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Reconstructing Institutional Quality or How Too Ensure Investments

July 5, 2017 3:52 pm A+ / A-

Aldo Abram, economist and executive director of “Fundación Libertad y Progreso” explains why stability and respect for the rule of law are important for an economy to grow. 

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  Argentines are still waiting for the promised increase in investments. It is clear that moving away from a course that would lead to a certain crisis and solving the problem that arose from the trial regarding payment to the holdouts in New York was not enough. Both issues were key in giving Argentina access to external financing, which is fundamental for the government to achieve its goal of gradually lowering the deficit. However, it was not enough to secure long-term investments.

  A significant fact to keep in mind is that legal security in Argentina has been diluted for several decades. According to the 2017s International Index of Institutional Quality, which includes data from 192 countries across the world, Argentina is second only to Venezuela in terms of the number of positions it descended in ranking over the 22 years in which it was carried out. It descended from 94th place to 138th. However, we did see an improvement of 4 steps between our performance in 2015 (142) and our performance in 2016 (138). It is great news that after 10 years of institutional decay, in which our performance decreased by 45 steps, we see an improvement for the first time.

  We expect this government will continue to reconstruct our institutions. However, we should remember a former minister who argued “legal security” was a horrible concept. Furthermore, we had a third-tier official that was so powerful he could call someone and, without a law to support it, tell him how to run his business. Someone who comes to start a business or buy one expects to recover his investment in 20 or 30 years. In a democratic republic like Argentina is supposed to be an alternation in power is to be expected. However successful this government may be, eventually we will have a president that is now in the opposition. Hence, local and foreign investors will also look at them and realize that they still retain the old vices that lead to the destruction of institutional quality.

  The well-being of a country’s citizens and the opportunities afforded to them depend on the development of creativity, their work ethics, and investments. This is only possible if the rule of law is respected, and the rule of law can only be consolidated within a strong institutional framework. Hence, as citizens, we should require that politicians respect the Constitution. The deeply rooted argument that the end justifies the means, and thus it is important to solve problems quickly even if this requires stepping over a few rights or institutions, is blatantly false. The truth is that Argentina’s problems can be solved within an institutional framework. It is true that this requires more work and may cost more in the short term. However, countries throughout the world that have done this have shown that it has many benefits in the long term. If you look at the 20 countries with the best institutions, it shouldn’t be surprising that they coincide with those that give their inhabitants greater well-being,

  It is possible to alter the course of affairs. New Zealand (that today is ranked number 1), Canada (8) and Australia (11), along with Argentina, were among the countries with stronger institutions and fastest-growing economies at the beginning of the XX century. Like our country, they also faced decay in the 30s. However, over the second half of the century, their societies decided to end this regression and face the strenuous path of institutional reconstruction. They knew it would take time to see results and they were right. Argentines, on the other hand, decided to persevere in the path of civic irresponsibility and lack of respect towards the law and the Constitution. Today we harvest the results that can be expected from that attitude. The per capita GDP in New Zealand and Canada is over 3 times higher and, in Australia, it is over 4 times as high. In those countries inhabitants can trust that contracts are going to be fulfilled, that the government will not confiscate their savings or keep a big part of their profits in the form of abusive taxes, that the three branches of government will control that the others comply with their functions and set limits so none of them can override the rights of citizens or steal our money through corruption. Let’s hope that Argentines have learned from our poor history of emigrating to those countries because Argentina could also provide the same opportunities for development and self-realization.

Reconstructing Institutional Quality or How Too Ensure Investments Reviewed by on . Aldo Abram, economist and executive director of “Fundación Libertad y Progreso” explains why stability and respect for the rule of law are important for an econ Aldo Abram, economist and executive director of “Fundación Libertad y Progreso” explains why stability and respect for the rule of law are important for an econ Rating: 0

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