% 2.2% 2.2% 2.2% Chile 3.4% 3.3% 3.2% 3.1% 3.0% 3.0% Colombia 2.7% 3.3% 3.6% 3.6% 3.6% 3.5% Ecuador 2.5% 2.2% 1.7% 1.8% 1.6% 1.8% Paraguay 4.5% 4.1% 4.0% 3.9% 3.9% 4.0% Peru 3.7% 4.0% 3.9% 3.9% 3.9% 3.8% Uruguay 3.4% 3.1% 3.0% 2.9% 3.0% 3.0% Venezuela -15.0% -6.0% -2.0% -1.5% -1.5% -1.5% SOURCE: IMF World Economic Outlook. gue, in a 12 to 3 decision in October 2018, determined that Chile had no obligation to negotiate with Bolivia over its claims. Other disputes have similarly been resolved or tamped down, including an Ecuador-Peru border dispute that erupted into a brief war in 1995 but is now settled, and a number of minor territorial flashpoints between Chile and Argentina. The only active border hotspots revolve around Venezuela. First is the country s longstanding dispute with Guyana, going back to colonial disagreements that were supposedly settled in 1966 by the Treaty of Geneva, signed by the United Kingdom, Venezuela and British Guiana. The treaty committed the parties to find a practical, peaceful and satisfactory solution to the dispute. But the dispute remains, and has flared in recent years after more than 2 billion barrels of oil were discovered off the coastal waters of the disputed territories. Recently the U.S. officially changed its public policy of urging a quick resolution to recognizing the borders as they are currently demarcated. With Colombia, tensions have also risen as the Venezuelan domestic crisis spikes. The Venezuelan government perceives Colombia, along with the United States, as its main conflict hypothesis, and analysts fear that the Maduro regime will tend towards a malvinization in similar fashion to the Argentine dictatorship, attempting to draw attention away from the internal crisis by pursuing an external conflict with Colombia and reinforcing the discourse that the crisis is the fault of external actors. 4 The third stems from the massive refugee crisis that has accompanied Venezuela s economic, humanitarian and political collapse; by October 2018 an estimated 2.3 million Venezuelan citizens had fled, mostly to neighboring countries, such as Colombia, Brazil, Ecuador, and Peru. While neighboring countries have given Venezuelan refugees a largely welcome reception and international assistance has started to flow to address the infrastructural and humanitarian strains, the indefinite resettlement of unemployed, impoverished refugees is already starting to cause strain in these countries and could bring resentment, political backlash and potential conflict. These issues are exemplified in the recent burning of a Venezuelan refugee camp in Roraima 5, the collapse of the Ecuador-Colombia border 6, growing discrimination against Venezuelans in Peru 7 and the growing recruitment of refugees by guerrilla and paramilitary organizations in 3 4. Serbin Pont, Andrei. La Fuerza Armada Bolivariana Como Obstáculo Para La Cooperación Colombia-Venezuela. In La Problemática Del Tráfico Ilícito De Drogas: Impacto Regionales Y Globales, Bogotá: Editorial Javeriana, Brazil Sends Troops to Venezuela Border after Residents Drive out Migrants from Improvised Camps. The Telegraph, August 19, 2018, (Last accessed 9/15/18). 6. Fleeing Venezuelans Face Suspicion and Hostility as Migration Crisis Worsens. The Guardian, August 19, 2018, theguardian.com/world/2018/aug/19/fleeing-venezuelans-suspicion-hostility-migration-crisis-ecuador (Last accessed 9/15/18) ,1 % De Los Venezolanos En Perú Ha Sido Discriminado Por Su Nacionalidad. NTN24, July 11, 2018, america-latina/venezuela/351-de-los-venezolanos-en-peru-ha-sido-discriminado-por-su-nacionalidad (Last accessed 9/15/18).

