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How Macondo Train Corridor Reveals Latam Woes

For the residents of these dusty, scorching towns of colorful houses with tin roofs, counting sheep doesn’t work. The problem, in a word: ruckus. Train convoys, 140-wagons long, come zooming by every 15 minutes, carrying half of Colombia’s coal exports to global markets. And keeping everyone within earshot awake.

The David against Goliath matchup, pitting Joe Citizen against multinationals and the government, ended as everyone expected it would. After a seven-year struggle, a ban on nighttime train operations was implemented last year on order of the country’s high court, only to be more recently lifted after some cosmetic work and some extra greasing of the tracks. Courts agreed that the bigwigs had met a set of improvement benchmarks addressing both noise and the coal-particle pollution that were disturbing and sickening people. “This is the magical realism we endure here, and it looks like it’ll be another hundred years of solitude for us,” says Jhon Smith, a lawyer in Bosconia, one of 16 small towns sliced in two by the train. Although the region of Macondo, immortalized by Gabriel García Marquez in his novel One Hundred Years of Solitude, is fictional, the predicament that has faced Bosconia-area residents is very real.

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The case over Colombia’s Caribbean train corridor ultimately unleashed a broader debate over Latin America’s decades-old and exhausted commodity-based economic development story. Should the benefit of most trump that of a few? And with global commodity prices in the basement, the country is more than ever hard-pressed to find a new economic paradigm. But some feel that will inevitably involve a transition, a withdrawal syndrome of sorts in the form of a painful cocktail — spending cuts and tax hikes accompanied by regulatory, fiscal and political reforms to diversify the economy.

It’s an issue that countries the world over are facing, but in this region it could mean tourism. A tourist train has long been in the plans, but authorities have prioritized coal exports up till now. On top of the gift of sleep deprivation, the train has also stalled vital services like water and sewers because they could structurally destabilize the railway. The towns are an economic wreck and the decadence that García Marquez wrote about endures. Most villagers struggle to survive on tiny daily wages and the towns are mostly hubs to entertain an army of peasants and miners with brothels, loud music and alcohol. Marquez would be proud.

Like other commodity-hooked countries, Colombia has no choice now but to change. It must inoculate itself from a common malice known as the Dutch disease, in which a surge in foreign currency coming in handicaps domestic competitiveness. While oil and coal account for around 8 percent of the gross domestic product, the country grew dependent on them for macroeconomic stability and public spending. Between 2004 and 2014, Colombia averaged $10.5 billion in foreign investment, half of it directed to oil and mining sectors, spurring an unprecedented era of job creation, poverty reduction and prosperity, according to the Central Bank. Oil output almost doubled to one million barrels per day, the fourth biggest in Latin America, while coal production increased 75 percent in the period to nearly 90 million tons annually, making the country the world’s fourth biggest exporter of thermal coal.

But that all came crashing down with the commodity bust that started in the summer of 2014. Investment sank 26 percent year on year in 2015 and is expected to fall more in 2016. Around 47 percent of exports came from oil and coal in 2015, down significantly from 65 percent in 2014. Around 20 percent of the country’s central government income relies on the oil industry alone, twice more than the share in 2003. But black gold cash alone, which pays for much of the antipoverty measures and infrastructure projects, will decrease 75 percent in the coming year, compared to 2013, under current prices, according to the Finance Ministry. “We have a Dutch cold that threatens to become pneumonia,” said Colombian President Juan Manuel Santos in September in front of the country’s business elite. If things go well, growth will reach 4.5 percent in 2018, he said. All part of the growing pains of a developing nation. Many of his aristocratic listeners, however, weren’t convinced.

In 2015, the economy grew 3.1 percent, and it will grow another 3 percent in 2016, according to government forecasts, far below the 4.6 percent of 2014. But Colombia’s master development plan through 2018 demands much more. The ideal in order for Colombia to sustain the gains of the last decade, says Mauricio Reina, a senior researcher in Fedesarrollo, a leading Colombian economic think tank, and a former deputy commerce minister, is for it to grow between 4 and 4.5 percent. Forget commodities, though. Colombia’s oil and mining sectors in this juncture are not attractive compared to those of regional competitors, especially because costs are more than three times higher than Brazil’s. Oil exploration in 2015 plunged 50 percent year on year, for example, and around three-quarters of the industry says they will cut further in 2016. Additionally, remaining reserves of 2.3 billion barrels are tiny compared to competitors, and even costlier to extract.

Best-case scenario, Colombia’s transition will end in 2018. Poverty and unemployment are sure to increase until then, but if it can pull it off without losing the decade-long gains for the middle class, which increased by 7 million people in a country of 48 million, “we could count ourselves lucky,” Reina says. Indeed, the worst is yet to come, despite the peso losing half of its value against the dollar, improving competitiveness of exports. Business sectors want reforms to cut red tape, to balance an unfair fiscal burden scaring foreign capital and to return to more balanced economic growth, which in essence coincides with what much of the population demands, minus the taxes, of course. Without reforms, and assuming average oil prices of $70 a barrel and slowing oil output, the economy will grow 13 percent less through 2021 than previously expected, according to estimates cited by the United Nations Development Programme. And that’s the rosy outlook.

A grand national pact involving business, government, political groups and civil society is urgent, says Eduardo Chaparro, who heads the think tanks of the biggest business association, known as Andi. The government has lost time, and its reputation as a sound investment destination is shot. “The paralysis is because the solutions have been mediocre, the government has been arrogant. We can’t go on this way.” But the government, which did not reply to request for comment, will struggle to pass reforms. It needs all the political capital it has to finalize a peace deal with the country’s main guerrilla group, the Revolutionary Armed Forces of Colombia, which, by the way, will also require lots of resources. Instead, it’s resorting to cuts that threaten future economic growth, especially through an 11 percent cut in the country’s master plan, mostly in infrastructure public spending, which is the country’s main economic driver.

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Which brings us back to the train corridor. Rerouting it would be costly and a regulatory nightmare, and simply unrealistic amid the coal price slump. Courts will only continue to uphold laws written to ultimately impose the will of the patrones — the bosses.

The train company Fenoco, a joint venture owned by Alabama-based Drummond and Swiss-based Glencore, declined to comment. But its solution, backed by the government, has been magical realism at its best. They planted a long row of wilted, foot-long saplings of a lemon relative to be used as a natural fence and noise dampener. Residents preferred that to the alternative the company offered: a big wall cutting towns in two. But they know it’ll be years before those saplings grow to even make a dent in the noise and dust pollution. “We won and they should just accept it, but the government only protects multinationals,” Smith says. “But we will fight this to the end using whatever means necessary,” Smith says.

Then again, so did the fictional characters of Macondo.

This was originally published in Ozy