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POLITICS: Decreeing an end to corruption

President Nicolás Maduro has called a national emergency in Venezuela to combat corruption “at its roots”, for which he is seeking special powers.

Maduro has not clarified exactly what these special powers might be but in order to begin a decidedly vague “process to reform laws and change institutions” he must mean the enabling law which his predecessor and mentor, the late president Hugo Chávez (1999-2013) habitually pushed through a pliant national assembly in order to gain stretches of 18 months in which to rule by decree on the pretext of responding to a specific crisis. “If it’s necessary to change all the laws, we’ll do it”, Maduro said at a ceremony in the capital Caracas to mark International Youth Day.

Maduro is ever keen to emulate Chávez and his much-trumpeted crusade against corruption provides him with the ostensible reason to seek an enabling act. Indeed, he made his announcement shortly after confessing that he has slept “on several occasions” in Chávez’s mausoleum when he wants to reflect on matters.

As things stand, the ruling Partido Socialista Unido de Venezuela (PSUV) is just short of the three-fifths majority required to confer these special powers on Maduro. The PSUV and allies have 98 seats in the 165-seat national assembly. They need 99. Moves already seem to be afoot to gain the requisite extra vote: for instance, former PSUV deputy María Mercedes Aranguren, now aligned with the opposition Mesa de la Unidad Democrática (MUD), could soon see her immunity lifted. The national assembly recommended on 2 July that the supreme tribunal (TSJ) investigate whether there are sufficient grounds to lift her immunity for alleged corruption. Aranguren’s alternate, crucially, is still loyal to the PSUV.

The MUD leader, Henrique Capriles Radonski, insists that corruption in Venezuela is most pronounced at the top of the Bolivarian food chain but the anti-corruption drive is not targeting these untouchables: the 50 people arrested in recent weeks were all junior officials and there has been no attempt to overhaul an arcane currency exchange system which helps perpetuate corruption. The opposition is also convinced that the corruption drive is a deliberate attempt to knock out MUD candidates, preventing them from competing in December’s municipal elections by smearing them with trumped up charges.

Government overhaul  - from bourgeois to popular

The day before Maduro announced the national emergency, the former Chavista minister-turned-journalist, José Vicente Rangel, wrote in his weekly ‘El Espejo’ column in the daily Últimas Noticias that in vindicating the legacy of his predecessor President Maduro was also loyal to the need for an “accurate cut” in this “illness” afflicting Venezuelan society so as to prevent “the collapse of the Republic”.  Rangel went on to call for “a national debate to determine responsibilities, arbitrate legal and political cases, effective popular participation and social control”. These measures, he said, were a necessary democratic and legal response to flush out those doubling up as “politicians and delinquents”.

As if in response, Maduro also declared that he intended to carry out “a process of restructuring of the national executive” in order to make it less corrupt, more efficient and better in tune with ‘popular power’”. Maduro said the Bolivarian Revolution had inherited the structure of a ‘bourgeois government’ and needed a new structure, whereby the ministries become focused on “attention to popular power”.

In stressing the importance of ‘popular power’, Maduro is at once being loyal to the legacy of Chávez and is also trying to consolidate his own fragile political support and legitimacy ahead of his first electoral test in December’s municipals, which the opposition is deliberately spinning as a plebiscite on the Maduro administration.

The preamble to Venezuela’s 1999 constitution establishes as its “supreme end”, “the re-founding of the Republic to establish a democratic, participatory and protagonist society”. Popular power, or ‘people power’, was seen by Chávez as a form of direct democracy, a sort of umbilical link between the executive and the people, as organised in thousands of local communal councils. Under Chávez’s never-fully-realised ‘geometry of powers’, first unveiled in 2007, the Venezuelan State, currently organised as a federal territory, would be re-founded and divided into five or six main ‘regions’, each run by a regional ‘president’ appointed by the president, with communes — councils comprising delegates elected from the grassroots communal councils —  sitting underneath.

Chávez saw in communal power a way to improve efficiency and transparency in the delivery of the Revolution’s social policies. He never managed to see through his ambition to permanently institutionalise communal power. But Maduro has signalled his intent to follow through with the ‘transition to Socialism’ in Venezuela.

According to Aristóbulo Istúriz, a Chavista elected governor of Anzoátegui in December 2012: “The characteristics of the state, and the public powers of the state, should be transferred to the communes. That is why we speak of a Communal State. I don’t agree with the disappearance of the [state] governor, which should give support and offer the tools to [help] advance the transformation of the state, but the resources and competencies should be transferred to the commune”. In other words, state governors and mayors may not cease to exist, but their roles may be reduced to a mere administrative level, including transferring funds from the central government to the communes.

The opposition leader, Henrique Capriles Radonski, warns that people power amounts to nothing more than a power grab by a central government that “talks about popular power, confusing it with a political party”. Marina Corina Machado, one of the most outspoken members of the opposition, describes the concept of a communal State as “dictatorial Communism”.

  • “Absolute impunity”

The coordinator of the NGO Observatorio Venezolano de la Violencia (OVV), Roberto Briceño León, accused the Maduro government of overseeing the “anarchisation” of Venezuelan society and said there was “absolute impunity” in the country. Briceño said that the OVV projected the total number of homicides in the country at some 25,000 this year, up from its estimate of some 22,000 last year (the government put it at a lower 16,000 for 2012). Briceño added that Venezuela needed to be “pacified”, which requires dialogue and the implementation of the rule of law. Insecurity has long been the Bolivarian Revolution’s weak spot. Maduro’s response has been to call upon to the Venezuelan military (and the Bolivarian armed militias) for additional policing support.