5 FIGURE 2 Murder Rates South America COUNTRY Murder rate (per 100,000) Argentina 5.94 Bolivia 6.3 Brazil Chile 3.46 Colombia 25.5 Ecuador 5.85 Paraguay 9.29 Peru 7.67 Uruguay 7.69 Venezuela SOURCE: UNDOC Colombia 8, among others, which serve as indicators of limited state capacity to deal with largest refugee crisis in the region s history. But even if inter-state conflicts are few and remote, in many countries these societies are at war within themselves. Across many countries, such as Venezuela, Brazil and Colombia, domestic murder rates equal the death tolls resulting from inter-state conflicts in other continents. Seven of the ten most murderous cities in the world are in South America, with the other three elsewhere in Latin America. 9 See Figure 2. The reasons for these abnormally high rates of violence are multiple and differ by country. For many historians and sociologists, the reasons are rooted in the patterns of domination and exclusion from colonization. 10 More modern explanations, however, revolve around the traditional weak power of the state and illicit activities and networks. State weakness on the monopoly on the legitimate use of force (to use the minimalist definition from Max Weber 11 ) does not just extend to the vast rural areas but to cities themselves where the majority of citizens live. (See our summary demographics section below.) As a result, in prominent cities such as Rio de Janeiro, Bogota, Caracas, São Paulo, and Ciudad del Este, there are areas that remain far from the rule of law and the state. This has been complicated by narcotics trafficking and transnational crime, though the extent as we address briefly below varies by country, as have the successes in battling back. While avoiding the reductionist region-wide summaries criticized above, politics are also in flux across the continent, driven largely by the same factors. Their impact, though, will vary depending on the institutional capacity of democratic regimes to check the accumulation of personal power, defend the rule of law, and constructively and democratically channel popular frustration with the political class and democracy in general to generate and promote a new generation of democratic leadership unsullied by past corruption scandals. Across the ten countries in South America, the levels of trust in political parties average a paltry 15.4 percent, ranging from a high of 24.3 percent in politically stable Uruguay to a low of 7.5 percent in Peru. Meanwhile support for democracy across the same countries averages 59.6 percent, ranging from a high of 82.4 percent in Uruguay to a low of 48.6 percent in Paraguay. In none of the countries however, does a majority support a military coup under scenarios of high crime or corruption. 12 While those levels have decreased over time from already low rates, the most alarming have been declines in support for democracy. Overall, in the ten countries covered in this report, popular support for democracy has declined from highs in 2008 or 2010 from on average 15.3 percent. The greatest drop occurred in Venezuela (24 percent decline), Brazil (21.3 percent decline), Colombia (19.4 percent decline), and Ecuador (16.4 percent decline). To better understand and analyze these issues, their inter-relationships and likely impact in the future, we have untangled them into five separate themes: 1) transnational security and violence; 2) institutional capacity; 3) economic growth; 4) demography; and 5) technology and communications. In addition, we discuss four cross-cutting themes: the likely impact of extreme weather; the growing influence of extra-hemispheric actors; and growing popular di Respuestas Regionales a La Crisis Venezolana: Fortaleciendo Capacidades De La Sociedad Civil E Ini-ciativas Multilaterales. Policy Memo. CRIES. Panama: CRIES / Stanley Foundation, Latin America Is the Murder Capital of the World, in Wall Street Journal, September 20, 2018, articles/400-murders-a-day-the-crisis-of-latin-america (Last ac-cessed 10/17/18). 10. For an excellent, readable summary of this thesis see Tina Rosenberg s book Children of Cain: Vio-lence and the Violent in Latin America, (New York: Penguin Group, 1991). 11. Weber, Max, Economy and Society Volume I, Edited by Guenther Roth and Claus Witch, (Berkeley: University of California Press, 1978). 12. These are taken from Vanderbilt University s Latin American Popular Opinion Project (LAPOP). Regional averages are unweighted averages intended to be illustrative. (Last accessed 10/8/18).

6 senchantment with existing political systems. By far the most important factor shaping a number of issues addressed here from security to demographics will hinge on the fourth outlier: the future of Venezuela. Transnational Security Challenges and Violence South America is facing a wide array of security challenges. The growth of transnational criminal organizations is becoming a prevailing concern in most of the countries in the region. It is not, however, a homogenous threat; criminal organizations have developed under different national contexts and with different strategies. At the same time, governments are using different approaches and policies to counter these illicit groups; 13 state capacities differ; and endogenous factors like common crime and violence affect every country differently. This means that while there is a presence of common threats to the countries in the region, the security landscape varies drastically from country to country. When it comes to transnational criminal organizations, drug trafficking is the most profitable international criminal activity in the world and the most prevalent in this region. It comprises a sophisticated globalized trade scheme that often combines a variety of illicit activities going from the production of raw materials, to the transshipment of raw and processed goods, to retail of final products to money laundering. In South America, we find the main producers of coca and cocaine (Colombia, Peru and Bolivia) as well as some of the main transit routes to the United States and Europe (of which Venezuela has become a major hub). In recent years, consumption in South America has also grown substantially along with violence associated with the distribution of narcotics. Brazil accounts for 13 percent of global murders. 