Death and Taxes in Central America

By Andrew Wainer, Director of Policy Research at Save the Children U.S.

The Panama Papers revealed global elites’ maneuvering wealth around – and through – a porous international tax infrastructure. While international tax malfeasance is not always strictly illegal, it also isn’t necessarily victimless, particularly in the developing world.

The impact of tax avoidance is particularly stark in the Northern Triangle – Guatemala, Honduras, and El Salvador – where regressive taxation and the lack of the rule-of-law are grimly intertwined.

Global Financial Integrity (GFI) estimates that illicit financial flows (IFFs) – international, illegal movements of money – cost developing nations $1.1 trillion in 2013. According to GFI, these cash outflows from the developing world, “Have a terrible, subversive impact on governments, victims of crime, and society.”

Latin America remains the most unequal region in the world and the Northern Triangle is notoriously poor at taxing and spending equitably. While some Latin American nations employed progressive taxation to reduce income inequality during the 2000s, regressive tax policy in Central America exacerbated its already severe inequality.

In recent years, Guatemala had the lowest (12%) tax-to-GDP-ratio of any country in Latin America and Honduras and El Salvador were only slightly better. By comparison, Brazil’s tax-to-GDP rate was 36% and Denmark’s was 48%.

“The World’s Epicenter for Extortion”

In addition to regressive tax structures, Central America is also plagued by some of the world’s highest crime rates, including extortion. InSight Crime, an organization that analyzes organized crime in Latin America, calls the Northern Triangle, “The world’s epicenter for extortion.”

And poor communities are disproportionately its victims. According to, La Prensa newspaper Salvadorans pay $400 million annually in extortion, Hondurans pay $200 million, and Guatemalans pay $61 million.

Poor Central Americans caught in the middle of formal, legal tax structures that privilege the rich and illegal practices that target the poor. Small businesses are typically more vulnerable to extortion because they often can’t pay for private security services. El Salvador’s small business association states that small business owners pay $30 million per month and that 10 small business close each month due to extortion.

But the economic impact of extortion is comparatively mild compared to the violence that surrounds it. Poor Central Americans can risk their lives if they refuse to pay the region’s gangs: La Prensa states that more than 300 bus drivers were killed in recent years due to extortion.

Taxation Critical to the Citizen-State Compact

Strengthening the citizen-state compact and the rule of law will take years, but in recent months there have been promising initial steps – within Northern Triangle itself and with U.S. assistance to the region – toward redirecting the tax system to the benefit the region’s most vulnerable citizens:

 

  • The “Plan of the Alliance for Prosperity in the Northern Triangle” – developed by the Northern Triangle nations with the support of the United States – includes strengthening financial management as one of the plan’s four pillars. It states, “Public spending must be transparent, efficient and effective.”

 

  • In 2015, the Millennium Challenge Corporation signed a $28 million agreement with the government of Guatemala to, “Support efforts to increase revenues and reduce opportunities for corruption in tax and customs administration.”

The emphasis on the fair collection and spending of public revenues is crucial to strengthening the rule-of-law and reducing the violence that has driven tens of thousands of children from the Northern Triangle. Given the myriad socioeconomic challenges facing the region and the resources needed to address them, the growing focus of US foreign assistance on strengthening tax systems is timely and encouraging.

Save the Children supported girls recovering from the emotional trauma of trafficking, abuse and exploitation. In collaboration with our partners who rescue girls from brothels and support abused teen moms, we ran a self-esteem workshops and provide psycho-social support to help girls overcome years of violence or sexual abuse. We also taught teen mothers first aid, child care and other essential skills so that they can take care of their own children.  With training, the girls can earn become qualified to professional child care providers in private homes or quality preschool settings. Other girls pursue the Bolivian-equivalent of a GED or attend vocational schooling to learn baking or hair-dressing school.  Under supervision of the safe house staff, girls practice child care skills and take care of the other girls’ babies while they are in training or school.  It is a very cooperative and supportive environment. The girls all nurse their babies and like to eat nutritious food. They all look healthy and clean.     As seen in the photo, the girls’ rooms are bright and clean, creating a safe positive environment for them and their babies.

The Terrors of Child Trafficking

Fear of child trafficking causes a nearly constant undercurrent of terror in Bolivia’s parents.

