A dev­as­tat­ing hit Brus­sels was clear the n’s cap­i­tal had of �Carol Mat­lack

Poised for Growth

Bloomberg Businessweek (North America) - - Global Economics -

gover­nance. With a pop­u­la­tion of 1.2 mil­lion, Brus­sels has “six po­lice de­part­ments and 19 dif­fer­ent mu­nic­i­pal­i­ties,” Bel­gian In­te­rior Min­is­ter Jan Jam­bon said in a speech last year. He then com­pared Brus­sels to huge New York. “How many po­lice de­part­ments do they have? One.”

Squab­bles be­tween Flem­ish- and French-speak­ing re­gions have led na­tional au­thor­i­ties to hand over more power and tax rev­enue to their re­gional coun­ter­parts. One re­sult is a short­age of law en­force­ment per­son­nel at the na­tional level: The gov­ern­ment ad­mit­ted last year that its 750-per­son se­cu­rity ser­vice had 150 slots un­filled be­cause of bud­get con­straints.

The coun­try’s lead­ers, dis­tracted by lin­guis­tic and cul­tural quar­rels, “were un­able to de­velop an in­tel­li­gent pol­icy” to draw im­mi­grant fam­i­lies into main­stream so­ci­ety, says Leo Neels, di­rec­tor of the Itin­era In­sti­tute, a Brus­sels-based think tank fo­cus­ing on so­cial is­sues. Neels and oth­ers have long ar­gued that Brus­sels, a bilin­gual city that’s home to the coun­try’s big­gest im­mi­grant pop­u­la­tion, should be des­ig­nated as a fed­eral district sim­i­lar to Wash­ing­ton, D.C., with a uni­fied gov­ern­ment. Politi­cians have re­jected the idea, he says.

Un­der Bel­gium’s con­sti­tu­tion, or­ga­nized re­li­gions deemed to of­fer “so­cial value” are of­fi­cially rec­og­nized by the gov­ern­ment, which pays cler­ics’ salaries and pen­sions. But when Is­lam was granted of­fi­cial sta­tus in the 1970s, Bel­gium ac­cepted Saudi Ara­bia’s of­fer to fi­nance new mosques and send Saudi-trained imams to of­fi­ci­ate. Un­like in other Euro­pean na­tions where home­grown Mus­lim in­sti­tu­tions have taken root, “no ef­fort was made to pay for in­fras­truc­ture and clergy linked to Bel­gian so­ci­ety,” so­ci­ol­o­gist Ja­cobs says. Many Bel­gian mosques to­day op­er­ate out­side the state-au­tho­rized sys­tem and are run by for­eign-trained fol­low­ers of the rad­i­cal Salafist sect, he says. In an ef­fort to bring more mosques into the state sys­tem, the gov­ern­ment an­nounced plans to spend more than €3 mil­lion to pay 80 new imams.

Reli­gious fer­vor alone doesn’t drive young men from Brus­sels to join the ter­ror­ists, ac­cord­ing to Rik Cool­saet, a pro­fes­sor of in­ter­na­tional re­la­tions at Ghent Univer­sity who has stud­ied ji­hadist re­cruit­ment. Many re­cruits, in­clud­ing the lead­ers of the Paris at­tacks and the two Brus­sels sui­cide bombers, were petty crim­i­nals, he says.

Strict Mus­lims shun al­co­hol—yet Paris sus­pect Salah Ab­deslam, cap­tured in Brus­sels on March 18, had owned a bar in Molen­beek with his brother, who blew him­self up in Paris. “Join­ing [Is­lamic State] is merely a shift to an­other form of de­viant be­hav­ior,” Cool­saet wrote in a pa­per ear­lier in March. “It adds a thrilling, larg­erthan-life di­men­sion to their way of life— trans­form­ing them from delin­quents with­out a fu­ture into mu­ja­hedeen with a cause.”

Is South Africa’s pres­i­dent about to lose his grip?

Jam, jam, jam on the Au­to­bahn The bot­tom line Brus­sels’ frac­tured mu­nic­i­pal gov­ern­ment, as well as the weak­ness of Bel­gium’s cen­tral au­thor­i­ties, gave ter­ror­ists an open­ing.

a cur­rency fraud charge that was even­tu­ally dropped. He was a fo­cus of a U.S. money-laun­der­ing in­ves­ti­ga­tion, ac­cord­ing to a 2010 clas­si­fied memo pub­lished by Wik­ileaks, but was never charged in the probe. The com­pany he co-founded and still partly owns, Taba­calera del Este, makes the pop­u­lar brand of cig­a­rette called Eight. Large quan­ti­ties of Taba­calera cig­a­rettes are smug­gled into Brazil and be­yond, ac­cord­ing to a study com­mis­sioned by Bri­tish Amer­i­can To­bacco.