14 Added to the traditional mix of drugs, marijuana and cocaine are heroin and synthetic opioids. Many of the primary chemicals for the latter which in 2017 claimed almost 64,000 lives in the United States from overdoses come from China destined for the United States. The region is also characterized by weak formal institutions, low compliance with the law and systematic violations of the rule of law, including by the state itself. 15 In terms of responding to drug trafficking, governments in the continent have attempted to address this by subscribing to different United Nations conventions, establishing cooperation agreements between governments and conducting joint operations between different security forces or judicial agencies. Because of the criminal nature of narcotics trafficking, most consider the most relevant response the national or federal police forces. 16 However, a significant part of the state response to drug trafficking depends on subnational state actors, such as provincial governments and/or municipal-level police forces. These generally lack the legal authority and institutional capacity to track and attack drug trafficking at the transnational level at the same time that they must deal daily with the local violence associated with this crime, especially its retail distribution. 17 One example of this multi-national coordinated effort is the Latin American and Caribbean Criminal Court against Organized Transnational Crime (COPLA) initiative. While still in its early stages, the program is based on the idea of developing a supranational view and approach to a phenomenon transnational crime that threatens national security by coordinating contacts and the exchange of information on drugs, weapons and money laundering across countries. Currently COPLA has the support of some governments in the region as well as several civil society organizations and academics, yet has only advanced in a proposal for the statutes of the organization. Other security threats also transcend national borders and defy authority. An example of this is black market for firearms in Brazil that has emerged from the demand of criminal organizations such as Primer Comando da Capital (PCC) and Comando Vermelho. In these cases, Paraguay has become one of the main suppliers to the Brazilian groups. 18 Another security threat, of still unclear propor Pastrana Buelvas, Eduardo, and Diego Vera Piñeros. Herramientas Teóricas Para Comprender La Multidimensionalidad Del Problema De Drogas. In La Problemática Del Tráfico Ilícito De Drogas: Impac-to Regionales Y Globales, Bogotá: Editorial Javeriana, Muggah, Robert, and Katherine Aguirre Tobón. Citizen Security in Latin America: Facts and Figures. Rio De Janiero, RJ: Igarapé Institute, Levitsky, Steven and María Victoria Murillo. Building Institutions on Weak Foundations. Journal of Democracy 24, no. 2 (2013): (Last accessed October 17, 2018). 16. Flom, Hernán. Política, Policía Y Violencia: La Regulación Del Narcotráfico En El Cono Sur. Revista De Estudios En Seguridad Internacional4, no. 1 (2018), (Last acces-sed 9/15/18). 17. Flom, Hernán. Política, Policía Y Violencia: La Regulación Del Narcotráfico En El Cono Sur. Revista De Estudios En Seguridad Internacional4, no. 1 (2018), (Last acces-sed 9/15/18). 18. Paraguassu, Lisandra. U.S. Biggest Source of Illegal Foreign Guns in Brazil: Report. Reuters, Janua-ry 18, 2018, com/article/us-usa-brazil-arms/u-s-biggest-source-of-illegal-foreign-guns-in-brazil-report-iduskbn1ez2m5 (Last accessed 9/15/18) and Maior Parte De Armas Ilegais Vem Dos EUA E Paraguai, Diz PF. Veja, January 9, 2018, (Last accessed 9/15/18).

7 tions, is the presence of terrorist organizations in the region. Though there have been series of thinly substantiated allegations, we do know the following: the Paraguayan government has detained Lebanese Hezbollah leader Assaad Ahmad Barakat for having been illegally granted a Paraguayan passport. 19 And there have been recurring accusations and evidence of a Hezbollah presence in Venezuela through government facilitation of passports, aerial transport and other means to establish activities in that country. 20 The little research available on the issue suggests that this presence is linked to safe-housing and financing activities, not training or targeting objectives in the region. Other studies on Hezbollah s presence in Paraguay and the Tri-Border area of Paraguay, Brazil and Argentina have reached similar conclusions. 21 An overarching trait in the region is the lack of a multidimensional strategy by national governments to counter criminal organizations. 22 This in turn leads to over reliance on single-faceted approaches to combating drug trafficking, in the end resulting in reducing state capacity to effectively counter threats and increasing the risks of widespread penetration of international criminal organizations. State responses are also varied in scope, focus and means used to tackle these security challenges, which complicates the effectiveness of international cooperation. The region has also become source in a growing trend in money laundering: trade-based money laundering (TBML). According to the U.S. Department of State s 2016 annual report on money laundering and financial crimes, TBML concerns have surfaced in countries or jurisdictions that include Brazil, Colombia, Guatemala, Mexico, Panama, Paraguay, Uruguay, and Venezuela. 23 As commodity prices increased with the rise of China and India, criminal groups have also taken to illegal mining and resource extraction. In Peru, Venezuela, Colombia and Brazil, criminal syndicates operate mines for materials such as cooper, coal, emeralds, and gold, and also engage in illegal logging. In some cases, such as illegal loggers in Brazil and illicit mining in Peru, some of these groups have close contact with local and national politics, complicating efforts to effectively investigate and punish these illegal actors and close down their activities. Though often overlooked and not technically a matter of transnational security, violence against women and femicide is a serious issue of violence in the region. According to A Gendered Analysis of Violent Deaths, a report published in 2016 by the Small Arms Survey, among 25 countries with the highest rates of femicide in the world, 14 are from Latin America and the Caribbean. According to the Economic Commission for Latin America and the Caribbean (ECLAC), on average 12 women are murdered a day across the region. However, due to data limitations, the ECLAC numbers do not include Brazil, a country with one of the worst records of gender-based violence. Between 2007 and 2012, Venezuela and Colombia led South America in the estimated number of murders of women per 100,000 (five each) with Brazil having an estimated rate of four per 100,000. Those numbers placed them ninth, tenth and thirteenth in world rankings of the most dangerous places to be a woman. 