Former president Michelle Bachelet (2006-2010) could win the presidential elections on 17 November in the first round, crushing her main opponent, Evelyn Matthei, in the process, according to a poll released on 29 October. Bachelet has long been the overwhelming favourite for victory but it had still been widely assumed she would have to go to a second round run-off to secure it. The first televised debate featuring all of the presidential candidates took place hours after the release of the poll.

Bachelet is on course to win 47% of the vote to just 14% for Matthei, according to a survey released by the prestigious Centro de Estudios Públicos (CEP). But the CEP reckoned she would take 60% of the vote to 17% for Matthei if blank and void ballots were removed and undecided voters split. Matthei was closely followed in the poll sample of 1,437 voters by the right-wing independent Franco Parisi, on 10%, and left-winger Marco Enríquez-Ominami on 7%.

All of the candidates concentrated their firepower on Bachelet during the presidential debate, but she seemed unperturbed. The huge lead she has carved out in the polls means she could afford a slip anyway. The CEP survey also showed that several of her flagship policies in the election manifesto she finally got around to releasing this week have very strong public backing, especially education and tax reform. Bachelet said that she would send a bill to congress within 100 days to end for-profit education and provide free higher education for all within six years by means of “permanent spending” of between 1.5% and 2% of GDP. She said this, in turn, would be funded by a proposed tax reform, consistent with the mantra “those who have more, pay more”. She said the tax take would increase by US$8.2bn, some 3% of GDP; 2.5% from reforms such as putting the corporate tax rate up from 20% to 25%, and 0.5% from combating tax evasion and avoidance.

Matthei took aim at Bachelet for leaving it until just 21 days before the elections to present her manifesto, although Bachelet did release a shortlist of intentions (an agenda for her first 100 days in office) earlier this month. In a swipe at Matthei, Bachelet said that “this way of doing things, a participative programme, not one negotiated between four walls or between friends, takes time”.

Venezuela has put into effect the regulations to implement a shootdown law approved 17 months ago. Within days a stream of announced shootdowns began to appear in the media, but most of these turned out to be the result of confusion with the previous practice of destroying suspected drug-carrying airplanes on the ground.

On 2 October President Nicolás Maduro announced that the regulations for the implementation of Venezuela’s shootdown law (Ley de Control para la Defensa Integral del Espacio Aéreo) had been approved. He went on to issue a warning: "Let the international drugs trade know that from today any aircraft entering Venezuela will be ordered to land peacefully or else will be shot down by our Sukhois, by our F-16s and by the entire Venezuelan military aviation [...] I will start applying that law immediately [...] in coordination with our military forces".

The law, first proposed by the late president Hugo Chávez (1999-2013) in 2011, was approved by the national assembly in May last year. It provides for "actions of interception, persuasion and disabling" of aircraft in breach of aerial circulation norms.

Twelve days later General Vladimir Padrino López, head of the strategic operational command of the armed forces, announced that military aviation (AMB) F-16s had destroyed two aircraft. He did so in a Tweet that said: "Integral aerospace defence @ceofanb detects and immobilises two incursor aircraft associated drug trafficking to south Apure state. We will vanquish!". The next day he posted a photo accompanied by the following text: "One of the 2 incursor aircraft immobilised by combat formation F-16 last night south Apure. The struggle is frontal!".

Most immediate press accounts took it for granted that he had announced an aerial interception and shootdown. A retired air force general, Manuel Andara Clavier, suggested that the photo was a montage since it showed an aircraft destroyed on the ground, not in flight, and no other evidence.

On 20 October Alejandro Keleris reported that another aircraft presumably intending to load drugs had been detected by the navy’s operational command and had been immobilised by the army on a clandestine airstrip in the south of Apure. Once again the media announced this as a shootdown.

The following day General Padrino announced that military aviation had disabled an aircraft while flying over Puerto Ayacucho, capital of Amazonas state, at midnight on 19 October, and a second one in the same area on 21 October.

Only at this point did it become evident that these had been the first two actual shootdowns since Maduro’s announcement. The previous ones had been interpreted as such due to a misreading of official legalese, which distinguishes between disabling (attacking an aircraft in flight) and immobilising (destroying an aircraft on the ground). It is not known if any of the latter were forced down by the air force, but most cases appear to have been incoming flights.

The authorities announced that with the three incidents in October, since the beginning of the year there had been 13 ‘immobilisations’, that is, destructions of aircraft on the ground. Padrino said that since the beginning of the year the national guard (GNB) had seized 33 tonnes of diverse drugs. He did not say what (if any) proportion of this was associated with the interception of aircraft.

