How Blockchain Can Help Latin America
Corruption is rampant in Latin America and is very present in the region despite the changes in institutional frameworks that have taken place in the past decades.The level of confidence in government institutions across Latin America is poor. To better illustrate this, according to the OECD Development Centre only 1 in 4 trust their leaders.
Data collected by the Latino-Barometer in 2015 also shows that only 17 percent of Latin Americans trust a stranger and 30 percent trust democratic institutions, which proves that trust is a scarce commodity in this part of the world. So, how can blockchain technology help fight corruption in Latin America?
Blockchain uses cryptography priciples and it is basically defined as a time-stamped series of immutable record data that is managed by clusters of computers not owned by any single entity. The most interesting aspect of Blockchain is decentralization, the network has no central authority and it embodies a democratized system in which everyone involved is accountable for their actions.
Adopting blockchain technologies has the potential to enhance public transparency and thus significantly reduce corruption. Blockchain can play a pivotal role in fighting corruption especially in public procurement.
According to reports from the OECD, around 57% of foreign bribery cases occurred to obtain a public procurement contracts. Government tendering is often the leading site of public sector corruption in developing countries.
The Odebrecht case in Brazil, has been very important in helping to understand the dynamics of corruption in Latin America and its effect on a significant sector in the region such as infrastructure. Blockchain technology would be beneficial to prevent another plot like the one Odebrecht carried out to bilk Latin American governments of multi-million-dollar contracts for bogus projects from fake customers through fraudulent invoices.
Implementing blockchain technology, a contractor selection phase would ensure 3 principles: transparency, fairness and competitiveness. These principles are tied to a time-factor which is crucial for a clean outcome.
Forcing a tenderer to publicly commit to contract terms and selection criteria before any bids are elicited eliminates the risk of request for proposals, or selection criteria being tailored post-publication to favour specific contractors. The whole process is very easy to audit because every action and decision made during the auction and vendor evaluation are automatically recorded in a permanent and public manner. Information would be made available to key stake holders (for example, citizens interested in the use of public funds that derive from taxation) and allow for stakeholder monitoring.
Countries like Peru, are already experimenting with blockchain technology and the Peruvian government has partnered with the blockchain startup Stamping.io to create a transparent contract-procurement system. The keywords to understand how it works are : traceability and immunity.
This tight verification system for government contracts would immeditately record every single transaction and block any other fraudulent procedures that could grant a contract to an entity without proper documentation. The blockchain startup has created a platform that will register purchase orders from Peru Compras, the government agency that regulates electronic purchases in the country, on the LAC-Chain blockchain. LAC-Chain is an initiative of the Inter-American Development Bank (IDB), which was created to promote a blockchain ecosystem in Latin America and the Caribbean.
Another way in which blockchain can help Latin America is by facilitating financial inclusion creating an ecosystem which benefits reach the most underserved populations in the entire region. For example, 70% of the population in Latin America do not have a bank account, however they are likely to own a smartphone.
The Argentinean based blockchain startup Ripio wants to democratize the digital economy in Latin America by offering digital payment alternatives within everyone’s reach. More specifically, Ripio is seeking to implement a global peer-to-peer credit and lending network on the Ethereum blockchain through smart contracts.
All in all, corruption is a complex multi-factorial human challenge and it requires more than a specific technology such as blockchain to fight its consequences. Effective economic and incentive design are also required, coupled with stronger local institutions as well as international alliances.
However, blockchain and its infinite utility seems promissing as a potential solution for societal and political ills.