Pills of October - Latin American Overview

ARGENTINA: The country is experiencing a crisis of confidence. The nationalization of pension funds is seen by the market as a sign that the rules of the game can be changed at any moment in the country. Thus,increasing the rumors related to a strong and growing economic crisis.

URUGUAY: The alliances for the presidential election of 2009 has began. The President Tabaré Vázquez wants his substitute to be the former Minister of Economy, Danilo Astori, however, the foundations of the Broad Front (Frente Ampla) have started a petition signed to go for a constitutional change allowing the president to re-elect. Behind all this, is the fear of an economic recession. If this occurs, only the candidacy of Tabaré could avoid a return to power of the conservative parties.

PARAGUAY: President Fernando Lugo begins to taste problems in his coalition. The main advantage of his alliance, the PLRA (Authentic Radical Liberal Party), claiming more influence. Some of their leaders show reluctance in the support given to the Paraguayan head of state.

CHILE: The project of the Concertación power is seriously threatened. In municipal elections last Sunday, the National Renewal, right-wing coalition, won the elections. In opinion polls, Sebastián Piñera is leading all of them. After 18 years, the Concertación might be defeated in the presidential succession of 2009.

COLOMBIA: National Congress rejected the bill which attempted to open the possibility of President Álvaro Uribe to run for a third mandate.

VENEZUELA: Drop in price of oil on the international market creates problems for the government’s budget for next year, threatening the political project of Chavez. Thus, the President will use the regional elections of November to radicalize his speech, turning the election into a referendum on his leadership. If Chavez wins, he will try a new referendum to bid for reelection indefinitely

BOLIVIA: Division in opposition around the approval of the referendum which may approve the new constitution favors the government. Aware of this, the MAS (Movement towards Socialism) might be on the way to the construction of a hegemony in the country.

PERU: Political crisis forced Alan García to change his entire cabinet team due to the bribery of officials that his government received to avoid bidding for oil exploration. That increased the rejection of the president who today is 70%.

MEXICO: The National Congress approved the Energy Reform. With this, the president Felipe Calderón could rely on resources from the private sector to increase  PEMEX`s production.

Exodus of US$ 4.397 billion from Brazil so far this month

The effects of the international credit crisis has provoked an exodus of US$ 4.397 billion in Brazil from the 1st of October to the 24th. This number is the difference between the amount of dollars entering the nation and the amount leaving; just last week, there was an exit of US$ 646 million.

The data is part of the monetary flux that monitors the movement of dollars both entering and exiting Brazil and was divulged this Wednesday by the Central Bank. For the entire year of 2008, the monetary flux registers a positive gain of US$ 12.791 billion. The result of US$ 45 billion entering and US$ 32.214 exiting the nation.

Brazil: The House of Representative approves the first MP designed to combat the financial crisis

The House of Representatives approved last night the MP 442/08, which gives the Central Bank the power to accept the credit portfolios of banks facing difficulties with liquidity as guarantees of loans. The BC is also authorized to lend directly from the nation’s international reserves (around 200 billion dollars) to banks that finance exporting companies. The measure is now being analyzed by the Senate.

The text was approved with changes. The reporter, Representative Rodrigo Rocha Loures (PMDB-PR), highlighted four of the seventy-four amendments presented. One of the changes is that the BC has to send every trimester a report to the Congress including: the total value for the trimester and the value accumulated for the year of the loans; the financial conditions of the applied measures (discount and spread, for example); the accumulated value - annually and Quarterly - of credit (paid on time or late); and an explanation of the impact these operations described in the BC’s results.

This information will be debated at the Biannual meeting that occurs between lawmakers and the president of the BC, as outlined by the Fiscal Responsibility Law (Complementary Law 101/00).

The national monetary aid comes in the following form: a bank having difficulty capturing money on the market, but has a low risk credit portfolios, can “sell it” to the BC with the agreement to repurchase it, as a loaning operation known as rediscount. The credit portfolios are composed of values that the bank have the right to receive, in the form of legal and individual debts.

From the value of this credit, the provision (value to cover the debt should the credit not be honored) will be deducted. What remains will have a discount (percentage variable according to the credit’s evaluation) applied to it.

