Part 1 laid bare Latin America’s tax trap: systems that collect too little from those best able to pay, riddled with exemptions, offshore loopholes, and weak enforcement that let the rich pay effective rates in single digits. The top 1 percent owns 38 percent of wealth while personal income tax raises just 2 percent of GDP. If you missed it, the short version is this: the tax system in Latin America was not designed to redistribute wealth, and it shows.

LATIN AMERICA ¡SIN FILTRO!

🔎 Rigged by Design: Latin America's Tax System Doesn't Fail the Rich — It Was Built for Them

Latin America and the Caribbean (LAC) has one of the most unequal income and wealth distributions in the world. The Gini index — the standard measure of income inequality, where zero means perfect equality and 100 means one person holds everything — puts this in sharp relief: over 80 percent of countries in the region score above 40, the threshold that marks high inequality. Brazil and Colombia sit at the extreme end, followed closely by much of Central America…

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12 days ago · 4 likes · Nicolas Forsans

So why doesn’t that outrage fuel demand for fairer taxes? Why does support collapse the moment people are asked about broadening the income tax base or raising VAT for social spending?

This piece draws on a survey across eight countries and new research on the political economy of redistribution. The answer is not that people are indifferent to inequality. It is that they are rational — and what they rationally distrust is the state they would have to trust to fix it.

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What People Actually Support

A 2023 IDB-commissioned survey of 8,515 people across Argentina, Brazil, Chile, Colombia, Guatemala, Mexico, Panama, and Peru offers an unusually detailed picture of what Latin Americans actually want.

The headline finding is striking: 77% of respondents agree that richer households should pay a larger proportion of their income in taxes than middle-class households. Support for the principle of progressivity is genuinely broad. But that consensus shatters the moment people are asked about specific instruments.

Only two-thirds support increasing corporate taxes to fund health, education, and social benefits. Support falls to around 50 percent for increasing spending on non-contributory pensions — even when respondents are told it would require tax increases. Support for expanding conditional cash transfer (CCT) programmes hovers around 40 percent. And fewer than 30 percent support broadening the personal income tax base or increasing VAT to fund social spending.

That pattern is not random. It maps almost perfectly onto who people think will bear the burden. Citizens are relatively comfortable raising taxes on corporations — a diffuse, distant entity — but resist reforms that visibly pull the middle class, or themselves, into a wider tax net. This is, after all, a rational response to a state that many people do not trust to spend the money well.

The numbers that follow are more revealing than the headline figures suggest — and they explain why the gap between wanting fairness and supporting reform is so much wider in some countries than others.

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The Countries That Redistribute Most Trust It Least

The country-level data throws up a striking puzzle.

Chile is one of the most unequal countries in the region — inequality there barely shifts after taxes and transfers are applied. Yet Chileans show the highest support for progressive taxation and for expanding social programmes. They want more redistribution, in part, because they have experienced so little of it.

Argentina tells the opposite story. It actually redistributes more than most of its neighbours — the state is large, transfers are extensive, and the system moves more money around than almost anywhere else in the region. Yet Argentinians show the lowest support for further tax progressivity and social expansion. Living through decades of fiscal crises, currency collapses, and a state repeatedly captured by political interests has left many people deeply sceptical — not of redistribution as an idea, but of whether their government can ever deliver it reliably.

The lesson is uncomfortable but important: wanting redistribution and trusting the state to do it are not the same thing. And the more you have watched the state try and fail, the harder that trust becomes to rebuild.

The most counterintuitive findings are still to come — including who is least likely to support the transfers designed to help them.

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The Self-Interest Puzzle

Standard economic theory predicts that lower-income people will support redistribution more, and the data partly bears this out. People in the lower income deciles are more supportive of progressive taxation and social transfers. Those who experienced income falls during the COVID-19 pandemic also showed meaningfully higher support for redistribution and for tax increases to fund social programmes.

But self-interest does not explain everything, and that is where the study becomes genuinely interesting.

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Latin America and the Caribbean (LAC) has one of the most unequal income and wealth distributions in the world. The Gini index — the standard measure of income inequality, where zero means perfect equality and 100 means one person holds everything — puts this in sharp relief: over 80 percent of countries in the region score above 40, the threshold that marks high inequality. Brazil and Colombia sit at the extreme end, followed closely by much of Central America.

In practice, this means the richest 1% owns 38.1% of all wealth. In Europe, that figure is 25.6%. Wealth concentration in LAC does not just exceed the global average — it dwarfs the richest continent on earth.

Social justice means confronting that reality head-on. Taxation could play a role: a fairer tax system could fund the public services and transfers needed to level the playing field. But the deeper problem is not just inequality itself. It is the way the tax system is built — relying heavily on taxes that are easier to collect but harder to make fair, while the taxes that should do most of the redistributive work remain weak. The state raises too little money from the people best able to pay, and too much from ordinary consumption and formal wages. This is not an accident, but the cumulative result of decades of political choices and institutional failures.

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By Design, Not by Accident

This is not a recent failure of political will. The roots run deeper. Latin America’s fiscal structures were shaped by colonial economies built around small but powerful elites — mine-owners, great merchants, large landowners — who held disproportionate access to both wealth and political power. Independence transferred sovereignty but not economic structure.

The elites who inherited the post-colonial state also inherited its fiscal logic, and they used it accordingly.

This does not mean a coordinated conspiracy of the wealthy. It means something more structurally damning: that elite political agency, accumulated over centuries and institutionalised through lobbying, party finance, and policy negotiation, has routinely produced outcomes that favour the wealthy — even without explicit coordination.

As Fairfield’s influential research on Chile and Uruguay documents, organised elite interest groups have consistently lobbied to deflect their tax burden downwards, and even centre-left governments competing on redistributive platforms have conceded to that pressure when interaction between political leaders and business becomes routinised over time.

The system does not need a conspiracy to protect the powerful. It just needs to keep working exactly as it was designed. What that looks like in practice begins with a simple but damning number.

A System That Collects Too Little, From the Wrong Places

A useful place to start is with how much tax the region actually collects. Latin America and the Caribbean raise far less tax than Europe — a gap of around 7 percentage points of GDP. Include social security contributions and that gap widens to nearly 12 points. Against the OECD average, it reaches 13 percentage points. That is not a small difference. It means governments have far less room to fund schools, hospitals, transfers, and infrastructure.

But it is not only about how much is collected. It is also about who pays. Latin America relies far more on consumption taxes like VAT than on personal income and wealth taxes. That matters because VAT is easy to administer but not progressive — a poor person pays as much tax on a tin of sugar as a rich person does. Because poorer households spend a larger share of their income than richer ones, that burden falls disproportionately on those least able to bear it.

Personal income tax (PIT) is the main instrument designed to correct this imbalance — progressive by design, meaning the more you earn, the more you pay. Yet in Latin America, income tax brings in only around 2 percent of GDP, because most earners are exempt. Their earnings do not reach the artificially high thresholds set by governments across the region. In richer OECD countries, personal income tax plays a far larger role, driven by lower entry thresholds and significantly higher top marginal rates — a median of 46.6 percent in the OECD, compared to just 30 percent across LAC (Fig. 3). So the basic structure of the tax system makes redistribution difficult before policy even begins.

Why most workers never pay income tax

One of the clearest reasons personal income tax is so weak is that it starts too high. In many countries, workers only begin paying income tax once they are already earning a relatively decent wage — well above the median. That means the tax does not cover most of the labour force at all.

The income threshold at which people become liable is far higher in Latin America than in OECD countries, which shrinks the taxpayer base from the outset and makes income tax feel less like a shared civic contribution and more like a penalty on a small, unlucky subset of earners.

What comes next is where the argument gets uncomfortable: the data on who actually pays, how the wealthy respond when enforcement tightens, and why reform keeps failing even when the political will exists. Upgrade to read the full piece

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Why the rich still pay too little

Even when wealthier households are inside the tax net, they often do not pay much relative to their total income. That is because their earnings are usually not wages. They come from capital: dividends, business profits, investment returns, and other income from ownership. And income from capital is typically taxed at far lower rates than labour income.

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The war in Iran is not Latin America’s war, but it is reshaping the region’s economic landscape in 2026. The shock is travelling through higher energy and food prices, jittery financial markets and renewed questions about where the region sits in a more fractured world economy.

Yesterday’s release by the IMF of the latest World Economic Outlook for 2026 – its flagship global forecast – treats the conflict and the disruption of Middle Eastern energy routes as part of a wider series of shocks hitting a global economy that had only just begun to recover momentum after the pandemic, trade tensions and the Ukraine war. It has nudged its 2026 growth forecast lower, with higher energy prices and tighter financial conditions doing most of the damage.

For Latin America and the Caribbean, the headline numbers still point to modest growth. But averages are misleading: some countries stand to gain from higher commodity prices, while others will be forced to swallow the costs.

This piece looks less at the battlefield and more at the transmission channels into Latin America’s economies and politics. It is structured around five mechanisms and anchored in the IMF’s three Iran-war scenarios for the region.

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Executive Summary: The State of Play

• The Iran war is hitting Latin America less through geopolitics than through prices, markets and policy trade-offs, exposing how uneven the region’s economic buffers really are.

• The IMF still sees modest growth for Latin America and the Caribbean, but that headline masks a sharp split between commodity exporters that can capture some upside and import-dependent economies that will absorb most of the pain.

• Hydrocarbon exporters such as Brazil, Colombia, Argentina, Ecuador and Guyana are the relative winners for now, because higher energy prices improve their terms of trade and fiscal revenues.

• Fuel-import-dependent economies in Central America and the Caribbean are the clearest losers, as higher import bills, weaker currencies and tighter financing conditions quickly feed into inflation and fiscal strain.

• Countries in the middle, especially Mexico, Chile and Colombia, are more exposed to volatility in global demand, capital flows and domestic policy choices than to oil prices alone.

• The broader story is not a region-wide crisis, but an uneven shock that rewards policy credibility, penalises weak buffers and tests how far Latin American governments can shield households without weakening their fiscal position.

The IMF’s Baseline: Turbulence, Not Freefall

The IMF’s baseline – its “reference scenario” – assumes a relatively short‑lived conflict. Energy prices stay higher for a while, financial conditions tighten somewhat, but the shock fades as production and shipping gradually normalise by mid‑2026. In that world, global growth slows only modestly and Latin America and the Caribbean still expand by around 2–3 percent a year over the next two years.

Behind that average,

• South America’s big commodity exporters enter this shock with decent buffers: flexible exchange rates, higher reserves and, in some cases, space for counter‑cyclical policy.

• Smaller, fuel‑importing economies in Central America and the Caribbean, by contrast, have limited fiscal space and are much more exposed to higher fuel and food prices, a stronger dollar and tighter global financing conditions.

The IMF then layers on two darker scenarios: an adverse case with an 80 percent jump in oil prices and a marked tightening in financial conditions, and a severe case where oil prices roughly double and stay high through 2027, gas prices in Europe and Asia surge and global growth falls close to 2 percent.

In both, emerging markets – including Latin America – are hit almost twice as hard as advanced economies, through higher energy and food costs, more aggressive monetary tightening and wider risk premia.

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Winners, Losers and Those in Between

Across these scenarios, three groups stand out.

Relative winners are the large net exporters of hydrocarbons with some policy credibility and market access: Brazil, Colombia, Argentina, Ecuador and Guyana, with Venezuela in principle if sanctions and governance allowed it to scale exports. In the reference scenario they enjoy better prices for their exports relative to what they pay for imports – stronger “terms of trade” – and higher fiscal revenues.

• In the adverse scenario they still do better than importers, but the benefits erode quickly; in the severe case they are mostly managing inflation and financing stress rather than cashing in.

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The lights are going out in Havana. As of late March 2026, the Cuban power grid has suffered three total collapses in a single month. For 11 million people, the “Special Period” of the 1990s, once the benchmark for national hardship, has been surpassed by a “Perfect Storm” of geopolitical shifts, infrastructure decay, and a high-stakes diplomatic gamble by the Trump administration.

To understand the situation on the ground today, we must look at the three forces pulling the island in different directions: the U.S. 'Energy Siege,' the internal rot of the Cuban state, and a massive solar pivot funded by Beijing. Rising through the cracks of this collapse is a fourth, hybrid force: a burgeoning private sector that has become the island's primary life-support system and the unexpected cornerstone of current diplomatic gambits.

Executive Summary: The State of Play

• The Intercept: The U.S. Navy destroyer USS Nitze is currently positioned north of the Bahamas to intercept the Russian tanker Anatoly Kolodkin, which is carrying 730,000 barrels of crude.

• The Siege: A January 2026 U.S. Executive Order has effectively cut off Cuba’s oil lifelines, leading to a total collapse of the national grid.

• The Pivot: China has stepped in as the “lender of last resort”, installing 92 solar parks to create a decentralised, “blockade-proof” energy floor.

• The Lifeline: A parallel, hybrid economy of over 11,000 private MSMEs has emerged as the only functional supply chain, importing US$444 million in goods in late 2025 and acting as a "pressure valve" preventing systemic collapse.

• The Gambit: President Díaz-Canel, guided by a 94-year-old Raúl Castro, is offering Washington an economic opening — leveraging this private sector as a bridge — in exchange for political survival: a "Vietnam Model" under duress.

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1. The 2026 Energy Siege: A Doctrine of Total Pressure

The current crisis was catalysed on January 29, 2026, when the White House issued Executive Order 14380. This was not a mere adjustment of existing sanctions; it was the declaration of a “National Emergency” regarding Cuba that authorised the Treasury Department to impose massive secondary tariffs on any third-party nation, specifically targeting Mexico and Brazil that continued to ship oil to the island.

Today, that policy has transitioned into a direct naval confrontation. As of this week, the USS Nitze, a U.S. Navy destroyer out of Jacksonville, has taken up a strategic position north of the Bahamas. Its target: the Anatoly Kolodkin, a Russian-flagged tanker owned by Sovcomflot. The tanker is reportedly carrying the first major shipment of hydrocarbons intended for Cuba since January.

Satellite tracking shows the Anatoly Kolodkin has already been forced to deviate from its direct route to the port of Matanzas to avoid a disproportionate U.S. response. Some suggest this voyage is a calculated provocation from Moscow — a “message” intended to force Washington to negotiate on other global fronts, such as Ukraine.

This “Energy Siege” represents a paradigm shift. Following the recent ousting of the Maduro regime in Venezuela, Cuba’s primary source of subsidised crude evaporated. The results of this pressure are mathematically stark: the volume of port calls in Cuba has collapsed from an average of 50 per month in 2025 to a mere 11 in March 2026. For the first time in modern history, the island is facing a total blockade of foreign energy shipments.

The physical consequences are catastrophic. Cuba’s electrical system relies on eight aging Soviet-era thermal plants running at a meager 34% capacity due to a lack of spare parts. The Antonio Guiteras plant has suffered four major failures in March 2026 alone. The state has been forced into a “triage” of the grid, prioritising military-run hotels, while residential Havana survives on 20 hours of daily darkness.

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2. The Legal Fortress: Helms-Burton as an Immovable Object

A persistent myth in international media is that the U.S. President can “fix” Cuba with an executive pen stroke. This ignores the Helms-Burton Act of 1996 (officially the Cuban Liberty and Democratic Solidarity Act), the "nuclear option" of the U.S. embargo.

While the embargo began as a series of executive orders, Helms-Burton turned it into a rigid, complex legal fortress that is nearly impossible for a U.S. President to dismantle alone.

Under Title II of the Act, the President is legally prohibited from fully lifting the embargo until a “transition government” is certified — a government that specifically excludes the Castro family and makes “verifiable progress” toward a multi-party democracy.

Furthermore, the 2019 activation of Title III allows U.S. citizens to sue any foreign entity “trafficking” in property confiscated by the 1959 Revolution.

The law is famous (and internationally loathed) for its extraterritorial reach, meaning it punishes non-U.S. companies for doing business with Cuba. Major European and Canadian banks have entirely ceased processing transactions involving the Cuban state to avoid “over-compliance” penalties from the U.S. Treasury.

The Helms-Burton Act is the reason why “opening up” the Cuban economy is so difficult. Even if a U.S. President wants to encourage the private sector, foreign banks are terrified of Helms-Burton sanctions. This “over-compliance” means Cuba struggles to process even basic humanitarian payments.

