The World Bank manipulated Chile's competitiveness rankings

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tiagoabner
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The World Bank manipulated Chile's competitiveness rankings

Post by tiagoabner » Sat Jan 13, 2018 8:25 pm

Source: https://www.reuters.com/article/us-chil ... F20SN?il=0

So, Chile dropped from 34th in the Doing Business ranking in 2014, the year Bachelet took office. Its ranking declined to 41st in 2015, 48th in 2016, and 57th in 2017. However, per Paul Romer, Head Economist of the World Bank, the ranking methodology was changed in order to give more relevance to the few points in which Chile was not growing in order to give the impression the country wasn't growing at all. Per him, this was done for political reasons.

Thoughts?

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Re: The World Bank manipulated Chile's competitiveness rankings

Post by admin » Sat Jan 13, 2018 11:08 pm

Yea the whole thing is very vague.

Part of this seems to be critism aimed at a chilean economist that was in charge of the report from the university of chile (now at a universoty in the states).

I use to participate in parts of their doing buisness survey every year, but realized the questions and methods were completly inapropriate or too simplistic to capture what was going on in chile and then rank it against how things work in other countries.

For example they ask flat generic questions like "how many days does it take to start a buisness in chile"?

Well, the real answer is 'it depends on the sort of buisness you are starting'.

They provided no means to answer that question beyond a simple number of days.
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Re: The World Bank manipulated Chile's competitiveness rankings

Post by admin » Sat Jan 13, 2018 11:14 pm

At one point, after the pinera administration did that bs PR stunt to make it sound like you could start a biz in one day, all the respondants were reporting one day in the doing buisness report.

I actuelly had foreign companies call me up, and get upset when i explained to them that the "one day" buisness start-up time was not true, especially for foreign companies trying to open a local branch.
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Re: The World Bank manipulated Chile's competitiveness rankings

Post by tiagoabner » Sun Jan 14, 2018 12:56 am

Most "open a company in a day" programs accross the globe are focused in getting micro and small businesses to register themselves, including sole proprietorships. It actually strikes me as odd hearing about a foreign company that thought it would be that simple to open a branch accross. They must've put the trainee on the phone with your guys.

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Re: The World Bank manipulated Chile's competitiveness rankings

Post by admin » Sun Jan 14, 2018 8:08 am

Well, we had a bunch of these expat "sunshine and unicorns" promoters of Chile publishing articles all over the place in English pushing the "one day incorporation" like Chile was Delaware or something. On top of that, we had the start-up Chile kids that were required to promote the start-up program in Chile writing articles more or less saying the same thing. They knew little to nothing about the realities of starting a business in Chile. They got special fast-track assistance from the government program and had their hands held by government handlers, that cut through the red tape for those under the start-up program. That is simply not reality. The head of the Chilean central bank was interviewed in articles saying the same thing I was at the time. I was publishing articles at the time and telling anyone that would listen that it was not true.

So, I had to waist possibly hundreds of hours of my time over several years talking foreign investors off the ledge, that were reading those articles. It ranged from small one man shops to large fortune 500 companies. It often did come down to some secretary, intern, low level executive was tasked with doing the basic research about Chile, then that memo got sent up the chain of command as some sort of gospel. They would contact us to setup conference calls with the bosses. I would get on these conference calls with sometimes 10 to 30 people, spread all over the World, and the first things out of their mouth was them asking about these "one day incorporation". I would tell them it is simply not true, and then start listing all the other things they would need to do (e.g. municipal permits, legal representatives, document legalization, etc, etc). They understood. In fact their legal departments and attorneys were often on the line with us, telling the bosses that sounded more realistic. Some went ahead anyway. Some did not.

Pinera's people in that first administration invited my wife and I to a meeting regarding how to encourage small to medium size foreign businesses to move to Chile. One meeting was specifically about the proposed immigration law. The other was regarding the regulations and licensing. They did not even know the most basic realities of what was stopping foreigners from investing in Chile. We bluntly told them, until you fix the problem of foreigners being able to open a bank account, all your other programs are a waist of time and money.