  • Court dismisses Capriles challenge

The constitutional court of the TSJ has thrown out legal challenges presented by the opposition against April’s presidential results. The TSJ ruled on 7 August that the challenges were not only “inadmissible” but also constituted through their tone a “grave offence”: it fined the opposition leader Henrique Capriles and recommended that he should be prosecuted by the attorney general’s office for seeking to undermine the credibility of the elections.

The president of the TSJ, Gladys Gutiérrez, said there was no concrete evidence of fraud. She said Capriles would be fined BF10,700 (US$1,700) for using “insulting and disrespectful terms” impugning the integrity of the court and other institutions. The verdict came the day after Capriles said he would wait no longer for the TSJ and would turn to international bodies. Capriles responded on Twitter that what was “inadmissible” was “the lack of justice in Venezuela”.

  • “If it’s necessary to change all the laws, we’ll do it”, President Maduro said at a ceremony in the capital Caracas to mark International Youth Day.
Published in Venezuela

A recent visit by the United Nations (UN) Special Rapporteur on Human Rights and Counter-Terrorism, Ben Emmerson, has subjected the government led by President Sebastián Piñera to fresh criticism over the long-running dispute with the indigenous Mapuche community over land claims. Following a 14-day visit to the country, Emmerson criticised the Chilean State for its handling of the Mapuche issue and urged authorities to “refrain from applying anti-terrorism legislation” to Mapuche protests.  Emmerson’s strong words echo other recent international criticism, serving to highlight President Piñera’s failure to make good on promises like the constitutional recognition of indigenous peoples, which he pledged early this year [RBS-13-01].

In his strongly worded statement, issued on 30 July, Emmerson called on “the Government to place the Mapuche question as one of the top priorities of the national political dialogue”. The focus of Emmerson’s criticisms was the use of the anti-terrorism legislation which, among other things, establishes higher penalties for crimes deemed to be terrorist acts and allows those accused of such crimes to be held without bail before facing trial.

He said that the law had “been used in a manner that discriminates against the Mapuche….it has been applied in a confused and arbitrary fashion that has resulted in real injustice, has undermined the right to a fair trial, and has been perceived as stigmatising and de-legitimising the Mapuche land claims and protests”. Emerson also attributed the “extremely volatile” situation in the Biobío and Araucanía regions, which he visited, to “the misuse of the counter-terrorism legislation” in the context of what he described as “an inexcusably slow process of ancestral land repatriation”.

Emmerson will use the information gathered during his visit to prepare a report about counter-terrorism and human rights in Chile, to be presented to the UN Human Rights Council in 2014.  His criticism echoes that by Amnesty International (AI) in its latest (22 May) annual report. Specifically, AI noted “renewed allegations of excessive use of force and arbitrary arrests during police operations against Mapuche Indigenous communities. Unfair trials of community members were reported. Clashes with the security forces resulted in the killing of a police officer in April”.

These concerns were also raised in the US State Department’s latest annual report on human rights, released on 19 April, which noted that both the 2012 annual report on human rights by the Santiago-based Diego Portales University (UDP) law school and the National Institute For Human Rights (INDH)’s 2012 annual report “criticised the use of the anti-terrorism law in the context of intercultural conflict”.

  • Gov’t setback over Hinzpeter Law

On 9 August, Chile’s lower chamber approved in general the government’s new public security bill – the so-called Hinzpeter Law. Proposed by Defence Minister Rodrigo Hinzpeter in his previous role as interior minister (2010-2012), the bill was approved by 56 votes in favour, 54 against and one abstention. The government slammed the approved version as “unrecognisable” from the draft text. Its most contentious aspects - which would give the Carabineros greater powers during public demonstrations and increase sanctions for protesters – were rejected. The bill has now gone to the senate to be voted upon.

Published in Southern Cone

In September or October coming the US Supreme Court must consider whether to issue a ruling on a dispute over Argentina’s foreign debt. Under existing rules various institutions have the right to file a ‘friend of the court brief’, taking a position on the matter in hand, which is submitted for consideration by the Justices. The International Monetary Fund (IMF) said it was considering filing a brief supporting Argentina’s position. So did the US government. Then White House sources said they wouldn’t be filing a brief after all.  That caused the IMF to say that if the US wasn’t going to file, then it couldn’t possibly do so itself. At that point the French government said it was definitely filing. What’s going on?

This long-running and complex legal case derives some of its volatility from the mixture of legal, financial and political interests at play. Its origins lie in Argentina’s 2001/2002 default on over US$100bn of foreign debt. As debt service payments stopped, the market value of Argentine debt paper collapsed. As part of complex rescheduling negotiations in subsequent years a majority of creditors eventually accepted a ‘haircut’ – a debt-swap deal whereby they received new bonds worth roughly 33% of the old debt’s face value. But a minority of bondholders refused to accept the deal.

Some of these bonds had been bought at massive discounts by hedge funds opportunistically seeking to demand payment in full at a later date (this earned them the nick-name of ‘vulture funds’ in Argentina). For the better part of a decade, these ‘holdouts’ lost most of their legal battles, but in November 2012 US Federal Judge Thomas Griesa, citing a clause in the debt contracts requiring equality of treatment for all creditors (the ‘pari passu’ clause), ruled that Argentina had to pay the holdouts a total of US$1.33bn. Argentina then lodged a series of challenges against the Griesa ruling at the Court of Appeals and the Supreme Court. Many of these were rejected, but the Supreme Court is expected to consider whether to hear the case after its summer break.

