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Populism, Corruption Worry Executives

Business executives in Latin America expect economic recovery next year, but prefer democratic countries for investment.



Despite optimism about an economic recovery in Latin America, most business executives express concern about challenges such as continued populism and corruption, according to a new survey.

The poll was conducted among 900 executives at member companies of the Association of American Chambers of Commerce in Latin Americas (AACCLA).

A clear majority – 67 percent – expect a Latin American economic recovery next year and 52 percent are optimistic about the overall economic and political outlook for Latin America in 2010.


“Despite a forecast of negative growth for the region in 2009, survey respondents overwhelmingly indicated that they expect 2010 to be a recovery year,” commented Adrean Rothkopf, the outgoing executive vice president of AACCLA.

However, nearly half – 47 percent – believe populism and authoritarianism will rise over the next four years and 29 percent say it will stay the same. Only 14 percent believe it will decline.


“Respondents predict no quick end to the worrisome trend of populism and authoritarianism in the region,” Rothkopf says.

Most of the respondents had a clear preference for democratic countries versus authoritarian ones. Two-thirds said they were not likely to invest or expand business in countries that have had democratic setbacks.


“The judgment has been firm both in survey responses and foreign direct investment statistics - foreign investors are steering clear of countries where democracy and its attendant freedoms are under attack,” Rothkopf says.

Corruption is also a key issue. When asked what the key threat to democracy is, most executives – 34 percent --pointed to weak institutions and corruption. The remainder singled out education, intervention by foreign populist leaders, crime and gang violence and income inequality.


In fact, a significant number of the executives – 39 percent – pointed to the rule of law and fighting corruption as the key reform in the short term, ahead of such issues as taxes and crime enforcement.


“By and large, rule of law and investor protections remain a serious concern for countries throughout the region, but especially in Spanish-speaking Latin America, where 79 percent of respondents characterized rule of law as poor,” Rothkopf says.


Portuguese–language Brazil, however, was more focused on tax reforms. “In the short-term, Rule of Law issues - especially when combined with security concerns - were clearly a reform priority, particularly among Spanish and English-language respondents,” Rothkopf says. “Notably, the Tax/Regulation choice was strongly favored by Portuguese-speaking respondents, who overwhelmingly made it their first choice.”

Longer term, the executives are more divided, with 30 percent pointing to rule of law and 31 percent education.

The best way to reduce corruption is to strengthen democratic institutions, according to 76 percent of the respondents. But also having independent judiciaries and greater transparency in public institutions can help, according to 40 and 36 percent of the respondents.

”We asked how to reduce corruption, and the answers pointed to the ingredients found in free trade agreements, bilateral investment treaties and the like, which we know are conducive to transparency, accountability and general improvements in the rule of law, Rothkopf says.


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