Sylvia* Sylvia grew up under the hazy red lights of a brothel run by her stepfather. Her 2 ½ month old baby boy was conceived when she was raped. Her baby boy smelled of innocence, even though she was robbed of her own. Her mother and father were very violent alcoholics and they moved around a lot. Her father would abuse her and her brother, threatening them with beatings for even minor misbehavior such as not finishing their supper. She lived in constant fear, particularly for her brother who took the brunt of the abuse. After a while her parents separated. Things seemed a little better for a while after her step-father came into the picture. At least the beatings had stopped. Then the more insidious abuse began. Sylvia couldn’t remember exactly how old she was when it started. In a life that revolved around running a brothel, sexual lines blurred and were very confusing for a little girl. She dropped out of school at nine years old. She was forced to work. She did not want to talk about it. “If kids didn’t get work, they didn’t get food,” Sylvia said. Eventually, the law caught up with Sylvia’s family and they were convicted of trafficking. Sylvia was then referred to the safe house. Sylvia showed me her bright sunny room, girlish and pretty like she is – like any other teenager’s room except for the bassinet. She and the other girls were so proud of their rooms and baby clothes. “I sleep well here, I feel safe” she says with a wide smile. Sylvia now goes to night school to finish her studies. She dreams of becoming a hairdresser. She wanted to say “thank you to the people who support our safe place. Life is much better here. I want to make my son happy and give him what I never had.” Save the Children supported girls recovering from the emotional trauma of trafficking, abuse and exploitation. In collaboration with our partners who rescue girls from brothels and support abused teen moms, we ran a self-esteem workshops and provide psycho-social support to help girls overcome years of violence or sexual abuse. We also taught teen mothers first aid, child care and other essential skills so that they can take care of their own children. With training, the girls can earn become qualified to professional child care providers in private homes or quality preschool settings. Other girls pursue the Bolivian-equivalent of a GED or attend vocational schooling to learn baking or hair-dressing school. Under supervision of the safe house staff, girls practice child care skills and take care of the other girls’ babies while they are in training or school. It is a very cooperative and supportive environment. The girls all nurse their babies and like to eat nutritious food. They all look healthy and clean.
Trafficked child Sylvia* and her son
by Penelope Crump, Save the Children US

On my recent visit to Bolivia to gather stories of our work there, I talked with lots of parents. I spoke to subsistence farmers working in the lowlands to provide for their families. I talked to street merchants in the desolate high plains. I even listened to the ladies at a trendy coffee shop who reminded me of my mom friends back home. They all had one thing in common – they were terrified that their children would be kidnapped and trafficked.

Bolivia’s parents told terrifying stories about babies snatched and sold for illegal international adoptions. About children taken and traded for drugs or forced to labor in the silver mines or picking cocoa leaves. About girls, especially vulnerable, sold into brothels. Country girls who are lured into big cities with the promise of a job in a shop or as a nanny, only to be forced to work as prostitutes. With guards standing at the door, these girls are raped, abused and drugged. They’re forced to sell their young bodies for less than $2 a client, and after paying brother owners, they barely survive day-to-day.

In Bolivia, my Save the Children colleagues help girls recover from the terrors of trafficking. In collaboration with our partners who rescue girls from brothels, we run programs at safe houses and community centers to help these girls rebuild their lives. For those who are pregnant or have babies, we teach first aid, child care and other essential skills, so they can take care of their own children and qualify to work as nannies or daycare providers. We empower girls to imagine a future for themselves and their children far from the red light districts. But we need to reach more of them. We need to ensure Bolivia’s parents no longer have to fear the terrors of child trafficking.

As dusk began to fall on our way to the airport on my last day in Bolivia, I could still see the red lights glowing in the rearview mirror.

 

You Can’t See Her Face, But You Can Imagine Her Future

From the terrors and trauma of the red light district to a safe place where Sylvia can dream of a better future.

Sylvia* grew up under the hazy, red lights of a brothel, run by her stepfather. Still a child herself, she has a 2-month-old baby boy, conceived when she was raped. Her baby smells of sweet innocence, even though she was robbed of her own.

Sylvia’s early childhood was scary and unstable. Her mother and father were alcoholics, physically abusive, and the family moved around a lot. Her father would threaten to beat Sylvia and her brother for even minor misbehavior, such as not finishing their supper. She lived in constant fear, particularly for her brother, who took the brunt of the abuse. Then, her parents separated.

Things seemed a little better for Sylvia after her stepfather came into the picture. At least the beatings stopped. But then a much more insidious abuse began. Sylvia can’t remember exactly how old she was when it started. But in a life that revolved around running a brothel, sexual lines became blurred, which was very confusing for a little girl like Sylvia. At age 9, she was forced to drop out of school and work in the brothel. She didn’t want to talk about it, except to say, “If kids didn’t get work, they didn’t get food.”

Eventually, the law caught up with Sylvia’s family, and they were convicted of trafficking. That’s when she was referred to a safe house where Save the Children runs programs for girls like Sylvia.

Save the Children supported girls recovering from the emotional trauma of trafficking, abuse and exploitation. In collaboration with our partners who rescue girls from brothels and support abused teen moms, we ran a self-esteem workshops and provide psycho-social support to help girls overcome years of violence or sexual abuse. We also taught teen mothers first aid, child care and other essential skills so that they can take care of their own children. With training, the girls can earn become qualified to professional child care providers in private homes or quality preschool settings. Other girls pursue the Bolivian-equivalent of a GED or attend vocational schooling to learn baking or hair-dressing school. Under supervision of the safe house staff, girls practice child care skills and take care of the other girls’ babies while they are in training or school. It is a very cooperative and supportive environment. The girls all nurse their babies and like to eat nutritious food. They all look healthy and clean. As seen in the photo, the girls’ rooms are bright and clean, creating a safe positive environment for them and their babies.
The room at the Save the Children safe house that Sylvia shares with her son.

When I visited Save the Children’s safe house, Sylvia proudly showed me her bright, sunny room, girlish and pretty like she is. It’s a typical teenager’s room – except for the bassinet. Finally, thanks to Save the Children’s supporters, Sylvia has a caring, secure place to call home. “I sleep well here, I feel safe,” she says with a wide smile. Now Sylvia can dream of a better future.

 To learn how you can help children like Sylvia, visit our website.
*Name changed for child’s protection.