24 State Capacity As in any of the sub-regions discussed in this series of reports, state capacity varies across South America, ranging from the centralized, relatively efficient, professional civil bureaucracy and security apparatus of the Chilean state, to countries like Colombia, Ecuador, and Peru that for centuries have struggled to integrate and govern vast sections of rural areas many of them populated with indigenous or remote rural communities while at the same time attempting to incorporate newly urbanized populations. In the case of Colombia, the legacy of its weak state has been one of the main factors, deeply aggravated by narcotics and illicit activities, that have so vexed the country s efforts to control irregular armed groups and to gain effective control over its territory. Brazil faces many of these same challenges (with the exception of armed combatants) but, given its size, on a much grander sca Investigan En Paraguay Quién Facilitó La Ciudadanía De Un Terrorista De Hezbollah. INFOBAE, america/america-latina/2018/09/05/investigan-en-paraguay-quien-facilito-la-ciudadania-de-un-terrorista-de-hezbollah/ (Last accessed 9/15/18). 20. Theis, Reyes. Está Hezbollah En Venezuela? El Estimulo, March 27, 2018, (Last accessed 9/15/18). 21. Sabatini, Christopher, The Islamist threat in Latin America and the Caribbean: What do we really know? Global Americans, January 26, (Last accessed 10/9/18). 22. Castro, Rafael, and Nataly Triana. El Debate Global Sobre Los Enfoques De Regulación Y Lucha Contra Las Drogas Ilícitas. In La Problemática Del Tráfico Ilícito De Drogas: Impacto Regionales Y Glo-bales, Bogotá: Editorial Javeriana, Miller, Rena, Leana Rosen, and James Jackson, Trade-Based Money Laundering: Overview and Poli-cy Issues, Congressional Research Service, June 22, 2016, (Last accessed 10/15/18). 24. Global Americans, Femicide and International Women s Rights in Solidarity with the People? reports/femicide-international-womens-rights/ (Last accessed 10/9/18).

8 le, both in extending effective rule of law and control to vast areas of the interior and the rainforests and to its sprawling cities and favelas. At the same time, the Brazilian government is heavily burdened as we discuss below with unsustainable pension and civil servant salaries, crippling its ability to meet rising popular demands unless it embraces deep reforms. Ironically, the answer of many South American governments to these institutional deficits has been to create pan-regional organizations, which have done little to address the fundamental weaknesses both of domestic governance and regional coordination. As a result, South America is a graveyard of failed or marginal multilateral experiments such as the South American Parliament, a number of regional congresses, the recently defunct Union of South American Republics (UNASUR) and the pan-regional pipe dream of former president Hugo Chávez, ALBA. Two regional organizations have remained standing, though, both of relatively recent creation or rebirth. The economic, trade-focused Pacific Alliance, comprising Chile, Peru, Colombia and Mexico, has a narrow focus of integrating Pacific Rim economies to better compete and cooperate with Asian economies; it has already led to a series of important initiatives including the integration of their stock markets. The older and one time enfeebled Southern Cone Common Market (MERCOSUR), appears to also be going through a re-evaluation and renaissance. The World Bank maintains a Governance Index that measures political stability and absence of violence, voice and accountability, government effectiveness, regulatory quality, rule of law, and control of corruption. It scores each of those variables individually and combines them on a scale of 0 to 100 percent with average scores closer to 100 percent marking better levels of governance. (Individual numbers for each country are below.) The scores show the diversity within South America. Uruguay scores the highest on the World Bank measurement with 80.3 average across all six measurements with Chile close behind at The more developed countries such Argentina (50.2), Brazil (46.2), Colombia (45), and Peru (48.7) cluster around the middle, while the more ethnically diverse and poorer such as Bolivia (28.7), Ecuador (31.2), and Paraguay (36) rank lower. The lowest in terms of governance is Venezuela, not just in the region but near the bottom globally at 8.2 average, a reflection of decades of a politicized state that has gutted the government of qualified civil servants and crushed the checks and balances of democratic governance and the rule of law. Another proxy measurement for institutional capacity and corruption is tax avoidance. According to a UN University 2017 study, by far the highest rate of tax avoidance, as measured as a percent of GDP, is Argentina with tax avoidance totaling 5.1 percent, followed by Peru at 2.7 percent. 