The com­pany in­sists it sells cig­a­rettes legally and that Brazil’s steep taxes en­tice oth­ers to smug­gle them across the bor­der. Cartes has come un­der fire for ben­e­fit­ing from il­le­gal com­merce. “How is it pos­si­ble that packs of the brand of thehe pres­i­dent are found in Brazil, in Colom­bia,mbia, in Ar­gentina, in Mex­ico, in Aus­tralia,alia, ev­ery­where?” asks Sen­a­tor De­siree siree Masi of the op­po­si­tion Demo­crati­cic Pro­gres­sive Party. “The Paraguayan­n cus­toms code speaks clearly about­bout smug­gling, say­ing ng that com­pa­nies wouldld be re­spon­si­ble for their ac­tions and omis­sions.”ssions.” The pres­i­dent has as dis­missed such al­le­gae­ga­tions as po­lit­i­cally lly mo­ti­vated.

Cartes has bee­nen try­ing to pull off one off the hemi­sphere’s more re­mark­ableemark­able trans­for­ma­tionss for him­self and his coun­try by promis­ing a gov­ern­ment that’shat’s ef­fi­cient, fis­cally ro­bust, and trans­par­ent. The aim is for the frag­ile democ­racy to over­comev­er­come decades of despo­tism, poverty, andd cor­rup­tion.i

His re­forms in­clude a cap on the bud­get deficit of 1.5 per­cent of gross do­mes­tic prod­uct and a pub­lic-pri­vate part­ner­ship to in­vest in in­fras­truc­ture. He passed over loy­al­ists of his Colorado Party to put tech­nocrats in his cab­i­net. Fi­nance Min­is­ter San­ti­ago Peña, who holds a master’s in eco­nomics from Columbia Univer­sity and aligns him­self with the Lib­eral Party, says he de­cided to work for Cartes de­spite the pres­i­dent’s past. “It was clear from the very be­gin­ning that he had a vi­sion,” he says.

Cartes, who de­clined to com­ment for this story, has sup­ported leg­is­la­tion re­quir­ing that salaries of pub­lic em­ploy­ees be made pub­lic. The move un­der­mines the po­lit­i­cal elite, which has long used pa­tron­age jobs to re­ward sup­port­ers and fam­ily mem­bers. His ef­forts have won Cartes praise from the World Bank and Har­vard man­age­ment pro­fes­sor Michael Porter. On Porter’s So­cial Progress In­dex, Paraguay ranked 56th out of 133 coun­tries in 2015, 16 spots higher than in 2014.

Paraguay’s econ­omy re­mains a stand­out in a re­gion hurt by cor­rup­tion and a com­modi­ties bust. Con­struc­tion cranes loom over Asun­ción, the cap­i­tal. For­eign in­vestors are buy­ing land to raise live­stock or cul­ti­vate crops. GDP should grow more than 3 per­cent this year, sec­ond-best in South Amer­ica af­ter Guyana, ac­cord­ing to the World Bank. The In­ter­na­tional Mon­e­tary Fund re­cently said growth should con­tinue at that rate through 2017. Even so, crit­ics say Cartes hasn’t been able to cre­ate­creat enough jobs, build enough new roads, or im­prove mass tran tran­sit be­cause of an in­ert bu­rea bu­reau­cracy and the in­abil­ity of hish staff to adapt their busi­ness­busin acu­men to the com­pro com­pro­mises and coali­tion-buildi tion-build­ing of pol­i­tics. Clau­dia Po Pompa, an in­de­pen­dent politi po­lit­i­cal an­a­lyst, says Cartes mis mis­tak­enly thought he could p push things through w with­out the party. “Busi­ness is not gov­ern­ment,” she says. “He had to learn that the hard way.”

Even the new trans­parency laws, w which won raves abroad, have bo boomerange­d at home. They re­vealed wide­spread pad­ding of pub­lic pay pay­rolls that ig­nited stu­dentd protests and d stoked voter dis­con­tent. In one case, a se­nior of­fi­cial of the Na­tional Univer­sity of Asun­ción al­legedly paid in­flated salaries to him­self, his sec­re­tary, and her fam­ily. Cartes’s “big­gest fail­ure is to not use that in­for­ma­tion to pun­ish some close col­lab­o­ra­tors of the ex­ec­u­tive branch,” says Se­bastián Acha, a for­mer con­gress­man who runs an Asun­ción think tank.

In Jan­uary, Cartes de­manded that pub­lic agen­cies di­vulge data on work­ers’ qual­i­fi­ca­tions and lev­els of train­ing, in an ef­fort to rid state pay­rolls of un­qual­i­fied and no-show em­ploy­ees. Union lead­ers la­beled his plan a ploy to hurt work­ers’ rights.