Now, this whole "scandal" with the World Bank, as much as I think the World Bank report is full of it, is really about Bachelet trying to fix her legacy. She is trying to do historical revisions to her legacy to not look like she tanked the economy with all the boneheaded policies she pushed. Sorry, but on any objective or subjective level, the last 4 years were squarely on the back of Bachelet and her incompetent economic team pushing crazy unfunded socialist agendas, in the most economically damaging ways possible (e.g. ambushing the entire economy with secret tax reforms, that tax experts still don't understand; doing it during an economic downturn; implementing arbitrary environmental laws; blowing the national budget on garbage social programs, etc, etc). Most of all, you don't get to stand in front of the country and bluntly state you don't care about growth, and at the same time pat yourself on the back for a well run economy. The economy survived in spite of Bachelet.

I think at the end of the day, it was her chaotic rudderless economic team, that saved the economy simply due to their own inability to execute anything. Had they been more competent, and were able to execute the political agenda she had on deck, Chile's economy would have been in far, far more trouble.

Even then, the true costs of her policies are being swept under the table and as yet to have a full accounting. The one that grabbed my attention was the education reform. We hear in the national headlines a lot about the credit downgrade, and the debt she ran up to pay for the education reform when the national tax receipts fell short of their projects. Well, that is bad; but, in the big scheme of things it not that bad for a country to go in to a bit more debt to pay for improved education. That should, more or less, pay for itself. Good debt vs. bad debt sort of thing. Well, it is not that simple.

There was an article in the local paper, about the city of Puerto Montt, owing almost 1 billion dollars to the teachers because of the education reform. Across the country, watching the property auctions, I knew something more was up. I believe I seen three schools go up for bank auction, and I was not even looking for schools. They went bankrupt due to the education reform. Cities and towns are still struggling to pay for the reform. The bachelet administration pushed the unfunded budget items off to the city / county level, to hide the true costs of the education reform; because if it showed-up in the national budget deficit it would have been an a real eye popping national scandal. It still might become a national scandal before this education and tax reform is settled.
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Re: The World Bank manipulated Chile's competitiveness rankings

Post by admin » Sun Jan 14, 2018 10:08 am

Here is a good example, property registration in Chile ranking from the doing business report:

http://www.doingbusiness.org/data/explo ... g-property

I don't even know what 90% of the gibberish they have published there means. First they excluded most of the Chile, and only did Santiago, vina, and valpo. They note it would take longer outside those areas. Which, well, yes, no, and perhaps.

We have registered properties all across Chile, including the areas they focused on in this report, and it simply is not true. You would have to get down to the micro-level, and examine each and every property registry office, and each and every property that is registered at those offices, to make any pronouncements about time, costs, and how easy it is to register a property. We have registered properties the same day in some cases, and we have other (really complicated cases), that we are going on 10+ years and the property is not registered due to various legal reasons (e.g. inheritance issues, court cases, etc). The generalization they have there is totally misleading, and fails to capture fully the roll of the property registry in Chile as a gate keeper. How busy is the office (hint: santiago registries are generally some of the slowest in the country because they are the busiest)? How dense is the population in the area? how far have they advanced in digitizing their documents? How old is the title on that particular property? On and on, and on, and on.

In terms of ranking, how do you rank any countries property registration system against any other? By the way, Chile's property registration process has not changed in anyway, shape, or form in recent decades other than Chile has implemented some digital signatures and online documentation systems.

However, as an example, the one that comes to mind is Guatemala. There was actually a study done that the country was 3 times larger on paper, than in physical geography due to the corruption of the property registry system. Are you telling me all these latin american countries with their massively corrupt property registration systems, get a bump, simply because they are faster. How do you measure the quantity vs. quality of the registration system?

I am sure I could pick apart their entire report, but you get the point. Their methods are sloppy. There is nothing objective about the way they run it. It is a bunch of subjective reports, gathered by email, from all sorts of people. Many are not qualified to even provide a description of the process. For example, they survey both attorneys and real estate agents for that segment of the report (I know, because we have been contacted by separate channels as both to provide two reports to the same survey). Well, in Chile, anyone can be a real estate agent, and everyone would be shocked at how few real estate agents actually know how a property is transferred in Chile (probably about half have never transferred a property because they have never closed a deal, they are just moonlighting as real estate agents). I would say something like less than 10% of the real estate agents we have worked with over the years, across Chile, have even a basic understanding of the legal procedures involved in transferring a property and what they mean. Even more shocking, would be the number of attorneys that don't know how to transfer a property. The lower quality universities can really pump out some under qualified attorneys, even for something as basic as property transfers.
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Re: The World Bank manipulated Chile's competitiveness rankings

Post by admin » Sun Jan 14, 2018 10:31 am

I would also have a bone to pick with their very definition of "property registration".

