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LatinNews Daily Report - 14 June 2013

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Main Briefing

Development: On 13 June three people died and over 300 were injured in a crash between two passenger trains in Castelar, 30 km from Buenos Aires.

Significance: The poor safety record of the Argentine railway system is a red-hot political issue. Railway safety has been a particularly sensitive subject since February 2012 when there was a major crash at the ‘Once’ station in Buenos Aires, leaving a toll of 51 dead and over 600 wounded. The Once accident and this week’s train crash 16 months later both happened on the General Sarmiento railway line. After the Once tragedy, the government of President Cristina Fernández cancelled the operating concession run by a company controlled by brothers Mario and Sergio Cirigliano. Since then a government-controlled consortium, UGOMS (Unidad de Gestión Operativa de las líneas Mitre y Sarmiento) has run the service. Now, ahead of October congressional elections, it is the government’s record of handling the railway that is under direct scrutiny.

Key points:

  • The accident happened when one passenger train crashed into the back of another, which was stationary on the tracks at the time. Interior & transport minister, Florencio Randazzo, described it as “very serious”. He was quick to deny trade union claims that the moving train had faulty brakes. Randazzo insisted that it had new brakes installed and had recently been “completely reconditioned”. Satellite images are said to show the train braking normally at the previous station, but then rolling past one warning and three danger signals, for reasons yet unknown. The train was travelling at 62kmh at the point of impact. Both train drivers and their assistants have been arrested pending investigations.
  • President Fernández, who laid the blame for the Once tragedy on the private operating companies and promised higher safety standards on the country’s railways, now faces the embarrassment of having a new accident happen under the state-controlled UGOMS. She spoke of her feelings of “sadness and impotence” at the news. Scrutiny of how the rail system is being currently run will not be good for the government. Many analysts say there are major ‘systemic’ problems, the result of years of low investment. Although the Cirigliano brothers face trial for their role in the Once incident, they are still very involved in the railway business, and it appears that Emfer, a company they control, worked on the brakes of the train involved in the Castelar incident. Elsa Alvarez, a legislator for the opposition Unión Cívica Radical (UCR), said that this week’s accident “exposes the absence of the State, its laziness and lack of concern for its citizens. Is this the transport revolution the national government has been announcing?”
  • The government is already fighting adversity on other fronts. It is involved in a complex legal battle over its attempt to push through reforms to the justice system. Its proposal to introduce direct elections for members of the council of magistrates, the body which controls the appointment of judges, has been ruled unconstitutional by a federal judge. The government appealed against the decision, and within hours the supreme court admitted the government’s request that it hear the appeal as a matter of urgency, since it proposes that members of the council are to be elected at the same time as the October congressional elections.

Pointer: Also potentially embarrassing for the ruling Partido Justicialista (PJ, Peronists) is the fate of former president, Carlos Menem (1989-1999), who was yesterday sentenced to seven years’ imprisonment for his role in illegal arms sales to Ecuador and Croatia after having been convicted on 8 March. Menem is from a different PJ faction than Fernández’s (Frente para la Victoria, Kirchneristas), but had recently been an important ally in key votes. It seems, however, that the Kirchenistas have done a deal to protect him. As a Senator for La Rioja Menem enjoys congressional immunity; the Kirchenista bloc in the upper house is reported to have promised to vote against any attempts to lift his immunity by opposition senators. The official line is that as Menem is appealing against his sentence it would be premature to lift his immunity, but the opposition rejects this argument.

Andean

Development: On 13 June Ecuador’s national assembly approved the ‘mining and equitable tax reform’ bill, which can now be sanctioned by President Rafael Correa.

Significance: The reform, which seeks to promote increased investment in Ecuador’s underdeveloped mining sector by providing a new framework for awarding mining concessions to the private sector, is highly controversial. It is resisted by environmentalists and the politically influential indigenous movement in the country which argue that the indiscriminate exploitation of the country’s resources could have very negative effects. There are also more general doubts about whether the reform, which establishes new taxes on mining, can successfully attract the necessary investment for the sector.

Key points:

  • The bill was approved with 105 votes in favour, 14 against and 14 abstentions in the newly expanded 137-seat unicameral chamber. This as Correa’s Alianza País (AP) for the first time showed off the decisive two-thirds majority (100 seats) it obtained in February’s general elections.

  • Besides a new concession framework for large mining projects, the bill also introduces new regulations for ‘mid-sized mining activity’ (producing between 300 and 1,000 tonnes of minerals per day) aimed at promoting its development. For example the bill establishes regulations that would allow the central bank to directly purchase gold from ‘artisanal miners’. The bill also introduces a 70% windfall tax on mining profits that is to take effect once developers achieve a return on their investment.

  • Strategic sectors’ coordinating minister, Rafael Poveda, hailed the reform’s approval. He said it would not only generate “more certainty” in the sector, but would also allow for its “sustainable development” as the bill calls for stricter environmental standards and clamps down on illegal mining.