25 On the flip side are negative tax avoidance rates of Paraguay (-1.32) and Brazil (-1.32). But rather than indicate an unusually obedient taxpayer population, the negative numbers reflect the cascading taxation rates of both countries that in some cases can total more than 100 percent of a company s profits. (Note: Information was not available for Venezuela.) Corruption also remains a problem. According to Transparency International s 2017 Corruption Perception Index, which ranks 180 countries globally by perceived levels of corruption on a score of 0 to 100 (with a 0 ranking representing highly corrupt and 100 very clean), Uruguay (70) and Chile (67) top the list of the least corrupt on the continent. Most of the other countries cluster in the 30s, with the exception of Venezuela, which scores 18 on the corruption perception index, making it, according to Transparency International, one of the most corrupt nations in the world. There is another proxy measure for state capacity that, like corruption, is related to security and narcotics trafficking. The percent of a country s roads that are paved is an indication of a state s capacity to extend its presence to rural areas to integrate them politically and economically with the rest of the country; conversely, a lack of hard infrastructure also provides an opening for illicit groups, by both limiting the access of security forces to critical areas but also providing opportunities for illicit groups to transport product. As one campesino told an author of this study, I don t have highways to ship cacao or hearts of palm, but I don t need them because the narcos just fly in and pick up my coca. 26 According to this indicator, Argentina ranks highest (30 percent) with Chile in second (23 percent) in terms of paved roads. A number of the countries involved either in the production or transshipment of narcotics rank much lower: Bolivia (10.8 percent); Brazil (13.5 percent); Ecuador (14.8 percent); and Peru (13.3 percent). Data were not available for Colombia and Venezuela. This is not to imply causation but rather the security, economic and institutional hurdles of addressing the illicit economies in these countries UN University WIDER, Global distribution of revenue loss from tax avoidance, WIDER Working Paper 2017/55, wider.unu.edu/sites/default/files/wp pdf (Last accessed 10/10/18). 26. Interview conducted by primary author in 1996 with a farmer in northern Peru in recently liberated Sendero Luminoso territory. 27. CIA World Fact Book, Roadways, (Last accessed 10/10/18).

9 The unprecedented exodus of Venezuelan refugees fleeing the country s humanitarian crisis has added another challenge to the ability of South American governments integrate and respond to social pressures. The UN Special Rapporteur for Refugees recently estimated that more than 3 million Venezuelans have left the country, the bulk of them seeking shelter and new lives in neighboring countries, such as Brazil, Chile, Colombia, Ecuador, and Peru. By recent accounts, more than 1 million Venezuelan refugees reside in Colombia, and according to a July 2018 report, and more than 354,000, are in Peru, 39,000 in Ecuador, and 105,000 in Argentina 28 though those numbers are likely much higher today. The repatriation of these refugees is unlikely to occur any time soon, if at all. As a result, governments already struggling to meet social demands and provide safety nets for their own populations now confront a new sizable population in need of assistance. States globally will also need to keep pace with technological developments. For governments and states in Latin America that challenge may be particularly acute. Technology will affect institutional capacity in a number of ways. First, governments will need to adopt modern, effective regulatory frameworks to govern this fast-changing world with implications for personal privacy, intellectual property rights, piracy, crime, popular mobilization, and more transparent government. Second, cybersecurity, as we discuss below, remains spotty in the region and will need to be improved and updated. Last, as technology and automation will change the contours and demands of the labor market, likely displacing large portions of the workforce in areas that governments have long depended on as employment engines for their populations. Economic Growth As mentioned above, removing Venezuela s disastrous economy from the continent s average yields an average of 3.27 percent expected GDP growth in 2019, according to the International Monetary Fund. But as also mentioned above, the World Bank recently claimed that these numbers may be soft, especially for Argentina and Brazil. And while the numbers indicate that the region has started to grow out of the dip from the decline of commodities markets, after the boom of the early 2000s, in Brazil and Argentina that may FIGURE 3 Poverty Rates in South America COUNTRY Population below poverty line (US$5.50/day) Argentina 7.80% Bolivia 25.00% Brazil 19.40% Chile 10.10% Colombia 28.50% Ecuador 23.90% Paraguay 20.10% Peru 24.30% Uruguay 3.70% Venezuela N/A SOURCE: World Bank; World Bank, 2018, Poverty Rate, Washington, DC: World Bank not be sufficient to sustain the gains of the boom years or pull new entrants into the formal job market. After Brazil boasted of lifting more than 40 million citizens out of poverty into a (weakly defined) middle class, in recent years, 6 million of those people have slipped back into poverty. 29 Even after the years when economic growth reached averages of 4 percent and above, South America remains one of the most unequal regions in the world. Poverty rates range between 28 percent in Colombia to a low of 3.7 percent in Uruguay, but average around 18 percent. See Figure As a recent Inter-American Development Bank (IDB) report noted, the region may only recover back to its mediocre longer-term average (per capita) growth rate in the coming years and will likely continue to lose its relative share of the global GDP to other regions. 31 One of the greater challenges facing the region is that the global commodities boom that fueled South American countries growth further concentrated country economies and exports around the raw materials that were in such high demand. China is now the number Camilleri, Michael and Fen Osler Hampson, No Strangers at the Gate: Collective Responsi-bility and a Region s Response to the Venezuela Refugee and Migration Crisis, Washington, DC: Inter-American Dialogue and Centre for International Governance Innovation, (Last ac-cessed November 11, 2018). 29. Prengaman, Peter, Sarah DiLorenzo and Daniel Trielli, Millions return to poverty in Brazil, eroding boom decade, October 23, 2018, (Last accessed 10/17/18). 30. Note: Official poverty data from Venezuela are not considered credible. Independent analysts, though, have placed the rate as high as 80 percent. 31. I 2018 Latin America and the Caribbean Macroeconomic Report: A Mandate to Grow, Washington, DC: Inter-American Development Bank, p. 3.

