MS. BENTON: Thank you so much. Our next speaker – and we’ll have lots of room for questions that folks have. But our next presenter is Ambassador Charles Shapiro. He is the senior coordinator for economic initiatives in the State Department’s Bureau of Western Hemisphere Affairs. Ambassador Shapiro advises the Secretary on economic initiatives related to trade, poverty reduction, and financial inclusion in the Western Hemisphere. He chairs an interagency working group to promote legal reforms, to increase access to credit by small businesses in Latin America and the Caribbean, and to create an enabling environment for those businesses.
Ambassador, thank you. (Applause.) Hey, how are you?
AMBASSADOR SHAPIRO: How are you?
MS. BENTON: It’s been a long time.
AMBASSADOR SHAPIRO: It has been a long time.
Hi. Glad to be here with you all today. I’m supposed to talk about trade and, actually, what I’d rather talk about is financial inclusion, and I’ll tell you why. It’s that I’ve found that the private sector’s a heck of a lot better talking about trade than I am. It is a matter of finding markets, finding products. I was in North Carolina last week; I met with a guy who exports to Brazil from the United States, something that I had never heard of before, called “hospitality art.” And I said, “What in the world is that?” And he says, “Oh, you know, when you go into a hotel, the stuff that’s in the lobbies and in the rooms; that’s hospitality art.” And he says, “That’s what I export, is hospitality art, and that – a hotel wants hospitality art, and I work with the designer and I get it there.”
I’m here to tell you no government bureaucrat in the world would ever be able to identify hospitality art as a growth sector, and I am amazed, as I travel around the United States and around the Western Hemisphere, the things that people are exporting and importing that – again, that no government bureaucrat would ever be able to identify as a promising area.
But let me talk a little bit about financial inclusion. And what financial inclusion means – because it’s a term that a lot of people aren’t familiar with. It means that all of our citizens – all of our citizens feel that they’ve got a stake in the economy of their nation. That the people who feel left out feel included, that they feel they’ve got a stake in the future of their countries. And I guess if you ask me, “What is the goal for financial inclusion,” the goal for financial inclusion is that Jamaicans can be as successful in Jamaica as they are in Toronto, or that Haitians can be as successful in Haiti as they are in New York and Miami and Montreal. That’s the idea, is that people can be successful in their own countries and, if they choose to emigrate abroad, be successful abroad as well. And to do that, countries need to create enabling environments for business – an enabling environment for business so that businesses can thrive.
The World Bank Ease of Doing Business report, which is available online – you can Google it, World Bank Ease of Doing Business report – and it’s got nine categories running horizontally across the page, and it’s like a work plan. If you click on each one, there’s three or four categories within each one. They rate every country in the world each year, and they rank countries in the world in each of these categories each year, and some go up and some go down. In general terms, what they talk about is reducing paperwork for businesses – the amount of paperwork that it takes to open and close businesses, to obtain building permits, and to obtain export permits. We all say we want our businesses to export, and yet in some countries, getting permission to export is a major undertaking. So it’s extraordinarily counterproductive. It talks about taxes and regulations, and how to reduce taxes and regulations.
And it talks about the issue that I am just fanatic about and you’re going to hear about, whether you want to or not –access to credit. Access to credit is – I go around the hemisphere, as I bet you Secretary Clinton goes around the world, as Arturo Valenzuela goes around the hemisphere, what we hear from presidents and prime ministers and finance ministers, from trade ministers is, small businesses in – and then you fill in the blank of the country, and it doesn’t appear to vary very much – “Small businesses in my country cannot get loans. Small businesses in my country cannot get loans.”
So developmental economists agree that, of all that range of things out there that is important for countries to do, there are, in fact, legal changes that countries can embark upon to increase access to credit in their own countries, and this is not through subsidies; this is through changes in your – in the legal system.
Now we had a conference with people from the Caribbean diaspora, I think, almost a year ago and I talked about this then, and if any of you are the same people, I apologize. But you haven’t done a very good job, because what I want you to do is to go back to your embassies here in Washington, go back to your governments at home, and I want you to talk to them and say, “Why aren’t these things happening?”
Let me say – make some key points. First of all, with the exception of a very statistically insignificant part of economies, that it is – governments don’t create jobs; it’s the private sector that creates jobs. Let me say that again: It is the private sector that creates jobs. Now, obviously, governments can increase the number of teachers and the number of government bureaucrats, but statistically speaking, that’s relatively small. It is the private sector that creates jobs.