While both the IMF and the US have a series of disagreements with Argentina over its economic policies and over other issues, initially the reason to file a supportive ‘friend of the court’ brief seemed very clear. Argentina’s was neither the first nor the last sovereign default. Fresh from the near-collapse of the Greek economy, and to bolster the international financial system, the IMF and its member governments desperately need an orderly way of rescheduling debt, including the ability to enforce creditor ‘haircuts’ where necessary. If the Griesa ruling stands, giving the holdouts payment in full, then it is argued that other creditors will lose the incentive to share the pain of a rescheduling. All creditors could become holdouts, blocking debt renegotiations entirely, and increasing the risk of systemic financial failure.

The White House has not fully explained its change of heart. The US Treasury says it remains concerned that the existing ruling “will undermine the orderliness and predictability of the sovereign debt restructuring process”. One reason not to file may be technical: the case remains pending at the Appeals Court level and is not yet formally being reviewed by the Supreme Court.

Another may be political. The holdouts, which include prominent US Republican Party funders, are represented by a lobby group, the American Task Force Argentina (AFTA), which has been conducting an aggressive PR campaign stressing Argentina’s links with Iran. The Barack Obama administration may not want to take the political heat of appearing to support Argentina at this point.

In addition there is an argument that says a judgement against Argentina might paradoxically do more to solve the systemic problem facing the global financial system than one in Argentina’s favour. Various analysts believe that by creating an untenable situation, this would force sovereign borrowers and their lenders in future to agree to sign collective action clauses (CACs), which would establish for example that a restructuring agreed by a certain proportion of creditors – say 75% – would be legally binding on all of them.  In a recent opinion piece in the UK’s Financial Times, Aldo Caliari of Colombia University and José Antonio Ocampo, a former Colombian finance minister, put their case as follows: “We believe a formal international framework for debt restructuring is needed. A decision against Argentina will make the negotiation of such a mechanism inevitable”.

All this leaves Argentina in a very uncomfortable place. Over a decade after it defaulted on US$100bn, a dispute over the much smaller amount of US$1.3bn could again, in the worst-case scenario, push the country back into technical default.

If the Griesa ruling is upheld and the government led by President Cristina Fernández agrees to pay the US$1.3bn, it will be seen as a massive and politically damaging climb-down by a leader who for years has condemned the vulture funds and the international financial system. With congressional elections due in October, this will be an extremely unattractive scenario for the Buenos Aires government.  If on the other hand the ruling is upheld and Argentina refuses to pay, then the US courts could ultimately inhibit payments from Argentina made through the US funds transfer system to the other creditors that accepted the restructurings. Estimates made last year suggest that this would be equivalent to triggering a technical default on around US$24bn worth of debt issued in the 2005-2010 restructurings. The least damaging option for Argentina is of course the one in which the Supreme Court overturns the Griesa ruling and the sovereign borrower doesn’t have to pay a politically damaging US$1.3bn. At the moment France is the only ‘friend of the court’ who is formally favouring that outcome.

Published in Economic Review

The government of President Otto Pérez Molina recently announced the arrest of five members of a ‘community police’ group in Tejutla, San Marcos, on suspicion of involvement in serious crimes. This has been highlighted as proof that the authorities have not lost control of these organisations, which have grown from 168 in 1999 to 717 in 2011 — without counting the unregistered ones. A study conducted by an institute of the Universidad Rafael Landívar and some NGOs have been claiming the exact opposite.

Local juntas de seguridad (literally ‘security boards’), as these groups are called, were established during the administration of Álvaro Arzú (1996-2000) as crime prevention instruments in localities where police cover was scant. Since then a number of municipalities have coopted them as an autonomous part of their law-enforcement resources. Many of them have recruited people who served as members of the security apparatus during the years of internal conflict. Over time, according to the study conducted by Luis Mario Martínez Turcios, many of them became instruments of vested interests — in some cases, organised crime.

Martínez Turcios says, ‘There are no public security policies, only plans that are modified by each successive interior minister, and the police have not been given enough support, with resources and ‘cleansing’. This is taken advantage of by interest groups who create their own power structures.’ With no local presence of the state, he adds, these groups become autonomous and impose their own norms, with illegal curfews, fines and sanctions. In some cases, they become involved in criminal activities.

The department of San Marcos has 243 officially registered juntas de seguridad, the highest concentration in the country. In Tejutla, the junta is run by the mayor, Humberto Gómez Pérez, who is being investigated on suspicion of having ordered several kidnappings, including those of five police officers and a doctor on 22 May. He is also suspected of having ordered the kidnapping, on 17 June, of 13 officials of the public prosecution service who intended to arrest 21 persons linked to the local junta.

This is not an isolated case. For example, in 2009 in San Juan Cotzal, Quiché, another mayor who controlled a local junta, José Pérez Chen, was accused of ordering arbitrary arrests and of having instigated the lynching of a police officer who had been looking into the activities of his son. Pérez Chen was tried and sentenced to 82 years in prison. There are three officially registered juntas in Quiché.

More recently a junta in Panajachel, Sololá, has been linked to drug traffickers. In late 2011, two journalists covering the situation there received death threats from members of that junta; one for exposing abuses and possible criminal activities, the other for reporting on the arrest of two junta members. There are 23 registered juntas in Sololá.

For all its claims that the juntas are not out of control, the deputy minister for community support, Arkel Benítez, has announced that his office is drafting legislation establishing a new ‘model’ of community police which will be submitted to President Pérez Molina within weeks, and that he has plans to set up pilot ‘violence prevention commissions’: 70 in Villa Nueva and 40 in San Miguel Petapa, two municipalities in Guatemala department which lie south of the capital. These are expected to act as ‘early alert’ instruments. There are already 73 registered juntas in Guatemala department.