  • Yet the proliferation of projects is what worries opponents of the measure such as the powerful Confederación de Nacionalidades Indígenas de Ecuador (Conaie) indigenous organisation. Humberto Cholango, Conaie’s president, said that the organisation opposes the reform as it could “affect the environment, indigenous communities, destroy our biodiversity”. Cholango expressed concerns that the reform would only attract more transnational mining firms to Ecuador and suggested that the windfall tax would not act as a deterrent.

  • This is debatable. In fact the approval of the reform comes just days after a Canadian mining firm, Kinross Gold, decided to cancel a major mining project in Ecuador over concerns about the uncertain operating environment. When asked about this yesterday, Poveda denied that Kinross’s decision had affected the sector’s prospects in Ecuador, insisting it was a “purely economic” decision by the firm.

POLITICS | OAS responds to Quiroga. On 13 June the Organization of American States (OAS) responded to a 30 April letter sent by Bolivia’s former president, Jorge Quiroga (2002-2003), calling on the organisation to issue a statement regarding the 29 April ruling by Bolivia’s plurinational constitutional court (TCP) which allows President Evo Morales to run in the 2014 presidential election. The ruling found that while the new 2009 constitution allows for just two consecutive presidential terms, Morales, who was first elected in 2005 and again in 2009, is eligible to stand for re-election as he is only serving his first term under the new constitution. The OAS response letter which was circulated to the local and international press, said that the OAS lacked the “power” to “opine about the constitutionality of legislative bills” or “make a declaration regarding a decision adopted” by the TCP, but that it considered the ruling “deviated” from the agreements reached by Bolivia’s legislature in 2008, which paved the way for the approval of the new constitution in which Morales agreed to not to pursue re-election.

Brazil

Development: On 13 June thousands of people took to the streets of São Paulo and Rio de Janeiro to demonstrate against the 6.7% rise in public transport fares recently introduced by the federal government.

Significance: This is the fourth day of protests in Brazil’s two largest cities against the measure which was implemented on 10 June. That the protests have already turned violent and show no signs of abating should be a major cause of concern for the government of President Dilma Rousseff – who is expected to seek re-election next year - and the ruling Partido dos Trabalhadores (PT). The protests follow the release of a poll which showed a drop in Rousseff’s approval ratings for the first time since taking office in 2011, on the back of the economy’s poor performance and inflation concerns. The unrest comes right before the Fifa Confederations Cup is due to kick off in Brazil on 15 June - Brazil’s ‘dress rehearsal’ for the next year’s Fifa World Cup and the 2016 Summer Olympics.

Key points:

  • The unrest began in São Paulo on 11 June after fares in the city rose from R$3.00 (U$1.50) to R$3.20 (US$160) overnight. Over 10,000 people demonstrated in the city’s main avenues for six hours calling for the measure to be reversed. The protest quickly spread to Rio, where there was also a large turnout. In response to police efforts to disperse them, protesters became violent torching buses, hurling petrol bombs and smashing windows. The police responded with tear gas and rubber bullets.

  • Despite dozens of arrests in both cities, the demonstrations (and violence) resumed the following day and yesterday. The protests are now being organised by a civil society group, ‘Movimento Passe Livre’ (‘free pass movement’). According to local press reports, yesterday’s demonstrations were the largest yet in São Paulo with some 12,000 participants, resulting in some 50 more arrests on police figures. Some 2,000 people are said to have taken to the streets in Rio, which is scheduled to host a Confederations Cup game on 16 June.

  • São Paulo mayor, Fernando Haddad (PT), has rejected the violence and expressed a willingness to dialogue with the demonstrators albeit warning the fare rise “must be maintained”.

  • So far Rousseff has not addressed the issue, but yesterday she announced the creation of joint police-military security command centres that will operate in all six of the Confederation Cup host cities. Rousseff said the centres will be in charge of public security during the tournament, adding that “this will lead to concrete improvements in public security” in those areas.
Central America & Caribbean

Development: On 13 June representatives from the political opposition, social movements and NGOs demonstrated outside Nicaragua’s national assembly against the bill granting the Hong-Kong head-quartered HKND Group a 50-year concession to build and operate an inter-oceanic canal (‘Gran Canal’).

Significance: The demonstrations came after the bill (as expected) was ratified yesterday by the ruling Frente Sandinista Liberacion Nacional (FSLN, Sandinistas)-controlled 92-member national assembly. The Gran Canal is Nicaragua’s biggest ever development project, with an estimated cost of US$40bn spanning an area of 40,000km2, just under a third of total territory. Organisations like the Mesa Nicaragüense ante el Cambio Climático, which groups some 20 environmentalist lobbies cite the project’s lack of environmental feasibility studies as a major cause for concern; while others such as FSLN Deputy Brooklyn Rivera complain that those communities likely to be affected have not yet been consulted – which could be seen as a violation of the right to prior consultation as stipulated under International Labor Organization (ILO) Convention 169, which Nicaragua signed in 2010. José Adán Aguerri, the head of the main private sector lobby, Cosep, has warned that the lack of transparency also raises major doubts over private property rights which could impact the country’s short-term investment climate.