The law specifically forbids any aid or credit to Cuba as long as the current government is in power. This creates a “deadlock” where the U.S. cannot legally help stabilise the Cuban economy unless the regime collapses first.

In Cuba, the geopolitical chess match is just heating up. To keep reading the full briefing — including the data behind Cuba’s failed US$6.6 billion energy gamble, the maps of China’s new ‘Solar Shield,’ and the three potential endgame scenarios for the island — upgrade to a paid subscription.

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3. Internal Mismanagement: The Tourism Gamble That Failed

While the “blockade” is the regime’s favourite scapegoat, authoritative data proves the current misery was a calculated risk that went wrong.

An analysis of the 2019–2024 Cuban National Budget reveals a staggering strategic failure: the military-led conglomerate GAESA invested 40% of the national budget into luxury hotel construction while allocating less than 10% to energy infrastructure.

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Cuba has reached a breaking point that even its crisis-hardened leadership can no longer ignore. The island is running out of fuel, having received its last shipment on January 9. Airlines have begun to cancel flights at the height of the tourism season, cutting off the tourism lifeline that accounts for most of the country’s foreign currency. Massive power outages are now routine. The United Nations has warned of a possible humanitarian collapse.

For the first time in decades, Cuba’s 67-year-old regime faces a crisis where its traditional survival tools – external bailouts, mass emigration, and austerity – may no longer be enough.

In the first part of this two-piece series, I argued that Cuba isn’t Venezuela. However successful the Trump administration claims to have been in capturing Nicolás Maduro, Cuba’s regime is much harder to dislodge.

Despite all the rhetoric, regime change in Havana is the last thing Washington wants — at least, for now.

US-Cuba hostility is not new — it dates back to the revolution’s nationalisation of American assets and Cold War alignment with Moscow, which prompted the 1962 embargo.

Since then, Washington’s approach has cycled between pressure and limited engagement: Carter’s openings, Reagan‑era hardening, Clinton’s migration deals, the Obama thaw, and then a sharp turn back to sanctions under Trump’s first term.

President Trump’s return to office has produced the most aggressive strategy in decades.

With Nicolás Maduro captured and access to discounted Venezuelan oil cut off, Washington has moved to close Cuba’s remaining energy lifelines by threatening tariffs on countries that ship fuel to the island and leaning on partners like Mexico.

But the current pressure represents something qualitatively different. President Trump and Secretary of State Marco Rubio — a Cuban American who has spent years crafting hardline Cuba policy — frame this operation as the next chapter in their effort to roll back left‑wing regimes in the hemisphere, following the US operation in Venezuela on January 3.

“Make a deal before it is too late”, President trump told Cuban leaders. The message to Havana couldn’t be blunter: negotiate on US terms or face an energy collapse that could push the country into a new “Special Period” — but this time, with no allies ready to bail it out.

With Venezuela’s Maduro captured, Cuba has lost its main oil patron. Mexico remains sympathetic but cannot risk US tariffs or trade retaliation, especially at a time when the US-Mexico-Canada free trade agreement (the old NAFTA) is to be renegotiated. Russia is stretched thin in Ukraine. China, while building intelligence infrastructure in Cuba, has shown no appetite for a costly bailout so close to American shores.

The US administration’s leverage is unprecedented, leaving Havana with virtually no options beyond negotiation.

So what is Washington seeking in a deal with the Cuban regime?

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What the US administration wants from a deal

Behind the rhetoric, Washington’s goals are more strategic than ideological.

Delivering regime change in Cuba is particular difficult. Cuba has no official in place to act as interim leader, unlike Delcy Rodríguez (a potential interim figure in Venezuela). With most opposition leaders in prison or in exile, it is unclear who would lead the country should the regime fall.

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The United States says it wants regime change in Cuba, but the picture is more complex than a simple morality play. Washington’s demands reflect a long, fraught history with Havana, a desire to finish the job started in Venezuela, and a bet that Cuba’s fragile economy and constrained private sector can no longer absorb the pressure.

In a first part of a two-piece series, we look at how we got there, why Washington talks about regime change (but is unlikely to impose it outright), and what that tells us about the kind of Cuba the US actually wants.

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A long, toxic relationship

US–Cuba relations have been shaped by trauma on both sides: the 1959 revolution, US-backed exile invasions, the embargo, and the 1962 missile crisis. After Fidel Castro overthrew Fulgencio Batista and nationalised US property, Washington responded with covert operations and a sweeping trade embargo aimed at forcing political change.

For half a century, the logic was straightforward: isolate, strangle, wait for collapse.

The relationship briefly thawed under Barack Obama, who restored diplomatic relations, loosened travel and remittance rules and quietly encouraged market‑oriented reforms. Under Trump’s first term, that opening was reversed; his second term has gone much further, combining a “total pressure” embargo with oil interdictions and migration restrictions designed explicitly to push the communist regime “into extinction.”

This shift is anchored in a revived Monroe Doctrine: an assertion that the US will “reassert and enforce” its dominance in the hemisphere, treating Cuba and Venezuela as linked problems to be solved together.

Maduro’s capture in Caracas and the cutoff of Venezuelan oil to Cuba were meant not just to end a symbiotic alliance, but to demonstrate that Washington is again willing to use hard power to reshape its “backyard”.

Why Cuba is not Venezuela

Trump and Marco Rubio talk about “Venezuela first, Cuba next”, but the two regimes are structurally different in ways that matter for any transition.

Venezuela is a personalist petro‑state centred on Nicolás Maduro and a narrow ruling clique, presiding over a fragmented security apparatus and a relatively pluralist political culture that survived into the Chávez era. This made back‑channel bargaining with individual figures like Delcy Rodríguez more feasible, and created cracks that external pressure could widen.

Cuba, by contrast, is more akin to a collective one‑party regime built over six decades, with the Communist Party and the armed forces at its core. Raúl Castro, though formally retired, still commands loyalty across the military hierarchy. Through the GAESA conglomerate, generals effectively run much of Cuba’s hard‑currency economy, with senior officers controlling tourism, retail, real estate, ports and much of the formal economy.

Repression is disciplined: protests in July 2021 were crushed by coordinated security forces, and around a thousand people remain in prison, with no organised opposition waiting in the wings.

In Venezuela, corruption and indiscipline hollowed out state capacity; in Cuba, the machinery of control still “works”, even as the economy crumbles.

That makes sudden collapse less likely, but also means that any serious change will require the buy‑in—or at least the acquiescence—of the military and party elite, not just the removal of one leader.

In other words, President Díaz‑Canel is expendable; the regime is not.

Why Washington talks about regime change

Officially, Trump’s latest national security directive brands Cuba an “unusual and extraordinary threat” that aids hostile states, terrorist groups and US adversaries such as Russia, China and Iran. Marco Rubio, now secretary of state, frames US policy as support for “peaceful change”, but makes clear that the end goal is a Cuba with free elections, released political prisoners and no foreign intelligence bases aimed at the US.

There are three overlapping motives:

• Strategic: China’s expanding intelligence footprint in Cuba — signal interception facilities, cyber units and possible satellite tracking sites — has alarmed US defence planners, as has Russia’s renewed use of the island for surveillance and naval access.

• Domestic politics: Trump courts Cuban‑American voters by promising to do what John F. Kennedy never did: “liberate” Cuba, and let exiles return to a “free” homeland.

• Regional signalling: The Maduro operation was meant as a warning to other left‑wing or authoritarian governments in the region. Squeezing Havana is part of showing that the Monroe Doctrine once again has teeth.

Yet even in this maximalist rhetoric, there is caution: an armed intervention in Cuba could drag the US into a morass and trigger exactly the kind of mass migration crisis Washington fears. That is why current tactics combine suffocating sanctions with calibrated humanitarian aid and quiet talks, rather than a rush to invasion.

The rhetoric is maximalist; the strategy, so far, is not.

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A besieged but dynamic private sector

One reason US officials talk about regime change now is that Cuba’s economic model is visibly failing — while an embryonic private sector has shown it can keep parts of the economy alive despite the crisis.

The state sector is in deep trouble. GDP has contracted repeatedly since 2018, inflation spiked to around 70% in 2021, and energy blackouts, collapsing infrastructure and severe food shortages have become routine.

Against that bleak backdrop, Cuba’s private actors — self‑employed workers and new micro, small and medium‑sized enterprises (MSMEs) — have been one of the few growth stories.

Since a 2021 reform that legalised MSMEs and replaced a narrow list of permitted activities with a broad “negative list”, more than 11,000 private firms have been approved, with roughly 9,600 still active by mid‑2025.​

These businesses now span light manufacturing, construction, services and food, not just tourism. They:

• Generate tens of thousands of jobs and offer goods and services the state cannot consistently provide

• Pay a rising share of taxes — about 23% of total revenue by 2024 — turning them into an important fiscal pillar

• Operate with more efficient, customer‑oriented and technologically savvy practices than state enterprises, often using diaspora finance and informal credit to circumvent the state banking system.

But their expansion is tightly constrained. Since mid‑2024, approvals of new MSMEs have been effectively frozen, signalling official anxiety about losing control and turning administrative decisions into a hard political ceiling.

Private firms face volatile regulation, high and sometimes arbitrary taxes, sudden price controls, and legal insecurity that can shut down a business overnight. They are barred from strategic sectors like energy, telecommunications and large‑scale finance, and denied a clear legal route for foreign investment.

This leaves the private sector in an ambiguous role: a pressure valve that mitigates social unrest and keeps basic markets functioning, but not yet an engine of development capable of transforming the system.

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Why this matters for the regime change narrative

For Washington, the coexistence of a brittle state sector, a disciplined security apparatus and a dynamic but stunted private economy shapes both ambition and caution.

The US sees opportunity: a growing class of entrepreneurs and middle‑class aspirants who have a material interest in clearer rules, property rights and integration with international markets — goals broadly aligned with US preferences. At the same time, it recognises that the Cuban state still has the coercive capacity to crush dissent and the ideological reflex to rein in any actor that threatens its monopoly on power.

That is why the current push for “regime change” is likely to centre not on tanks on Havana’s Malecón, but on a grinding strategy: tightening the economic vise, nudging Havana toward deeper space for private enterprise and external capital, and trying to ensure that when change does come, it produces a less hostile, more market‑friendly Cuba — rather than a sudden vacuum on America’s doorstep.

Following the capture of Maduro by US forces on January 3rd, the White House has imposed an oil blockade on Cuba and threatened the use of tariffs and trade retaliation on any country that breaks the blockade.

With the last oil shipment received on January 9th, Cuba is fast running out of fuel and the UN has warned of a possible humanitarian collapse.

Washington has tremendous leverage — but not a free hand. Tomorrow I’ll look at what the United States will actually try to extract from Havana.

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Barely a month into 2026, Latin America faces a seismic geopolitical realignment that reshapes the region’s future in ways not seen since the Cold War. The United States’s military strike on Caracas and the capture of Nicolás Maduro signalled a profound shift in how Washington intends to exercise power in its hemisphere.

This event crystallises the central challenge facing Latin America this year:

How to navigate a fractured world where the rules are being rewritten in real time, and the region’s voice grows weaker by the day?

What This Analysis Covers

This deep dive examines the five defining forces reshaping Latin America in 2026: the Trump administration’s assertive new “Donroe Doctrine” and its first military test in Venezuela; the region’s fragmentation and inability to act collectively; persistent economic stagnation coupled with deep structural inequality; volatile electoral cycles across four major democracies; and the security crisis of organised crime hollowing out state capacity.

Together, these forces create a year of genuine inflection — one where Latin America’s strategic autonomy is under unprecedented pressure, democratic institutions face mounting challenges, and the region’s future trajectory will be determined largely by forces beyond its control. We’ll move through each of these tensions systematically, examining both the immediate risks and the underlying structural vulnerabilities that make 2026 so consequential.

If you run, study or invest in anything tied to Latin America, this is probably the one piece I would read to understand 2026. Paid subscribers get the full analysis, with a generous preview for everyone else.

This piece will be part of the introductory chapter in my forthcoming book on Business & Social Justice in Latin America, identifying the key forces shaping the hemisphere and their relevance to issues of social justice. Paid subscribers get early sections and chapters.

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We begin with Washington’s new doctrine, then turn to regional fragmentation, the economic squeeze, elections and security before looking at the geopolitical trap and the choices ahead.

The Donroe Doctrine: From Monroe to Maduro

The capture of Maduro on January 3, 2026 was no ordinary policy manoeuvre. In justifying the operation, Trump administration officials explicitly articulated the “Donroe Doctrine”, an explicit update to the 19th-century Monroe Doctrine. Where the original 1823 doctrine warned European powers away from the hemisphere, this new iteration reclaims direct American dominance, not as a distant hegemon but as an active interventionist power.

The message to Latin America is unmistakable — Washington has returned to see the region not as a community of sovereign nations but as a sphere of direct control.

The administration’s National Security Strategy, released in November 2025, explicitly models policy toward the Western Hemisphere after the Monroe Doctrine, vowing to “reassert and enforce the Monroe Doctrine to restore American preeminence in the Western Hemisphere” and to “deny non-Hemispheric competitors the ability to position forces or other threatening capabilities” in the region.

What distinguishes this moment from post-WWII assertions of American hemispheric leadership — when Washington at least nominally committed to promoting democracy and regional integration through institutions like the Alliance for Progress — is that the Donroe Doctrine abandons the pretence entirely. It replaces incentives with coercion, partnership with direct control, and appeals to shared democratic values with naked interest in resource extraction, strategic alignment, and military dominance.

This represents a decisive break with the regional autonomy that Latin America gradually accumulated during the 1990s and 2010s — decades when countries could credibly claim agency in their own geopolitical positioning.

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The Normalisation of Intervention: Why Institutional Silence Matters

What makes this moment genuinely destabilising is not simply the act of intervention, but its normalisation. The operation violated the UN Charter and Venezuela’s sovereignty, yet passed with minimal institutional resistance.

The Organisation of American States (OAS) offered no unified response. CELAC proved too fragmented to even convene. This silence revealed an uncomfortable truth:

Latin America has become so internally divided that it cannot defend its own fundamental principle of non-intervention.

This institutional failure matters because it signals to other powers — both Washington and Beijing — that the region cannot enforce its own basic norms. For decades, the OAS served as a forum where even weak nations could invoke collective legitimacy. CELAC offered an alternative venue for regional coordination without the US. Both institutions have atrophied.

The silence around Venezuela won't deter future interventions; it invites them. When a precedent is set without resistance, it becomes precedent for the next crisis.

Fragmentation as Structural Vulnerability

The institutional weakness on display around Venezuela reflects a deeper crisis: the region has lost its capacity to act collectively at precisely the moment when external pressures demand unified responses. Brazil increasingly aligns with China through BRICS, positioning itself as a champion of Global South multipolarity. Mexico is bound by the USMCA (T-MEC) to North America, making it economically hostage to US trade policy. Argentina under Javier Milei has pivoted sharply toward Washington, viewing alignment with the US as essential to accessing capital and debt relief. Colombia navigates a precarious position between its American ally — which accounts for roughly 30 percent of its exports — and massive Chinese investment exposure, particularly in energy and mining sectors.

This fragmentation has real economic costs. While Asian countries trade roughly 40 percent of exports within their region, Latin American countries direct only 15 percent of their exports to neighbours. Dependence on external markets — particularly the US and China — has become the defining feature of the regional economy. Brazil exports roughly 32 percent to China and just 13 percent to the US. Chile directs 40 percent to China. Peru sends nearly 25 percent to China, compared to just 12 percent to the US.

This asymmetry creates competing foreign policy imperatives that governments cannot easily reconcile. When Washington pressures allies to exclude Chinese technology or investment in strategic sectors like 5G, lithium refining, or port management, countries face genuine dilemmas: defying the United States risks sanctions, currency instability, and loss of IMF support; complying means sacrificing critical Chinese capital that props up their development models, energy infrastructure, and export capacity.

The EU’s Role as Third Actor

On January 17, 2026, the EU and Mercosur formally signed a comprehensive trade and partnership agreement, concluding 26 years of negotiation. The deal covers a trade bloc linking 700 million people and US$22 trillion in combined GDP, with immediate tariff elimination on 91 percent of EU exports over 15 years and 92 percent of Mercosur exports.