The Cuban government has announced plans to eliminate gradually its dual currency system, finally moving to address the most fundamental barrier to proper economic reform in the country. In the short-term, currency reform will create winners and losers. The official statement sought to reassure Cubans that their savings will be respected. However, over the medium-to-long term successful reform should generate benefits for all Cubans. If managed properly, it could also support the ongoing rule of the ruling Partido Comunista de Cuba (PCC) in a country that is far better off than it is today.

As the Cuba specialist Dr. Emily Morris and the economist Andrew Hutchings pointed out in the recent LatinNews White Paper on Currency Reform in Cuba (September 2013), the absence of proper money is the most fundamental weakness of Cuba’s economy. At present neither the convertible peso (CUC) nor the national peso (CUP) serve as a wholly satisfactory measure of value. Neither do they serve as a medium of exchange, nor as a unit of account. Reform of the system will require much more than a devaluation of the CUC and a revaluation of the CUP, so that they are notionally of equal value. Whatever replaces the system needs to be stable and robust, and to be seen as such.

The Havana government has long been aware that the dual currency system could not be sustained indefinitely. It produces massive distortions to incentives to work and to the labour, goods and capital markets; and it severely damages Cuba’s international competitiveness. To give him his due, in 2008 President Raúl Castro said it would be addressed by 2013-2014. The preparations for the adjustment to date have taken place at a gradual pace, with policy aimed at steadily increasing the use of the CUP by expanding the availability of goods and services in CUP markets, in order to create the conditions for eventual currency unification. This approach aims to minimise the disruptive shock of the adjustment. The government now appears to be working on a timescale of about 18 months for the actual transition phase. There were no details in the official Granma statement, save to say that the first phase of ‘monetary and exchange unification’ would be in the business sector, but it is ordinary citizens that are most fearful about the impact.

Winners and Losers

As Dr. Morris outlines, the impact on prices of the revaluation of the CUP relative to the CUC will be mixed, with some rising and others falling. In Cuban households, there will be winners and losers. For CUP-income households, she calculates that the impact would range from neutral to positive. For those at the lowest income level, whose entire budget is spent on basic goods at fixed prices, an exchange rate appreciation would have no effect on the cost of living, but for CUP-income households with income to spare, exchange rate appreciation would reduce the cost of living. That is, it would bring an immediate improvement in real income and living standards. This will enhance the effectiveness of wage incentives, she notes.

For CUC households, exchange rate appreciation will result in a rise in the cost of living, that is, a fall in real incomes, as the prices of CUP purchases in CUC terms will rise by the amount of the appreciation. In effect, she argues that the revaluation will diminish the labour market distortion that has been caused by the undervaluation of the CUP. This will reduce income inequality, because Cuba’s highest-income households are those with CUC incomes. However, households that have become dependent on jobs in the (informal or legal) non-state sectors that pay very low CUC-denominated-wages would suffer real hardship.

The number of people in this latter category will continue to grow as long as the exchange rate adjustment is postponed, so the greater the delay in making the change, the larger the problem of poverty resulting from it will be. Dr. Morris also stresses that the restoration of a single set of prices will make it necessary, as well as possible, to establish a meaningful minimum wage for the non-state sector, in line with the minimum wage in the state sector.

• A peg the logical solution?

Once unification is achieved, Cuba’s monetary authorities will need to choose a mechanism for maintaining a stable but flexible exchange rate. A currency peg system appears a logical solution. Andrew Hutchings suggests that Singapore would stand out as a country where a modified currency peg has contributed usefully to very strong economic performance and where the government has ensured that the gains are very widely (if not totally evenly) spread across the population.

The government in Kingston, the IMF, the ratings agencies and creditors were all making reassuring noises in September. There are indeed signs that the Jamaican economy may be stabilising. But with its massive foreign debt overhang, Jamaica isn’t out of the woods yet.

There were two pieces of good news for Prime Minister Portia Simpson Miller in late September. First, the International Monetary Fund (IMF) disbursed a US$30.6m tranche of its four-year US$944m EFF (Extended Fund Facility) programme, signalling that it believes the country is on the right track to overcome its serious economic imbalances. The IMF’s deputy managing director Nayouki Shinohara praised the government’s commitment to “strengthening Jamaica’s fiscal position and creating the conditions for sustained economic growth” which he said would be “critical to a revival of investor confidence and domestic demand in the period ahead”. Second, the international ratings agency Standard & Poor’s (S&P) raised its assessment of the country’s local currency debt a notch to B-, up from CCC plus. S&P said it expected the government to meet its fiscal targets this year, push ahead with the tax reform agenda (broadly designed to lower some rates but widen the tax base), and avoid further falls in foreign currency reserves. It also expected Jamaica’s large current account deficit to narrow from 12.6% of GDP last year to 10% in 2013.