10 one market for Brazil, Chile, Peru, and Uruguay, but the bulk of the exports from those countries consist of raw materials such as copper and soy. At the same time, as Oswaldo Rosales has demonstrated, Chinese manufactured goods competed with locally produced manufactured goods, cutting into their higher end production even within countries own domestic markets. 32 There are also long-term, structural challenges holding back the region s rate of economic growth potential in the future. The first among them is the region s low levels of productivity and the related low rates of investment. To quote the recent IDB report cited above, Latin America and the Caribbean must search for sources of growth that can drive its economies forward. The expansion of the labor force and improving skills (human capital) have significantly boosted growth over the last 50 years. And while there are still major gains to be realized from further improving skills, the demographic trends are no longer favorable because population is now aging. This puts the onus for raising long-term growth on the shoulders of capital investment and aggregate productivity growth. 33 The culprits, the report concludes, are inefficient financial systems, onerous and inefficient corporate tax systems and tax administration and labor market regulations that make the hiring and firing of workers costly and burdensome. 34 Many governments in the region also face the daunting political challenge of reforming pension systems. Failure to do so risks mounting public debt. According to Santiago Levy in a paper written from the Brookings Institution, Brazil spends 4 percent of its GDP in subsidies to its Pay As You Go system, Colombia 3.5 percent and Peru 1.7 percent. These figures can be put in perspective noting that countries in the region spend on average 0.5 percent of their GDP on conditional cash transfer programs targeted on the poor. 35 As the region s population ages, with declining birth rates, these systems will be difficult to sustain and will require more government funding. Nevertheless, for some, the continent s economic blocs may prove a boon to the region s economic long-term growth after several decades of feckless efforts at political groupings, such as UNASUR and ALBA. The Pacific Alliance of Chile, Peru, Colombia, and Mexico continues with a pragmatic step-by-step process of economic integration and cooperation. While trade among the member countries is low (around 7 percent of combined total trade) the four economies represent 35 percent of the region s GDP. The four member countries have reduced 92 percent of their tariffs for intra-bloc trade (with plans to eliminate tariffs completely by 2020) and integrated their stock exchanges, increasing the capitalization of those exchanges and creating a better coordinated unit for the discussion of trade with Asian partners. It has also lit a fire under near-moribund MERCOSUR, with several South Cone member countries now exploring associate membership with the Pacific Alliance and the bloc beginning in-earnest talks for a free trade deal with the European Union. The Latin American members (Chile, Mexico and Peru) continued commitment to the Trans Pacific Partnership (TPP) trade deal by continuing with the pact even after the Trump administration pulled out shows commitment to free trade and holds great potential for their economies when finally implemented. Currently they are in the process of ratifying the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CP-TPP) basically the TPP without the United States. 36 Nevertheless, as described below, addressing labor market demands and inequality will remain a challenge in the short and medium term that will go beyond simply opening up trade markets. Demographics Demographically, South America is a diverse continent. While Argentina remains primarily a European-descendent population (with only 2.4 percent indigenous and 0.4 percent Afro-descent populations), Bolivia, Ecuador and Peru have large indigenous populations (40.6 percent of Bolivia s population is indigenous, 7 percent of Ecuador s and 27 percent of Peru s). 37 Afro-descendant populations in Brazil (50.9 percent), Colombia (10.5 percent) and Venezuela (53.4 percent) remain important segments of the populations in those countries. 38 In all of these cases, identity and political empowerment continues to grow, at the same time that both populations remain overrepresented in the country s poor and are often Rosales, Oswaldo, Trade Competition from China, Americas Quarterly, Winter 2012, Rosales (Last accessed 10/30/18) Latin America and the Caribbean Macroeconomic Report: A Mandate to Grow, p Ibid, p Levy, Santiago, The great failure: Retirement pensions in Latin America, February 27, 2017, opinions/the-great-failure-retirement-pensions-in-latin-america/ (Last accessed 11/20/18). 36. What on Earth is the CP-TPP? The Economist, March 12, 2018, (Last accessed 10/14/18). 37. Country by Country Indigenous Population, IWGIA, (Last accessed 10/14/18). 38. Afro-Descendant and Indigenous Population by Country, PERLA: Project and Ethnicity and Race in Latin America, Princeton University, (Last accessed 10/14/18).