Number two is that the vast majority of jobs in the private sector, whether you’re in the United States or you’re in Argentina or you’re in Barbados, are in small and medium-sized businesses – SMEs, small and medium-sized enterprises. That’s where jobs are created around the world. It doesn’t matter where you are; that’s how you get jobs. It is the store on the corner expanding. It is a grocery store expanding. It’s the automobile repair shops and beauty parlors and all those things that you pass by every day when you drive to work. That’s where jobs are created.
Number three, and– I say this for the State Department employees here in this room because we don’t understand this, because we all work for government, but I suspect you understand this -- and that is that all businesses operate on the basis of credit. All businesses operate on the basis of credit. That the clothing store gets the clothes in and has 90 days to pay. The wholesaler is providing them a 90-day loan, right?
There’s a podcast called Planet Money, it’s on NPR, and they did a series last year on poverty in developing countries and why can’t people do something about poverty. And they did, actually, three separate broadcasts: two on Jamaica and one on Haiti. It’s interesting, the one on Jamaica, they talked to a gentleman who’s got a business that patches tires, right? Punctured tires, repairs tires in Riverton, which some – those of you who are from Kingston know is a very tough part of Kingston, right? And he says – if you listen to it, you’ll enjoy it because they actually have to have the American reporter translate from English to English, because the gentleman’s accent is so thick – and he says, “I’m here patching tires. I’ve been patching tires. That’s what I do all day long.” And he says, “But I need a new piece of equipment, right? I can’t get a loan. I can’t get a loan.”
The next installment in these podcasts is: Why is it cheaper to import tomatoes through Jamaica than it is to raise tomatoes in Jamaica. And those of you from Jamaica know thatimported tomatoes are cheaper than the tomatoes that are grown in Jamaica. And they actually talk to a farmer who goes to the United States to pick tomatoes. He raises tomatoes, but he goes to the United States to pick tomatoes during the harvest season in Florida. And he says, “Oh, I know exactly what I need to do.” He says, “I need that drip irrigation.” He says, “And I need a loan for $20,000, and then I could install that and I can raise tomatoes here in Jamaica cheaper than they can raise tomatoes, but I can’t get a loan. I can’t get a loan.”
The third installment is in Haiti, and it’s a woman whose name is Yvrose, who is a market vendor, and she’s selling chicken necks – this is right after the earthquake – and she’s selling chicken necks in one of these tent camps. She’s talking about how she borrowed the money from a loan shark to buy the chicken necks so that she could sell them, right? She’s borrowing the money, and that’s what we in government forget, is that all businesses operate on the basis of credit, okay?
Now, small and medium-sized businesses in Latin America and the Caribbean can’t get loans from banks at commercial rates of interest. They cannot get loans. Large business – I mean, the guy that owns Sandals obviously has no problems getting a loan, right? Micro enterprises can get microloans. I’m sure there are not enough, and if you’re the person that needs that microloan, it’s difficult but you can get a loan. But it’s the small and medium-sized businesses that really are the forgotten middle that cannot get loans.
Now, everybody understands that microloan, right? The lady that doesn’t have a sewing machine gets a small loan – $200 – so she can buy the sewing machine so that she can sew the blouses, pay back the loan, sell the blouses, right? That all makes perfect sense. What you may not know is that that loan is probably a loan for 60 days. That it is at an extremely high rate of interest, and that it is a non-collateralized loan. I mean, as the people in micro lending like to say, even the collateral is “I know the woman.” Her character is the collateral. Her character is the collateral.
Now suppose that out of these women with the sewing machines – the one out of a hundred is a fabulous entrepreneur, and wants to hire other people to sew the blouses so that they can go into business and turn out dozens of blouses, right? She will not be able to get a loan to go into business other than for herself.
And here is why: banks in the Caribbean, and banks in Latin America generally banks in Sub-Saharan Africa, banks in the developing world generally – the only thing they will accept as collateral on loans is real estate – real estate. If you’re a small business, you don’t own real estate. The lady that’s got the beauty parlor doesn’t own the land the beauty parlor is on; she rents the land. The guy that’s got a little corner store doesn’t own the land the store is on; he tends to rent it. According to the World Bank, around the world, 70 percent of small businesses in developing countries don’t own real estate, and by – it’s not a coincidence 70 percent of loan applications by small businesses around the world are rejected because they don’t have collateral. They don’t have collateral.