While these are positive signs, it is also true that Jamaica’s economy remains in a very exposed position. Other ratings agencies such as Fitch still rank the country’s debt only two notches above default level. The very heavy debt overhang is critical. The IMF estimates that total Jamaican debt stood at 142% of GDP at the end of Q113. It says that through the existing programme this should be reduced to 96% by 2020, but even that level would be unsustainable. IMF officials have privately argued that further reductions will be required.

The question has to be whether such reductions are achievable purely through market mechanisms such as ongoing restructuring and austerity, or whether some form of Greek-style payments default and forced write-down will become unavoidable.

The macroeconomic numbers are daunting. Real annual GDP in the fiscal year to March 2013 fell by 0.7%, placing Jamaica at the bottom end of the Latin American growth table. GDP fell again by 0.4% in the quarter ending in June 2013, the fifth consecutive quarter of contraction. Unemployment was over 16% in the first half of this year, with inflation touching 10%. Youth unemployment is over double the national rate, something that feeds criminality and gang culture, one of the country’s persistent social and political problems. Any increase in violence can hit the important tourist industry, setting up a vicious circle by reducing foreign currency earnings. The Jamaican dollar has lost more than 10% of its value since the beginning of the year. As a large proportion of Jamaican debt is US dollar denominated, this means that debt-servicing costs measured in local currency are becoming increasingly burdensome.

The prime minister is aware that she is walking a tightrope. While forced to reduce government spending, she says she is mindful of the effect this is having on the majority of the population, and particularly on the poor and those on fixed incomes. In a recent speech she said her four ‘priority focus areas’ included fiscal austerity and debt reduction; achieving sustainable economic growth and job creation; protecting the vulnerable sectors of society; and “providing a realistic basis for hope to persons experiencing the brunt of the adjustments”.

In early July 2013, Marino Murillo, Cuba's economic tsar and architect of its economic policy ‘updating’, addressed an invited delegation of international journalists and academics about the direction of the economic reforms being undertaken by the government led by President Raúl Castro. Among much else, Murillo confirmed that the government is looking to unify Cuba's two currencies.

In this Latin American White Paper, Dr. Emily Morris and Andrew Hutchings examine the current economic and political situation in Cuba and put forth proposals for currency reform in the context of the Cuban government’s tentative moves to address this key issue, often identified as the ‘elephant in the room’ for Cuban economic policymakers.

Summary

• The absence of proper money is the most fundamental weakness of Cuba's economy. At present neither the convertible peso (CUC) nor the national peso (CUP) serve as a wholly satisfactory measure of value. Neither do they serve as a medium of exchange, nor as a unit of account.  Reform of Cuba's dual currency system will require much more than a devaluation of the CUC and a revaluation of the CUP, so that they are notionally of equal value. Whatever replaces the dual currency system needs to be stable and robust, and to be seen as such.
• A currency peg system administered by a formally constituted monetary board - similar to that which has worked well in Hong Kong since 1983 - appears to be a logical alternative.  We argue that Singapore would  also stand out as a country where a modified currency peg has contributed usefully to very strong economic performance and where the government has ensured that the gains are very widely (if not totally evenly) spread across the population.
• In the short-term, currency reform will create winners and losers among Cuban households.  However, over the medium-to-long term successful reform should generate tremendous benefits for all Cubans. If managed properly, it could support the ongoing rule of the ruling Partido Comunista de Cuba (PCC) within a country that is far richer than it is today.

Introduction

Cuba’s dual currency system, which uses the Cuban peso (CUP) and the ‘Convertible peso’ (CUC), cannot be sustained indefinitely. It produces massive distortions to incentives to work and the labour, goods and capital markets, and severely damages Cuba’s international competitiveness. Preparations for currency adjustment to date have taken place at a gradual pace, with policy aimed at steadily increasing the use of the CUP by expanding the availability of goods and services in CUP markets, in order to create the conditions for eventual currency unification. This approach aims to minimise the disruptive shock of the necessary adjustment, but the lack of urgency suggests that the costs of further delay are being underestimated relative to the risks of a swift adjustment. Analysis of the relative costs and benefits of more rapid exchange rate unification suggest that it should be the main priority for economic adjustment now, ahead of further liberalisation.

Once unification has been achieved, the authorities will face a further challenge: how to manage the new currency to adequately perform the functions of money. Of the choices available to Cuba, a currency peg, run by a currency board, appears to be the most logical solution. However, this new currency would need to be underpinned by substantial reserves. In order to raise the necessary reserves, one possibility would be a bond issue. To understand the significance of such a move, and its potential institutional implications, it is useful to look at how other countries have managed their currencies. In particular, Singapore provides an interesting model for comparison.