11 FIGURE 4 Population South America (IN MILLIONS OF PEOPLE) COUNTRY Argentina Bolivia Brazil Chile Colombia Ecuador Paraguay Peru Uruguay Venezuela SOURCE: IMF DATAMAPPER FIGURE 5 Urbanization South America COUNTRY Urbanization Argentina 92% Bolivia 69% Brazil 86% Chile 90% Colombia 77% Ecuador 64% Paraguay 60% Peru 79% Uruguay 96% Venezuela 89% SOURCE: World Bank; World Bank, 2018, Urbanization, Washington, DC: World Bank socially and politically marginalized. 39 Population growth rates in the continent will remain stable in the next four years, according to the IMF. Only Argentina, Brazil and Colombia will experience significant population growth rates (of 5 percent, 3 percent and 4 percent, respectively). See Figure 4. Only Venezuela s population is expected to decline, due to the massive exodus from the country and the tragedy of increasing infant mortality rates. One of the areas in which the South American countries are relatively uniform is in their levels of urbanization. Five of the 10 countries have urbanization rates higher than 85 of their total population: Argentina at 92 percent; Brazil at 86 percent; Chile at 90 percent; Uruguay at 96 percent; and Venezuela at 89 percent. The countries with the lowest proportion of population living in the cities are Bolivia (69 percent), Ecuador (64 percent), and Paraguay (60 percent). See Figure 5 below. In several countries this concentration in urban areas, many of them close to large bodies of water ri- vers and the ocean raises the risk of displacement and destruction from extreme weather, a point we return to below. One of the greatest problems facing the continent will be sustaining sufficient, broad-based economic growth to generate formal employment for the current labor force and for new entrants. Despite reductions in inequality in the past decade, the region remains one of the most unequal in the world. In the nine countries for which data is available Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay the Gini coefficient declined by an average of 5.4 points (meaning less in equality) from 2006 to The greatest improvement was in Bolivia (12.1 point drop) and Ecuador (7.2 point drop). But despite these gains even in Bolivia and Ecuador, inequality as measured by the Gini coefficient remains stubbornly high, with Brazil (51.3), Colombia (50.8), and Chile (47.7) the most unequal countries in the region. Official unemployment and underemployment levels in the region are misleadingly low especially in Venezuela, where independent assessments place unemployment at over 20 percent. 40 See Figure The Social Inclusion Index, 2015, Americas Quarterly, (Last accessed 10/14/18). 40. ILO Stat, Labor Underutilization, International Labour Organization, pagehierarchy/page3.jspx;ilostatcookie=brb0jhi37hf93s_d3i4d86gdeidbqwk6enotl-qvd-bi94klspw3b! ?mbi_ ID=527&_afrLoop= &_afrWindowMode=0&_afrWindowId=null#!%40%40%3F_afrWindowId%3Dnull%26_ afrloop%3d %26mbi_id%3d527%26_afrwindowmode%3d0%26_adf.ctrl-state%3dr6v6o1fm0_4 (Last accessed 10/14/18). Again, unemployment in Venezuela numbers should be treated with caution; unofficial, independent sources have placed unemployment higher than 20 percent and the government provides no data for underem-ployment.

12 FIGURE 6 Unempoyment South America COUNTRY Unemployment (2017) Underemployment (2017) Argentina 8.70% 10.80% Bolivia 3.10% 2.10% Brazil 12.90% 5.90% Chile 7.00% 7.80% Colombia 9.00% 7.70% Ecuador 4.80% 16.50% Paraguay 5.80% 1.50% Peru 3.70% 4.80% Uruguay 8.10% 8.60% Venezuela 8.10% N/A SOURCE: World Bank, ILO; World Bank, 2018, Unemployment, Washington, DC: World Bank FIGURE 7 Ni_Ni s in South America COUNTRY Percent Ni/Ni s Argentina 19% Bolivia 13% Brazil 19% Chile N/A Colombia 21% Ecuador 20% Paraguay 16% Peru 13% Uruguay 17% Venezuela N/A SOURCE: World Bank; LAC Equity Lab, 2015, Labor Markets-Youth Outcomes, Washington DC: World Bank But these relatively positive numbers save Brazil s shocking 12.9 percent unemployment rate and Ecuador s 16.5 percent underemployment rate mask the larger problem of the high levels of employment in the unstable informal economy. According to the International Labour Organization, percent of Bolivia s workforce is engaged in the informal sector; in Paraguay that number is percent; in Peru it s percent. In other words, well above the majority of the labor force in these countries is engaged in fragile economic activities that may remove them from the rolls of the unemployed and provide sufficient income to lift them out of poverty, but come with little security or safety nets. (Data were not available for Argentina, Chile or Colombia.) While population growth rates as described above remain low, youth coming into the labor market will place further strains on the economy to absorb them. 41 But even for the countries that are not experiencing a coming youth bubble, there is still a large pool of youth that fall in the category of those that are neither employed nor in school the so called ni/ni s. See Figure 7. With roughly a fifth of the youth population in the countries that are reporting data are neither in school nor working, there is a troubling pocket of the population that has limited prospects in the economy and society. Even in Argentina and Uruguay, 19 percent and 17 percent of youth between 15 and 24 have limited futures as economically productive citizens. In addition to these stresses to labor markets from internal factors structural unemployment, informal labor and ni/ni s there is the growing challenge of incorporating the growing flow of Venezuelan refugees that are fleeing their country to seek employment opportunities across the border. 42 While governments and populations have been generally welcoming of the refugees, there are growing signs of strain. Citizens are beginning to express concerns over job competition, particularly in the service industry; there have been stories of refugees bringing measles, tuberculosis and other diseases; and refugee camps in Brazil recently came under attack by local residents. There is a risk that, despite attempts by the United States and other international donors and the host governments, continued flows may provoke a political backlash an unprecedented and, as a result, unpredictable problem in the region. Technology Internet penetration rates vary across the region, Labor Equity Lab: Labor Market Youth Outcomes, The World Bank, (Last ac-cessed 10/14/18). 42. IOM, UN Migration, Migration Trends, September 2018, pdf, (Last accessed 10/17/18).