President Evo Morales won international sympathy for what Bolivians have dubbed “that strange episode in Europe” – when France, Italy, Portugal and Spain refused to allow Morales and his presidential jet to transit through European airspace on the unfounded suspicion that fugitive US whistle-blower, Edward J. Snowden, was on board [WR-13-26]. However, the Bolivian government subsequently was left embarrassed after Brazil’s defence ministry claimed that Bolivian authorities had violated the immunity of a Brazilian military plane carrying Defence Minister Celso Amorim during a visit to La Paz in 2011. The Morales government quickly apologised to Brazil, but there are niggling bilateral tensions between the two neighbours.

Brazil’s defence ministry issued its statement on 16 July, in response to what it claimed was an erroneous report published the same day in the Brazilian daily Valor, which said the incident took place on 3 October 2012 at the Santa Cruz airport on the suspicion that the plane was carrying Roger Pinto, a senator for Bolivia’s opposition Convergencia Nacional (CN). Pinto has been holed up in the Brazilian embassy since June 2012, after Brazil accepted his request for political asylum; the Morales government is refusing to guarantee Pinto’s safe passage. According to the 2009 constitution, the Bolivian state cannot authorise safe-passage nor accept political asylum for an individual facing legal processes in the ordinary justice system. Pinto is accused of corruption (see sidebar).

The Morales government denied that the plane was inspected on official orders and announced “drastic sanctions” for the three police officials that allegedly carried out the inspection. Nevertheless, the incident evidences the continued tensions over Brazil’s acceptance of Pinto’s asylum request – which marked the first time that Brazil had authorised asylum for a Bolivian politician.

On 29 June, the Brazilian government announced it was replacing its ambassador to La Paz, Marcel Biato, with another career diplomat, Raymundo Santos Rocha Magno, Brazil’s current envoy to Romania. Brazilian press reports, as well as Bolivian opposition politicians like Centa Rek, also of the CN, attributed the change of ambassadors to pressure from the Morales government.Top officials like Communications Minister Amanda Dávila have repeatedly complained about Biato (dispatched to Sweden); she recently told reporters that Biato had “overstepped” his functions beyond the “diplomatic sphere”, accusing him of assuming a “political position” in relation to Pinto.

Also causing diplomatic tensions is the imprisonment in Bolivia of five fans of the Brazilian football team, Corinthians, held since February last in relation to a flare hurled during a match against San José; a 14-year-old was killed. A total of twelve Brazilian nationals were imprisoned initially; five were released on 9 June. According to Rek, the Bolivian government proposed working with Brazil towards finding a solution to the  case, if it agreed to remove Pinto from the embassy to face the Bolivian authorities.

  • Venezuela approves Mercosur entry

On 16 July Venezuela became the first member of the Southern Common Market (Mercosur) to approve Bolivia’s request for incorporation into the regional bloc, which also comprises Argentina, Brazil, Uruguay and Paraguay (the latter was suspended following the impeachment of the former president, Fernando Lugo (2008-2012), in June 2012). Bolivia signed an accession protocol to Mercosur in December 2012 [RA-12-12]. Along with Chile, Colombia, Ecuador and Peru, Bolivia is currently a Mercosur associate member, which means it does not enjoy full access to Mercosur markets.

  • Pinto sentenced

On 25 June a prosecutor in the region of Pando sentenced the opposition senator Roger Pinto to one year’s imprisonment for corruption relating to the irregular assignation in 2000 of some B$11.8m (US$1.7m) in funds to the regional university from the Cobija free zone (of which he was director at the time). Since June 2012, Pinto has been holed up in the Brazilian embassy in La Paz after Brazil granted him asylum for what he alleges is political persecution.

Published in Bolivia

Corruption has proved a popular spectator sport in Argentina this year. Attempts by the government to shift the spotlight away from an investigative journalism programme by scheduling domestic football matches at the same time failed to dampen the public’s appetite for tale of official corruption. Periodismo Para Todos, a Sunday night broadcast which regularly entertains viewers with stories of alleged secret vaults and bags of cash stashed in the mansion belonging to the presidential couple, the late Nestór Kirchner (2003-2007) and his wife and successor Cristina Fernández de Kirchner, appears to have broken through the longstanding cynicism of the Argentine public.

A recent survey by the global anti-corruption lobby Transparency International (TI) found that 72% of Argentines believed that corruption has increased in the country over the last two years. President Fernández began her second term in office in 2011. The result placed Argentina at the top of the rankings of corruption perceptions in Latin America. The daily Clarín (implacably opposed to the president) noted that most of the government’s audit and control bodies have been systematically weakened, citing the fact that the anti-corruption office and the financial information unit have failed to prosecute any officials on corruption charges in the last 10 years.

Back in April, at the height of the Periodismo Para Todos revelations, a poll carried out by Raúl G. Aragón y Asociados found that 70% of the public believed the corruption allegations were true, but only 14% believed that anyone would be prosecuted as a result.

Other charges

In a separate development, the minister for interior trade, Guillermo Moreno, faces prosecution over allegations of abuse of public office. The charges against Moreno, the chief enforcer of the government’s unorthodox economic policies, relate to his role at the national statistics institute, Indec. Moreno stands accused of undermining, then sacking, senior economists at Indec and replacing them with government loyalists willing to manipulate the inflation data. Potentially, he could end up facing a two-year jail sentence. At the very least, the case will sap energy and political capital from one of the government’s most bruising economic enforcers.