The resurgence of violence in Guatemala, doubts about the gang truce and the working of the judiciary in El Salvador and about the state’s capabilities in Honduras are the background against which the prospect is again being raised of Central America’s Northern Triangle becoming — or having already become — a collection of ‘narco-states’. Guatemala provides a useful test case for the plausibility of this outlook.

In late August the online monitoring service InSight Crime drew attention to a paper by Douglas Farah, president of IBI Consultants, entitled Central America’s Northern Triangle: A Time of Turmoil and Transition. He argues that the penetration of this subregion by Mexican cartels has made them the de-facto authority, rendering the state ‘almost non-functional’. Indeed, he claims that the three countries have already passed the ‘tipping point’ beyond which they no longer fully control their territory. He nuances this saying, ‘There are virtually no “ungoverned spaces” in the region. What has changed is that the authority is less and less often the state.’ As a result of the pervasive corruption of the law enforcement agencies, the judiciary and the public administration, he says, ‘The state itself at times becomes a part of the criminal enterprise.’

The difficulty with this scenario is that much of it precedes the penetration of the Northern Triangle by the Mexican cartels — or, to be more precise, their becoming the theatre for the violent confrontation of the Zetas, relatively new arrivals, and the longer established Sinaloa/Pacífico cartel. To this must be added the rapid pace of change in the situations on the ground. Farah’s paper dwells on the role played by the Zetas in Guatemala,  but less than a month after having drawn attention to this study, InSight Crime was talking about the ‘fall’ of the Zetas.

The deeply rooted corruption of the Guatemalan establishment and the grip held in that country by ‘hidden powers’ led to the establishment of Cicig, the UN-backed anti-impunity commission, in 2006. Now that the end of Cicig’s mandate is looming, outside observers and Guatemalans themselves are trying to work out just how much it has achieved. In neighbouring El Salvador there was an outcry in late August about how the courts were finding reasons not to prosecute the suspected leaders of the ‘Texis cartel’; by mid-September the authorities were celebrating the disruption of that organisation (see below).

Changing situations

Another modifier of the scenario is that sweeping generalisations and assumptions make it harder to discern the actual size of the problem. Back in January, Carlos Mendoza of the consulting firm Central American Business Intelligence (Cabi) and Claudia Méndez Arriata of elPeriódico put together a study entitled Siete mitos sobre la violencia homicida en Guatemala (‘Seven Myths about Homicidal Violence in Guatemala’) which punctures several misconceptions about the extent to which Guatemala as a whole is prey to violence, the drugs trade is the main cause of violent deaths, victims were themselves involved in crime, and more police is the answer to violence.

Cautious as Cabi is to put things into perspective, rapid change can overtake its readings. In March, analysing the data on homicide that had shown a steady upward trend since last November, it pointed out that January figures (the latest available at the time) suggested that the longer-run trend appeared to be ‘stagnating’. By the time figures for the first half of this year surfaced, there was a clear year-on-year increase of almost 8%.

In the first half of 2013 the national police (PNC) reported 2,735 cases of intentional homicide countrywide, or 12% more than in the same period of 2012. The institute of forensic sciences, Inacif, reported 3,122 cases, up 7.8% (Inacif does not discriminate between intentional and unintentional or accidental homicides). The number of cases has fallen steadily for four months running (May-August), but the annual increase remained virtually unchanged.

In July, deputy security minister Edi Juárez said that a study conducted by the interior ministry had determined that 25% of all homicides were attributable to ‘organised crime’ (a phrase almost synonymous with drug-trafficking organisations) and 25% to the maras (street gangs). Inacif has reported that the main cause of death among male homicide victims was the use of firearms.

Pinpointing the hotspots

One thing that has not changed substantially is the high concentration of homicides. Full data for 2012 shows that seven of Guatemala’s 22 departments (Guatemala, Escuintla, Chiquimula, Petén, Izabal, Jutiapa and Santa Rosa) accounted jointly for just over 71% of the national total. Another seven accounted for 20%, and eight accounted for 8.5%. In terms of rates per 100,000 inhabitants, three departments were below the ‘epidemic’ threshold of 10. At the other end of the scale, 10 departments had more than four times that level — four of them (Chiquimula, Zacapa, Escuintla and Santa Rosa) ranged from six to nine times higher. Partial data for the first half of this year do not show much change in the list of major hotspots.