The EU explicitly framed the agreement as both a response to US trade policy uncertainty and as an effort to reduce dependence on Chinese supply chains, particularly for critical minerals essential to battery manufacturing.

For Mercosur countries (Brazil, Argentina, Paraguay, and Uruguay), the agreement provides diversified market access without direct geopolitical coercion. For non-Mercosur countries — Colombia, Peru, Chile, and others — it creates new fracture lines. Why? Because once ratified, the EU will have trade agreements covering roughly 95 percent of Latin America’s GDP, anchoring Mercosur countries to Brussels while marginalising the others.

The agreement may offer a third pathway — trade-based integration without military pressure — but it also deepens the regional divide. Colombia and Peru are left seeking their own trade arrangements while watching Mercosur gain preferential access to European markets.

From here, we turn to the economic and social underpinnings of this new order, the 2026 election cycle, the security crisis, and what all of this means for business and social justice in the region.

Economic Mediocrity and Social Exhaustion

The region’s economic performance enters 2026 in stagnation. The International Monetary Fund projects Latin American growth of just 2.2 to 2.4 percent this year — a pace that barely keeps up with population growth and offers nothing resembling the expansion needed to reduce deep-rooted inequality. Brazil’s economy is decelerating to 2.1 percent. Mexico limps along at 1.4 percent. Even commodity exporters like Peru and Colombia face growth projections around 2.8 percent.

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Spain just made a choice that defies every other major Western democracy. While Trump deports, Britain restricts, and France debates, Spain’s government approved the regularisation of 500,000 to 800,000 undocumented migrants. The first time in 21 years.

The announcement landed on January 27, 2026 — quietly, almost. But for millions of Latin Americans living in Spain’s shadows, it was historic.

This decision matters for three reasons: it’s a victory for the Latin American workers reshaping Europe’s economy; it reveals the economic desperation driving Spain’s immigration policy; and it exposes just how fragile democratic commitments to inclusion actually are.

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588,000 Latin Americans Just Got a Golden Ticket

Let’s start with the numbers.

Of Spain’s estimated 840,000 undocumented residents, roughly 70 percent — roughly 588,000 people — come from Latin America, according to estimates produced by Funcas, a respected think tank (Figure 1). One in three is Colombian. Peru contributes another 108,000. Honduras, Ecuador, Venezuela, and Argentina round out the top tier.

The Crisis Map: Why These Countries, Right Now

These aren’t random arrivals. They’re responses to predictable crises. The Venezuelan economic and political collapse. Cyclical poverty in Peru. Lingering violence in Colombia. Desperation in Honduras and Ecuador. Spain, speaking their language and offering relative stability, becomes not a luxury destination but a necessity.

The typical beneficiary is a 33-year-old Peruvian construction worker, or a Colombian woman in domestic care, or an Ecuadorian in hospitality. Young, working-class, motivated by the desire of a better life, not asylum claims. The regularisation targets exactly this population: those who arrived before December 31, 2025, and have spent five months or more in Spain.

How Spain Just Validated the Informal Economy

What’s remarkable is the mechanism for proving residency. Beyond municipal registries (which many irregular migrants lack), applicants can now present remittance receipts. This detail matters profoundly. It acknowledges a reality invisible to most policymakers: Latin American migrants spend months or years building remittance networks, sending money home even from precarious, off-the-books work.

Spain’s new framework doesn’t just tolerate this — it legally recognises it.

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€4,000 Per Migrant: Why Spain’s Math Works (Even If Politics Doesn’t)

Spain’s growth trajectory looks miraculous by European standards. The country is expanding roughly three times faster than the EU average. Two motors power this: renewable energy (Spain’s unexpected advantage post-energy crisis) and migration.

But migration without legalisation creates an economic paradox. Undocumented workers fill critical gaps — agriculture, construction, tourism, care work — yet remain outside the formal economy. They pay no income tax. They dodge Social Security contributions. They’re vulnerable to exploitation, unable to report wage theft or dangerous conditions.

Regularisation solves this. Spanish government economists estimate a net fiscal benefit of €3,300 to €4,000 per regularised migrant (Figure 2). The figure combines two forces: formalisation brings millions in new Social Security and income tax contributions, while public service costs remain minimal (regularised workers don’t suddenly demand more healthcare; they already use emergency rooms, now the cost shifts from hospitals to the state budget).

These aren’t theoretical projections. They’re grounded in comparative analysis. Italy’s regularisation in 2020 and France’s ongoing programmes produced similar outcomes. The academic evidence (here and there) is consistent: regularisation generates positive labour market and fiscal effects.

No, This Won’t Trigger a Wave of Arrivals

The real surprise is what didn’t happen. After Spain’s 2005 regularisation (which affected roughly 700,000 migrants), critics warned of “effect llamada” — the claim that legalisation would trigger massive new arrivals. It didn’t. Neither did Italy’s or France’s programmes, it seems. The assumption — that legality acts as a beacon, pulling infinite migration — doesn’t survive empirical scrutiny.

The Evidence They’re Ignoring

Yet this evidence barely dents political messaging. Santiago Abascal, leader of Spain’s far-right Vox party went on about the Great Replacement Theory and claimed the regularisation “accelerates invasion”.

The conservative Partido Popular (PP), chasing Vox’s votes, argued the announcement aimed to distract from last week’s rail tragedies — and added that, “in socialist Spain, illegality is rewarded”. Ironically, nine such regularisation programmes have been carried out since the country’s return to democracy fifty years ago, with the PP conducting more regularisation programmes than any other party.

Yet, both parties ignore the research, the prior precedent, and Spain’s own demographic reality: without migration, Spain’s pension system collapses within a decade. One in five spaniards, or about 11 million, is aged 65 and older.

The Political Gamble: Democracy Against Its Own Populism

This is where Spain’s decision becomes genuinely significant — not just economically, but politically too.

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In 2024, Grupo Bimbo doubled down on Central America, pouring US$200 million into a new El Salvador plant while quietly stitching together acquisitions from Uruguay to Romania. At the same time, North American food giants were exiting “difficult” markets, restructuring portfolios, and closing plants after years of flat growth.​

Same consumers, similar products, overlapping regulators – opposite outcomes. The difference is not hunger or hustle but a fundamentally different competitive model, shaped by the institutional environments these firms grew up in.​

Multilatinas learned to operate where credit markets are thin, rules change mid‑stream, and courts cannot be trusted to enforce contracts. Those constraints forced them to build capabilities that now travel well:

• running profitable operations in low‑income markets

• navigating weak institutions

• and arbitraging risk between fragile and safe economies.

Research on emerging market firms’ performance in developing-country contexts shows that institutional familiarity creates lasting competitive advantages precisely where institutional distance punishes Western incumbents.

This is why more than 156 Latin American multinationals (or 'multilatinas’) are now outcompeting Western rivals precisely where those rivals struggle most.​

This briefing is for investors, corporate strategists and policymakers tracking Latin America’s emerging multinationals. It maps where multilatinas are already outcompeting Western peers, which capabilities underpin that edge, and where the next 12–24 months could create entry points or mis-pricing.

A free preview follows. Only paid subscribers have the full context, analysis and implications

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Key Points

• Multilatinas have become regional fortresses: 156 firms across 14 countries, with 77% of revenues and 93% of jobs still in Latin America powering disciplined global expansion.​

• Their edge comes from capabilities forged in weak institutions – diversified business groups, frugal innovation and institutional familiarity – that travel well into other difficult markets.​

• In infrastructure, agribusiness, telecoms and digital services, multilatinas increasingly outperform Western rivals where institutional distance and low incomes make traditional models unviable.​

• The competitive inversion is structural: Western firms must learn to operate in chaotic environments, while multilatinas only need to build credibility in rich markets – and most growth is in the former.​

• Over the next 12–24 months, technolatinas, Spain’s role as an EU bridge, and deepening Middle East–LatAm capital links will determine how far this advantage extends beyond the region.​

Where Multilatinas Matter Now

Multilatinas (multinationals from Latin America and the Caribbean) are a structural feature of the global economy.

A recent IADB study identifies 156 major multilatinas across 14 countries, concentrated in Brazil, Mexico, Chile, Argentina, Colombia and Peru, and linked by dense networks of cross‑border investment that invert the traditional North–South capital flow.​

Scale and spread

The scale of their economic output is significant, rivalling the GDPs of small nations:

• Petrobras (Brazil) remains the regional leviathan in the energy sector, reporting US$102.4 billion in revenues in 2023, leveraging deep expertise in ultra-deepwater drilling — a technological capability born from Brazil’s specific geological challenges;

• Grupo JBS (Brazil) has cemented its status as the world’s largest meat processing company with revenues of US$72.9 billion. JBS’s global supply chain now eclipses that of historical US leaders like Tyson Foods, a dominance achieved through aggressive acquisitions and the ability to manage complex livestock logistics across the Americas and Australia;

• América Móvil (Mexico) generated US$48.1 billion, dominating the telecommunications sector from Mexico to Patagonia and into Eastern Europe. Its success lies in a low-cost, prepaid business model that made mobile telephony accessible to the bottom of the pyramid, a segment Western telecom providers initially ignored.

These companies collectively employ hundreds of thousands of workers and operate across multiple continents, with some maintaining operations in over 20 countries.

Collectively, 156 multilatinas operate subsidiaries in 116 countries; the average firm is present in 7.3 markets, while outliers like Grupo Bimbo and Vale exceed 30.​

Yet the centre of gravity remains regional. Around 77% of multilatina revenues and 93% of their employment are still in Latin America, with most foreign investment also concentrated in neighbouring countries. Rather than a weakness, this pattern points to “regional fortresses”: firms using home‑hemisphere dominance and cash flow to fund selective global expansion.​

Geographic Strategies

FDI data reinforces this logic. In 2024, 72% of announced outward projects by Latin American and Caribbean firms stayed within the region, with Brazil alone absorbing 49% of multilatina investment announcements; North America captured 15%, and Europe and Asia‑Pacific together less than 10%.

Within Latin America, multilatinas tend to invest in nearby markets that share language, culture and institutional challenges, allowing a Colombian firm in Bolivia, for instance, to operate with institutional competence rather than deficit. This proximity shortens market‑entry times, lowers operating costs and supports deeper customer integration.​

Beyond the region, the same institutional logic scales up. The United States absorbs about 32% of multilatina M&A capital outside Latin America, reflecting its role as both consumer market and production hub for near‑shoring. Spain has emerged as the second‑largest extra‑regional destination, capturing most of the relatively small European share and serving as a linguistic, regulatory and logistical bridge into the EU; in 2024, 82 of 232 greenfield tech projects by Latin American firms used Spain as their European hub.​

Mexican and Argentine multilatinas increasingly use Spain not as a final market but as the gateway to European Union market access — converting the institutional proximity advantage that operates within Latin America into a bridge function for European expansion.

Why this matters

• Implication for investors: Concentration of cash flows in Latin America is a feature, not a bug – regional fortresses create robust cash engines that finance disciplined international expansion.​

• Implication for corporates: Western entrants are not facing “latecomers” but incumbents with deep local moats built on institutional familiarity and regional networks.​

• Implication for policymakers and IFIs: Regional integration is being constructed bottom‑up by multilatinas’ investment decisions more than by formal trade agreements, reshaping value chains and bargaining power across the hemisphere.​

This is a free preview of our 🔎 Deep Dive, part of our premium intelligence service. 💰 Paid readers get the full briefing: the capability map of multilatinas, sector and company watchlists, and a 12–24 month signal list for where this advantage goes next.

Up next for paid readers (🔒):

• How multilatinas outmuscle Western corporations through business groups and internal markets

• Doing more with less: the frugal innovation playbook Western firms struggle to copy

• Knowing the neighbourhood: why multilatinas win in weak‑institution markets where Westerners stumble

• Learning by buying: how Latin American firms use M&A to acquire technology and expertise faster than competitors

• Where multilatinas already outperform Western rivals – and where they still face liabilities of origin

• The future landscape: technolatinas, Spain as an EU bridge, and new South–South capital corridors

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How Multilatinas Build Their Edge

1. Internal markets: business groups as shock absorbers

Where Western multinationals are often standalone corporations, multilatinas frequently sit inside diversified business groups – conglomerates that function as internal capital and supply markets when external ones are thin. Grupo Bimbo coordinates capital, labour and products across bakeries, restaurants and distribution networks; Grupo Elektra combines financial services, retail and distribution; Techint links steel, construction and energy under one umbrella.​

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[This is an extended version of an article to be published in The Conversation under the title “What lies ahead for Latin America after the Venezuela raid?”.

This version goes further and discusses the U.S. operation in Venezuela in light of the U.S. National Security Strategy, and assesses why the U.S. targeted Venezuela, why now, how the operation is designed to bring the region into line, the role of oil in the U.S. plan, and what this all means for the hemisphere]

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The Trump administration has justified the 3 January 2026 raid on Caracas – which ended with Nicolás Maduro flown to New York on narco‑terrorism charges – as a law‑enforcement operation to dismantle a “narco‑state”, break Venezuela’s ties to China, Russia and Iran, and put the world’s largest oil reserves back under U.S.‑friendly control.

After years of neglect by the U.S. administration, Latin America is firmly top of the agenda – and for reasons that have little to do with democracy promotion.

That mix of counter‑narcotics, great‑power rivalry and energy security is precisely what the administration had already elevated to strategy in its 2025 National Security Strategy, released only a month ago. The NSS announced a “Trump Corollary to the Monroe Doctrine”: a pledge to “reassert and enforce American pre‑eminence in the Western Hemisphere” and to deny extra-hemispheric powers “strategically vital assets” in the region.

What we wrote back in November seems quite fitting:

“After decades of wars in the Middle East and strategic pivots to Asia, Latin America — neglected and taken for granted by the U.S. administration — has returned to the centre of Washington’s gaze, recast as a theatre for combating migration, drug trafficking, and Chinese influence all at once”.​

Analysts have dubbed this hemispheric project the Donroe Doctrine, noting how Trump has tightened the U.S. grip on Latin America by rewarding loyal governments (e.g. Argentina bailout, Ecuador, El Salvador), interfering in national and presidential elections (Argentina’s 2025 midterms, Honduras 2025, Colombia 2026) and punishing defiant ones (tariffs on Brazil, decertification of Colombia, criminalisation of migrants, extra-territorial killings of alleged narco-traffickers, among others).

The military intervention against Maduro is the most representative example of the foreign policy that the U.S. administration intends to extend — a much broader strategy that Latin American countries are right to view with alarm.

Across the hemisphere, the raid on Caracas has been met with loud rhetoric but limited collective action. Left‑leaning governments decried an “extremely dangerous precedent”, while right‑wing allies like El Salvador, Argentina and Ecuador openly praised Maduro’s seizure.

With regional organisations weakened and leaders pursuing narrowly transactional ties to Washington, many now calculate that open defiance risks leaving them isolated – and next in line.

As one Latin American editorial put it, Trump’s claim that “this is OUR Hemisphere” lands less as strategy than as a threat.

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The Case Against Maduro

An undemocratic and abusive dictator involved in narco-trafficking, Maduro lacked domestic and international support — and legitimacy.

Venezuelans had asked for Maduro to be removed, by force if else fails since the July 2024 elections that were blatantly stolen from them.

No other government, not even China, Russia nor Iran have come to Maduro’s rescue.

The reasons for the U.S. operation in Caracas are many-fold, and broadly fall within the remits of the Donroe Doctrine.

From the National Security Strategy, page 5:

• “We want to ensure that the Western Hemisphere remains reasonably stable and well-governed enough to prevent and discourage mass migration to the United States;

• “We want a Hemisphere whose governments cooperate with us against narco-terrorists, cartels, and other transnational criminal organisations;

• “We want a Hemisphere that remains free of hostile foreign incursion or ownership of key assets, and that supports critical supply chains;

• “We want to ensure our continued access to key strategic locations;

• (…) “We want to halt and reverse the ongoing damage that foreign actors inflict on the American economy while keeping the Indo-Pacific free and open, preserving freedom of navigation in all crucial sea lanes, and maintaining secure and reliable supply chains and access to critical materials”

🔒 What comes next (for paid readers)

Who is actually at risk — and why this matters now.

