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Central America: the illicit financial flows are drowning development

Recently, the Global Financial Integrity organization presented its report concerning the illicit financial flows in developing countries. One of the findings is that, according to the report, between 2004 and 2013 the outflows of illicit finance was near to USD 7.8 trillions in the developing countries. In terms of growth, this represents an annual growth of 6.5%

The illicit financial flows are part of an international problem, but the costs are higher in societies that face harder challenges such as economic growth, construction of equity and effectiveness of the State. These flows are related to the concealment of wealth, money laundering, elusion and evasion of taxes as well as resources from corruption, smuggling, trafficking, drug dealing and other organized crime activities.

Concerning Central America, the report established that during the period of the study the leakage of accumulated flows amounted to USD250, 935 million. The country with the most important estimation according to the illicit financial flows is Costa Rica, which ranks in the place 15 of 149, registering 45% of the regions amount.  The illicit financial flows that left Costa Rica are equivalent to 43.4% of the countries Gross Domestic Product (GDP). The alarming fact concerning this data is that if compared to the government expenditure the illicit flows are 219.3% of this expenditure. Other country that has the same relation to its GDP but its illicit financial flows are lower than Costa Rica is Nicaragua, because it has a lower expenditure and a smaller state.

 In the political aspect, the illicit financial flows are a small link in a chain of impunity. In some contexts this practices are accepted in the national and international arenas. The tax havens are part of the flagrant impunity in which big evaders, corrupt and economic stowaways hide.

One of the mayor impacts of the illicit financial flows can be observed in the diminishing of the States capacity to collect the total taxes. The incapability of collecting taxes leads to a weakening of the possibility of producing goods and universal public services with quality. According to the report entitled Una economía al servicio del 1%, elaborated by Oxfam International, the lack of tax collecting translates to cuts in public services that are essential to health and education. This leads Governments into depending on indirect taxes such as the VAT that affect the poorest population.

This is why the countries that report illicit financial flows must no lose sight of these flows. Conjointly with the fight against tax evasion and the suppression of fiscal privileges, important pieces to improve tax collecting, it is necessary to elaborate tools and national entities as well as global entities that deepen the investigation concerning illicit financial flows that lead to the strengthening of justice and a more modern and effective international taxation.