Even this does not tell the whole story; concentration is even greater at municipal level. Fourteen of Guatemala’s 334 municipalities accounted jointly for 47% of all homicides; among these, eight accounted for 38% of the country total and one, Guatemala, for 18%. In the first half of this year Guatemala city accounted for 36% of the homicides reported by Inacif.

Flow of drugs

In early September, interior minister Mauricio López Bonilla said that the seizures of drugs this year were lower than in the past couple of years, largely because the tighter controls imposed by the authorities had led the traffickers to reduce the volume of individual shipments to try and escape detection. ‘If previously they would transport 100 kilos and were intercepted,’ he said, ‘that would be a major blow to the organisation; now they prefer to move smaller quantities in a greater number of vehicles.’ He also ventured that, as a result of the disruption of some gangs by the authorities, the traffickers may have chosen to move greater volumes by sea than by road or air. The public prosecution service has announced that between January 2012 and June this year, 119 persons suspected of involvement in drug trafficking were arrested.

The PNC’s antinarcotics intelligence unit, Sgaia, has reported that 2,236kg of cocaine were seized in the first eight months of 2013. In the whole of 2012 seizures amounted to 3,292kg, down from 3,900kg in 2011 — and from 9,194kg in 2003. If the data for 2012 and 2013 are expressed in terms of a notional monthly average, there was actually a slight increase (of just over 2%). What has fallen sharply is the seizure of methamphetamines, from more than 2,000kg in 2012 to only 5kg so far this year.

• El Salvador and the 'Texis cartel'

On 19 August the online news service ElFaro decried the fact that three courts in Santa Ana had successively declared themselves incompetent to try the businessman Jesús Sanabria Zamora and seven other persons charged with trafficking cocaine. Their problem was that they could not agree whether or not this was to be treated under the legislation on organised crime; some of those arrested are suspected members of the ‘Texis cartel’, so called after the organisation’s base in Texistepeque. The matter must now be resolved by the supreme court.

On 12 September the PNC announced that, after an operation across five departments (Santa Ana, Ahuachapán, La Libertad, San Salvador and Cuscatlán) involving 250 police officers and 40 fiscal agents, 32 suspected members of the ‘Texis cartel’ had been apprehended. Marco Tulio Lima, head of DAN (the PNC’s antinarcotics division) said that the investigative work of collecting enough evidence had taken two years; the actual operation took less than 24 hours. Justice minister Ricardo Perdomo said that this had been only the first of what will be many blows against the cartel.

Links

▫ Farah’s paper: http://www.ibiconsultants.net/_pdf/turmoil-and-transition-2.pdf

▫ Zetas in Guatemala: http://www.insightcrime.org/news-analysis/guatemalas-new-narco-map-less-zetas-same-chaos

▫ Seven Myths:

http://www.elperiodico.com.gt/es/20130127/domingo/223901/ http://public.tableausoftware.com/views/MitosHomicidiosGuatemala/Portada?:e

Another date for the diaries of Argentine debt-watchers: on 30 September the US Supreme Court will decide whether to hear Argentina’s appeal against a ruling that would block further payments on its current bonds unless it also pays holdout creditors. Following another decision against the country in late August, and looking ahead to a possible Supreme Court judgement, Argentina’s chamber of deputies voted overwhelming to approve a new indefinite debt swap offer for the remaining 7% of holdout creditors from the country’s 2002 default. Given that the main attraction of the new offer is that it has no expiry date, few analysts expect it to mollify the more intransigent holdouts.

New deal

On 23 August, the US Second Circuit Appeals Court restated a judgment which blocks the Argentine government from making payments on new bonds issued as part of its debt renegotiations. The court ordered the government to settle the outstanding US$1.33bn plus interest it owes to creditors who refused the terms of its heavily discounted debt swaps in 2005 and 2010 before continuing to pay those who accepted the deals. The block is on hold pending the appeal to the US Supreme Court. If the Supreme Court upholds the Appeals Court decision, Argentina will be forced to choose between paying its creditors, a move that could prove almost politically impossible for a government that has consistently denounced the injustice of the “vulture funds” case, or entering into default. If the Supreme Court decides against hearing the appeal, the Appeals Court ruling will stand, leaving Argentina with the same unpalatable choice.

In a brief to the Supreme Court, Argentina’s lawyers argued the case has an “extraordinary significance to the interests of Argentina, the United States, other foreign states”. The petition also cited the supporting brief filed by France, which emphasised the potential “wider economic harm” at stake. Warning of the third parties who would be “directly harmed” by the ruling’s enforcement, such as the bondholders who accepted the previous write-downs, Argentina’s lawyers argue that the Appeals Court ruling was based on a “patently erroneous reading of the boilerplate pari passu clause contained in nearly all sovereign bond contracts.” The pari passu, or equal treatment clause, is the key legal issue at stake.