Key points:

  • According to a press release by HKND Group (whose chairman is Chinese telecom tycoon, Wang Jing) the “special law for the development of Nicaraguan infrastructure and transportation involving the canal, free trade zones and associated infrastructure” grants the company “exclusive rights for the planning, design, construction, operation, and management of the Nicaragua Canal and other potential projects, including port projects, free trade zones, an international airport, and other infrastructure development projects”. The new law establishes that the transfer of the Canal to Nicaragua will be gradual starting 10 years after it begins to operate, with the country to receive US$10m a year until all of the shares are handed over. Opposition politicians like Dora María Téllez of the dissident Movimiento Renovador Sandinista (MRS) suggest this represents a loss of Nicaragua’s sovereignty.
  • While the route has yet to be defined, any design will likely affect Lake Nicaragua, which at 8,265km2 is Central America's largest lake – prompting environmental concerns. The NGO, Humboldt Centre, has warned that overall the construction of the Canal represents the “biggest threat to the country’s environmental conditions in its history".
  • Government officials like Paul Oquist, Ortega’s private adviser, estimates that the project will allow Nicaragua to more than double its economic growth from a projected 4.2% this year to 10.8% by 2014, rising to 15% by 2015.
Mexico

Development: On June 12 the three main political parties signatories of the Pacto por México – the ruling Partido Revolucionario Institucional (PRI) and the opposition Partido Acción Nacional (PAN) and the Partido de la Revolución Democrática (PRD) agreed to hold extraordinary congressional sessions in the next two months to discuss structural reforms.

Significance: The success or failure of the Pacto por México, the cross-party agreement over the major reform agenda proposed by President Enrique Peña Nieto, is a proxy for how well Peña Nieto is doing half-way through his first year in office. The latest scheduling agreement comes despite tensions within the Pact, associated with the run-up to local elections in 14 states due on 7 July.

Key points:

  • Given the scale of the challenges faced by the country, the Pact’s record to date is positive, with education and telecommunications reform approved by congress and now entering the implementation stage.
  • While the Pact survived the latest tensions over accusations by the PAN and PRD that the PRI has been illegally diverting state funds into its electoral campaign ahead of the July poll, it remains fragile: the PRD general secretary, Alejandro Sánchez Camacho, has described an addendum to the Pact, intended to guarantee electoral fair play in the 14 states next month, as an “elegant” agreement on paper which has already failed.
  • Congress normally goes into recess between 30 April and 1 September, a period in which it only convenes once a week (on Wednesdays). This year, however, the parties have agreed to hold two extraordinary sessions with daily meetings in the second fortnight of July and the second fortnight of August.
  • In the July session congress will discuss a new transparency law bill (which is supposed to create a national anti-corruption commission) and also data protection legislation. It will also try and conclude the bill to cap state-level public debt (state-level debt grew by 148% to US$32.5bn between 2006-2012) which has so far fallen victim to a jurisdiction dispute between the upper and lower houses. In the August session the aim is to finalise secondary legislation associated with the educational and telecommunications reforms.
  • There could be some serious horse-trading among Pact members in congress as they try to obtain other reforms that have not yet been scheduled for debate. In particular Peña Nieto wants to push through energy sector reform in the second half of the year to open up the state oil monopoly, Pemex, to private investment. While the PAN and PRD are interested in the Pact’s political reform proposal (in which they want to see the introduction of a second run-off round in the presidential elections, as well as the possibility of consecutive re-election for various positions), which is scheduled to be presented to congress by July.
Southern Cone

POLITICS | Another student march. On 13 June the third student demonstrations of the year, organised by the main confederation of university students (Confech) against Chile’s fee paying higher education system, took place. According to the authorities, some 55,000 people took to the streets in the capital Santiago while other marches took place in other cities like Concepción, Talca, Chillán, Los Ángeles and Valparaíso. Confech, however, claims that the turnout in Santiago was more like 110,000. The local press has reported that 277 people have been arrested while 19 Carabineros were injured during the demonstrations. The issue of free education remains a key electoral concern ahead of the November 2013 general election. The latest poll by Adimark, released on 5 June, showed that education remains the worst ranked area of President Sebastián Piñera’s government, cited by as much as 25% of respondents. Meanwhile, the recently appointed education minister, Carolina Schmidt, has suffered a dramatic fall in popularity since being transferred to the post, from the women’s affairs ministry. Schmidt’s approval rating fell from 71% in April to 35% in May – once again indicating the challenges of the portfolio. The survey interviewed 1,401 people across the country between 6 May and 1 June and had a 2.6% margin of error.