The answer – and there actually is an answer to this, and it’s something called secured transaction reform. Those of you who are in business in the United refers to it as Article 9 of the Uniform Commercial Code. They just call it Article 9. If you’re in Canada, they’re called PPSAs. In Spanish, it’s garantías mobiliarias, in French, sûretes mobilieres.
And what it means is changing the legal system to allow businesses to use non-real estate assets as collateral, okay? Non-real estate assets. What does that mean? It means inventory. It means machinery. It means accounts receivable. It means warehouse receipts which are very important in agricultural countries. It means intellectual property, which, in Jamaica and Trinidad, are huge, right? You’ve got all these people producing intellectual property and selling it around the world, right? You could use that as – if they were in Canada, if they were in the U.S., they could use that as collateral for a loan. But in Jamaica and Trinidad, they can’t use it as collateral for a loan – cannot use it as collateral for a loan.
So it allows you to use assets that the small businesses have as collateral. It also changes the laws so that it makes it easier, if you don’t pay the loan, for the banks to seize the collateral, right? That’s the real issue right now, is that almost everywhere, if you don’t – if the borrower doesn’t pay the loan, the borrower defaults on the loan, it can take years in the legal system for the bank to take possession of the collateral. And that’s why banks want real estate; the real estate’s not going anywhere, right? It’s there.
So you need to – and here’s the point: I can’t change the system in any Caribbean country. The British and the European Union and the development banks – nobody can change laws in another country except for that country, right? The stumbling block, is political will. The technical assistance to do this is absolutely free. It doesn’t cost the country anything. The Inter-American Development Bank and the World Bank have got people who – that’s what they do. All a government has to do is send them a letter and ask for technical assistance. They will provide it. They will provide it.
And in fact, Jamaica is working with the Inter-American Development Bank very slowly. Guyana has asked for assistance from the World Bank. Bahamas is the only country that actually got turned down because their GDP per capita is so high, so the World Bank said, “You’ve got to pay for it yourself. We can’t do this for you because you’re too wealthy,” right? But for the rest of the Caribbean, for the rest of Latin America, and for Tunisia, for that matter, all that a country has to do is ask for assistance. The banks will provide – the multilateral development banks will provide the technical assistance, but then the hard part comes, and that is changing laws. And that’s a headache anywhere in the world.
I’d be glad to answer questions. I hope you’ve got a ton and I hope you go back. I want you to be emissaries to the governments of your own countries.
QUESTION: Could you just repeat the name of the legal changes in security?
AMBASSADOR SHAPIRO: Yeah. It’s called secured transaction reform. But an easier – it’s called asset-based lending by a lot of banks. The Organization of American States has a model law and model regulations in English, French, Spanish, and Portuguese. Presumably, all a country has to do is take it and make it fit within their constitution. New Zealand actually just copied the law from the province of Saskatchewan; took out Saskatchewan and put in New Zealand. And it’s working like a charm. They’re using it in Vietnam and China and Cambodia, in Romania and Albania. If they could do it in Albania, I guarantee you can do it in Jamaica and Barbados and Trinidad and Dominica and Belize.
QUESTION: Thank you. The overriding purpose of the conference today is said is looking at the broad-based foreign policy towards the Caribbean, the United States policy. And you spoke about financial inclusion, enabling environments for businesses. I’m very much curious and interested in the U.S. policy still towards Cuba, especially when that is a market that a lot of states here in the United States could be trading, and is both a puzzle to me still, so I’m curious.
AMBASSADOR SHAPIRO: Okay, good. Thank you for your question. Candidate Obama campaigned and said that he would change U.S. policy towards Cuba, and in fact, he has, as President Obama. We’ve changed our policy towards Cuba to make it easier for Cuban Americans to visit family members in Cuba more often, made it easier to send money to family members and others in Cuba, and made it easier for non-family members, for people who don’t have family, to go to Cuba for a whole bunch of reasons, for everything except for tourism, right? So, educational exchanges, cultural exchanges – the Cuban Ballet was just in the United States – are increasing.
AMBASSADOR SHAPIRO: What we – you may know is that we, in fact, are the largest supplier of food to Cuba. The law of the United States allows us to sell food and food products. And medical supplies and medicine to Cuba. We are the largest supplier of food to Cuba, food products to Cuba. Our sales of food to Cuba are dropping, in fact, because the Cubans don’t have sufficient money to buy what they would like to buy.