Why Pari Passu matters

The pari passu clause typically provides that the bond debt will rank equally with other debt. It is a standard provision in international sovereign and private sector bonds. One of the reasons the case is important is because of the consequences of adopting one of the two main competing interpretations of pari passu clauses.

The narrow interpretation holds that there is a breach of the pari passu clause only if the debtor changes the ranking of who gets paid first by statute or some other legal measure. The wide interpretation holds that once a debtor is in fact insolvent, it cannot actually pay any of its debts without paying its creditors equally. This interpretation would prevent sovereigns and indeed other corporate or bank debtors from making any unequal payments when they are in any kind of payment default, thus inhibiting payments to preferred creditors regardless of the implications for the stability of the market.

In the meantime, the handling of the case has further eroded Argentina’s credit-worthiness. On 10 September the international ratings agency Standard & Poor’s (S&P) lowered its long-term foreign currency credit ratings on Argentina to CCC+, seven levels below investment grade. S&P said that if the legal case triggers a wider selective default or a ‘distressed’ debt swap, it could lower the rating further to ‘selective default’.

Despite the apparent concession from Buenos Aires, President Cristina Fernández remained defiant. In her first broadcast interview for four years, she attacked the holdouts again. “They bought these bonds for almost nothing. Can anyone explain to me why they should be rewarded with such astronomical returns?”

• Blue dollar on the move

The official value of the dollar rose again this week, to around Arg$5.7. On the black market, however, the ‘blue’ dollar (now increasingly known as the “cave” dollar, referring to the discreet locations where it is traded) is trading at around Arg$9.3.

It is one of Latin America’s biggest technology and civil engineering contracts, valued at just under US$17bn. It could transform passenger travel in Brazil’s densely populated Campinas – São Paulo – Rio de Janeiro urban area. But Latin America’s first bullet train project isn’t moving just yet: on 12 August the deadline for presenting bids was postponed for at least a year. Some now think it may not happen at all.

Transport Minister César Borges said the main reason to postpone the deadline for the Trem de Alta Velocidade (TAV) project was that only one consortium, led by Alstom and SNCF of France, was ready to present its detailed bid to build and run the trains, part of a group of contracts worth an estimated BRL38bn (US$16.7bn). Officials say the government has received assurances from Spanish and German consortia (led respectively by Construcciones y Auxiliar de Ferrocarriles (CAF) and Siemens AG) that they will definitely present competing bids if given more time – and so the deadline has been set back by approximately a year, to “the second half of 2014”. The authorities also hope that other groups from Asia, such as South Korea’s Hyundai and Japan’s Hitachi Construction Machinery and Mitsubishi Heavy Industries may be persuaded to bid too.

“It is better to have a competitive process with the greatest number of bidders possible,” Borges said. This is in fact the third postponement of bidding for the project. The first deadline was April 2011, at a time when the government believed the work could be completed in time for the 2016 Olympics in Rio de Janeiro. That deadline was pushed back to July of the same year, but no bids were received. Then it was delayed to August 2013, and now the deadline has moved again, back to 2014.

According to some reports, this time round the Spanish bid was knocked back by the catastrophic 24 July accident near Santiago de Compostela in which 79 people died. The Spanish rail company Renfe, a member of the CAF-led bidding consortium for TAV, operated the train that derailed.  Brazilian regulations exclude from the bidding any company operating high speed trains that has suffered a fatal accident in the last five years. Sources say however that Renfe explained that the accident occurred on a non-high-speed stretch of railtrack, with a train that had a maximum speed of 240km/h (high speed trains are defined as those that can travel at 250km/h or more). So technically Renfe is not in fact barred from bidding.

However, this same provision has effectively excluded China Railway Corporation (CRC) because of a 23 July 2011 collision between two high-speed trains in the suburbs of Wenzhou, which left 40 people dead. Officials say that CRC could nevertheless provide rail parts for the project. This may be academic, however, as Chinese sources note that so far companies involved in the domestic high-speed rail business have not sought to export their expertise.

The TAV project has been a long time in the making. It is conceived of as a 511km high-speed rail service linking Campinas, São Paulo and Rio, built in two phases and coming into service in 2020. It would initially be run as a 40-year concession. Feasibility studies suggest 40m passengers could use the service in the first year, rising to 100m by the end of the concession in 2060. Trains would travel at 350km/h and reduce the travelling time between São Paulo and Rio to two hours, thereby easing the heavy congestion that currently exists on shuttle flights between the two cities.