Meanwhile, Richard Jaime, the first transport secretary of the Kirchner era (2003-2009) is being investigated for siphoning off Arg$2.3m (US$450,000) from a train company contract. On 12 July, a judge ordered his immediate arrest, for fear he would attempt to flee. The opposition has been attempting to link Jaime to the Kirchners. Speaking on Radio Mitre over the weekend of 13-14 July, the former vice-president Julio Cobos (2007-2011), who fell out with Fernández and the FPV, claimed that Jaime reported directly to Nestór Kirchner.

Drug running concerns

Cocaine with an estimated street value of UK£90m (US$135m) was found packed inside a container of frozen beef shipped from Argentina to Tilbury docks in Essex, the UK, in May. The seizure was the latest in a number of large drug hauls found in planes and ships with Argentina as their port of origin.

On 10 July Leandro Despouy, the head of Argentina’s comptroller-general’s office (Auditoría General de la Nación, AGN), said that some of the country’s ports and airports were effectively “free zones for drug traffickers”. Members of the government led by President Fernández have dismissed these claims as exaggerated, unfounded, and politically motivated. But many independent observers say that Argentina is increasingly being used as a drug transit country.

Speaking to Radio Continental, Despoy said, “There is an overall lack of concern for drug enforcement, and in some of our main ports there is a deliberate absence of controls, the State has abdicated”. His comments came after the AGN published a report highlighting a series of failures in the ports of Buenos Aires, Campana, and San Lorenzo in the July 2010-June 2011 period. These included scanners that didn’t work properly, staff shortages and a scarcity of sniffer dogs.

  • Tax authorities investigate supreme court

After initial denials, the head of Argentina’s tax authority, Ricardo Echegaray, conceded that the agency was examining the tax affairs of the Supreme Court Chief Justice Ricardo Lorenzetti, his family, and the general administrator of the supreme court, Carlos Marchi. Opposition media interpreted the revelation as a sign of the government applying pressure to the court, following its rejection of the government’s proposed reforms to the judiciary.

Published in Southern Cone

Incredulity was perhaps the main international reaction to the news on 11 June that the Nicaraguan government had awarded a virtually unknown Chinese company a 50-year concession to build a new canal across the Central American isthmus, at an estimated cost of US$40bn. A few weeks on, massive question marks remain, but some of the economic arguments are becoming clearer.

In brief, the story so far: Nicaragua’s President Daniel Ortega awarded a 50-year concession to build and operate a new canal to HKDN, a new company registered in Hong Kong and controlled by 40-year old mainland China businessman Wang Jin. It describes itself as a “privately-held international infrastructure development company”.

Included in the project are proposals to build a trans-isthmus freight railway, an airport and two duty-free zones. The concession can be extended once (so to 100 years in total). Under the preliminary framework bill approved in parliament back in July 2012, the Nicaraguan government gradually would take back majority control of the scheme over the life of the contract (to have 51% of HKDN shares, with Wang maintaining a minority interest). This was not included in the actual text of the concession awarded this year, although it appears to be the assumed deal.

Little is known of Wang’s background, apart from the fact that he has no civil engineering experience, although he runs a small company called Xinwei Telecom. His main adviser for this project appears to be Ronald MacLean Abaroa, a former mayor of the Bolivian capital La Paz (he served four consecutive terms between 1985 and 1997), who has also worked as a World Bank official and who HKDN describes as its official spokesperson. Wang says progress already has been made to begin raising the estimated US$40bn worth of investment required for the project, and that work should begin next year.

Although questions abound, the economic arguments for this second canal do have some weight. The existing Panama Canal, which currently takes around 5% of world cargo trade, is being expanded at a cost of US$5bn. When work is completed next year the Panama Canal will still be restricted to taking ships of 65,000 tonnes or less. At first glance it might be argued that with world trade on a somewhat sluggish recovery path, there will simply not be enough demand for the services of two canals linking the Atlantic and Pacific across Central America. In this scenario, each will be condemned to cutting its charges in a desperate struggle for business and neither will be economically viable. The picture changes, however, if you assume that energy and trade needs will boost demand for megaships, both container vessels and giant tankers.

Lin Boqiang of the China Centre for Energy Economic Research at Xiamen University seems to have exactly that in mind, telling China Daily that “the canal will accommodate large liquefied natural gas carriers and oil tankers from the United States and Venezuela heading towards China. The new canal will become a lifeline in global energy trade”. There is some evidence that China has its eyes on importing US gas produced by hydraulic fracturing and that some of the biggest US LNG export terminals will be on the east coast (such as the Texas Gulf Coast or Louisiana).

Some analysts conclude that this in fact is a Beijing government project, something that Wang formally denies. For a virtually unknown businessman, however, he had certainly been able to pull in important companies to collaborate. He says US-based McKinsey & Co have been retained as advisers, and that the project also has the support of China’s largest construction company, China Railway Construction Corp. Although small, Xinwei Telecomms appears, according to its website, to have received various official visits from a number of top Chinese officials, including president Xi Jinping.

There is a very long list of unknowns at this stage. The route of the canal has not been determined, although it will have to go through Lake Nicaragua, raising a number of important environmental issues. Nicaragua’s indigenous communities who could be affected by the project have not been consulted. Neighbouring countries such as Costa Rica have expressed concern over the impact on shared river systems. No environmental impact assessment has yet been conducted.