13 FIGURE 8 Internet Mobile Phone Penetration Rates South America COUNTRY Percent of population using the internet while mobile phone connections remain high, especially in comparison to the rest of Latin America. 43 See Figure 8. Argentina, Chile, Uruguay, and Venezuela all have internet penetration rates higher than 60 percent. Mobile phone subscription rates are also high relative to the rest of the region. These high levels of connectivity have permitted some of the more advanced countries to gain comparative advantages in the tech industry. Argentina has become the Latin American hub for Google and Microsoft, and local entrepreneurs there have created the Spanish-speaking version of E-Bay (Mercado Libre) and Paypal. Brazil, Chile and Argentina have made great advances in integrating tech into the financial sector and have dramatically expanded financial inclusion. After the scandal of the U.S. s National Security Agency spying on Brazilian politicians, Brazil established cutting-edge regulations intended to protect internet privacy. Colombia too has ramped up its technological capacity in the area of logistics to better take advantage of commerce. In all of these cases, governments have made key investments to develop and improve technological capacity and industries, including Chile s program to channel a portion of copper profits Mobile phone subscriptions per 100 inhabitants Argentina 70.15% Bolivia 39.70% Brazil 59.68% Chile 66.01% Colombia 58.14% Ecuador 54.06% 84.3 Paraguay 51.35% Peru 45.46% Uruguay 66.40% Venezuela 60.00% SOURCE: ICT Development Index 2017; International Telecommunications Union, 2017, ICT Development Index, Geneva: United Nations into tech start-ups and innovations. But there are risks as well. During the Colombian presidential election, a consortium of media tracked the use of fake media spread through social media to influence the elections, some of it allegedly from Russia, but some also from the campaigns themselves. And as The Guardian detailed in early October 2018, in Brazil, WhatsApp became a potent vehicle for the distribution of fake news and misleading information concerning presidential candidates. 44 According to the Global Cybersecurity Index (GCI), which measures the commitment of member states to cybersecurity, South American countries remain global laggards in terms of establishing the legal, regulatory and institutional capacity for ensuring cybersecurity. The GCI, compiled by the International Telecommunications Union (ITU), examines five pillars of internet security or hygiene: 1) Legal: the legal institutions and frameworks to address and punish cybersecurity and cybercrime; 2) Technical: the existence of institutions and the knowhow to address cybersecurity; 3) Organizational: national governmental institutions and coordination among them to address cybersecurity; 4) Capacity Building: research and development, trained professionals and public sector agencies prepared to address the threats of cybersecurity and cybercrime; and 5) Cooperation: the existence of international partnerships and information sharing networks. None of the countries in South America is a global cybersecurity leader, according to the ranking. On the 2017 list of 180, the highest ranking South American country was Uruguay at 29, with Brazil second at 38. Chile surprisingly was ranked low, at 80. The least prepared for cybersecurity in their laws and international and domestic capacity were Paraguay (86 out of 180) and Bolivia (133). In the case of the latter, the country failed to have even basic domestic mechanisms and networks for international cooperation. (Venezuela was not included in the survey.) 45 Another risk is one mentioned earlier: displacement ICT Development Index, (Last accessed 10/14/18). 44. Phillips, Dom, Brazil battles fake news tsunami amid polarized presidential election, The Guardian, October 10, 2018, (Last accessed 10/15/18). 45. Global Cybersecurity Index, 2017, International Telecommunications Union, STR-GCI R1-PDF-E.pdf (Last accessed 10/16/18).