Remarks by Eric Farnsworth to GuateIntegra: Strengthening Transparency in Business
Remarks by Eric Farnsworth to GuateIntegra: Strengthening Transparency in Business
In a speech to GuateIntegra, AS/COA's Eric Farnsworth talks about corruption and transparency in Guatemala.
Strengthening Transparency in Business: A Key to Development and Growth
Remarks to GuateIntegra
Guatemala City, Guatemala
Vice President of Americas Society/Council of the Americas
September 23, 2022
***** Text as delivered *****
Good morning, y muy buenos días a todos.
Thank you, Maria Ines [Rivera], for your generous welcome and for the wonderful hospitality offered by GuateIntegra, an important, business-led initiative to support ethical and transparent commercial practices in Guatemala. Since 2017, GuateIntegra has been leading an effort that becomes more important each day. And the outside world is noticing.
You and the Camara de Industrias more broadly are driving a conversation here on the role and conduct of business in democratic societies. You recognize that it is only broad-based, sustainable macro-economic development that will build profits over time. These must be supported by business practices at the micro-economic level, playing a critical role in developing and supporting democracy itself.
I would even submit to you this morning that never before have such activities been more essential. Global investment capital is increasingly attracted to opportunities promoting sound environmental, social, and governance objectives including transparency and anti-corruption. In the global competition for capital, a welcoming environment and sound business practices including anti-corruption and the rule of law are essential.
Fortunately, at least on a personal level, Guatemala is one of the most welcoming environments in the Americas. Each time I return I am reminded of the charms of the Land of Eternal Spring. I’m only sorry that it’s taken me this long to get back since prior to the pandemic. And so I appreciate very much the opportunity to join you for these important discussions today, in part because it has given me an excuse to return.
In fact, one of my most vivid memories was from 25 years ago, when I was part of a small number of U.S. government officials privileged to join the people of Guatemala for the signing of the peace accords ending decades of internal armed conflict.
As a White House official, I was given privileged access to the National Palace for the signing of Guatemala’s firm and lasting peace. I saw first-hand the extraordinary national celebration in the plaza outside, which heralded unlimited promise for national renewal.
And I remember during those days the private sector taking the lead to ensure that Guatemala was positioned effectively to take full advantage of its status as Central America’s largest economy, ready to join North American economic integration efforts through trade and investment links. This ultimately lead to the CAFTA-DR trade agreement.
It was a momentous time, an inflection point in Guatemala’s history. But for various reasons, it was not sustained.
You all know the story better than I do. Suffice it to say, according to most outside observers, that the promise of 1996 has not been fully achieved, in Guatemala or, indeed, across Central America.
And now, another inflection point is upon us, and once again the private sector is being called upon to lead the way forward in both words and deeds.
Because the reality is this. Coming out of the covid pandemic, supply chains are shifting. Where once “efficiency” was the highest priority, now the top priority is “resiliency.” To access the U.S. market, which remains the largest in the world, investors are diversifying production lines away from China. Normally, they would look first to nearshore, to Canada and Mexico, Central America and the Caribbean Basin.
In fact, the U.S. Secretaries of State and Commerce were just in Monterrey earlier this month highlighting Mexico’s opportunities to capture investments in microchip manufacturing and other technologies stemming from new legislation that President Joe Biden has signed. Mexico is a logical location, but it is not the inevitable location for such investments, particularly given complications there surrounding the energy agenda and crime and corruption concerns.
And earlier this week, at the United Nations General Assembly in New York, Secretary Blinken made similar remarks concerning your neighbors Costa Rica, Panama, and the Dominican Republic.
Ladies and gentlemen, there is no inherent reason why Guatemala should not also be on the list for similar long-term, high-value, job-creating investments.
When U.S. Vice President, Kamala Harris, traveled here to Guatemala City on her first international trip shortly after the inauguration, it was an important signal of U.S. interest in working together to stem migration pressures through investment and job creation. But as I testified recently before Congress, not much has changed beyond statements of good intentions, and the window for action is closing. And once investment decisions are made and supply chains have moved, it’s too late. The time to act is now.