Any further change beyond what we’ve been – what the President has changed thus far would require changes in legislation so that our lawyers – I mean, maybe there is a tiny bit this way or that way, but, I mean, in general terms, what our lawyers say is that we’ve done just about what we can do without changing law. The answer back from Cubans has not been particularly encouraging to us, all right? The President would have to make a decision.
QUESTION: My name is Roland Roebuck and I’m not associated with any embassy, so I can speak freely because I don’t receive any funding from State Department. The question that I have is the following: In your introduction, you spoke that with respect to Haiti, the novel goal would be to have a Haitian to be doing very well in Haiti and also Canada and all over the world. My question to you is the following: How do you expect that Haitian who’s working with Levi Strauss or Hanes to survive when that individual is earning 61 cents an hour, and two years ago was earning 24, and the State Department made an intervention and placed some degree of pressure upon the government to accept this 61 cents?
So my question to you is: What role does State Department plays in ensuring that communities receive adequate wages? Thank you.
AMBASSADOR SHAPIRO: Thanks. That’s a great question. I’m going to dodge it a little bit, that – Tom Adams is going to speak right after me, and he is an expert and works full-time --
QUESTION: I’m not from Haiti.
AMBASSADOR SHAPIRO: -- on Haiti. (Laughter.) I mean, what we have been trying to do, in general terms, is to increase employment in Haiti, is to get more businesses to move to Haiti. We’ve encouraged businesses to do that. We’ve given duty-free entry to all – a wider range of products from Haiti than anywhere else that I’m aware of, and we’re trying to create jobs in Haiti. Now, the details as to this factory versus that factory, I am not the expert on that, and I’ll let Mr. Adams, your next speaker, answer that question. But what we wanted – we want jobs in Haiti, and I think that’s what Haitians want as well.
QUESTION: Thank you. What steps are being taken to bring inclusion into the informal sector in these countries?
AMBASSADOR SHAPIRO: That’s great. I mean, there’s a whole range of issues, everything from – and it varies from country to country, everything from government to people, direct transfer, cash transfer programs, particularly those that are conditional cash transfer programs. I visited one when I was in Jamaica, and it’s really pretty extraordinary, where families get a stipend per month per child in families that are in the poorest segment of the population in return for children attending school and getting children health checkups. A number of countries have got similar programs.
We are working together with international financial institutions, with NGOs, with banks, and with countries to what’s called bank the unbanked. I mean, as you probably know, there’s large percentages of the population in Latin America and the Caribbean, adult population, who do not have bank accounts.
So what are the things that governments can do to encourage, make it easier for people to open bank accounts? The next step is mobile banking. I mean, that’s a huge breakthrough that everyone sees, is mobile banking, and that is to be able to do banking using your cell phone. I mean, around the world there are 2 billion adults who have cell phones, right, who don’t have bank accounts. Everybody said, well, wait a minute if we could just figure out how to cell phone to bank – and it’s happening. Matter of fact, it’s already happened in Haiti, if I’m not mistaken, and mobile banking in Mexico is supposed to kick off this year. And I’m sure you’ve seen the ads where TD Bank is talking about it and Wells Fargo doing it here in the United States. But the real challenge is to do it in countries where there’s a shortage of banks, where there are rural areas and small towns where there are no branch banks, there are no ATMs, so how can people do that, okay?
How do you reduce the cost of remittances – okay – so that family members receive money from family members working abroad? Okay, now, thinking ahead, okay, what if you could remit the money directly into a bank account, right? What if they could access that money using their cell phone, okay? So I mean all these are strategies that you can use to increase financial inclusion.
Then you go a step beyond that. I mean, how do you take informal businesses and make it easier for them to become formal. I mean, we all have the idea of informal businesses as one lady who’s selling in a market, right? A large number of of informal businesses aren’t small at all. It’s – the people selling stuff on the corners during the traffic jam all work for one guy; there’re 200 people selling that thing; the traffic jams all through the city. That’s not a small business.
And the thing about informal businesses is in most countries in the Western Hemisphere, the labor laws are actually very, very good. Informal businesses don’t abide by them, right? They don’t pay taxes; they don’t pay leave; they don’t pay minimum wage; they don’t pay maternity –they don’t pay all the things they’re required to do by law. So one of the things you want to do is find a way to encourage businesses to move from the informal sector into the formal sector. And some countries in this part of the world have had success doing that.