• Why Maduro, why now — how Venezuela scores against U.S. objectives, oil as leverage — rather than a prize

• Whether Caracas was a one-off — or a blueprint for future U.S. action in the hemisphere

• The four countries now feeling the heat, from Cuba and Mexico to Colombia and Nicaragua

• How the Donroe Doctrine works in practice — rewards, punishments, and escalation thresholds

• What cooperation really means for Latin American governments facing U.S. pressure

If you want to understand where U.S. coercion is heading next — and how fragile the regional order has become — this is where the analysis begins.

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Latin America faces a crisis so profound that many assume the region’s tragic condition — poverty, joblessness, informality — is just an inherited curse beyond redemption. Wrong.

The United Nation’s Latin America Commission (or ECLAC, as it is known) has just released its latest Social Panorama 2025, the Commission’s annual outlook on economic and social development in the region. It delivers a damning but liberating message: inequality in Latin America is a policy choice.

This distinction matters. If inequality were inevitable — say, a function of geography, development stage, or cultural factors — we’d simply have to accept it.

But ECLAC’s data shows something far more sobering: the region makes systematic policy decisions that entrench inequality, and those same decisions could be reversed.

This post breaks down ECLAC’s newly released Social Panorama 2025 for Latin America and the Caribbean. Exclusively for paid subscribers.

Key Points

• Poverty hit a historic low (25.5% in 2024), but inequality barely budged — the real crisis is distribution, not headcount

• Half the region’s workforce remains informal; formalising them would cut poverty by 12–24% and inequality by 14%

• Three proven policy levers work: progressive taxation, early education, and care-economy investment

• Latin America doesn’t lack solutions or capacity, but political will

• Government institutional weakness and elite resistance make implementation nearly impossible

This post is for paid subscribers. Free readers get a free preview.

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The Scoreboard: Is Latin America Getting Better?

Before we talk about why inequality persists, readers should know the honest answer: the region is slowly improving in some ways, but not in the ways that matter most. ECLAC’s latest data presents a mixed, and instructive picture.

Good News (Sort of): Poverty just hit a historic low. In 2024, 25.5% of Latin Americans lived in poverty, down from 27.7% in 2023 — the lowest rate on record.

Multidimensional poverty (a broader measure counting lack of education, healthcare, housing, and jobs) fell from 34.4% in 2014 to 20.9% in 2024 — a 13.5 percentage point drop over a decade.

The Catch: This progress is real but fragile, and it’s happened almost despite policy, not because of it.

Here’s the uncomfortable truth: much of the poverty reduction stems from demographic luck (smaller families in poor households shrink per-capita poverty measures) and occasional labour market improvements, not from government redistribution. In fact, if Latin American governments had done nothing, poverty would likely be worse today. But they could have done so much more.

The Real Crisis: While poverty inched down, inequality barely budged. The Gini coefficient in 2024 stands at 0.452 — down only 0.017 points from 2021 (0.469). To put this in perspective: the richest 10% earn 20 times more than the poorest 10%. Compare that to OECD countries where the gap is roughly 10-to-1.

This 10-year comparison reveals a stark reality: Latin America’s inequality hasn’t just
persisted—it’s proven stubbornly resistant to improvement.

Over the past decade (2014-2024), the Gini fell only 0.012 points annually — a “0.5% annual decline” that ECLAC itself describes as “modest” and insufficient to “imply transformations”.

What Drove the Modest Improvements? In countries that reduced inequality most between 2021 and 2024, four of five saw improvements driven mainly by labour markets, not policy.

Wage changes — some workers finding better jobs — accounted for the gains. Government transfers moved the needle minimally. Meanwhile, demographic trends did heavy lifting: the proportion of children in poor households declined faster than in wealthy households, mechanically reducing per-capita poverty among the poorest.

The Numbers in Brief: Only 20% of students master basic mathematics (versus 68% in OECD countries). Nearly half of workers remain informal — no job security, no pension, no health insurance. The femininity index of poverty rose from 105 in 2003 to 123 in 2024 — women are increasingly overrepresented in poor households.

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From Crisis to Possibility

Here’s what should trouble every policymaker: these numbers reveal that Latin America’s poverty reduction is accidental — driven by demographic shifts and market improvements, not deliberate policy.

But what if it wasn’t accidental? What if, instead of waiting for demographics to shift in our favour, governments actually chose to intervene?

ECLAC identifies six policy levers they could pull.

The Scale: A 20-to-1 Gap in the World’s Most Unequal Region

Let’s start with the starkest fact: the wealthiest 10% of Latin America earn 20 times more than the poorest 10%. Compare this to OECD countries, where that gap is roughly 10-to-1. Latin America’s Gini coefficient stands at 0.452 — higher than virtually every other region on Earth, second only to sub-Saharan Africa.

Yet here’s where the policy argument begins. The report shows that this inequality is not driven by market forces alone. Instead, the modest improvement we see over the past decade stems almost entirely from demographic trends (smaller families in poor households) and sporadic labour market improvements — not from redistributive policy.

Put bluntly:

If Latin American governments had done nothing, inequality would likely be worse today. But they could have done so much more.

Why Policy, Not Fate?

ECLAC identifies six drivers of high inequality, and six of them are policy-malleable:

1. Weak economic growth and informal labour markets.

Half of Latin American workers labour in informality — no job security, no pension, no health insurance. This isn’t destiny. ECLAC modelled what happens if these workers formalised: their incomes would jump 29% instantly, poverty would drop 12–24%, and the Gini coefficient would plummet 14%.

These aren’t theoretical guesses. They’re simulations based on real wage premiums for formal employment. The formal-to-informal divide exists because governments haven’t prioritised formalisation policies — tax incentives, streamlined registration, labour enforcement.

2. Regressive tax systems

Latin America’s governments collect less tax revenue than OECD peers and structure it regressively. This is a choice.

Progressive taxation isn’t ideological fantasy; it’s standard practice in wealthy democracies.

3. Weak social protection

Public social spending averages just 11.6% of GDP in the region — down from pandemic peaks but still modest. When it is spent, it works: ECLAC shows that public transfers reduce poverty by 24–31% and inequality by 8–14% post-transfer.

Many countries underfund social protection systems by choice.

4. Failing education systems

Only 20% of Latin American students master basic mathematics, compared to 68% in OECD countries. Educational inequality in the region is more than double that of OECD nations. This isn’t because poor students have different brains — it’s because schools are segmented by income, teachers are underpaid, and governments systematically underfund institutions serving poor communities.

5. Gender inequality

Women provide two-thirds of unpaid care work, some dedicating 75 hours weekly to it. This invisible labour is worth 19–27% of GDP but vanishes from policy calculus. The femininity index of poverty has risen from 105 in 2003 to 123 in 2024 — women are increasingly concentrated in poor households.

6. Spatial inequality

The region’s 80% living in cities faces severe residential segregation. Poor neighbourhoods lack infrastructure, schools, hospitals. This is planning and investment choice.

Every one of these factors represents a policy decision.

Why Governments Aren’t Acting

The barrier to reducing inequality in Latin America is not ignorance. Governments already know which policies reduce poverty and close income gaps. What is missing is the institutional and political capacity to implement them at scale.

ECLAC describes this as a deficit in TOPP capacities — Technical, Operational, Political and Prospective capabilities. In practice, this means ministries operate in silos, lack reliable data systems, have limited enforcement capacity and struggle to coordinate multi-sector reforms. A tax reform without auditors changes nothing. A formalisation strategy without labour inspectors fails before it starts.

This is not just inefficiency. It is structural paralysis.

The result is a self-reinforcing cycle:

• Low growth limits fiscal space

• High inequality erodes institutional legitimacy and social cohesion

• Weak institutions fail to deliver productive transformation

• Stagnation and distrust then deepen inequality

Each part strengthens the next. The system locks itself in place.

Up next for paid readers (🔒)

• Evidence-based levers — which policies ECLAC models as most effective, and their quantified impact

• Country proof points — why Brazil, Costa Rica and Uruguay outperformed the region, and what those choices reveal for the rest of Latin America.

• Distributional math — How formalisation raises incomes by 29%, cuts poverty by up to 24%, and reduces the Gini by ~14%, using ECLAC’s own modelling.

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The Tax System Reveals the Real Barrier

Contrary to political narratives of scarcity, most governments already have fiscal room to expand social investment.

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Spain’s migration landscape stands as a powerful mirror to its own 20th-century upheavals.

As the nation commemorates fifty years since the death of Francisco Franco and the return to democracy, a dramatic reversal unfolds: Latin Americans now arrive seeking opportunity and stability, retracing the footsteps of nearly half a million Spaniards who, during the Franco dictatorship, fled across the Atlantic to escape violence, repression, and economic misery.

Between 1880 and 1930, roughly 4.5 million Spaniards migrated to Latin America. The Spanish Civil War triggered a further exodus: over 440,000 Republicans escaped to Mexico, Argentina, Cuba, Uruguay, and Venezuela.

These journeys reshaped both Spain and its former colonies, forging lasting family and cultural ties that would span generations.

Today, democratic Spain has become a magnet for those same regions. Over a million Latin American workers are now registered in Spain’s Social Security system — making Latin Americans the largest foreign workforce and vital to Spain’s youth and dynamism. Many are not strangers but grandchildren and great-grandchildren of those exiles, reclaiming citizenship through the 2022 Democratic Memory Law.

This is more than migration data. It is history completing a circle: Spain was once a place of departure for those fleeing repression and poverty; it is now a destination offering political stability, economic opportunity, and shared language.

Yet this reversal — coinciding with Spain’s 50-year democracy celebration earlier this month — has sparked a political crisis that cuts to the heart of Spanish democracy itself. As the far-right Vox party surges with calls to expel millions, Spain faces a choice: honour the return of those Franco exiled, or repeat his legacy of exclusion.

This deep dive unpacks the forces reshaping Spain’s political landscape through the lens of Latin American migration:

• The Historical Reckoning: How Spain’s return to democracy created an unexpected symmetry

• The Demographic Imperative: Why Spain needs Latin American workers not as a policy choice but as an economic necessity.

• The Housing Lie: How a genuine housing affordability crisis has been weaponised to scapegoat migrants.

• The Far-Right Surge: Why Vox’s radical “remigration” plan targets not just migrants but Spanish citizens by descent

• The Democratic Test: Why this moment matters far beyond Spain.

A free preview follows. 💰 Paid subscribers get the full context, the analysis and the implications. 🎁 Get a further 20% off until December 21.

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Three Waves: The Hidden History of Latin Americans in Spain

The current surge of Latin American arrivals in Spain is not without historical precedent, yet its scale, character, and geographic distribution mark a dramatic transformation. Understanding modern migration requires grasping three distinct waves that have reshaped Spain’s relationship with the Americas—and how descendants of Spanish emigrants are reclaiming their ancestral homeland across the country’s regions.

Wave One: Exiles and Elites (1950s–1990s)

Until 1999, Latin American presence in Spain remained modest and politically shaped. Political exiles from Argentina, Cuba, Chile, and Uruguay — many from affluent families fleeing dictatorship — formed the intellectual and cultural core of Spanish-Latin American communities. These were the professors, poets, and politicians who had fled repression; they settled primarily in Madrid’s central districts and maintained networks of cultural influence but represented a tiny fraction of the immigrant population.

Wave Two: The Economic Crisis Wave (1999–2008)

The year 1999 marked a watershed. Ecuador’s economic collapse triggered unprecedented flight. Ecuadorians arrived not as exiled elites but as working-class families desperate for survival, drawn by Spain’s booming economy which urgently needed construction workers and elderly care providers.

This wave transformed Spain’s cities. By 2005, Ecuador’s population in Madrid had peaked, but it was joined by tens of thousands of Colombians, Peruvians, Bolivians, and Dominicans fleeing crises in their own countries. The growth was exponential: by 2009, almost 600,000 Latin Americans lived in Madrid — a 7-fold increase in a single decade.

The 2008 financial crisis interrupted this wave, though many remained, having invested years building lives and establishing communities. The demographic and linguistic profile shifted: from elite exiles to working-class families, younger and more female, concentrated in service sectors and construction.

Wave Three: The Crisis Diaspora (2017–Present)

Beginning in 2017, a third and still-ongoing wave started, driven by regional crises. The Venezuelan political and economic collapse, persistent Colombian violence, and cyclical downturns in Peru and Ecuador sent hundreds of thousands fleeing.

This wave is demographically and socioeconomically distinct: it includes workers filling low-wage jobs and Venezuelan professionals — economists, journalists, engineers — with university degrees arriving as family units seeking political stability alongside economic opportunity. It includes wealthy Latin Americans relocating to Madrid for investment purposes and students (14,776 Latin Americans enrolled in Madrid universities in 2022–23, a 40% increase compared to eight years earlier).

The scale has become staggering. In just 25 years, Madrid’s Latin American population surged from 81,552 (1999) to over one million (2024). If this population were a city unto itself, it would surpass Santiago (Cuba’s second-largest city), rival Málaga (Spain’s fifth-largest metropolitan area), and exceed the populations of Bilbao and Zaragoza.

Geography: Where Return Migration Settles

Yet this return migration is not concentrated in Madrid alone. An important but unmeasured portion of Latin American arrivals are descendants of Spanish exiles utilising the 2022 Democratic Memory Law, which allows grandchildren and great-grandchildren to reclaim citizenship without requiring prior residence in Spain.

While exact proportions of how many contemporary arrivals are return migrants versus economic migrants remain unclear, applications under the law have surged into the hundreds of thousands, suggesting return migration is a meaningful factor alongside traditional economic migration.

It was believed up to 700,000 Spanish descendants would be eligible for fast-track nationality. On October 1, 2025, authorities announced 836,000 descendants of exiles had applied for Spanish nationality.

For many descendants of the 4.5 million Spaniards who emigrated to Latin America between 1880–1930, and the 440,000+ who fled Franco’s dictatorship, this migration represents a literal return home.

From the 1950s to the 1970s, more than 80,000 Spaniards settled in Colombia alone, establishing communities that maintained Spanish language, culture, and identity for generations. Today, their grandchildren and great-grandchildren are reclaiming connection to their ancestral homeland.

Geographically, this return is dispersed across Spain. While Madrid dominates the statistics with over one million Latin American-born residents as of 2024, Catalonia attracts nearly 900,000 Latin Americans, concentrated in Barcelona and surrounding industrial zones. Valencia hosts 446,000, many drawn to both manufacturing and the agricultural regions surrounding the city. In Andalusia’s agricultural heartland — the greenhouse sectors of Almería and Murcia, the strawberry fields of Huelva — Venezuelan and Ecuadorian workers have become indispensable to Spain’s export agriculture.

For economic migrants, the pattern reflects sectoral demand: workers needed in service sectors gravitate toward major cities, while agricultural labor concentrates in the south.

Roughly a third of Latin Americans in Spain hold Spanish citizenship, with many more eligible via familial descent. This population occupies a unique position, arriving with full legal rights but often the lived experience of newcomers, highlighting the complexity of integration, belonging, and anti-immigration debates.

For Colombians and Venezuelans without Spanish ancestry, Spain offers a privileged fast-track: just 2 years of legal residency — rather than 10 years required for most other nationalities — to acquire Spanish citizenship, with the ability to maintain dual nationality. This legal framework reflects Spain’s strategic embrace of Ibero-American connection, even as political forces now seek to reverse that openness.

Madrid may concentrate the most visible Latino community, but the return migration to Spain is fundamentally a national phenomenon reshaping rural and urban Spain alike.

The historical irony is profound. Fifty years after Franco’s regime drove hundreds of thousands of Spaniards into exile across the Atlantic, their descendants and economic migrants from those same regions are now returning to Spain seeking the stability and opportunity that dictatorship denied their ancestors.

This return, however, occurs not in a unified moment but in a fragmented, decentralised pattern: some reclaiming ancestral urban neighbourhoods, others populating agricultural zones in the south, still others becoming part of the professional classes in Barcelona and Valencia.

Spain’s democracy, promised to welcome those seeking freedom, now must decide whether it will honour that promise for those who return.

The Numbers Tell a Story of Scale

The past few years have seen exponential growth in Latin American migration to Spain. According to official Social Security data accessed by EL PAÍS, since 2019, the number of registered Latin American workers has doubled from around 500,000 to more than one million.