Observers note that the absence of competing bidders was not the only factor at play in the government decision to delay the bidding. The administration led by President Dilma Rousseff has been severely shaken by an outbreak of national protests that swept the country from June onwards. The unrest initially focused on the cost of public transport, and then widened to include corruption and what was perceived as wasteful spending on prestige investment projects (such as the construction of new stadiums ahead of the 2014 World Cup football tournament that Brazil is due to host).  Building the bullet train could therefore be a political hot potato. Arguably, it could be seen as a positive response to middle class protests, easing their commuting problems – or, alternatively, as yet another overpriced white elephant pursued by an out-of-touch government. To make matters more sensitive, the government had just approved new anti-corruption legislation (largely as a result of the protests), and is investigating some of the companies bidding for TAV, who are alleged to have engaged in cartel-like behaviour in pursuit of other public sector contracts. For example, prosecutors have launched an investigation into alleged price rigging in São Paulo’s metro rail services in 1999-2009.

Empresa de Planejamento e Logística (EPL), the government’s transport planning company, says it is possible to delay the bullet train bidding deadline from 2013 to 2014 without compromising the 2020 start date for the service. It had already been envisaged that there would be a separate bidding round in 2014 for companies to build the infrastructure and track. The result is that the deadlines for both elements of the overall project are now set to fall together in the second half of next year.

But this is where the sceptics come into their own. The next Brazilian presidential elections are due in October 2014 and President Rousseff’s term in office ends in December of the same year. So the question being asked is whether an outgoing and possibly lame duck administration will really want to take a final decision on the TAV project during its last months in office. It would make more sense it is suggested, to kick the ball forward once more, allowing a newly elected administration, which will enjoy greater authority and legitimacy, to take the decision in early 2015. According to the daily O Globo, some officials have already begun looking into a cheaper alternative: rather than a bullet train, a medium-speed alternative passenger rail system.

As it happens, the state of São Paulo is studying a separate proposal to launch a 431km medium-speed intercity passenger rail network as a public-private partnership (PPP). Initial studies put the cost at BRL18.5bn, which for each kilometre of track operated would be approximately 61.4% of the comparable cost of the bullet train.  Lawyer Rodrigo Matheus, a specialist in public tendering, says “it is unlikely that the TAV initiative will be re-started during the current government, so the entire project could be put into the hands of the succeeding administration”.

President Enrique Peña Nieto has trumpeted the fact that the number of homicide cases has fallen significantly in his first eight months in office, and has attributed this to greater cooperation between federal and state authorities and improved intelligence. However, a  leading private tally of ‘executions’ shows that this year the decline that began in April lost steam in the ensuing two months and turned into a sharp increase in July. Official data also show another major crime, kidnapping, rising to its highest level in a decade.

On 27 August, addressing the 34th session of the Consejo Nacional de Seguridad Pública (CNSP; National Public Security Council), President Peña Nieto announced that since he took office last December the number of homicides ‘related to federal offences’ (a proxy for killings related to inter-cartel wars and the government’s fight against the cartels) had fallen by 20%, and that the most pronounced declines had been recorded in the country’s most dangerous cities and regions. All this, he said, was the result of the coordination and good intelligence on which the new public security and justice policy, unveiled last December, is built.

Also in that period, he noted, the authorities had captured ‘62 of the 122 most dangerous suspected criminals and in most cases without firing a single shot.’ ‘The strength of the state,’ he said, in a clear dig at his predecessor, ‘must not be measured only by its firepower, but by its ability to apply the law with the least possible violence.’

Peña Nieto did not dwell on the fact that official data released three days earlier had shown that kidnappings in January-July rose to their highest level in a decade: 911 reported cases that the public prosecution service took seriously enough to investigate. This was 26.5% more that the total recorded for the same period of 2012, and 15% higher than the previous peak level of 791 cases recorded in 2011. Since the beginning of the year the authorities have initiated investigations into 4,666 cases of extortion and 32,572 of car theft with violence.

The President’s use of the phrase ‘related to federal offences’ is in line with the trend initiated during the Felipe Calderón administration (2006-2012) to take some distance from the previous, much-criticised association of certain killings with the ‘executions’ carried out by the warring drug cartels and their affiliated gangs of gunmen. On 9 August the interior ministry (Segob) went further when it announced that it would no longer distinguish cases of homicide linked to activities of organised crime, but would publish only figures on all intentional homicides.

Moreover, Segob drew attention to the fact that the figures on intentional homicide are not to be taken as tallies of the number of victims, because they list only cases of homicide investigations initiated by the public prosecution service, and such cases could involve more than one victim. The security data in the new format is accessible at the Secretariado Ejecutivo del Sistema Nacional de Seguridad Pública (SENSP) website (see link below).