I could go on from there. There are a whole range of issues, a continuum of issues, going from the very, very smallest sort of businesses, the people selling on the street corner, to fairly large businesses. The thing that I’m keen on is how do you get credit, because I’m convinced that’s the bridge.
I talked to a lady from Peru who said she started out as a micro business making the sorts of things – souvenirs, craft stuff, right? And she said, but – this was at a conference last April of 2010 that Secretary Clinton was at in San Jose, Costa Rica. And she says, “Look, I’m not a small business anymore.” She says “I’ve got something like 20 or 30 people working,” not as employees but now making the craft that she is selling. She says, “I need operating capital. I need the money to keep my business going. To do it, I have put together – and I’m not making this up – 70 microloans each year.” Right, because the microloans are for 60 to 90 days and for small amounts of money. “I have to put together 70 loans because I can’t get a loan from a bank.”
Okay. And I don't know the countries that are your countries of origin, but in general in Latin America, small businesses, if they can get bank loans, are paying around – between 35 and 40 percent interest. I mean, how do you make money if you’re paying between 35 and 40 percent interest? That’s if you can get a bank loan, which means you’re a preferred customer, okay? Preferred customer. If you can’t get a bank loan, loan sharks in Latin America and the Caribbean – again, this is an estimate because obviously it’s illegal activity, so who knows – charged 20 percent a month interest. 20 percent a month interest. How do you make money? How do you compete with the big business who can go to the bank and can get a loan at 8 percent or 9 percent or 10 percent?
So I’m convinced that this asset-based lending – that is businesses that have assets, we’ve got customers, we’ve got accounts receivable – if you can use that as collateral, that that is the bridge to go from micro business to small business and to go from informal to formal sector. And I think that’s what we want to see because that’s where the jobs are. You want the guy that repairs the tires to be able to buy the hydraulic lift so that he can change tires more efficiently and higher another mechanic, right? You want the lady that’s got the beauty parlor to put in an extra chair and hire another beautician. That’s what you want. That’s how you get to jobs. That’s how you get jobs, and that’s what we want to see.
Yes, sir, way in the back.
QUESTION: Many small businesses in the Caribbean – can you hear me?
AMBASSADOR SHAPIRO: Yeah. Again.
QUESTION: -- are funded by remittances from immigrants in this country. The United States, in one simple stroke, could increase the flow of remittances by allowing these remittances to be deducted from their tax return. Would the State Department support this? (Laughter.)
AMBASSADOR SHAPIRO: Let’s see. I mean, you’re talking about a change in tax law in the United States and something that the State Department generally does not have views on and does not want to get into. Let me just tell you the following: I was in Atlanta and met with the president of the Federal Reserve Bank in Atlanta.
But what this guy says is that in Atlanta, they, on behalf of the whole Federal Reserve System, is that they’re working on a project to reduce the costs of remittances and that they want to – they’re using Mexico first as a pilot project, because obviously that is the country that receives the most, both numerically and total amount of money, remittances from the United States, and that they’re reducing the cost of the transfer to 13 cents per transfer now, to go from a bank to a bank, okay? And the reason they want to do that, they see that that will also help bank the unbanked. It will cause people to open bank accounts. If I can get that money from my nephew in the States less expensively by having a bank account then I would by having a courier bring it back and give it to me or to have to go to the Western Union office or however they do it now.
I mean, that – the cost of remittance, look at that as a tax, okay? If you can get rid of the cost of the remittance, then you’re removing a huge tax. As to your question of U.S. tax law, I’m going to dodge that. (Laughter.) Is that the right thing to do on that?
MS. BENTON: Absolutely.
AMBASSADOR SHAPIRO: Listen, thank you all very much. (Applause.) I’m going to expect you to be my envoys. I hope I’ve gotten you fired up enough that you can send an email home to your member of parliament back home, to your government back home, and ask them what in the heck’s going on; how come small businesses in your countries cannot get loans and how come they’re not changing the laws in your country to facilitate small businesses getting loans? And it’s called secure transaction reform or asset-based lending. And please, I need your help. I need your help, because only governments can do that, not – outsiders can’t do that for you.
MS. BENTON: Good. Thank you so much.
AMBASSADOR SHAPIRO: I’m sorry?
QUESTION: Do (inaudible)?
AMBASSADOR SHAPIRO: Do I have a contact? I’m going to give it to Cheryl, and she’ll get it to you. Thank you so much. I appreciate it. (Applause.)