Additionally, the BC will be able to accept a physical guarantee (property, for example) or financial one given by the controlling stock holder of a united company or other bank.

The text approved by the House of Representatives also stipulates that there are transparent rules and not discrimination for the acceptance of actions in a rediscount operation.

In November, the House of Representatives should vote a second MP against the crisis: 443/08, which authorizes the BC and Caixa to purchase banks having difficulties.

Venezuela: Three engineers arrested for involvement in sabotage

Three engineers of the State Electric Power Company were arrested for “unjustifiable favoritism to sabotage” in the blackout which hit Venezuela last week, informed the prosecutor-general Luisa Ortega. According to sources, at press conference she said that an extensive investigation showed the responsibility of three officials from Edelca (Electrificación del Caroní). Adán Ramos, Honny Vasquez and Rodolfo Ortega, accused of “crimes of interruption of services and goods, favoring negligence to sabotage or damage,” were determined to be held at the Command of the National Guard.

Bolivia: Government Thinks Oil Companies Unnecessary

The executive branch of Bolivia thinks oil companies are not necessary in the country if they do not want to abide by their investment commitments. The statement was made by the Minister of Hydrocarbons and Energy, Saúl Ávalos, in an interview given to broadcasting company Erbol. He recalled that now in Bolivia all commitments are to be fulfilled.

Ávalos said that if the companies refuse to implement their investments – US$ 900 millions for this year alone – the State will intervene to verify whether investments in the oil industry are in keeping with its projects.

The threat issued by the Ministry lands in an environment of fuel shortage affecting some regions in the country, a situation that has been caused by declining investments in the oil industry.

 On the other hand, oil companies justify lesser financial investments due to the country’s political instability in recent years, tax reforms and the nationalization carried out in mid 2006.

Argentina: Opposition Seeks Unison Aiming at 2011

The Argentinean opposition seeks to leverage the government’s loss of control of the country’s agenda to build up strength in next year’s legislative elections. The lead has been taken by Rubén Giustiniani, chair of the Socialist Party (PS). While attending the National Convention of the Radical Civic Union (UCR), the (Peronist) Justicialist Party’s main rival, he proposed creation of so-called “electoral fronts” to fight Kircherism.

Giustiani’s proposal was acclaimed by the leader of the Civic Coalition and last election’s runner up, Elisa Carrió. Carrió sympathizes with the idea of rallying oppositionist forces to confront president Cristina Kirchner. However, she said that it will take some time before oppositionists come to unison.

Today, Kircherism owns a majority of seats in the Parliament. Cristina’s allies have 153 out of 257 representatives. In the Senate, 44 of a total of 72 seats belong to her partisans. On the other hand, this juncture may change in 2009 elections when the 257 seats in the Chamber of Deputies and one third of the 72 senatorial seats are to be renewed.

If they emerge victorious in the upcoming legislative poll, oppositionists still have two years to come up with a nominee who will represent the coalition in the 2011 presidential elections. Today’s key names are the mayor of the autonomous municipality of Buenos Aires, Mauricio Macri, the former Minister of Finance Roberto Lavagna, the Civic Coalition leader, Elisa Carrió, and the Argentinean vice-president Julio Cobos, who has parted ways with Cristina Kirchner.

Peru: Oppositionists Increase Mobilization

The Peruvian opposition is expected to benefit from the political crisis. Not only unfavorable market conditions affecting the nation’s poor, but also the political predicaments of persons having close ties with Alan García have given ammunition for the General Labors Confederation of Peru (CGTP) to call for changes in economic policy.

The government has demonstrated its inability to conciliate economic growth and wealth distribution, say the oppositionists. According to the local media, popular manifestations against the president are a consequence of the Peruvians people’s frustration with the government, added to fears related to the international financial crisis.

In light of these circumstances, the lobby demanding Alan García to change economic policy, already strong in the past, will now increase in intensity. The first reaction by the Peruvian leader has been positive, however. He has adopted a fierce speech against corruption, thus avoiding that the implicated persons are linked to the president’s image.