Another view

The interior ministry (Segob) tallies 10,899 cases of intentional homicide  in January-July. Lantia Consultores, in its continuing tally of ‘executions’, counts 8,052 cases in the same period. Most interesting is its finding that there was a sudden rise, of 37%, in the number of ‘executions’ in July, reversing the downward trend observed in the earlier three months: -17% in April, -2% in May, -1% in June. This made July the month with the worst record of violence since Peña Nieto became President.

Sharp increases were recorded in July in Durango, Michoacán, Guanajuato, Sonora and Guerrero. The states with the highest number of ‘executions’ were, again, Chihuahua, Guerrero, Sinaloa, Jalisco and Coahuila. Michoacán, where Los Caballeros Templarios (LCT) have been taking on the federal and state authorities, suffered a 177% increase in the number of  killings — and its actions, Lantia notes, has had a knock-on on nearby states: Guerrero, Morelos and México.

In Chihuahua, the continuing confrontation between the Sinaloa/Pacífico cartel and La Línea/Juárez, has not only kept it at the top of the homicide table, but has also placed four of its municipalities (Ciudad Juárez, Chihuahua city, Hidalgo del Parral and Guadalupe y Calvo, jointly accounting for 65% of the state’s toll) among the ten most violent municipalities countrywide.

Acapulco has risen again to the position of most violent city in Mexico, accounting on its own for just under half of all killings in Guerrero, whose toll rose by 88% in July.

Source: Lantia Consultores.

Link

▪ New format SNSP data: http://www.secretariadoejecutivosnsp.gob.mx/es/SecretariadoEjecutivo/090820132

A sudden mid-August upsurge in violence in eastern Port-of-Spain led to a first-ever political event: a meeting between Prime Minister Kamla Persad-Bissessar and opposition leader Keith Rowley to work out a consensual approach on anti-crime measures. It also triggered a police response that was harshly criticised by the legal profession as pushing the boundaries of acceptable procedures — and there was some irony in the fact that homicide figures for the first eight months of the year are actually much lower than a year earlier.

The event that prompted these responses was a spate of six killings within 24 hours in eastern Port-of-Spain in the second week of August. The authorities responded with two major police operations. The first — on 15 August in Laventille, Sea Lots, Beetham Gardens and Nelson and Duncan Streets — resulted in the arrest of 12 persons described as “major players” in criminal gang activities. The second, three days later, saw the deployment of 300 police officers and 100 soldiers of the Trinidad & Tobago Defence Force (TTDF) in Duncan, Nelson and George Streets, where 90 people were arrested.

The killings were attributed to a turf war between gangs, and police sources said that the Criminal Gang and Intelligence Unit was contemplating applying the 2011 Anti-Gang Act against some of the detainees. This piece of legislation has not been much used since the partial state of emergency of August last year.

On 22 August Persad-Bissessar and Rowley met to discuss anti-crime policy, accompanied by Attorney General Anand Ramlogan, ministers Christlyn Moore (justice), Clifton DeCoteau (national diversity) and Prakash Ramadhar (legal affairs), and three opposition legislators: senators Fitzgerald Hinds and Terrence Deyalsingh, and Port-of-Spain South MP Marlene McDonald.

Among the results of the meeting was opposition agreement to the deployment of a new rapid-response unit (for which special reserve police officers have been undergoing training since June); the acquisition of 300 new police cars; reviews of the procedure for the selection of the police commissioner and the Anti-Gang Act; and consideration of a partial abolition of jury trial for those charged with gun or drug offences.

For all this display of consensus, the government came in for a drubbing from the Law Association of Trinidad and Tobago (LATT) for the mass arrests that followed the mid-August killings. It said, “While the reports are conflicting as to the precise number of persons ‘detained’, it would appear that approximately 59 were released without charge and approximately 42 are still ‘detained’ [...] We remind the police that this country is governed by the rule of law and it has been long established that the police have no right of detention or arrest unless they have reasonable suspicion of someone having committed an offence or an offence is being committed in the presence of the police”.

The impact of the August killings on public opinion and political circles may suggest that violent crime has continued to rise. Available figures suggest the contrary. According to a tally by the Trinidad Express, from January to mid-August there had been 236 murders countrywide, 22% fewer than in the first eight months of 2012. The country’s homicide rate per 100,000 inhabitants had previously fallen from a peak of 41 in 2008 (one of the highest in the hemisphere) to 26 in 2011. It then rose again to an estimated 32 in 2012. In absolute figures the monthly average in the first seven months of this year was 16% lower than that of last year as a whole.