The U.S. private sector is not like China’s; it cannot be told where to invest overseas. Rather, the investment climate is key, as you all know given your own business activities. Access to capital. Adequate infrastructure. Enforceable rule of law. Equitable tax policies. An educated and well-trained labor force. Market access and economies of scale. Personal security. Digital uptake. Intellectual property protections. Cost-effective access to uninterrupted, cleaner energy. And the list goes on and on.
But there is another issue that must also be addressed; corruption. And here, we have some work to do. Because the Biden Administration came into office proclaiming several new foreign policy priorities on a global basis. And one of these has been a concerted effort to attack corruption.
Let’s be honest: corruption has existed since the serpent first deceived Eve. It is an unfortunate feature of human nature, knowing no distinctions of nationality or culture, or social or economic status. Certainly, Guatemala is not immune. Indeed the perception, at least from Washington’s perspective, is that corruption has reached a level that is now restraining economic growth, limiting investor interest, and contributing to migration pressures. This should be a red warning light blinking brightly on the dashboard, just as the private sector and government are seeking to attract interest in supply chain relocation.
But it is also an opportunity. With elections less than one year away and the presidential campaigns beginning shortly, the private sector can use this interim time effectively.
If done with purpose and resolve, with the leadership of GuateIntegra and others, the private sector can come together to take concrete steps in the fight against corruption. Ideally, this would help to create a mandate for the next president and congress to prioritize these issues, not just to attract investment, but also for the good of the Guatemalan people.
It can be done. From time to time, the United States has faced its own crises of public policy and the private sector has taken the lead on formulating and implementing responses.
In the 1980’s, when Japan was thought to be the primary competitor to U.S. economic primacy (remember those days?), the private sector made national competitiveness a top priority, working with Congress and the White House on a bipartisan basis to build a constituency, and subsequent policies, for economic competitiveness.
When education reform became an urgent issue in the 1990’s, the private sector led efforts to raise these issues on the national priorities list.
This century, it has been the digital revolution, among other issues. Another has been the need to incorporate the talents of all our citizens into the economy, thus seeking to ensure that the benefits of economic growth and development accrue widely across the population.
In each of these, it has been the private sector advancing initiatives while firmly and publicly pushing the government to respond.
The public policy implications of each of these efforts are obvious, and real. And so is the self-interest of those in promoting them. Why would companies not push for policy initiatives that make business sense?
In the same manner, I would suggest that it is in the self-interest of business here in Guatemala and across Central America to join together to shift the narrative on corruption. The private sector must be seen to be an engine for progress not restraint. Nonetheless, the impression exists that Guatemala and Central America have not done enough to address these issues, or have even, at times, thrown up obstacles to anti-corruption efforts.
That is a significant deterrent to investor interest in the region, despite Vice President Harris’ “call to action.” The potential to partner with U.S. business coming out of the covid crisis is significant. But unless impressions become more favorable, this moment in time could be squandered.
I’m not suggesting that this perception is entirely accurate or fully fair. I’m suggesting that this is how it is. And the time between now and the elections will be critical.
So let me offer some ideas for your consideration. None are magic bullets. All will take time to implement fully. Some will be easier than others. Nor is this list exhaustive; other experts will have their own ideas for consideration. But as is often said, the journey of 1,000 miles begins with the first step. And as a friend of Guatemala and the U.S.-Guatemala relationship, I believe it’s important that we get going. Urgency is required.
The key, as I’ve heard over and over from investors, is to improve the business climate. CAFTA-DR was merely the starting point not the finish line for competitiveness. And CAFTA-DR is now 20 years old, and doesn’t include advancements in the digital economy or other provisions.
Here’s the first big idea: if supply chains are the primary concern, why not organize the private sector here in Guatemala to push the new government, as soon as it takes office in 2023, to request accession to the USMCA trade agreement with the United States, Mexico, and Canada? It will not be an easy path for a variety of reasons. But I would submit to you that that is not the essential point. Rather, a request to join USMCA would help to organize and discipline efforts to improve national competitiveness.