Nicaragua’s opposition questions the way in which the concession has been granted, with no competition. Nicaragua and China do not have diplomatic relations (Managua has traditionally recognised Taiwan). The US, which has a long-standing ‘strategic interest’ in the Panama Canal, will be unfavourably disposed to what might be seen as a China-controlled alternative so close to its own borders. Perhaps indicative of the US attitude was a comment from Evan Ellis, a professor at the US National Defence University, who asked: “Are international shipping companies going to trust a one-guy shop with minor telecommunications experience to be the system integrator on a US$40bn project in a country whose transparency is already subject to question?”

Published in Economic Review

Defence Minister Pedro Cateriano has announced that by the end of this year there will be 21 new antiterrorist bases in areas where guerrillas and drug traffickers are active. This comes in the wake of a recent spate of Sendero Luminoso (SL) actions in which the government forces suffered several casualties.

In the public part of Cateriano’s 17 June testimony before the congressional committee on national defence, he said that the number of new bases to be built this year had been increased from 10 to 11. ‘This batch of bases,’ he said, will be finished this year and will be added to the 10 that are already in an advanced stage of construction.’

He disclosed further details in the close-doors stage of his appearance, which had actually been convened to discuss his ministry’s acquisitions, which have been bogged down in bureaucratic procedures that have delayed the commissioning of badly needed equipment — a situation that has prompted the creation of a new agency to handle purchases for the three armed services.

His public reference to the new bases has been interpreted as a move to divert attention from the series of incidents in the first half of the month in the Apurímac-Ene-Mantaro valleys region (Vraem), in which one soldier was killed, and an officer and another soldier, as well as a police officer, had been injured.

On 5 June a 25-strong unit of SL guerrillas raided a works camp of the Consorcio Quinua-San Francisco, which is building the highway linking Ayacucho city with the Apurímac-Ene valley and made off with communications equipment food and medical supplies, as well as 29 workers. Eleven of these were freed soon afterwards, while the rest were forced to carry the seized items for several hours before being freed. As the guerrillas were withdrawing they ran into an army patrol headed for the Tutumbaru district of La Mar, Ayacucho. In the ensuing exchange of gunfire, a major and a police officer were injured.

On 6 June the deputy governor of Villa Virgen in the La Convención province of Cusco, Carlos Pariona Chungui, was attacked by a group of men who stabbed him to death. A leaflet with the hammer and sickle emblem of the SL was found nearby.

On 11 June in the Sivia district of Huanta, Ayacucho, an army patrol clashed with guerrillas, thought to have been involved in the raid on the highway works camp; one soldier was killed and another was injured.

Going online

In early June reports began to surface of postings by SL in Facebook and other social networks, with seven photos of armed guerrillas, the recently captured ‘Camarada Artemio’ (Florindo Eleuterio Flores Hala) and the body of a man who had been executed, together with text extolling SL’s activities. One photo purportedly shows guerrillas undergoing training — suggesting that the SL unit previously commanded by ‘Artemio’ was still active.

Published in Andean
%AM, %27 %407 %2013 %08:%Jun

ECONOMY: Crisis management

Devaluation, stagflation, a toilet roll crisis, food rationing - no wonder President Nicolás Maduro prefers to dwell on conspiracies, real or imagined, in the face of the dour economic scenario he has inherited. And with global oil prices plateauing, his options are limited. It is probably no coincidence that many of the ‘Bolivarian’ countries, including Venezuela, Bolivia, Cuba, Ecuador and Nicaragua, have gone cap in hand to China since the death in March of former president Hugo Chávez (1999-2013).

Amidst all the noise in early June about ‘war planes’ and foreign paramilitaries (see box below), the Maduro government almost managed to bury the latest inflation figures, which were as bad as expected. The national index of consumer price inflation (INPC) was 6.1% month-on-month and 35.2% year-on-year in May, the central bank (BCV) reported on 6 June, giving accumulated year-to-date inflation of 19.4% in the first five months of 2013. Considering that inflation for calendar 2012 as a whole was 20.1% that is a grim result, and restores Venezuela’s crown as the country with one of the highest inflation rates in the world. It is keeping company with the likes of recent and current war zones like South Sudan, Ethiopia and Syria, its political allies Belarus and Iran and, of course, neighbouring Argentina.

The BCV said the latest figure showed the residual impact of February’s devaluation and a rise in the minimum wage from 1 May. Most damaging for the government, the food prices sub-index rose a shocking 48.1% in the 12 months between May 2012 and May 2013. Even including the impact of the 32% devaluation from BF4.3 to BF6.3/US$, that is still a hefty increase. And moving forward, food prices are set to be impacted further by an officially sanctioned upwards adjustment in the fixed prices of some basic foodstuffs, including rice, meat and dairy products, which will feed through in the coming months. Meanwhile the BCV’s much monitored ‘scarcity index’, which measures the availability of basic goods on supermarket shelves, was 20.5% in May, down marginally on previous months but still high (meaning that a fifth of basic goods were considered scarce).

The opposition leapt on the results, with the governor of Miranda Henrique Capriles Radonski accusing the Maduro government of destroying the country. Maduro denied that the government was contemplating another devaluation. Finance Minister Nelson Merentes insists that the central bank is accelerating the flow of foreign exchange (read dollars) to the private sector via the Comisión de Administración de Divisas (Cadivi), yet the (illegal) black market rate, which is now hovering at BF30.87/US$, almost five times the official rate, clearly suggests otherwise. The central bank and/or the state oil company Petróleos de Venezuela (Pdvsa) are expected to issue fresh debt, but that will not come cheap. The yield on the benchmark 2027 bond has gone from 9.18% in April, before Maduro was elected, to about 11% now.