Significant changes in his administration are virtually inevitable, however. The first sign of change has come from Jorge del Castillo. Prior to attending a meeting, he said that all ministers had resigned from office, and that Alan Garcia had accepted such resignations. The substitutes have yet to be appointed, however.

The government will have to form an “assault squad” in Congress upon forming the new ministerial line-up because an inquiry has been launched to investigate oil concession agreements. 

Venezuela: Implications of the International Financial Crisis

Local entrepreneurs anticipate that local politics, specially in the economic area, will hurt because of the dismaying external scenario. Forecasts indicate that the financial crisis will reduce the influx of foreign currency from oil sales as a result of declining oil prices in international markets. This is likely to worsen Venezuela’s fiscal deficit.

In addition, local entrepreneurs anticipate a throttling supply of food in the domestic market. As if such scenario was not enough, data compiled by the Venezuelan Central Bank (BCV) show an annual inflation already at 21.8%.

This gloomy scenario has already caused grief in the local industry. In a recent survey launched by the Venezuelan Chemical and Petrochemical Industry Association (Asoquim), respondents stated that the industry’s production plunged by 40%.

The 100 companies comprising Asoquim evaluated that restricted access to foreign money, administrative bureaucracy and legal uncertainty all have negative implications on production.

With regard to export forecasts for the second semester, 50% of the respondents believe that exports will decrease, 27.3% said that exports will improve and 22.7% stated that export performance will remain the same. A vigilant observer of this new international environment, president Hugo Chávez has called the financial system a target and locked on it.

According to the Venezuelan leader, the International Monetary Fund (IMF) is to be blamed for the crisis. For that reason, says Chávez, the IMF should “dissolve itself”. 

Peru: Alan García’s Administration Threatened by Scandal

A major political scandal hit president Alan García’s administration beginning last week.

A footage broadcasted by América Televisión’s program “Cuarto Poder” shows Rómulo León and Alberto Quimper discussing kickbacks to be paid for aiding Norwegian oil company Discover Petroleum in a bidding for oil exploration blocks. León is a former minister linked to the Aprista Party’s, while Quimper is a high-ranking officer of Petroperú, the country’s agency for promoting and negotiation hydrocarbon contracts.

The oil company, which eventually won the bidding, denies any form of illicit facilitation. However, another recording was disclosed in which León discusses a purported benefit for Jorge del Castillo, head of the Council of Ministers, with a representative of Discover Petroleum.

Since disclosure of the scandal the Minister of Energy, Juan Valdivia, and the president of Petroperu, César Gutierrez, have been removed from their offices. This is undoubtedly the biggest political crisis in Alan García’s administration so far. This situation is likely to develop further into a predicament for president García because of his close ties with the persons involved in the scandal.

The population’s confidence in his administration is very low as of now. According to the latest surveys, only 19% of Peruvians approve his administration. The crisis is likely also to have negative effects on the Peruvian Aprista Party (Apra) on account of the involvement of persons having close ties with the president’s party.  

Bolivia: Committee Created to Discuss New Constitution

After several standoffs between government and opposition over the new constitution referendum, Bolivian political parties decided to form a committee to discuss and attempt to weave a consensus. The committee was announced by Bolivia’s vice-president, Álvaro García Linera. As a result, the congressional session scheduled for last Friday in which the referendum call would be voted was adjourned.

Both the chairman of the senate, Óscar Ortiz, and of the house of representatives, Edmundo Novillo, attended the meeting at which this consensus was formed. Both sides are to work relentlessly to attempt to break the many standoffs created in recent months.

Negotiations will be reviewed at every 48 hours by representatives of both sides in order to avoid recurring issues. According to Mr. Linera, the time has come for the political forces to take an accountable stance and debate their way out of the institutional crisis.

The committee will be comprised by the Movement for Socialism (MAS), the Social and Democratic Power (Podemos), the National Revolutionary Movement (MNR) and the National Union (UN).

The launch of this committee is a key initiative of Evo Morales’ government. However, the Bolivian leader has failed to demonstrate the political ability necessary to bring the crisis to an end.

Compared to the government’s stance in past negotiations, this new initiative amounts to retreat. The million dollar question is knowing whether social movements that have backed up Morales will continue to rally in support or if there will remain a pressure for the approval of the new constitution.