In other words, accession or even a unilateral pledge to abide by the terms of USMCA would create internal incentives within Guatemala for reform and a race to the top. Either way, it would capture the attention of outside investors and the three North American governments, allowing Guatemala to differentiate itself from others.
In the 1990’s, Chile unilaterally took steps to reduce tariff rates and reform the economy, separate and apart from any trade discussions, for its own purposes and interests. Investment flowed in, the economy boomed, and, not coincidentally, Chile was first in line to achieve a free trade agreement with the United States after passage of NAFTA.
Guatemala can aim to do the same with USMCA.
But there must also be, in my view, a rethink about the role of the private sector itself in national development and support for democracy. Let me highlight an example from another one of your neighbors, Colombia. When democracy there was directly challenged, both by drug trafficking and guerrilla groups, the private sector banded together to support enhanced revenues that would make available greater resources allowing the state to reassert nationwide authority. It cost money, and it was financially painful. But the short-term cost was more than repaid in benefits to national stability and sustained economic growth. In other words, it proved not to be a tax, per se, but rather an investment in Colombia’s future.
The question for Guatemala is whether resources can be mobilized effectively to address some of the issues of national competitiveness, including broad-based education, improved healthcare, infrastructure development, and effective personal and public security? Options might include a higher Value Added Tax to bring Guatemala in line with others in Central America.
More efficient tax collection must be another priority. Development of a national consensus for such actions would be a significant contribution to the public debate and would go a long way toward shifting the narrative about private sector actions in Guatemala.
Third, the aggressive uptake of digitization, including a national project to prepare the workforce, would be a game changer. It would immediately make Guatemala a more attractive place to do business. It would reduce costs for business and create efficiencies across supply chains. It would increase access to capital and decrease the lure of informality. It would create opportunities for entrepreneurs including small and medium sized businesses and underrepresented populations who might otherwise be unable to take full advantage of the global economy.
Most importantly, by improving transparency and reducing bureaucracy in the conduct of official affairs, it would be a significant tool in the fight against corruption. And doing this through a business-led commitment to transparency and growth, separate and apart from any government pressure, would certainly be welcomed abroad.
Additionally, removing bureaucratic discretion in the conduct of official business, by definition, reduces the prevalence and impact of corruption.
The reality is that unless there is a full-scale rejection and therefore a minimization of corruption, the impact of all other reforms, no matter how aggressively pursued, will be muted. Foreign investors will look elsewhere, and domestic business leaders, too. The private sector has the organization and the resources to lead the effort. You all can be a new generation of business leaders committed to the realization of a practical and elevated vision as an investment in Guatemala’s future.
With all this in mind, why not, for example, agree to a basic code of conduct that is transparent, simple to understand, easily applied, and leads to accountability? A sort of Sullivan Principles for Guatemala, if you will, that can also then be expanded to Central America regionally. And I also understand that efforts are now underway to allow the private sector to support a system allowing participating companies to seek certification for transparency and anti-corruption standards.
If the most prominent members of the business community take the first steps, others will follow. The incorporation of internationally accepted models including standards related to transparency and political contributions in the upcoming elections would be a great place to begin. The key is to develop the model and then to pursue accountability, both individually and corporately. And on that basis, credibility will build and other legitimate interests can more effectively be pursued. Meantime, those who don’t join the consensus, including political actors, will find themselves on the defensive, being seen as defending their own prerogatives at the expense of the well-being and rights of others.
The North America humorist Will Rogers once wrote that even if you are on the right track, you’ll get run over if you just sit there. We can’t just sit here. The issues are too important and the world is moving ahead. Guatemala must be part of North American supply chain discussions…and not just discussions, but also evolving and expanding supply chains themselves. I believe that the time is right for tangible, meaningful action. Let’s work together, beginning today, to grab this opportunity.
Thank you, again, for inviting me to join you this morning in Guatemala City. I look forward to your questions…assuming, of course, that they are soft ones and easy to answer!