Oil Minister and Pdvsa president Rafael Ramírez, who has been on tour in search of additional funds for the cash-strapped state company, said on 12 June that Venezuela was negotiating another US$4.0bn loan from China. Ramírez confirmed that China has funded Venezuela to the tune of US$36bn to date, in return for which he said Pdsva has shipped to China oil and derivatives to the value of US$16bn, with US$28bn left over, thanks to high oil prices (Ramírez did not explain the maths). “We have the fortune and advantage of having as a strategic ally the second world economy,” he said in Puerto La Cruz, Anzoátegui, adding that Pdvsa aimed to ship 1.0m barrels/day of oil and derivatives to China by 2014, from an estimated 626,000 b/d now.

Conspiracies, real or imagined?

On 10 June news agencies and media outlets ran a story entitled Chavista Guerrillas Issue Death Threat Against Venezuelan Opposition (or variations thereof). The item quoted the Fuerzas Bolivarianas de Liberación (FBL) as having announced “the preparation and immediate execution of an admirable offensive against all the interests of the bourgeoisie and the transnational companies that promote and support foreign interference and intervention; consequently all of their spokesmen, representatives and agents become a military objective”. This came after official announcements that a plot to assassinate President Nicolás Maduro had been thwarted and another about the uncovering of an elaborate scheme involving the purchase of military aircraft and the use of a US base in Colombia.

The FBL story is verifiable but the timing and context put it in a different light. The excerpts are accurate, but they lack an important detail: they are part of the fourth point of a proposal to “change the direction of the Bolivarian Revolution” addressed to all “the organisations that are part of the Venezuelan Popular Revolutionary Movement”, a proposal that appears towards the end of a lengthy communiqué entitled ‘We Still Have Time to Save the Bolivarian Revolution’. The media appear to have picked up the story from the Chavista online publication, Aporrea, but omitted the fact, clearly displayed by Aporrea, that the FBL had issued its communiqué 13 days earlier, on 29 May.

Just before the FBL story broke, on 9 June, former vice-president and defence minister, José Vicente Rangel, announced in his television programme, José Vicente Hoy, that he had received information on 27 May in San Antonio, Texas, that members of “the Venezuelan Right” had acquired 18 “warplanes” to be delivered in early November to “a US military base sited in Colombia”. He provided the coordinates he had been given for this ‘base’: 11°25’31” N, 72°7’46”W — which would put it close to Maicao in Colombia’s La Guajira department.

Rangel was careful not to actually endorse the veracity of this. He said, “This information must not be underestimated, given the present climate of media and political aggressions against Venezuela. Is an armed aggression, duly camouflaged, with the participation of mercenaries, being prepared? Could the security agencies check this information, which I don’t hesitate to describe as extremely grave?” President Maduro did not wait for any checks and repeated the story as fact, adding that the aircraft had been bought by a group of wealthy Venezuelans who live in Bogotá.

Next came the announcement by Interior Minister Miguel Rodríguez Torres that two groups of Colombian gunmen, said to have been connected to two separate “paramilitary” organisations, had been arrested on their way to Caracas on a “mission”, of which even the detainees knew nothing, but which he surmised might include the assassination of Maduro or some other government official. Rodríguez Torres said: “There will be people that will take this as a sort of joke [but in the last 14 years in Venezuela we have seen] things that surpass anyone’s imagination”. The leader of the political opposition, Henrique Capriles Radonski, had already dismissed the aircraft story as a joke.

As with the aircraft story, Maduro dropped the qualifiers and tweeted, “I ratify that from Colombia they are conspiring against our fatherland, the Right has again coordinated the entry of groups of murderers to our fatherland [...] We are facing a plan of the Fascist Right, with support from Colombia, for an assault on the political power”.

Pacific Rubiales denies any role in planes plot

The Canadian oil firm Pacific Rubiales on 25 June issued a formal statement denying allegations made by José Vicente Rangel in his 23 June weekly TV show that it was involved in the ‘planes plot’ against the Venezuelan government. Rangel alleged that former employees of Venezuela’s state oil company Pdvsa who were sacked by the late President Chávez after an extended strike at the company in 2003 and now are employed at senior level by Pacific Rubiales in Colombia were leading efforts to destabilise the government led by President Maduro. According to the statement: “While it is a general policy not to comment on market or media rumours, the Company would like to formally respond to completely untrue media reports published in Colombia. Recent articles, reported in various Colombian newspapers, claim that Pacific Rubiales is involved in a politically motivated plot against the Venezuelan government. The allegations are absurd and have no factual basis. Pacific Rubiales categorically denies these reports and any involvement in these untrue allegations.” End

  • Maduro says Snowden would be welcome in Venezuela….

President Nicolás Maduro on 25 June said Venezuela would consider an asylum application from the fugitive US whistleblower Edward Snowden. "We say and advocate that someone in the world should stand with this young man and protect him, the revelations he has made with courage serve to change the world," he said. Maduro said Venezuela had not received any such request, but would evaluate any application for asylum, because "every case is a humanitarian protection".

  • …Even as Venezuela’s chargé d'affaires mends fences in Washington

Venezuela’s chargé d'affaires in Washington DC, Calixto Ortega, on 25 June met with the US Assistant Secretary of State for Western Hemisphere Affairs, Roberta Jacobson, three weeks after the respective foreign ministers took a first step towards rapprochement on the margins of an the Organization of American States (OAS) assembly in Guatemala. President Maduro appointed Ortega on April 23.