Soon af­ter, Cartes’s min­is­ter of in­dus­try and com­merce, Gus­tavo Leite, de­fended his boss, telling re­porters it was im­por­tant that Paraguayan­s learn who abused the pub­lic trust. “I am proud to work for a pres­i­dent who doesn’t steal,” he said. �An­drew Martin and Juan Pablo Spinetto

Pro­jected 2016 change in GDP in South Amer­ica

Guyana +3.8% Paraguay +3.6% Bo­livia +3.5%

Peru +3.3% Colom­bia +3.0%

Chile +2.4% Uruguay +1.9% Ar­gentina +0.7% Ecuador -2.0% Brazil -2.5% Venezuela -4.8% The bot­tom line Paraguayan Pres­i­dent Ho­ra­cio Cartes has stirred op­po­si­tion with fi­nan­cial re­forms and a crack­down on pa­tron­age.

fi­nance min­is­ter that led to a sud­den 10 per­cent de­cline in the rand, the coun­try’s cur­rency. The ten­sion peaked on March 16, when Deputy Fi­nance Min­is­ter Mce­bisi Jonas claimed that three brothers who are Zuma’s per­sonal friends had of­fered him a pro­mo­tion to fi­nance min­is­ter. The Gupta brothers, who have built min­ing, en­gi­neer­ing, and me­dia busi­nesses since ar­riv­ing from In­dia in the 1990s, de­nied the al­le­ga­tion. They’ve been con­nected with Zuma since 2000, and Zuma’s son Duduzane is a share­holder in sev­eral of their busi­nesses. Zuma re­cently thanked the Gup­tas for work­ing with his son but said there was noth­ing un­to­ward about their re­la­tion­ship and that he alone ap­points the coun­try’s min­is­ters.

Some se­nior ANC of­fi­cials say they’ve had enough of the litany of scan­dals tar­nish­ing the party’s name. ANC Sec­re­tary Gen­eral Gwede Man­tashe, who mas­ter­minded Zuma’s party elec­tion vic­to­ries in 2007 and 2012, re­cently warned that South Africa was at risk of be­com­ing a “mafia state.”

“This is the most dif­fi­cult sit­u­a­tion we’ve had to man­age in the last 20 years,” says Ab­dul Wa­heed Pa­tel, a Cape Town-based po­lit­i­cal an­a­lyst with Ethicore, a po­lit­i­cal ad­vi­sory ser­vice. “Given the po­lit­i­cal sit­u­a­tion and the bal­ance of forces in the ANC, I don’t see any res­o­lu­tion of this in the short term.”

The po­lit­i­cal strife comes as South Africa faces its worst eco­nomic cri­sis since apartheid ended in 1994. In De­cem­ber, Stan­dard & Poor’s cut its out­look on the coun­try’s credit rat­ing to nega­tive. The next step is junk, which would raise South Africa’s al­ready high bor­row­ing costs and worsen the blow that low com­mod­ity prices have dealt to Africa’s most in­dus­tri­al­ized coun­try. Last month, the World Bank said that South Africa’s econ­omy is “flirt­ing with stag­na­tion, if not re­ces­sion.”

Un­der the lat­est bud­get, pre­sented by Gord­han in Fe­bru­ary, gov­ern­ment debt will rise to more than half of gross do­mes­tic prod­uct this year, nearly dou­ble the ra­tio when Zuma took of­fice in 2009. A much-vaunted plan to boost growth by cut­ting reg­u­la­tion and rais­ing in­fras­truc­ture spend­ing has had lit­tle im­pact since it was con­ceived in 2011. Eco­nomic growth has not ex­ceeded 1.5 per­cent for the past two years.

The gov­ern­ment has even had trou­ble keep­ing the lights on: The coun­try had daily power out­ages in the first half of 2015 as the state power util­ity, Eskom, strug­gled to fund re­pairs. Things have im­proved since then, with no out­ages for the past six months, but that has more to do with a lack of de­mand than any­thing else. “The is­sue isn’t that Eskom has mag­i­cally turned around,” says Shaun Nel, a spokesman for South Africa’s En­ergy In­ten­sive Users Group, which rep­re­sents the coun­try’s largest power con­sumers. “The is­sue is that de­mand has fun­da­men­tally col­lapsed.” Power gen­er­ated by Eskom’s plants last year fell to the low­est level since 2006. Eskom says that de­mand has dropped but not dras­ti­cally.

Since win­ning re­elec­tion as party leader in 2012, Zuma has strength­ened his hold on power with the help of a loy­al­ist ex­ec­u­tive com­mit­tee and by bring­ing the state se­cu­rity ap­pa­ra­tus more closely un­der his watch. A twoterm limit as pres­i­dent means he can serve only un­til 2019. A third term as ANC party leader would be pos­si­ble

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