More Drug War Aid for Central America, But With Security Taxes?

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There were plenty of vows of greater cooperation, as well as pledges for cash, at a Central American security conference in Guatemala, but perhaps more important were the signs of an emerging consensus on the need for higher taxes in the region.

Much discussion at the conference centered around international aid to the crime-afflicted isthmus. The countries of the region presented a new anti-crime strategy, adopted by the countries at a meeting in May, which is set to cost $953 million. It sets out plans for greater coordination between Central American nations, and the establishment of a regional commission to evaluate each country’s progress on a set of targets, which include increasing drug interdiction, stopping gender violence, and improving education and training schemes.

The conference bore fruit, with almost two billion dollars promised to the region. One billion of this will come from the World Bank, while the Inter-American Development Bank will contribute $500 million. The U.S. pledged to raise aid to $300 million, some $200 million of which was already accounted for by commitments made by U.S. President Barack Obama on a recent visit to El Salvador.

Guatemala’s government called the conference a “historic milestone.” But perhaps more significant that the offers of aid, or the promises to work together, were the signs that various countries in the region are moving towards increasing tax revenues in order to fund their own fight against crime, and strengthen institutions.

U.S. Secretary of State Hillary Clinton raised the subject of Central America’s low tax burden, telling the conference that “True security cannot be funded on the backs of the poor,” and that the rich, and businesses, should pay their fair share.

The politician’s comments were a reference to the fact that Central America has one of the lowest tax burdens on earth. Tax revenues make up on average 13.8 percent of GDP in the region — excluding Belize and Panama, for which the World Bank does not provide data. This makes it more difficult for governments to pay officials well enough to undercut corruption, and to have professional and well-equipped law enforcement and judicial systems.

Clinton’s words echoed those of a former Costa Rican vice president, who recently told a U.S. Senate committee not to “let the Central American elites, who have never paid taxes, off the hook this time.”

This theme was backed by other voices at the conference. El Salvador’s President Mauricio Funes said that tax increases across the region were “fundamental” for each country to be able to strengthen their own security systems. He pointed out that organized crime brings in revenues of $100 billion dollars in the region, and that governments need to be similarly well-funded in order to match this underworld.

At the conference, Guatemala’s President Alvaro Colom stressed that drug “consumer” countries like the U.S. needed to do more for the fight against crime, considering its effects on the producer and transit countries. However, an official statement on the website of the Guatemalan presidency also pointed out that Guatemala was “no stranger” to the financial issues raised by Funes, and needed urgent tax reform.

Honduras has also recently been pushing forward with plans to levy a security tax on the wealthy and on big businesses. The proposed tax would raise around $79 million a year. If we consider that, for example, the much-discussed $300 million in U.S. aid would come to significantly less than this when divided between seven Central American nations, the idea of increasing domestic taxes begins to seem like an important accompaniment to international donations.

Moves by Central America’s nations to raise taxes, and make security spending a public not a private matter, could mark a real shift in the region’s crime policies. More than foreign aid, sustainable homegrown and self-funded initiatives could be the way to stop the region’s slide into a disaster zone.

But a mayor stumbling block in the way of any plans to raise taxes in the region is the level of citizen distrust of governments. Any plans to spend more would have to be accompanied by efforts to make that spending more transparent and efficient, in order to convince the public that it is worthwhile.

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