The leading nationalities are Colombians, Venezuelans, Peruvians, Ecuadorians, and Argentinians. Madrid is the central hub, followed by Catalonia and Valencia, reflecting both the draw of Spain’s most dynamic economic regions and, for many, a conscious return to ancestral neighbourhoods.​​

Spain’s National Statistics Institute (INE) estimates the actual Latin American workforce at 1.52 million, factoring in the large informal sector common to new arrivals.

Importantly, approximately 30% of Latin Americans in Spain now hold Spanish nationality — many by descent — showcasing how dual citizenship and return migration shape cultural realities. Young migrants dominate, especially among Venezuelans and Colombians, who represent the fastest-growing groups.

Yet Spain’s figures, while historically unprecedented for the country, place it in the shadow of vastly larger migration currents.

The United States hosts approximately 15-16 million Latin American migrants, roughly four times Spain’s population. Between 2020 and 2024 alone, the USA received 3.8 million Latin American newcomers, representing 58% of all new immigrants.

Spain’s achievement of one million Latin American workers in six years is proportionally impressive — doubling from 500,000 — but occurs in a global context where the United States remained until recently the overwhelmingly dominant destination for Latin American migrants.

The difference reflects geography (proximity to Central America favours the USA), established networks, and policy frameworks.

Yet it also reveals Spain’s distinct appeal: while the USA attracts primarily Central American and Mexican migrants seeking economic opportunity, Spain attracts South Americans — Colombians, Venezuelans, Ecuadorians, Peruvians — who often arrive with higher educational levels and are explicitly welcomed through favourable naturalisation policies.

The Dual Economy: From Kitchens to Corner Offices

Latin American migrants are essential in Spain’s hospitality sector, which absorbs approximately 20–24% of the workforce from major nationalities. Construction, administration, healthcare, and domestic services follow as significant areas of employment, addressing chronic labour shortages in these fields.

Migrants increasingly find professional roles in technology, scientific research, telecommunications, and finance — sectors where their representation is growing steadily.​​

Migration Drivers

Migration is shaped by multiple pressures: economic instability, the political and humanitarian crisis in Venezuela, ongoing violence in Colombia, and periodic downturns in Peru and Ecuador.

According to analysis from the DIIS, push factors remain severe across the region: economic instability, political crisis in Venezuela, armed conflict in Colombia, and cycles of poverty in Peru and Ecuador.

Yet for many “return migrants,” the pull stems as much from family history and nostalgia as from labour market calculation: Spain’s linguistic familiarity, historical connection, supportive immigration policies (including the Democratic Memory Law and dual nationality opportunities), and established social networks ensure that many arrivals are not isolated strangers, but members of a long dispersed Spanish family.

Demographic trends, such as Spain’s aging population and low fertility rate, create strong demand for young, working-age migrants.​​

The Demographic Imperative

Spain faces a critical demographic challenge, with a fertility rate of 1.12 — well below the replacement level — and a rapidly increasing elderly population.

Projections indicate that, by 2035, retirements will outpace native labour market entrants by a margin of several million, necessitating continued and substantial immigration to sustain economic growth and the welfare state.

Three out of four new jobs created in 2024–2025 have gone to migrant workers — often in sectors that cannot attract Spanish labour.

The Economic Model Under Strain: Tourism, Agriculture, and Structural Vulnerability

Spain’s economic reliance on migration masks a deeper fragility in its sectoral structure. The country’s economy rests heavily on tourism — Spain welcomed a record 94 million visitors in 2024, making it the world’s second-most visited nation — and agriculture, both sectors perpetually hungry for low-wage labour.

While migrants fill critical gaps, this model brings contradictions: foreign workers power economic growth but their arrival — coinciding with a national housing squeeze — fuels political backlash and public anxiety. Nearly 40% of renting families now spend over 40% of their income on housing, according to Spain’s central bank.

Housing shortages, rather than immigration per se, are at the root of many grievances.

And the issues of immigration and housing short have become politically toxic. As tourism floods some neighbourhoods with temporary workers and short-term rentals, driving out long-term residents and families, residents increasingly blame both tourism and immigration for their displacement.

The two phenomena have become conflated in public perception, though their relationship is more complex: the issue is not migration itself, but an economic model prioritising tourist rentals and low-wage export labour over affordable housing and stable employment.

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How Spain’s housing emergency created scapegoats, how youth disillusionment created an opening for Spain’s far-right, why Vox’s radical ‘remigration’ plan threatens Spanish citizens, and what this crisis reveals about the fragility of European democracy.

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The Housing Emergency: Why Immigrants Became Scapegoats

Mass protests swept over forty Spanish cities in April 2025, demanding housing reform as rents soared, home ownership rates for those under 35 collapsed, and foreign property purchases reached new highs.

Protesters chanted “Get Airbnb out of our neighbourhoods” and carried signs reading “Mallorca is not for sale” and “To live in Madrid you need to share a flat with four others”.

Those demonstrations marked a watershed moment — organised simultaneously across Spain, uniting city dwellers around a singular grievance: housing has become unaffordable for ordinary Spaniards.

Read more

South America is becoming the planet’s newest oil capital, and the irony couldn’t be sharper. Off Brazil’s northeastern coast, where the Amazon River meets the Atlantic, two treasures sit meters apart beneath the seabed: a 3,600 square-mile deepwater coral reef — one of Earth’s most biodiverse ecosystems — and billions of barrels of oil. Brazil just approved drilling for the oil.​

Miles north, Guyana is pumping 650,000 barrels daily from discoveries that have transformed the rainforest nation into the world’s fastest-expanding economy and highest per-capita oil producer. Thousands of miles inland, Argentina’s Vaca Muerta shale fields are poised to produce over one million barrels daily by 2030.

Across the continent, Brazil, Guyana, and Argentina now rank among the top five drivers of global oil growth outside OPEC — major players in a new fossil fuel boom happening precisely when climate impacts are intensifying.​

The timing is surreal. This week, Brazil is hosting COP30, the UN’s climate conference meant to set binding targets for emission reductions. Yet the conference city of Belém sits just a few hundred miles from where Petrobras received permission to drill at the Amazon’s mouth. As people across South America die in floods, droughts, and fires made catastrophic by climate change, regional leaders are making opposing bets about how to navigate the energy transition.​

Three very different countries are united in their quest to expand oil production. Brazil’s president champions environmental protection while defending oil extraction. Argentina views fossil fuel expansion as its economic salvation under a libertarian president. Guyana argues oil wealth is essential to lifting 48% of its population out of poverty.

Yet what binds them matters more: they’re all racing to monetise reserves before global demand collapses — or to decide whether that race is even worth running.​

This is where Brazil and Colombia’s fundamental contradiction emerges. The region’s two largest economies have placed opposing bets on how developing nations should navigate the shift away from fossil fuels. Brazil is accelerating oil extraction, arguing that fossil fuel revenues will finance climate investments. Colombia is halting new drilling entirely, wagering that immediate sacrifice will enable economic transformation.

Latin America is divided. Both nations frame their approach as equitable. Yet, only one vision can scale across the region.​​

In this deep dive: This deep dive examines the evidence behind both gambles, asks which approach holds promise — and whether either can actually work at scale. We explore how the same dilemma is playing out across the region: Mexico seeking a contradictory middle path, Argentina doubling down on extraction, Venezuela embodying the catastrophic cost of over-dependence. The stakes extend far beyond South America: dozens of developing nations are watching to see which strategy succeeds.

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🇧🇷 Brazil’s Bet: Pump Now, Transition Later — Before the World Quits Oil

Brazil arrived at COP30 as a paradox. The government has become genuinely serious about protecting the Amazon, slashing deforestation by roughly one-third since Lula took office.

Yet weeks before the climate summit, it approved Petrobras to explore for oil at the Amazon’s mouth — a contradiction that shocked environmental groups.​ Lula’s administration wants Brazil to become the world’s fourth-largest crude producer by 2030, ahead of Iraq and the UAE, writes the FT.

The contradiction is stark: Lula’s administration points proudly to deforestation reductions as proof of environmental commitment, yet simultaneously approves drilling in one of Earth’s most biodiverse regions. It’s as if a patient has quit smoking but started drinking, calling it progress because at least the cancer risk declined.

The Brazilian argument runs like this: the country already runs almost entirely on clean electricity (90% from hydropower, wind, and solar). It leads the world in biofuels and ranks among the top renewable energy producers globally.

This genuinely green foundation, officials contend, gives Brazil something other oil-producing nations lack: the credibility to extract fossil fuels while continuing to expand clean energy.

They frame it as development strategy, not hypocrisy.​​

The business plan is straightforward. Petrobras wants to pump billions of barrels of newly discovered oil over the next decade. The company is simultaneously investing billions in low-carbon energy projects and decarbonisation initiatives. The government is also funnelling billions into renewable and forest restoration projects through its climate fund.​

But here lies the core weakness. Brazil has no legal requirement that oil profits actually go toward climate action. Nothing forces the money to stay within the country or fund the transition. Without binding mechanisms, the oil revenues could simply disappear into general government budgets, used for whatever priorities emerge. This matters because while deforestation emissions are dropping, emissions from energy and agriculture are actually rising — a red flag suggesting the green and brown parts of the economy may not stay separate for long.​​

There’s also a timing problem. Global demand for oil is projected to peak around 2030. Oil discovered in the Amazon today takes years to develop and even longer to become profitable. If the world has already begun phasing out fossil fuels by then, Brazil’s expensive new oil fields could become worthless — stranded assets representing billions in wasted investment.​

🇨🇴 Colombia’s Gamble: Stop Drilling Today, Build Tomorrow (if international support comes)

Gustavo Petro faced a starker choice. When he took office in 2022, he made a bet few developing nations attempt: halt all new oil drilling, tax fossil fuel companies more heavily, and build an economy around tourism and sustainable agriculture instead.​​

It was a principled stand. Colombia joined fewer than a dozen countries globally committing to phase out fossil fuel production. It also came with immediate pain.​

Major international oil companies — Chevron, ExxonMobil, Shell, ConocoPhillips — either left Colombia or dramatically scaled back operations. Investment in new projects dried up.

The country’s oil reserves are shrinking rapidly; at current production rates, Colombia has roughly seven years (or even less) of proven oil reserves remaining.

Production is falling and will keep falling, meaning billions in lost export revenue annually.​

The economic consequences have been severe. Colombia’s economy grew barely 0.7% in 2023 and 1.6% in 2024, far below regional peers and previous performance.

Petro promised a massive government fund to help finance the transition toward a green economy. It never materialised. Government finances have tightened considerably, limiting the very investment needed to help communities and workers adapt.​​

The real problem is structural. When roughly one-tenth of government revenue comes from oil sales, cutting oil production directly cuts the money available for schools, hospitals, and transition initiatives. Petro’s administration tried to transform energy, agriculture, and fiscal policy all at once, but struggled to actually implement these ambitious changes.

The result: policies intended to decarbonise instead constrained the resources available to make decarbonisation work.​​

Yet Brazil’s and Colombia’s divergent paths reveal something troubling: neither country’s dilemma is unique, and neither emerged by accident. Both are responding to the same global forces — a rigged international system in which wealthy nations built their wealth on fossil fuels while now demanding that poor countries skip that path entirely.

The trap they face is not a policy failure but a structural injustice built into how climate action has been negotiated globally. Understanding this systemic squeeze is essential, because dozens of other developing nations are watching to see which strategy works — and will likely replicate whichever approach appears viable.

The Global Trap: Why Developing Nations Face an Impossible Dilemma

Both Brazil and Colombia are responding to a fundamental unfairness. Developing nations confront what analysts describe as a cruel choice: either voluntarily give up oil extraction (and watch wealthier nations continue extracting theirs while reaping the economic benefits), or extract as much as possible before global demand collapses.​​

The United States, the world’s largest oil producer, shows no intention of slowing down. Wealthy nations built their entire prosperity on coal, oil, and gas. Now they ask developing countries to skip that path — without offering equivalent financial support to make up the difference.

This creates a perverse logic: if rich countries aren’t serious about climate action, why should Brazil or Colombia sacrifice?​

The funding reality makes the trap worse. The world needs US$ 5.8 trillions annually to finance a just energy transition, yet wealthy nations have consistently failed to deliver.

In reality, only one dollar in every 35 has been spent supporting just transition —money that has actually reached workers and communities managing the shift away from fossil fuels. As Action Aid puts it, “billionaire Jeff Bezos has spent more on purchasing and running his super-yacht (US$635 million) than multilateral climate funds have spent on just transition across the Global South”.

Wealthy countries talk about private investment solving the problem, but private money typically arrives in far smaller amounts than promised.​

There are promises for more climate finance in the coming years, but deep skepticism remains about whether the money will actually materialise and whether developing nations will have genuine control over how it’s spent.​

The Catch-22: How Both Strategies Could Backfire

Brazil’s strategy has a fundamental credibility problem. The government says oil revenues will fund climate action, but nothing legally requires this to happen. If political priorities shift, that money could vanish into other budgets.

Adding to the risk: oil discovered today takes years to pump. But global oil demand is projected to peak around 2030. If that happens on schedule, Brazil’s expensive new wells could become worthless before they ever become profitable.​​

Colombia faces a different trap. Cutting off oil revenue without having alternative income sources in place creates a financial squeeze that paradoxically makes it harder to fund the transition. The government has less money for investment precisely when it needs more. Beyond the economics, there’s political danger: Colombia’s 2026 presidential election — less than a year away — could bring candidates promising to reverse Petro’s entire energy framework. Leading opposition contenders have already signalled they would restart oil exploration if elected​.

Public opinion adds another variable. Most Brazilians oppose drilling in the Amazon, and 77% support ending deforestation by 2030. In Colombia, economic stagnation is creating pressure to abandon the anti-extraction stance and return to oil extraction as an income source. Both countries face domestic pressure pointing in opposite directions.​

Beyond Brazil and Colombia: How the Dilemma Spreads

The choices Brazil and Colombia make will reverberate far beyond their borders. Their dilemma — whether to extract maximum wealth now or stop drilling immediately — isn’t unique. Across Latin America, countries face nearly identical fiscal pressures and equity questions as they build renewable energy capacity while holding untapped fossil fuel reserves.

If neither the “extract now” nor the “stop now” approach proves workable, the world faces a serious problem: developing nations may lack a viable path to rapid decarbonisation that doesn’t either deepen fossil fuel dependence or trigger economic collapse.​

Countries across the region are ramping up extraction, arguing this is vital to their economic and social development. Three cases illustrate the spectrum of approaches: Mexico pursuing a contradictory middle path, Argentina doubling down on extraction, and Venezuela embodying the catastrophic failure of oil-dependent governance.

🇲🇽 Mexico’s Muddy Middle

Mexico illustrates how difficult the middle ground has become. Mexico generates just one-fifth of its electricity from renewables — well below the global average of 32% and far below Latin America’s 62% — yet possesses world-class wind and solar resources.

The government targets 38-45% clean energy by 2030, and private companies have committed US$6-9 billion to build renewable capacity. Yet Mexico remains trapped by its energy foundation: more than half of its electricity comes from natural gas, most imported from the United States.

This dependence creates perverse incentives. President Claudia Sheinbaum’s administration is simultaneously pursuing renewable expansion while trying to revive Pemex, the debt-ridden state oil company, to reduce gas imports.

The result mirrors Brazil’s contradiction: competing energy strategies that work against each other rather than in concert.​

🇦🇷 Argentina’s Shale Temptation

Argentina faces a starker version of the same trap. The country has exceptional clean energy potential — the fourth-largest onshore wind capacity globally and excellent solar resources. Yet President Javier Milei’s administration has bet the economy on Vaca Muerta, a massive shale formation containing the world’s second-largest shale gas reserves. “Almost everything revolves around expanding Vaca Muerta”, explained Gabriel Blanco, Argentina’s national director of climate change.

The logic mirrors Brazil’s: fossil fuel wealth can fund development. Yet the gamble comes with familiar risks — Argentina’s renewable energy law expires in 2025, and fossil fuels receive greater governmental support than clean energy.

Public opinion remains disengaged; climate change “has never been a topic of public or political discourse,” Blanco noted, with the prevailing narrative promoting the idea that “we will be wealthy and develop”.​

🇻🇪 Venezuela’s Cautionary Tale

Venezuela represents the endpoint of the “extract maximum value” strategy — and it is a catastrophic warning. Once the region’s wealthiest nation, Venezuela’s economy became entirely dependent on oil revenues, which financed roughly 58-80% of government budgets. When oil prices collapsed and production declined due to mismanagement, sanctions, and underinvestment, the entire economy imploded.