Published in Venezuela
%AM, %20 %536 %2013 %11:%Jun

CHILE: Mining sector complaints

Peter Beaven, the president of mining company BHP Billiton Cobre, has raised concerns about high production costs and the fall in productivity in Chile, the world’s biggest copper producer. Accounting for 13% of GDP and 60% of total exports in 2012, mining remains by far the biggest destination of foreign direct investment (FDI) in Chile, attracting US$15bn in 2012 (49% of the total).

Beaven made his remarks on 11 June, when presenting the 2012 sustainability report for BHP Billiton Cobre, which operates the Cerro Colorado copper mine in the Tarapacá region and the Spence and Escondida copper mines, both in Antofagasta, which in total produced 1.31m tonnes of fine copper in 2012 (out of the country’s total of 5.4mt).

The Billiton executive told reporters that in the period 2007-2012 average production costs in Chile rose 45%, compared with 25% in other mining countries. He claimed that since 2004 productivity had dropped 30%. He highlighted the lack of water and insufficient energy supplies among the causes.

These concerns were also highlighted at the April 2013 copper conference jointly organised for high level mining executives in Santiago by Chile’s Center for Copper and Mining Studies (CESCO), an independent non-profit organisation, and the London-based consulting company CRU. The likes of Diego Hernández of Antofagasta Plc highlighted that electricity costs in Chile had risen 11% a year since 2000, making it one of the most expensive places in the world to secure energy for mining projects.

The government led by President Sebastián Piñera has recognised these problems. After the conference, Mining Minister Hernán de Solminihac admitted to reporters that on government estimates the mining industry will need 68% more energy by 2020 to satisfy demand. Energy Minister Jorge Bunster also noted that hydroelectric energy accounted for 34% of the energy matrix, down from 65% in 1996. The issue has accrued electoral importance ahead of the November 2013 general elections, with all of the main presidential candidates urging the need to change the energy matrix by 2030.

A survey published on 23 February by Canada’s public policy think tank, the Fraser Institute, threw up other investor concerns. Chile fell to 23rd (out of 96) among the world’s most attractive jurisdictions for mining exploration in 2012/2013, down from 18th (of 93) in 2011/2012. While Chile remains at the forefront among Latin American jurisdictions, with a mining project portfolio for 2012-2016 exceeding US$104.3bn - US$58.2bn of which corresponds to foreign companies - the Fraser Institute attributes this slide in Chile’s rankings to “worsening perceptions amongst survey respondents for its legal system (-15%); regulatory duplication and inconsistencies (-14%); and uncertainty regarding the administration, interpretation or enforcement of existing regulations (-14%)”. De Solminihac has since said that the government is preparing new legislation that aims to remove some of the obstacles to investment, such as the duplication of approvals in the public sector, although the November election could delay this.

Against this backdrop of concerns about the operating environment, the Piñera government continues to take a firm stance against those foreign companies who fail to adhere to local regulations. This was most recently evidenced in the case of the Canadian mining giant, Barrick Gold, which is developing the Pascua-Lama gold mining project straddling the Chile-Argentina border.

Approved in 2006 by the Ricardo Lagos administration (2000-2006), as of December 2012 the construction work was approximately 40% complete, at a cost of US$4.2bn, with the first gold production targeted for the second half of 2014. However, on 9 April, a local appeals court ordered a halt to the project on the Chilean side. This was in line with a request filed in October 2012 by representatives of a local indigenous community (Diaguita), which claims that the project threatens their local water supply and endangers three glaciers, Toro 1, Toro 2 and Esperanza.

On 24 May by Chile's environmental agency, Superintendencia del Medio Ambiente (SMA), followed up the court ruling with an administrative fine of some US$16m, for “deviations from certain requirements of the project's Chilean environmental approval”. On 30 May, during a visit to Canada, President Piñera reiterated that Barrick must comply with all the necessary environmental regulations prior to resumption of the project.

On 7 June, Barrick presented the SMA with a plan to complete the water management infrastructure – in line with the agency’s demands — and said it would be ready by December 2014. The SMA responded that Barrick had yet to provide all the information needed before the plan can be authorised.

  • Another environmental time-bomb

Another major mining project under scrutiny by environmentalists is the proposal by Chile’s state copper company Codelco to expand the Andina copper mine in Valparaíso. The US$6.8bn project, which Codelco describes as its “most important structural project”, would triple output of concentrate at the mine to 350,000 tonnes of fine copper a year, equivalent to US$10bn in revenues for the state in its first 15 years of operation. However in April, Codelco’s executive director, Thomas Keller, was forced to come out and publicly defend the project in the face of public criticism and environmentalists’ claims that it would affect 26 glaciers and put at risk water supplies in the Valparaíso and metropolitan Santiago regions.

  • Pascua Lama

As of 31 December 2012, the Pascua-Lama mine had proven and probable reserves of 17.9m ounces of gold, 676m ounces of silver contained within the gold reserves, and a mining lifespan of 25 years.

  • FDI

According to the latest report on foreign direct investment (FDI) by the UN’s Economic Commission on Latin America & Caribbean, released in May, FDI in Chile rose 32.2% year-on-year to a new record high of US$30.3bn in 2012, making Chile the second largest recipient (after Brazil) of FDI in Latin America and the Caribbean for the second year running.

After mining, the financial sector was the second largest recipient of FDI inflows in 2012, accounting for 18% of the total. In 2012, foreign banks accounted for 40% of the local financial system’s assets, led by Spain’s Santander (with 18.6% of the market) and BBVA (7%), Canada’s Scotiabank (4.9%) and Brazil’s Itaú (4.2%). The US was the biggest origin of investments in Chile in 2012, accounting for 19% of total inflows, followed by Spain (18%) and Canada (12%).

Published in Southern Cone
LatinNews
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