Thursday, July 15, 2004


Justice is something very difficult to understand with precision, since it is situated along a continuum that becomes finite only when it reaches Divine Justice. On the other hand, injustices are much easier to identify and, in our countries, prisons themselves represent one of the greatest injustices. In terms of the use of scarce resources, as an economist I am convinced that justice would today be much better served by improving prisons than by investing in Supreme Courts.

I am not advocating, nor do I believe in, imported solutions. Moreover, if we were to respect individual rights defined as extravagantly as possible, for example, by guaranteeing in Venezuela access to justice similar to that O.J. Simpson had access to a few years ago in the United States, this would, because of the cost involved, be an affront to our human rights, collectively.

Nonetheless, I believe in good examples, and I am sure that if prison franchises could be established in our countries we would all reap the benefits, as we are shamed into reforms.

When we read that one factor making it particularly difficult for Schwarzenegger, the new Governor of California, to balance his state’s budget is the 28,500 dollars he has to spend each year on each of his 162,000 prisoners and that one of his options would be to use local private prison services, which would allow him to cut the cost to 17,000 dollars per prisoner per year, we see an opportunity.

If California wants to save even more, it could do so by letting our countries offer prison services for some of its prisoners. Companies could build and operate prisons and would have to apply ISO 9000-type quality certifications. This would probably generate a set of global good prison practices that would benefit everyone. Nowadays, rapid transport and facilities such as videoconferences should make such proposals much more feasible. All that’s lacking is the will to carry them out.

Since some people trace the origin of the violent maras (gangs) of Central America to Los Angeles, and since crime is to some degree attributed to the violence in films, perhaps California, its Governor, and even Hollywood all have a special motivation to welcome an initiative such as this one to help us help them.

Besides, Schwarzenegger’s experience in the movies alone, which ranges from subduing criminals by force to teaching kindergarten, would seem to fit the ideal resume for a real super prison keeper.

P.S. I just read in the press that Schwarzenegger refers to his experience in Kindergarten Cop as useful to handle the legislative branch in California… OK perhaps for that too.

Translated from El Universal, Venezuela, July 15, 2004

Saturday, July 3, 2004

Some notes on the securitization of remittances

Some financiers have come up with the idea of using the future growing flows of cash from workers remittances to create values that could be used as collateral to loans made to those foreign banks that are specializing in processing these transfers. Since these collateral accounts are located in the financial centers, the loans so backed carry a lower interest as they manage to avoid some of the country-risk margins.

There is nothing illegal with this securitization as clearly the transferring bank is in no obligation to deliver exactly the same physical funds received; in fact, he will normally be delivering local currency to the beneficiary. Also the bank is never released from its obligation to transfer the worker’s money to the family back home and all the bank’s general funds, including those received from the loans, should back up its commitment.

Nonetheless perhaps we should ask ourselves whether the fiduciary duty of the transfer agent is being fulfilled when this securitization occurs, especially since the foreign worker trying to send money home is in blissful ignorance of the arrangements.

Also when you walk into a bank and order a transfer of money to someone, you presume that the bank will execute the transfer as expeditiously as possible, and never would you imagine that it could be delayed by having to go through a collateral account or, God forbid, that the final beneficiary never receives your funds, because the collateral was seized and sold to satisfy the claims on the local bank.

Any problem that would occur with a securitized remittance, besides dramatically increasing the cost of that particular transfer, could lead to a worldwide scramble back to more “trustworthy” informal channels … and we do not need that.

Also, if one of these collaterals was executed, in what jurisdiction should a foreign worker and his beneficiary complain … are they also released from country risk?

Credit rating agencies and the securitization of remittances

It is to be expected that when the country or the bank through which the remittances are sent enters into problems, these will stop. Emigrants are far from stupid. As we also know that the collaterals built around these remittances cover basically only the current service of the loan, a minor part, some doubts remain as to why then the ratings by the credit-rating agencies improve so much. Are we not here facing exactly the type of systemic risk that I frequently observe could be present by using few opinions of credit-risk agencies as proxies for the real market?

The first time I heard about the securitization of remittances I thought “How creative, I have heard about securitizing accounts receivable but this is the first time I see it done with accounts payable”.

Keeping them stupid?

Based on the argument that workers do not have as much information and do not react as fast in a crisis, we can frequently hear the opinion that the securitization of worker remittances is better and more stable than that of general company remittances. This might very well be true for the time being, but it sure feels sad to get involved in programs that are based on keeping the workers in the dark.

Thursday, February 26, 2004

The prisoners, the old, and the sick

We read that in the United States there are approximately 2.2 million people devoted to capturing and keeping behind bars two million prisoners. Imagine what capturing even 1% of that market (22,000 prison inmates) would mean to any small developing country.

The elder-care industries are another buoyant market in increasing demand in developed countries, as young people are becoming proportionally fewer than the old. This is also the case of the extended-care industry, where continuous medical advances seem to generate almost infinite demand.
It is therefore strange that developing countries give so little attention to these services when negotiating their trade agreements, considering their currently competitive wages. On the contrary, these same countries are forced to open up their own service sector for banks, insurance companies, auditing agencies, and so on.

Consider, for example, the potential economic impact on a poor country of a school that annually graduate several thousand excellent bilingual nurses to work around the world or in their own country: this could surpass the benefits that a trade treaty would provide to the agricultural and manufacturing industries combined. What’s more, the nurses would likely be able to pay off their student loans more easily than economists like me.

At this point, Jim, my editor, raises all type of numerous obstacles that he urges me to consider before my readers do. I: “Dear Jim, the Washington Post recently reported about an open-heart surgery that was budgeted at an unaffordable 200,000 dollars in the United States, but then finally carried out, successfully, in India, by doctors educated in the United States, for only 10,000 dollars, an airplane ticket, and a little side trip to the Taj Mahal included. The tide of globalization is unstoppable, unless you prefer your open-heart patient to stay home and die. As Jim also mentioned the hurdles of language, I also found it timely to remind him of the call centers in Bangalore where all those modern switchboard ladies that answer your information needs on the phone day by day are speaking better and not at all phony English. I have also read somewhere something to the effect that lately, the true defenders of true British English, are all from India.

Also, given the tensions caused by millions of people looking to emigrate any way they can to the labor markets of developed countries in order to send remittances back to their families, it is surprising not to hear that the best way to prevent illegal immigration (which is often destined one way or another to caring for prisoners, the sick, or the old) would be to send this very clientele to developing countries where they could be cared for.

A real opening up of services would give poor countries access to sources of sustainable economic growth, while at the same time relieving the financial pressures on developed countries of attending to prisoners, the old, and the sick—pressures that threaten the fiscal sustainability of their own welfare economies.

Are these new ideas? Not at all! Henri Charriere (nicknamed “Papillon”) was sent to French Guiana as a prisoner, and Australia was founded by exported convicts. There are already European governments that one way or another pay for their old people to stay in places like the Canary Islands and history is full of examples of people who had to go to other places because of diseases like tuberculosis or leprosy.

From El Universal, Caracas, February 2004