Today, oil production has recovered only to 892,000 barrels per day — still a fraction of peak capacity — while Chevron’s operations alone account for nearly 25% of remaining output. The country must now import gas despite possessing the world’s largest proven oil reserves, a humiliation that crystallises the risk of over-dependence. Venezuela’s example demonstrates that monetising fossil fuels without simultaneously building alternative economic foundations leads not to prosperity but to state collapse.​

A Continent Trapped Between Two Impossible Choices

Latin America’s fractured approach reveals a deeper, unresolved contradiction in global climate architecture:

How do developing nations finance the energy transition while addressing poverty when wealthy economies refuse to make equivalent sacrifices and international institutions fail to provide adequate resources?​

Brazil and Colombia represent opposing bets on when the world will finally prioritise climate justice. One is gambling that it can extract wealth now and invest in transitions later. The other is betting that immediate sacrifice will lead to international support and economic diversification. Mexico seeks a middle path between renewable expansion and fossil fuel revival. Argentina doubles down on extraction. Venezuela embodies the catastrophic failure of all-in fossil fuel dependence.

None of these strategies has yet delivered rapid climate progress without creating new problems. And that’s the real crisis: the world’s climate architecture has failed to provide any developing nation with a viable path forward that doesn’t involve either sacrificing development or deepening inequality. Brazil’s bet and Colombia’s gamble aren’t policy mistakes — they’re rational responses to an irrational global system.

Until wealthy nations restructure climate finance, technology transfer, and historical responsibility, Latin America will keep rolling these dice. The only question is whether the house can afford the losses.

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What happened

Back on Tuesday, 24 June 2025, dozens of Colombian waste pickers inundated Bogotá’s iconic Bolivar Square with about 15 tons of recyclable goods in a protest organised by 14 waste picker associations.

In a city where approximately 20,000 scavengers work long hours gathering items such as plastic bottles, scrap metal and cardboard boxes, about 100 of them gathered on the square and pretended to swim in between the mounds of trash to protest against the low prices they get for collecting recyclable materials and tougher working conditions.

Their work? To collect trash from homes, factories and office buildings and sell it to local recycling plants.

Across Latin America, millions of people start work before sunrise, pushing handcarts through empty streets and sorting through bins hours ahead of municipal garbage trucks. These recicladores — waste pickers — are the region’s silent recyclers, recovering up to 50% of all materials that eventually reach processors.

Yet, they often face low social status, deplorable living and working conditions, and little support from governments and industries. Most remain unrecognised, unprotected, and excluded from the circular economy strategies they effectively power.

This deep dive unpacks who they are, how they work, what they earn, and why their integration is the fastest route to lifting recycling rates that currently hover near 4% across the region.

In this Deep Dive: the evidence from Colombia, Brazil, Argentina and Venezuela; charts mapping the scale of the challenge, workforce scale, and earnings; plus the Why It Matters, Implications, Scenarios, What to Watch Next for the next 12–24 months, and a 🔗 Source Pack organised by theme with full references, links, and notes.

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Key Points

• Latin America’s circular economy begins at street level.
  More than four million informal waste pickers collect and resell materials that keep cities functional — recovering up to half of all recyclables in a region where recycling averages just 4% and circularity hovers near 1%.

• They deliver public goods without public status.
  Waste pickers prevent methane emissions, extend landfill life and lower municipal costs, yet most remain unrecognised, uninsured, and excluded from waste systems and climate accounting.

• Where organisation and policy align, results multiply.
  Bogotá’s recycler payments, Brazil’s PLANEC, and Cartagena’s Reciclamos Juntos show that when cities formalise waste pickers through registries, cooperatives, and EPR schemes, incomes rise and recovery rates surge — often at lower cost than purely formal models.

• Grassroots power fuels circular progress.
  Across Latin America, over 1,200 cooperatives now represent 100,000+ workers. Organisation doubles earnings, improves safety, and turns invisible labour into a recognised public service — a model now influencing UN plastics treaty negotiations.

• Recognition, not machinery, is the real multiplier.
  The fastest way to raise Latin America’s recycling rate is to value and integrate the workforce already doing the work — linking informal recyclers to municipal contracts, EPR payments, and climate finance.

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The first mile no one sees

Around the world, waste pickers have long operated in obscurity — essential to the recycling ecosystem yet often overlooked by formal systems.

At the First World Conference of Waste Pickers, held in Colombia in 2008, a provisional consensus was reached to use the generic term “waste picker” in English to supplant the derogatory term of “scavenger”.

It was also recommended that, in specific contexts, the term preferred by the local waste picking community should be used. For example, in South Africa reclaimers and bagerezi are used. In the United States, canners is often used. Other languages have their own preferred terms: catadores in Portuguese, recicladores in Spanish.

However we call them, waste pickers are men and women of all ages who make a living recovering, collecting, transporting, warehousing, and marketing potentially recyclable waste material from garbage produced in cities.

They include several categories of workers. They may collect from private waste bins or dumpsters, along streets and waterways or in dumps and landfills. Some rummage in search of necessities; others collect and sell recyclables to middlemen or businesses. Some work in recycling warehouses or recycling plants owned by their cooperatives or associations.

Yet, what they have in common is that this work is their livelihood and more often that not, helps support their families.

How cities made this work invisible

For millions of workers, this broken system is their livelihood.

The activities, conditions, and value chain in which waste pickers carry out their work can be traced to at least four key factors:

• Waste pickers exist because industrialisation has led to the urbanisation of production and the mass consumption of manufactured products, which in turn generate massive amounts of waste.

• Because manufacturers require cost-effective raw materials to maintain production, this waste retains commercial value.

• Populations have become increasingly concentrated in cities, and so waste tends to be concentrated in spaces where it can be effectively reclaimed.

• Because local and national economies are unable to formally absorb all of the migrants arriving into cities, some must collect, sort, and resell waste as a means of survival

What cities miss, they recover

In an hemisphere where the bulk of trash is sent to landfill (Fig. 1), waste pickers have long played a critical yet often invisible role in tackling plastic pollution by collecting, sorting, and diverting vast amounts of recyclable materials from landfills and waterways.

Despite their essential environmental services, they have historically operated on the margins of waste management systems - underpaid, unprotected, and unrecognised.

Let’s look at how cities have begun to count — and value — the people behind their recycling rates.

Counting the uncounted

Globally, we estimate the informal waste workforce numbers at between 15 and 20 million, underscoring the centrality of their work to urban material flows and environmental management worldwide.

In Latin America, waste pickers are the region’s most important recyclers — and its least protected workers. Estimates indicate more than four million people earn their living from informal collection, sorting, and sale of recyclable materials.

Because informal workers do not show in official statistics, we don’t quite know how many they are. Many waste pickers live on the streets or on dump sites and are not included in employment surveys.

They are mobile workers, and their work often varies seasonally. While attempting to survey them, waste pickers tend to avoid researchers, fearing information will be passed on to officials.

Where counting has begun, the data reshapes policy. In Colombia, a census of waste pickers was mandated by a Constitutional Order and undertaken by the Bogotá District in 2012. It verified 13,984 waste pickers as of September 2012; A post-census system led to the verification of 25,322 waste pickers in Bogotá alone, 70% of whom were men. The country’s National Association of Waste Pickers had 60,000 members in 2019. 7 in every ten surveyed had up to three dependants while the remaining 31% had four or more.

Brazil stands out as a leader in terms of legal recognition and inclusion of waste pickers in its waste management system, recognising more than 281,000 informal waste pickers in recycling chains and in the country’s official statistics. The tip of the iceberg, as the majority of them work individually, and in the shadows.

The truth is that despite providing the first mile of circular supply chains, these workers remain largely invisible in official metrics.

The human engine of circularity

Not all countries in the region collect all solid municipal waste.

While the regional average stands at around 85%, some countries collect less than 60% of its rubbish, posing serious environmental and public health risks — most notably in Guatemala and Haiti (where 40% is collected), Honduras, Paraguay, Nicaragua (52-58%). Panama, Bolivia, El Salvador, Ecuador, Colombia and Mexico all collect below the regional average.

In Latin America, one in every three tons of municipal waste is not collected, and the problem will grow in significance — as countries develop, so does the waste they generate (Fig. 2). Municipal waste is expected to double in the next 20 years.

Brazil is the largest plastic producer in Latin America and the fourth largest generator of plastic waste in the world. Much of it ends up in the ocean.

Bogotá’s waste pickers recover approximately 1,200 tons of recyclable waste per day, which would otherwise be added to the more than 6,200 tonnes per day that arrive at the city’s landfill.

That army of informal workers attempts to fill the gap between waste generation and the comparatively low collection rates.

Limited infrastructure in the region means that recycling rates hover around 4%, a far cry from the 30-60% rate in European cities (Fig. 3).

Colombia leads the regional rankings — with only 13% — while Chile, Ecuador, El Salvador and Peru hardly recycle anything. This invisible army collects up to half of all recyclable materials that ultimately reach processors and manufacturers — the first mile that keeps materials in circulation even when formal systems underperform.

Before the city wakes

Waste pickers are predominantly low-income urban workers — many are women, migrants, or single parents navigating cities where formal employment remains inaccessible.

City-level studies show many have primary or secondary education and support multiple household dependents, challenging stereotypes while highlighting the critical role this income plays in family survival.

Their work begins in the pre-dawn hours. Colombian testimonies describe arriving several hours before municipal collection to secure access to clean, high-value materials before contamination or compaction. This timing is both strategic and exhausting, allowing multiple collection circuits while reducing competition for the most valuable streams in dense neighbourhoods.

In Colombia’s national recycler census, 47% of waste pickers reported working more than eight hours daily. Most sell through intermediary warehouses while moving loads with sacks or human‑powered Zorro carts or trolleys, revealing the stamina and persistence the work demands, and the limited margin for illness or disruption.

This is because across the region the lived reality is the same: early starts, heavy loads, volatile prices, and thin protections unless workers are organised.

Where cooperatives and municipal recognition kick in — such as Bogotá’s payment for public recycling services or Brazil’s blend of cooperative networks and formal payroll pockets — hours become safer and more predictable, earnings stabilise, and cities recover more material with less leakage.​​

Prices, carts, and thin margins

Pickers prioritise cardboard, paper, PET bottles, aluminum and metals, adjusting focus daily based on price signals and local demand.

Most sell to intermediary warehouses and scrap dealers that consolidate, weigh, and pay before materials move onward to processors. Case-study data shows 88% of pickers rely on these intermediaries, concentrating market power and keeping prices volatile for unorganised workers.

Income varies sharply by material type, cleanliness, volume, distance to buyers, and commodity market cycles. Lack of storage forces quick sales at lower prices, while access to depots allows holding for better rates.

In Brazil, journalistic estimates place average monthly income near US$211 for independent plastic waste pickers — below minimum wage.

But where cooperatives exist, earnings can more than double and reach US$450–600 monthly, though still often short of living income thresholds.

This is a free preview of our 🔎 Deep Dive, part of our premium intelligence service. 💰 Paid subscribers get the full context, the implications, scenarios and the Source Pack.

Up next for paid readers (🔒):

• How Organising is turning Labour into Power — the income gap between independent work and organised work; digital tools, laws and policies that protect and uplift; where the system still breaks

• Why It Matters — how informal recyclers underpin climate targets, urban equity, and circular economy credibility

• Implications — action-oriented takeaways for governments, NGOs, researchers, and businesses

• Scenarios — base/upside/downside trajectories for integration and policy over 12–24 months

• What to Watch Next — 3 policy triggers and data releases to track

• Source Pack — full references, links & notes organised by theme

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Picture this: You live in a neighbourhood where the local gang leader decides who can open a business, mediates family disputes, and provides better security than the police. Your children attend school only when criminal organisations allow it. You pay taxes — not to the government, but to armed groups who actually control your streets.

This isn’t a dystopian scenario. It’s daily reality for an estimated 77 to 105 million people across Latin America who now live under some form of criminal governance, where organised crime groups provide order, security, and basic services that weak or absent states cannot deliver.

Previously in this series: “The Shadow State: How Elite Capture Is Hijacking Democracy in Latin America” — the corporate side of state capture, from Petrobras and Odebrecht to revolving doors and procurement:

LATIN AMERICA ¡SIN FILTRO!

🔎 The Shadow State: How Elite Capture is Hijacking Democracy in Latin America

When Vale’s dam failed at Brumadinho, killing 270 people, investigators found years of corrupted safety oversight. That wasn’t an accident—it was corporate state capture: when companies help write the rules that should restrain them…

Read more

8 months ago · 4 likes · Nicolas Forsans

In this 🔎 Deep Dive: the evidence, regional analysis, the countries where criminal governance is widespread, those where power is captured by criminal groups, the countries to watch, what comes next, what governments should do + Scenario

Key Points

• 14% of Latin Americans, or roughly 77–101 million people report criminal groups provide order or security in their communities, confirming the scale of criminal governance across the region.​

• “Criminal governance” and “state capture” form a continuum: where states collapse (Haiti) criminals substitute; where institutions are permeable (Mexico) they fuse; where authority is contested (Ecuador) they compete; and where coexistence prevails (Colombia) they instrumentalise institutions.​

• Criminal governance is often strongest alongside state presence, not its absence, and is prevalent across megacities, mid‑sized metros, and smaller districts alike.​

• The playbook runs through repeatable mechanisms: illegal market regulation, parallel dispute resolution, territorial taxation/extortion, municipal infiltration/procurement capture, and prison‑based command.​

• The map evidences where criminal governance concentrates, with elevated exposure in Brazil, Mexico, Ecuador, Costa Rica, and Honduras.​

• State capture is systemic and elite‑driven — via coercion, corruption, election‑season violence, and public‑contract manipulation — with extreme‑risk cases in Haiti, Venezuela, and Nicaragua.​

• Signature country patterns include Brazil’s PCC leveraging municipal contracts, Mexico’s campaign‑cycle assassinations to secure policing and procurement, Ecuador’s port‑corridor chokepoints, and Colombia’s four‑level spectrum from extractive crime to full criminal governance.​

• The “Bukele model” shows crackdowns can suppress violence quickly but at significant human‑rights and rule‑of‑law cost, risking brittle security gains.​

• Practical responses require conditional choices — an “If X, then Y” matrix — spanning regulate/insulate (extortion and procurement), negotiate‑to‑fragment (microlocal pockets), surgical suppression (high‑harm actors), node security (ports/logistics), and guardrails for elections and prisons.​

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What Happened

Beyond Corruption: The Rise of Criminal States

This goes far beyond traditional organised crime. Criminal groups across Latin America have evolved from simple law-breaking entities into sophisticated political actors that don’t just corrupt government. They are government in many areas.

Recent survey data from Latinobarómetro reveals the staggering scope: 14% of Latin Americans report that criminal groups provide order or security services in their communities. These aren’t isolated pockets of lawlessness, but systematic parallel governments operating across the world’s most violent region.

The transformation is most visible in places like Ecuador 🇪🇨 which went from being one of Latin America’s safest countries to its murder capital within a decade. In January 2024, armed gangs stormed a live television broadcast, forcing President Daniel Noboa to declare war on 22 criminal organisations now classified as terrorist groups.

In 🇨🇴 Colombia, criminal organisations have evolved from hierarchical cartels into flexible networks that adapt constantly to political, social, and economic changes. These structures have moved beyond simple crime toward establishing “scenarios of governance in distinct territories”.

When States Collapse, Criminals Fill the Void

Haiti 🇭🇹 provides the most extreme example of this dynamic. The G9 alliance of gangs now controls over 80% of Port-au-Prince, operating as the de facto government. Those gangs collect taxes, resolve disputes, and provide security — while the official state has effectively ceased to function.

The human cost is staggering: gang violence killed over 5,500 people in 2024, while over one million Haitians fled their homes. Yet for those who remain, criminal organisations often provide the only semblance of order in a collapsed state.

Mexico 🇲🇽 presents a different model: criminal capture of existing institutions rather than replacement. U.S. military estimates suggest cartels control about one-third of Mexican territory, with the Sinaloa and Jalisco cartels responsible for the vast majority of drug trafficking to the United States. The penetration runs so deep that the CIA has been conducting covert operations in Mexico for years with specially vetted Mexican units to “help track down the country’s most-wanted drug traffickers”, working with elite units inside the Mexican army and navy that receive CIA training, equipment, surveillance assistance and financial backing. The CIA argue standard security forces are compromised by cartel infiltration.