By "registration", on any international level, I would define it as the point at which I have a contract of some sort, that is enforceable in court, where the court could compel the seller to hand over the property to a party. I would qualify that as not the point at which I could sue someone for a simple breach of contract, and receive damages, but not the property (e.g. just a promissory agreement). Where the court could force a transfer of ownership.

In Chile that happens at the notary signing of a buy / sale agreement, that becomes a public record. That happens in one day.

By comparison, in terms of the simplest of transfers I can think of cases, say in a common law country, that point might simply be both parties intent. For example, we can shake hands on the sale of property, with a badly written contract on the back of napkin over lunch, and so on, and that is enforceable in court. There might be some local procedures or whatever, but at that point a court in general, all things being equal, could force a transfer of ownership. Not the best way to do it, but it can be done that way (setting aside any local laws and rules that might apply). Cases that comes to mind is all those robo-signing scandals from the mortgage crisis in the States. No one even knows who the owners of the property is. The entire real estate market in the United States is based on a wink and nod, that even the courts half the time pretend is o.k. People are thrown out of their home based on the word of someone that has never even seen the title of the property.

Chile, requires that all property transfers be done as a formal public records. The minimal point at which that happens, is at the notary signing phase. So, really, it is only one day in Chile, if you want to compare apples to apples. You are under no legal obligation in Chile to take your buy / sale agreement to a property registry, and register that title. You have the right to do it, but it is not required (totally do not recommend anyone try that). However, we stumble across competing buy / sales agreements all the time, or people that signed one and never registered it (sometimes decades later when they are trying to sell).

My point is, even the definition of "registration" is too vague to compare between countries. So, do we rank the process higher and easier in countries where there is more room for ambiguity, simply because the allowed ambiguity speeds the process and makes it cheaper? Or, should we rank countries based on the quality and security of the property ownership rights?
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Re: The World Bank manipulated Chile's competitiveness rankings

Post by tiagoabner » Sun Jan 14, 2018 11:21 am

While I agree with your points, there's still the fact that a certain portion of investors worldwide consider that report to be valid, even tough it is full of crap.

Imagine Mr. John Advisor. He's a financial advisor somewhere in NYC and one of his clients asks him for a preliminary report about in which countries it would be a good idea to invest, or something like that. He would need to use some kind of data to make his report, and data from the World Bank and from the major credit agencies seems to be an excelent place to begin.

The fact that the report is full of crap is still an issue, even considering the fact that this is a PR stunt from Bachelet's government.

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Re: The World Bank manipulated Chile's competitiveness rankings

Post by Space Cat » Sun Jan 14, 2018 1:56 pm

I wonder if we are getting IPSA bump tomorrow.

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Re: The World Bank manipulated Chile's competitiveness rankings

Post by at46 » Sun Jan 14, 2018 4:43 pm

tiagoabner wrote:
Sun Jan 14, 2018 12:56 am
Most "open a company in a day" programs accross the globe are focused in getting micro and small businesses to register themselves, including sole proprietorships.
The way it works in places like Canada, for example, is that you cannot get involved in any economic activity as a natural person. You need to be registered as a sole proprietorship, a partnership or a limited liability company.

The sole proprietorship costs nothing to set up (it's literally a matter of just one phone call) but gets you exposed to loosing everything you have through a simple lawsuit.

A limited liability company protects you from lawsuits to a great extent, but costs 400-500 dollars to set up and it can be registered in one day.

A partnership is more or of a special situation and is more expensive due to lawyer's fees, etc.

Since the majority of new companies fold without undertaking any activity whatsoever, you can view the simple registration process as just another government money trap.

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Re: The World Bank manipulated Chile's competitiveness rankings

Post by at46 » Sun Jan 14, 2018 4:56 pm

Space Cat wrote:
Sun Jan 14, 2018 1:56 pm
I wonder if we are getting IPSA bump tomorrow.
Oh, the newly minted stock market investor's woes :)

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Re: The World Bank manipulated Chile's competitiveness rankings

Post by Space Cat » Sun Jan 14, 2018 6:36 pm

Yes, it's entertaining here because of the size of the country and companies. The connection between events and fluctuation is more direct than in case of the US or global markets.

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