Colombia 🇨🇴 demonstrates yet another model: criminal evolution through institutional coexistence: modern organised crime doesn’t seek to replace the state but rather make it change to serve their interests. Criminal organisations require some degree of coexistence with state institutions, primarily associated with corruption for survival, transforming from viewing the local state as an obstacle to instrumentalising it through corruption networks.

Taken together, these cases show that “criminal governance” and “state capture” are not separate pathologies but points on the same continuum of privatised sovereignty:

• where the state collapses (Haiti), criminal actors substitute for it;

• where institutions endure but are penetrable (Mexico), they fuse with it;

• where authority is contested (Ecuador), they openly compete with it.

In each configuration, criminal organisations become veto players and fiscal actors: they tax, adjudicate and police, often more predictably than weak public authorities while parts of political and business elites strike protection pacts that trade territory, procurement, and regulatory favours for financing, votes, and violence on demand.

This is no longer “corruption” at the margins; it is the reallocation of core state functions — coercion and taxation — into markets for governance.

🔎 Read on and find out:

• How criminal governance works: how it takes place, why criminals are keen to govern, how we measure the phenomenon, which populations are most at risk, and some myths busting

• How it evolves into state capture: how and why state capture takes places, how we measure it, the countries under extreme/very high/high risk, the geography of state capture: mapping and rankings

• The countries to watch

• What governments should do: when iron fist works, and when criminal governance is best left alone

• What comes next

• Implications for readers

• Scenario

How Criminal Governance Works

When we discuss the spread of organised crime in Latin America, we’re actually referring to two distinct but connected phenomena:

• Criminal governance and

• State capture.

Criminal Governance: The “Duopoly of Violence”

Criminal governance does not mean that criminal groups run the state or overthrow it. Rather, it means that criminal organisations have established themselves as parallel powers — coercively and often legitimately setting the rules, imposing order, providing security, resolving disputes, taxing businesses, and even offering basic welfare or public services, especially in weakly governed areas (like many favelas, barrios, or rural zones).

In these zones, everyday residents may have to obey the laws of both the state and the gangs — deciding on a case-by-case basis which authority to call depending on the problem.

Mechanisms of Criminal Governance

Criminal rule usually grows in three steps:

• first they set rules for their own members

• then they manage other criminals and illegal markets

• and finally they start telling residents how things work in the neighbourhood.

This lets them scale up from internal discipline to controlling streets and everyday services like gas, internet, and cable.

They use force by holding territory, charging “security fees” that they call “rent” instead of extortion, and recruiting people who can help them enforce their rules.

But they also seek legitimacy and win compliance by settling disputes, regulating local markets, handing out limited help when useful, and creating simple, predictable procedures so people know what to expect.

During the COVID-19 pandemic, criminal groups In Rio 🇧🇷 provided occasional and very limited rules and aid delivery, despite some headlines — acting as stewards for the populations and territories within their control. Using megaphones and leaflets, the gang informed favela residents about the measures that had been taken, with threats of violence in case of infringements. Interestingly, research suggests that the COVID-19 response of drug gangs in the city has led to a lower rise in the rates of cases in the areas they control.

But these gangs also exploited economic activities and service delivery in a moment of increased hardship for low-income communities. They kept charging businesses almost everywhere they ruled (about 98.6%), and both militias and drug gangs made money by controlling legal utilities, showing their model is business first, not charity.

Criminal organisations in Colombia 🇨🇴 are not homogeneous and respond to different interests and incentives. Some focus on the appropriation of specific revenues, such as drug trafficking, micro-trafficking, extortion, or the outsourcing of services to other criminal groups, without the need to exercise permanent territorial control. Others, however, have evolved toward forms of criminal governance, using a sophisticated four-level spectrum of criminal influence that helps explain this evolution:

• Extractive and Opportunistic Criminality: Basic criminal groups focused on theft, fraud and financial crimes — without sustained territorial control

• Illegal Market Regulation: More structured groups that regulate illegal markets , for example drug trafficking networks, human trafficking, or the trade of illicit goods — without establishing direct social control

• Limited or Intermittent Territorial Control: Groups exercising partial territorial control in areas with limited state presence. They may impose local regulations, collect extortion, and provide certain security “services” — they aim to protect their economic interests.without consolidating a complete governance structure.

• Criminal Governance: Organisations establishing parallel government systems capable of regulating daily life, administering justice, resolving disputes, establishing taxes, and providing infrastructure. Rather than interacting with the space in which they operate, they shape it to their interests.

Criminal governance represents the most sophisticated form of criminal evolution, where organisations move beyond market control to establish parallel state functions.

Why do Criminals Govern?

Criminal governance is not simply a random by-product of criminal activity; rather, it is driven by a complex combination of strategic economic necessity, the pursuit of local legitimacy, and calculated responses to state policies:

• To protect lucrative illicit markets and guarantee stable revenues. They do so to minimise risk from policing — reduce exposure to police repression and incursions which could otherwise disrupt operations or lead to seizures and arrests. By establishing and enforcing rules against public disorder, homicide, sexual violence, and brawls, criminal organisations avoid unwanted police and state attention to their territories.

• To Increase the viability of their (illegal) business. For organisations engaged in retail drug trafficking, maintaining order is good for business. Governance makes civilians and potential customers feel safe enough from violent and property crime, as well as from police raids, to approach points of sale, thereby maximising sales and profits.

• To extract revenue. They often act as protection rackets, collecting taxes or fees (extortion) from local residents and businesses in exchange for protection and services like order and contract enforcement. In short, maximising long-term revenue requires maximising the size and stability of the taxable economic base.

• To diversify and expand. When intensive government crackdowns increase the risk associated with core activities like drug trafficking, criminal organisations are incentivised to diversify their criminal portfolio (into illegal mining, people smuggling or oil theft). When these new opportunities are located in new territories, they must expand their presence and establish territorial control to operate with impunity.

• Resource Funding. Governance activities, such as dispute resolution or infrastructure projects, are funded by the massive profits generated by illicit activities, particularly drug prohibition, which artificially raises the price and profitability of the trade.

Why 100 million People? Measuring Criminal Governance

The primary measurement source of criminal governance is Latinobarómetro Survey Data, the most recent figures dating from 2024. This survey across 18 Latin American countries asks residents directly: “Do criminal groups provide order, security, or dispute resolution in your community?”, and ““Are disputes settled by the gang?”.

This is probably the gold standard for measuring criminal governance because it captures citizen experience rather than expert opinion. These data can then be complemented with detailed local studies, which collectively reveal where criminal governance is concentrated.

The claim that “100 million Latin Americans live under criminal rule” refers to this phenomenon: at least 1 in every 6 Latin Americans live in neighbourhoods where a criminal group, not the state, is the main provider of order and security.

This does not mean criminal groups run the national government — it means they provide parallel governance at the local or regional level, sometimes welcomed, more often feared.

Mapping Criminal Governance

Approximately 100 million Latin Americans (14% of the regional population) live under some form of criminal governance where criminal organisations, rather than the state, provide primary order and security.

While criminal governance is present in every country surveyed (with no country reporting less than 5%), the highest rates are found in a few key nations: Brazil 🇧🇷 — reflecting the sheer size and power of groups such as the PCC which operate extensively across the urban peripheries and prisons, Costa Rica 🇨🇷 and Ecuador 🇪🇨, Honduras 🇭🇳 and Mexico 🇲🇽 — for Mexico, organised crime appears as the most frequent type of violence reported in the country.

The presence of criminal governance is clearly far more pervasive than often realised, affecting the lives of tens of millions of people across the continent.

Researchers note that this 100 million figure likely represents a lower bound due to factors like the difficulty of gaining access to highly controlled areas, and the social stigma associated with reporting that gangs reduce crime or provide order.

Here’s the twist: criminal governance doesn’t just fill state vacuums — it often grows alongside a visible state footprint; the next section shows why that counterintuitive overlap is so common.

Not just where the State is absent

Perhaps the most surprising finding in the research I reviewed is that criminal governance goes hand in hand with state presence. Indeed, data analysis shows a positive correlation between criminal governance and indicators of state presence or capacity (both objective measures, like the number of police stations, and subjective measures, like confidence in government). In Medellín or Urabá with a medium to high state presence, with significant infrastructure and institutional presence, criminal structures have nevertheless emerged capable of consolidating a parallel government, such as the criminal organisations of the Aburrá Valley or the Gulf Clan.

Indeed, criminal governance is often most visible where state presence and repression create incentives to govern markets and people. Data analysis shows that criminal organisations are more likely to govern in districts where the state is objectively stronger or more present. Criminal and state rule can be strategic complements — rather than substitutes.

And not just in Cities

The second takeaway is that criminal governance in Latin America is highly concentrated, but it is not exclusive to urban settings.

Studies show that rates are nearly equal (11%) in large (> 1 million population) and mid-sized (250,000-1 million) metro areas, and only slightly lower (7%) in smaller districts (fewer than 250,000 population), confirming that criminal governance is pervasive in communities of all sizes. The conventional wisdom that criminal governance is predominantly concentrated in urban peripheries is, on average, misleading.

It’s about Legitimacy

Criminal governance activities are distinct from general criminal violence and pure extortion, which is key to understanding the group’s efforts to gain legitimacy.

There is a surprisingly weak correlation between reporting criminal governance (order provision, reducing crime) and reporting “extortion” or “violence”. This suggests that citizens often distinguish between coercive extraction by governing groups (such as regular security fees, or vacunas) which may be perceived as a form of taxation in exchange for order, and pure extortion, where the only rule is “pay”.

Among respondents who reported multiple activities, governance was combined with extortion (30% overlap) or violence (39% overlap) far less frequently than extortion and violence were paired together (74% overlap).

Up next for paid readers (🔒):
• How criminal governance evolves into state capture — the mechanisms, the motives, the impact
• The geography of state capture — which populations and countries are most at risk?
• The countries to watch — they combine both criminal governance and state capture
• What governments should do — and why criminal governance might be a preferable outcome
• Implications and Scenario

Upgrade to keep reading →

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Read more

Earlier this month I spoke to Richard McColl and from the excellent Colombia Calling podcast when we discussed the pitfalls of neoliberalism and urban security dynamics in Colombia’s cities.

The conversation unpacks how Latin America’s urban violence is intertwined with poverty, inequality, informality, and exclusion, tracing roots to colonisation, weak institutions, and the legacies of dictatorship and armed conflict in Colombia.

🎧 You can watch the discussion on YouTube, listen to the podcast on Spotify and other great podcast platforms. Or keep reading for a nice overview of the discussion.

In this post:

• Why urban violence persists

• How informality and elite capture enable extortion

• Why extortion epitomises the hidden economics of urban insecurity

• Beyond ‘mano dura’: the exit ramp

Why urban violence persists

Latin America’s urban crisis is not a single problem but a chain: poverty drives inequality, which fuels informality, which entrenches exclusion—and violence is the thread stitching them together across neighbourhoods and livelihoods.

This pattern in Colombia’s cities sits atop colonial dispossession, authoritarian legacies, and decades of armed conflict that normalised coercion and corroded trust, making today’s governance deficits both inherited and actively reproduced.

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How informality and capture enable extortion

Colombia’s urbanisation, propelled by displacement rather than planned industrialisation, created vast informal settlements and precarious work where a late-arriving state lacks the fiscal base and institutional muscle to deliver predictable services at scale.

Elite capture and low tax take compound the problem, limiting investment, weakening enforcement, and widening the gap between formal promises and informal realities on the ground. More on elite capture in this recent post:

LATIN AMERICA ¡SIN FILTRO!

🔎 The Shadow State: How Elite Capture is Hijacking Democracy in Latin America

When Vale’s dam failed at Brumadinho, killing 270 people, investigators found years of corrupted safety oversight. That wasn’t an accident—it was corporate state capture: when companies help write the rules that should restrain them…

Read more

8 months ago · 4 likes · Nicolas Forsans

Extortion epitomises the hidden economics of urban insecurity

Extortion thrives on credible threats and high impunity, remains underreported due to fear and low payoff from complaints, and is increasingly organised from prisons where phones, corruption, and overcrowding lower entry costs and centralise control. What residents experience as ‘renta’ is effectively a parallel tax on daily life and business — small in units, massive in aggregate impact — eroding margins, dignity, and the ability to plan.

Street-level vignettes in Bogotá and central Medellín illustrate how routine payoffs, petty resale markets, and selective enforcement create a grey zone where formal authority is present yet compromised, and where the costs of refusal can be immediate and personal.

This open secret flourishes wherever institutions are weak, oversight is captured, and communities are forced to negotiate security with actors who can punish more quickly than the state can protect. More on extortion here:

LATIN AMERICA ¡SIN FILTRO!

🔎 Extortion Nation: Mapping the Criminal Business Model Draining Latin America

The Quiet Crime Hollowing Out Latin America…

Read more

9 months ago · 5 likes · Nicolas Forsans

Beyond ‘mano dura’: the exit ramp

‘Mano dura’ approaches to tackling crime can drive short-term drops in extortion by incapacitating networks, but it front-loads human rights costs, risks strengthening prison-based governance, and rarely scales sustainably without parallel reforms that raise legitimacy, improve case clearance, and build legal income pathways.

Honduras and El Salvador show the lure and limits of emergency rule: suppressing symptoms is not the same as dismantling business models or rebuilding social contracts.

The exit ramp requires compounding forces rather than single shocks: rebuild integrity across policing, courts, and prisons; raise and target fiscal capacity; and expand decent work so that lawful choices become predictable, not exceptional.

Growth matters, but so do distribution and credibility; without fair rules and reliable services, even expanding pies won’t reduce the incentives that keep parallel governance profitable.

Watch or Listen

🎧 Listen to the full conversation on Spotify , Apple Podcast and all podcast platforms and share perspectives on where institutional reforms and opportunity creation can move fastest and most fairly across Colombia’s urban peripheries.

👀 Watch on YouTube

💡 Subscribe to Colombia Calling for everything there is to know about Colombia!

When Vale’s dam failed at Brumadinho, killing 270 people, investigators found years of corrupted safety oversight. That wasn’t an accident—it was corporate state capture: when companies help write the rules that should restrain them.

Across Latin America, this disturbing reality is unfolding beneath the surface of democratic institutions. While elections continue to be held, laws passed, and governments formed, the actual power to govern has increasingly fallen into the hands of wealthy corporate elites and powerful business groups who have learned to manipulate the system from within.

This phenomenon represents far more than traditional corruption. Instead of discrete bribes or favours, we're witnessing the wholesale hijacking of democratic processes where business elites literally design the rules of the game to benefit themselves at the expense of 400 million Latin American citizens.

From Brazil's Petrobras mega-scandal to Colombia's Ecopetrol corruption networks, from Mexico's telecommunications monopolies to Chile's mining sector bribes, corporate state capture has become a dominant governance reality across much of the region. The consequences are profound: blocked social programmes, environmental destruction, violence against activists, and the systematic exclusion of ordinary citizens from meaningful political participation.

Yet the story isn't uniformly bleak. Countries like Uruguay and Costa Rica demonstrate that alternative paths are possible, offering lessons for how democratic institutions can resist corporate capture and serve the public interest.

In this 🔎 Deep Dive: the empirical evidence, key visualisations, the specific corporate actors involved, and actionable intelligence for the next 12-24 months, plus a comprehensive 🔗 Source Pack.

Key Points

• Corporate dominance of state capture: Corporations account for 44% of state capture cases across Latin America, representing the most systematic form of democratic hijacking through legal and quasi-legal channels

• Wealth inequality drives capture: Strong statistical correlation shows countries where the top 1% controls over 30% of wealth experience dramatically higher corporate state capture levels

• Scale of corporate involvement: 8 of the region's 58 largest companies show high-level state capture evidence, with 12 more showing medium levels—nearly half of Latin America's corporate elite implicated

• Systematic mechanisms deployed: Corporate captors use campaign financing, regulatory revolving doors, media ownership, and financial system manipulation rather than violence

• Family business conglomerate power: Concentrated family-controlled business groups leverage longer time horizons to build sustained political relationships and obtain subsidised state credit

• Regional variation patterns: Brazil leads with institutionalised capture, Colombia combines violence with corporate influence, Mexico shows monopolistic patterns, Chile has sectoral vulnerabilities

• Ongoing active threat: Corporate state capture represents current systemic risks with new scandals emerging across Mexico, Colombia, and Argentina, not just historical problems.

This post if for paid subscribers. Free readers are offered a preview.

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What Happened: The Shadow State Across Latin America

The Scale of Institutional Hijacking

State capture—where powerful actors systematically control government institutions to serve private interests—has become the dominant governance reality across Latin America.

Unlike simple corruption involving discrete transactions, state capture represents wholesale hijacking of democratic processes where elites design the rules of the game to benefit themselves (1).

The map reveals a sobering picture: high-risk countries encompass over 300 million people, from Venezuela's authoritarian populism to Brazil's corporate mega-corruption scandals. Only Uruguay, Costa Rica, and parts of Chile maintain robust institutions capable of resisting elite dominance (2).

The Wealth-Capture Connection: Statistical Evidence

Empirical research examining 19 countries over 25 years (1996-2021) reveals a strong statistical correlation between wealth concentration and state capture. Countries where the top 1% controls larger wealth shares experience significantly higher levels of elite political control (3).

Venezuela represents the extreme case—35% wealth concentration among the top 1% corresponds with the region's highest state capture levels. Uruguay sits at the opposite end, where more equitable distribution (18% top 1% share) coincides with strong democratic institutions (4).

Country-by-Country Assessment: The Patterns of Control

The table below turns the narrative into numbers and flags: where capture is most entrenched, and why

High-Risk Countries (Venezuela, Brazil, Colombia, Guatemala, Argentina) share common characteristics:

• Extreme wealth concentration (25-35% held by top 1%)

• Weak rule of law (scores below 5.0 on a 10-point scale)

• Restricted civic space limiting civil society oversight

• Sector-specific dominance by particular elite groups

Lower-Risk Countries (Uruguay, Costa Rica, Chile) demonstrate:

• More equitable wealth distribution (18-22% top 1% share)

• Stronger rule of law (scores above 6.5)

• Open civic space allowing civil society monitoring

• Limited sectoral capture with more competitive markets

The Mechanics of Elite Control

Research identifies multiple pathways through which elites capture state institutions, involving business groups, criminal organisations, and political networks using complementary strategies (5).

Business elites rely on campaign financing, lobbying, revolving door appointments (placing corporate loyalists in key regulatory positions), and media ownership. Criminal organisations (next week’s 🔎 Deep Dive) employ violence, territorial control, and corruption networks. Political actors facilitate capture through policy-making and regulatory decisions that favour connected interests over public welfare (6).

Corporate State Capture: The Business Elite's Systematic Control

While state capture in Latin America involves multiple actors—from criminal organisations to political networks—corporations represent the most systematic and institutionalised form of democratic hijacking.

Research across the region reveals that corporations are identified as the principal actors capturing the state, accounting for 44% of mentions in expert interviews, far exceeding other categories of elite actors (7).

This corporate dominance of state capture reflects both the concentrated nature of business ownership in Latin America and the sophisticated mechanisms that large corporations have developed to influence government policy. Unlike the more violent and visible methods employed by criminal organisations, corporate state capture operates through legal and quasi-legal channels that make it particularly insidious and difficult to combat.

The Transformation of Business-State Relations

Market liberalisation fundamentally transformed the relationship between business and the state in Latin America, leading to a more pluralistic model of business political influence.

The collapse of state-led industrialisation in the late 1980s and subsequent structural adjustment policies had strong consequences on business interest groups. As a result, research shows that:

"diversified business groups have become more influential relative to traditional business associations, especially in complex and less salient policy areas like taxation or industrial regulation" (8).

The Corporate Captors: Who Really Runs Latin America?

Understanding corporate state capture requires identifying the specific business actors involved and the evidence linking them to systematic institutional control. Research reveals that "business elites" in the Latin American context are not a monolithic group but rather a complex network of family business conglomerates, multinational corporations, and diversified business groups who use different but complementary strategies to capture state power (8).

Continental-Scale Corporate Capture: The Odebrecht Network

Odebrecht represents the most thoroughly documented example of corporate state capture in modern Latin America (9). This Brazilian construction giant operated a US$788 million bribery scheme across 12 countries, maintaining a secret division dedicated to corrupting public officials (9).

"The Odebrecht case revealed a systematic approach to corruption that went beyond traditional bribery—they essentially created a parallel government structure across Latin America." — Former Brazilian prosecutor

The scope of Odebrecht's influence was staggering:

• Presidential campaigns in multiple countries received illegal funding

• Supreme Court judges and high-level officials were systematically corrupted

• Infrastructure contracts worth billions were secured through bribery

• Even revolutionary groups like Colombia's FARC received payments (9)

The company's former CEO, Marcelo Odebrecht, was sentenced to 19 years in prison (10), and 77 executives agreed to cooperate with investigations, revealing the systematic nature of corporate state capture.

Brazil's Corporate Mega-Scandals: Operation Car Wash Revelations

Brazil's Operation Car Wash (Lava Jato) investigation revealed the most extensive corporate state capture network in Latin American history. Our own analysis of the region's 58 largest companies1 shows that Brazil dominates the high-evidence category with five companies (Figure 6) showing systematic state capture evidence:

Petrobras: The $2.1 Billion Political Kickback Scheme

Petrobras stands as the most prominent case of corporate state capture (11). The state-owned oil giant was at the centre of a US$2.1 billion corruption scheme involving systematic kickbacks to political parties, inflated contracts, and a cartel-like system operated by construction companies (11).

Former President Rousseff’s impeachment unfolded amid Operation Car Wash’s (Lava Jato) Petrobras revelations, although the formal charges against her concerned budget accounting manoeuvres—not bribery or kickbacks.

Up next for paid readers (🔒):

• The Actors — who really runs Latin America?

• The extent of state capture by men in suits

• Implications and Scenarios (Base/Upside/Downside)

• What to Watch Next — 3 triggers to track

• Extensive 🔗 Source Pack — full references, links & notes

Upgrade today to keep reading →

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Poverty has fallen in parts of the region — Mexico alone moved ~10 million people above the poverty line in recent years — yet the distribution barely shifted. In many countries, the top 10% still capture more than half of pre-tax income, while the bottom 50% hover near 10%. [2][3][4][14]

Inequality is spatial as well as social: about one in five urban residents in Latin America and the Caribbean (LAC) live in slums/informal settlements, and formal housing has grown more exclusionary. In Mexico, the rental share of housing could approach ~50% within two decades if affordability continues to erode. [19][20][7][8]

This isn’t just an economic story. When wealth concentrates, power concentrates — in media, campaign finance, even parts of the state — making distributional reform harder. It’s also a health story: housing, work and transport shape outcomes as much as medicine; meanwhile debt service is crowding out health and education in many countries. [10][11][12]

In this Deep Dive: the evidence, four charts, and the Implications, Scenarios, and What to Watch Next for the next 12–24 months, plus a Source Pack organised by theme with full references, links and notes.

Key Points

• Three decades on, inequality endures. Latin America remains the world’s most unequal region by income; in many countries the top 10% capture >50% of pre‑tax national income while the bottom 50% share ~10–12%. [2][3][4]

• Informality dominates job creation. Post‑pandemic employment recovery has leaned heavily on informal work, with persistently high informality rates and weak job quality. [9]

• Spatial inequality is structural. ~120 million people (~21% of Latin America and the Caribbean (LAC)’s population) live in informal settlements; about 19% of LAC’s urban population lived in slums in 2022. Formal housing costs have outpaced incomes and Mexico’s rental share could approach ~50% in 20 years. [5][6][7][8][18][19][20]

• Elite capture is tightening. Billionaire wealth is growing far faster than gross domestic product (GDP), amplifying influence over media, campaigns and policy, with democracy risks. [10]

• Inequality is a health and fiscal risk. Social determinants shape health outcomes while 3.4 billion people globally live in countries that spend more on interest than on health or education, squeezing fiscal space. [11][12]

What Happened

From shantytowns to billionaires: Latin America’s inequality trap

For three decades, Latin America has carried a dubious title: the world’s most unequal region. The distributions are stubborn — in several countries the richest 10% control more than half of pre‑tax income, while the poorest 50% hover around a tenth. That imbalance has barely shifted since the early 1990s, despite periods of high growth, commodity booms, and anti‑poverty programmes. [2][3][4]

The lived experience: poverty down, vulnerability up

On paper, progress has been made. In Mexico, analyses built on the National Household Income and Expenditure Survey (ENIGH) and the National Council for the Evaluation of Social Development Policy (CONEVAL) show ~10 million people moved above poverty lines in recent years, helped by higher minimum wages, remittances and transfers. Yet many remain one shock away from falling back. They are concentrated in the informal sector, which leads job creation but offers low wages, no benefits, and limited mobility. [14][17][9]

Urban life reflects these contradictions. Across LAC, more than ~120 million people still live in informal settlements — from Brazil’s favelas to Mexico’s colonias populares — the product of rural migration, weak state planning, and economic shocks. UN‑Habitat’s World Cities Report 2024 estimates close to 1.1 billion urban dwellers globally live in slums/informal settlements; in Latin America and the Caribbean, about 19% of the urban population lived in slums in 2022 (SDG 11.1.1). [19][20]

At the same time, formal housing markets have become more exclusionary. In Mexico, home values have risen much faster than incomes, pushing more families into rentals; industry estimates suggest up to half of housing stock could be rental within two decades if affordability continues to erode. [5][6][7][8]

The structural roots: inequality without end

The persistence of inequality isn’t accidental; it’s political. Research by ECLAC, the Inter‑American Development Bank (IDB) and the World Inequality Lab (WIL) points to regressive tax systems, underfunded social policy, and institutional barriers that lock wealth in place. At the top, billionaire fortunes have ballooned since the early 2000s, aided by tax loopholes, offshore holdings and policy influence. [2][3][4][10]

The human cost: inequality as a health crisis

Inequality shows up not just in incomes or housing, but in years of life. World Health Organization (WHO) and Pan American Health Organization (PAHO) evidence underscores that social determinants — the conditions in which people are born, grow, work and age — can drive a large share of health outcomes, with gaps that shorten healthy life expectancy by years or even decades. Meanwhile, fiscal pressures are intensifying; UNCTAD estimates 3.4 billion people live in countries that spend more on debt interest than on health or education. [11][12]

This week’s hooks

• Urban informality’s long arc: a century of favelas/colonias and policy blind spots. [5]

• Formal vs. informal flashpoint: Mexico City business federations demand a clampdown on street vending, underscoring the political‑economy tensions around informality. [15]

• Mexico’s affordability squeeze: rents expand as home‑buying becomes unattainable; rental share could approach 50% in ~20 years. [7][8]

• Inequality scoreboard: refreshed coverage reiterates LAC’s “most unequal” status; Mexico’s richest households earn ~14× the poorest, per ENIGH‑2024. [2][13][17]

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• Country pulse: Colombia’s monetary poverty dipped again in 2024, though distributional questions remain. [16]

• Macro backdrop: ECLAC projects ~2.2% growth in 2025 — insufficient to move structural inequality absent reform. [1]

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Up next for paid readers (🔒):
• Why It Matters — why inequality is a governance & health risk
• Implications — 4–6 bullets on what changes if this is right
• Scenarios — base/upside/downside (12–24 months)
• What to Watch Next — 3 triggers to track
• Source Pack — full references, links & notes

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The Quiet Crime Hollowing Out Latin America

They don’t need to sell drugs. They don’t need to kidnap. They just need your number.

While headlines dwell on cartel shootouts and strongman politics, a quieter criminal economy has been bleeding Latin America dry for decades — one WhatsApp threat, one forced payment at a time. This is extortion: not just a crime, but a scalable business model — low-profile, high-impact, and devastatingly common.

Across the region, extortion works like a franchise without paperwork. It drains micro-enterprises, displaces families, and replaces state authority with criminal governance. From the street corner to the corporate supply chain, the same blueprint repeats — making it one of Latin America’s most resilient and profitable illicit economies.

From Medellín’s street markets to Guayaquil’s neighbourhoods, the victims are often those with the least protection: informal workers, shopkeepers, teachers, drivers. In Guatemala, extortion is a leading cause of murder among transport workers. In Honduras, women are coerced into laundering money or “paying” in kind. Even multinationals are not immune.

Reliable data is scarce — most victims stay silent out of fear or distrust — but where it exists, it reveals a billion-dollar business. Colombia, Peru, Ecuador, Guatemala, and Honduras have been among the hardest hit since 2022, with entire neighbourhoods under de facto gang control.

💡 This deep dive, exclusive to paid subscribers, treats extortion as an economic enterprise — mapping its franchise-style business model, identifying the vulnerabilities that research tells us can be exploited, and setting out what it would really take to shut it down.

🧾 Executive Summary: Key Takeaways on Extortion in Latin America

• A “perfect crime” for gangs – Widespread, low-risk, under-reported. Impunity often exceeds 99%.

• A scalable business model – From MS-13 to Tren de Aragua to local copycats, extortion follows a “franchise” logic: multiple revenue streams, low operating costs, easy replication across borders — mapped here through the Business Model Canvas to reveal its weak points.

• Targets from street stalls to boardrooms – Victims range from market vendors to multinational firms — from Mexico’s Femsa, forced to shutter Oxxo stores in Nuevo Laredo, to Telefónica’s Movistar in Peru.

• A tax on the poor – Drains small businesses, fuels poverty, pushes many into informality or migration.

• Critical sectors under siege – Transport, retail, agriculture, and construction face shutdowns, strikes, and price hikes.

• Investment killer – Criminal control deters domestic and foreign investment, stalling growth and widening inequality.

• Flying blind – Fragmented data means fragmented policy — and missed opportunities to disrupt.

• Criminal governance – Extortion operates like a parallel tax system, replacing state authority with fear-based control.

• Resistance exists — but at high risk – Communities push back through alliances, alerts, and collective refusals, but courage alone rarely wins without systemic protection.

1. The Security Context: Extortion in Latin America’s New Criminal Order

Latin America remains the most violent region on Earth in peacetime — but the threats are shifting. According to the 2025 Security Yearbook, criminal power today is not just measured in bullets or drug routes, but in its ability to control markets, populations, and the “revenue base” of entire communities.

Extortion sits at the centre of this ecosystem. No gunfire needed — just a name dropped, a photo sent, a veiled threat. In Guatemala, 80% of extortion originates inside prisons. In Peru, WhatsApp threats have shut down bus routes and construction sites.

💡 97% of extortion in Mexico goes unreported
💡 Honduras loses nearly 3% of GDP annually to extortion

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Foreign Direct Investment (FDI) has long been a pillar of Latin America's economic strategy. From Brazil’s industrial heartlands to Mexico’s maquiladora zones, foreign capital has helped build infrastructure, create jobs, and integrate regional economies into global value chains.

But in 2024, three heavyweight reports — from the World Bank, CEPAL, and now UNCTAD — are sounding the alarm: the region is not just attracting less capital. It’s attracting the wrong kind.

The World Bank flagged a 9.9% drop in FDI across Latin America and the Caribbean in 2023, with Brazil and Mexico leading the decline. CEPAL confirmed this trend, placing inflows at just 2.8% of regional GDP — and falling.

The latest data for 2024 published in UNCTAD’s World Investment Report 2025 shows FDI fell by a further 12% across the region, with South America shrinking 18%, and project finance deals collapsing in value.

The downturn is driven primarily by falls in flows to Argentina, Chile, Colombia and Brazil, in that order.

And while global FDI is fragile across the board, Latin America is falling behind even by emerging market standards. The World Bank finds that in the aftermath of economic shocks and natural disasters, Latin America recovers more slowly than Asia or Sub-Saharan Africa. The region is becoming an afterthought — not a destination.

👉 What explains this shift? The answer is as political as it is economic.

Keep reading and you’ll uncover the full picture: a breakdown of where capital is still flowing, which sectors are showing resilience, and how institutional weaknesses are holding the region back. Drawing on data from the World Bank, CEPAL, and UNCTAD, this piece also unpacks the deeper story behind the numbers — and what Latin America must do to compete in a world where trust matters more than tax breaks.

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